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TWN Info Service on WTO and Trade Issues (Nov06/2)

1 Nov 2006


G33 slams "flawed" World Bank paper on special products

 

The Group of 33 in the WTO has complained to World Bank President Paul Wolfowitz about a paper on Special Products (SPs) produced by the Bank which the Group says serious misrepresents the purpose and effects of SPs.

The G33 attacked the World Bank paper's conclusion that the SP proposal was aimed at raising the prices of foods produced by subsistence farmers and that this could have disastrous consequences for poverty.

Diplomats of several G33 members expressed anger at the wrong assumptions and conclusions of the paper, which they said exposed the lack of knowledge of the Bank about the G33 proposals on SPs and also about the WTO's Doha negotiations.

They were particularly outraged that the paper has been published at a crucial time in the Doha negotiations, during which the United States and a few other WTO members have tried to shift the blame for the impasse in the talks onto the G33 for allegedly blocking market access for farm products from the US and other countries.

Senior diplomats from several G33 members are concerned that the Bank's paper could be used as ammunition by the US to shoot down the G33 proposal. Some believe that the Bank's publication of the paper at this moment is an intervention aimed at weakening the position of the G33 while strengthening the hand of the US and others opposed to the G33 proposals on SPs.

A letter on behalf of the G33 members was sent earlier this month by the G33's coordinator, Indonesia's Ambassador to the WTO, Gusmardi Bustami, to the World Bank President expressing their "urgent and serious concerns" about the World Bank Paper on 'Implications of Agricultural Special Products for Poverty in Low-Income Countries', authored by Maros Ivanic and Will Martin.

Below is a report of the G33's letter to the World Bank President. It was published in the South North Development Monitor on 24 Oct.

With best wishes
Martin Khor
TWN

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G33 slams "flawed" World Bank paper on special products

By Martin Khor (TWN), Geneva, 23 Oct 2006

The Group of 33 in the WTO has complained to World Bank President Paul Wolfowitz about a paper on Special Products (SPs) produced by the Bank which the Group says contains a serious misrepresentation of the purpose and effects of SPs.

The G33, in a letter to Wolfowitz, attacked the World Bank paper's conclusion that the SP proposal was aimed at raising the prices of foods produced by subsistence farmers and that this could have disastrous consequences for poverty.

Diplomats of several G33 members, contacted in Geneva, expressed anger at the wrong assumptions and conclusions of the paper, which they said exposed the lack of knowledge of the authors about the G33 proposals on SPs and also about the WTO's Doha negotiations.

They were particularly outraged that the paper has been published at a crucial time in the Doha negotiations, during which the United States and a few other WTO members have tried to shift the blame for the impasse in the talks onto the G33 for allegedly blocking market access for farm products from the US and other countries.

Senior diplomats from several G33 members are concerned that the Bank's paper could be used as ammunition by the US to shoot down the G33 proposal. Some believe that the Bank's publication of the paper at this moment is an intervention aimed at weakening the position of the G33 while strengthening the hand of the US and others opposed to the G33 proposals on SPs.

"The Bank should not try to interfere in this misleading and manipulative way in the WTO negotiations," said the Ambassador of a G33 country. "It is especially objectionable that the paper tries to show that our proposal on special products, which is aimed at protecting the poor, will be harmful to the poor."

The G33 is a grouping of 46 developing countries that operates in the WTO's agriculture negotiations and which has championed the concepts and instruments of SPs and special safeguard mechanism (SSM) to defend the interests of their small farmers. The group includes Indonesia (the coordinator), India, China, Pakistan, the Philippines, Sri Lanka, Mongolia, Korea, Nigeria, Kenya, Tanzania, Mozambique, Benin, Senegal, Mauritius, Uganda, Bolivia, Peru, Venezuela, Nicaragua, Cuba, Dominican Republic, Jamaica, Barbados, Trinidad and Tobago, Antigua and Barbuda, and several other African, Caribbean and Central American countries.

A letter on behalf of the G33 members was sent earlier this month by the G33's coordinator, Indonesia's Ambassador to the WTO, Gusmardi Bustami, to the World Bank President expressing their "urgent and serious concerns" about the World Bank Paper on 'Implications of Agricultural Special Products for Poverty in Low-Income Countries', authored by Maros Ivanic and Will Martin.

Will Martin is a Lead Economist in the Development Research Group of the World Bank, while Maros Ivanic was with the Bank when the paper was written. The paper was produced by the Bank's Trade Research Team and published at the World Bank's website.

"The G33 believes the paper contains a serious misrepresentation as regard the purpose and impact of the Special Products (SPs) instrument contemplated in the WTO's July 2004 Framework and the Hong Kong Ministerial Declaration," said the letter.

According to Ambassador Gusmardi, the paper is premised on a central assumption, which is without authority and completely false, i. e. "that proposals for special products seek to achieve the goals of food security, livelihood security and rural development by raising prices of staple foods produced by subsistence farmers."

The G33 complained that the paper, using the foregoing faulty assumption, concludes dramatically that "the fundamental goals of Special Products - raising the prices of staple foods produced by subsistence farmers - could have disastrous consequences for poverty, undoing years or even decades of development progress."

The G33 letter said that in no way has there been a proposal put on the table to increase the level of protection on the designated SPs as suggested in the World Bank's paper, nor has a proposal been presented that would lead to increases in staple food prices by 50% as the paper further concludes and assumes.

"The G33 proposal on SPs entails tariff reductions on 90% of agricultural tariff lines, while allowing developing countries to provide limited exemption from tariff cuts on 10% of the agricultural tariff lines or to liberalise a limited number of other products more slowly than would otherwise be the case," said the letter.

It added that the G33 has endeavoured to raise the concerns of the millions of subsistence and poor farmers in the developing world whose livelihood and food security will be threatened by an across-the-board substantial trade liberalisation in agriculture, especially in an environment of highly distorted agricultural markets, and therefore the Group's mandate and concern is precisely poverty prevention and alleviation.

The letter further said that the World Bank's paper's overall methodology and approach are based on fundamentally flawed assumptions and analyses.

"We therefore believe that there may be a serious reputational risk for the World Bank in being seen to promote such a paper with its specious claims while the trade negotiations may still hang in the balance," said the letter.

"This is particularly the case as the paper demonstrates a lack of knowledge and understanding of the details of WTO negotiations, which in turn imply a failure of the Bank's trade team to engage with developing country trade policy makers."

The G33 asked the Bank's President to take these concerns into consideration as a matter of priority. The Group said it expects that "the paper is withdrawn and not published so that its misleading findings do not have any adverse implications for the trade negotiations."

Copies of the letter were also sent to other World Bank officials including Francois Bourguignon, Chief Economist and Senior Vice President; Danny Leipziger, Vice President for Poverty Reduction and Economic Management; Alan Winters, Director of the Development Research Group; Carlos Braga, Senior Adviser, International Trade Department, Geneva; and Will Martin, Lead Economist, Economic Research Group.

Members of the G33 have also written to their respective Executive Directors in the World Bank to complain about the Bank paper and to urge them to have the paper withdrawn.

The paper, dated 31 August, was put up on the World Bank's website, and it has a dramatic abstract on its cover page. The abstract said that the SP proposals seek to raise prices of staple foods produced by subsistence farmers.

The abstract added the following sensational line: "We find that raising these prices substantially would create large increases in poverty - sufficient in some cases to undo decades of development progress - and push the already-poor deeper into poverty."

The paper presented the results of five "experiments" or scenarios designed to answer questions on special products and poverty. The results range from a scenario of very high increases in poverty rates as the prices of special products are raised, to a scenario of ineffective effects in increasing poverty because the proposals would involve "very few reductions in tariffs on the targeted products."

However, in even the best-case scenario, the study concludes that there would be "potentially very large costs on poor developing countries" as the proposals would eliminate market access improvements in high-income countries like Korea and "destroy the ability of the WTO to bring about future poverty-reducing cuts in the prices of staple foods in poor countries."

The G33 has also prepared a detailed technical and policy note rebutting the World Bank paper, which they attached to their letter to Wolfowitz.

The G33 note said that the Bank study either fundamentally misunderstood, or deliberately misinterpreted, both the intended use and the impact of SPs.

The Bank paper repeatedly and mistakenly asserts that the "goal of the special products proposals appears to be to raise the prices of qualifying products over an extended period". This is contrary to the stated objectives of the G33's SP proposals.

"The SP proposals do not envisage either removal of bindings or increase in the bound rates," said the G33 note. "In fact, they propose either a freeze in the current bound rates or an actual reduction... Thus, there is no increase in absolute protection."

The misrepresentation is compounded by a selective enumeration of the indicators based on the three agreed criteria of food security, livelihood security, and rural development needs, proposed by the G33 for designation of SPs.

The impression given in the Bank paper is that SPs are primarily about consumption intensity of the products (staple or proportion of total household income spent) and, to a lesser extent, about the nature of the producers (low-income, subsistence farmers). In fact, SP proposals are concerned mainly with livelihoods and vulnerability, and a more complete listing of the G33 indicators would have revealed this.

Said the G33 note: "On the basis of these two fundamental misinterpretations, the authors have modelled the purported operation and impact of SPs in a manner which simply does not capture the reality of agrarian structures in developing countries, and thereby gives rise to completely predictable, and totally misleading, results."

The G33 note concludes that the Bank paper's authors are disingenuous when they present their findings in a misleading fashion.

Even though the authors have recognized that their analysis based especially on the first three of their five scenarios could not be achieved by the implementation of the SP proposals, the paper very dramatically claims that raising the prices substantially of staple foods produced by subsistence farmers through the SP proposals would have "disastrous consequences for poverty" - sufficient in some cases to undo decades of development progress - and push the already poor deeper into poverty.

In the paper's abstract and conclusions, nowhere is it mentioned that "we find that the special products proposal would, in fact, have no impact on agricultural prices or on poverty", a finding expressly noted in the body of the paper in the context of the more realistic tariff policy under the Doha Round negotiations (scenarios 4 and 5).

"These technicalities apart, the most curious aspect of the paper is its repeated insistence that the SP proposals are only about a single-minded, if not mindless, desire of G-33 governments to raise the prices of selected agricultural products without taking into account its likely consequence on their people, especially their poor," says the G33 note.

Besides the various other statements to this effect, the most tendentious one, which reveals the bias of the authors, reads: "Fortunately, it turns out that the inability to bring about higher prices for those products that happen to be exportables reduces the damage done by the original policy of raising the prices of these goods."

Referring to this quote, the G33 note says that the World Bank paper's conclusion in short is that G33 countries need to be protected from their own governments' folly.

In light of this, the note says that the G33 reiterates the logic and rationale for the SP proposals so that such analyses do not "crowd out" the much-needed legitimate research in this important area.

"Research should be based on an honest appreciation of the concerns of the developing country policy-makers and an accurate representation of the problematic," said the G33 note.

"The principal objectives of SP proposals are defensive and strategic. They seek to provide sufficient flexibility to developing country governments to nurture products which are essential to the livelihoods of their poorest and most vulnerable, and which have the potential for significant productivity gains in the long-run, and to guide a process of transition towards trade in a less unequal world.

"Any such analysis would necessarily have to be in a dynamic context since mere comparative statics will be able to address the larger issue only in a limited manner."

 


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