Raw deal at WTO

The trade fa­cil­i­ta­tion agree­ment paves the way for fresh pres­sures on de­vel­op­ing coun­tries such as tar­iff cuts on in­dus­trial prod­ucts

Down to Earth - - CONTENTS - LATHA JISHNU NEW DELHI

The trade fa­cil­i­ta­tion agree­ment bro­kered at the WTO favours rich na­tions

AGen­eral Coun­cil of the S THE 160-mem­ber World Trade Or­ga­ni­za­tion (wto) agreed on Novem­ber 27 to a clutch of de­ci­sions con­sti­tut­ing the “Bali pack­age”there was pal­pa­ble re­lief and barely con­cealed tri­umph by de­vel­oped coun­tries. Tri­umph be­cause the pack­age in­cludes the trade fa­cil­i­ta­tion agree­ment, or tfa, which they have been push­ing since the wto’s Sin­ga­pore min­is­te­rial in 1996. As the first global trade agree­ment reached at the wto after it was set up in 1995, the rich na­tions have hailed the Novem­ber agree­ment as his­toric.

In In­dia, too, the ap­proval of the Bali pack­age is por­trayed as a vic­tory, which it is in a limited sense. It was In­dia’s firm re­fusal to agree to the tfa un­less its de­mand for pub­lic stock­hold­ing of grains for its food se­cu­rity sys­tem was in­cor­po­rated in the fi­nal agree­ment that stalled the Bali pack­age. Ul­ti­mately,the Bali min­is­te­rial in De­cem­ber 2013 ap­proved it but with no clar­ity on how long In­dia and other coun­tries with ex­ist­ing food se­cu­rity pro­grammes of this na­ture could con­tinue to do so. In­stead, the peace clause,or the time frame for per­mit­ting such pub­lic stock­hold­ing, ap­peared to be for a limited pe­riod till 2017. The peace clause means that other coun­tries can­not chal­lenge it at the trade body for the spec­i­fied pe­riod. The new gov­ern­ment of Naren­dra Modi was firm on an in­def­i­nite peace clause till a per­ma­nent so­lu­tion is found to the is­sue of food se­cu­rity in de­vel­op­ing coun­tries.

De­spite ob­jec­tions from Ar­gentina and some other de­vel­op­ing coun­tries which had raised con­cerns about the broader trade pol­icy agenda,In­dia got its way.But it was in an oddly round­about way that made it clear that the dis­pute at Bali was clearly a USIn­dia stand­off. Go­ing against the canons of mul­ti­lat­eral ne­go­ti­a­tions, it was a bi­lat­eral un­der­stand­ing—with the US dur­ing Modi’s meet­ing with Pres­i­dent Barack Obama— that cleared the decks for the Novem­ber

break­through. US Trade Rep­re­sen­ta­tive Michael Fro­man con­firmed this in New Delhi when he was here for the min­is­te­ri­al­level meet­ings of the US-In­dia trade pol­icy fo­rum. He said that the break­through at the wto was pos­si­ble only be­cause of the un­der­stand­ing be­tween Modi and Obama.

But did In­dia make this gain at the cost of less de­vel­oped coun­tries? The rea­son why the US and other de­vel­oped coun­tries, pri­mar­ily, the 27-na­tion Euro­pean Union, agreed to the deal is the big­ger prize they have net­ted: the tfa, which has be­come a bind­ing pact. The agree­ment is de­scribed, rather sim­plis­ti­cally, as one that will lower cus­toms bar­ri­ers and ease red tape at bor­ders and en­sure smoother flow of their ex­ports to de­vel­op­ing coun­tries.

But for the poorer na­tions it im­plies a huge cost with no com­men­su­rate re­turns. tfa, pushed “ag­gres­sively and re­lent­lessly by the de­vel­oped coun­tries”, is only about im­port fa­cil­i­ta­tion, says Jayant Das­gupta, In­dia’s for­mer am­bas­sador to the wto. “There is noth­ing in it about ex­port fa­cil­i­ties for de­vel­op­ing coun­try ex­ports,” says Das­gupta, a highly re­garded trade ne­go­tia­tor who has cham­pi­oned the in­ter­ests of de­vel­op­ing and least de­vel­oped coun­tries (ldcs) at the apex trade or­gan­i­sa­tion. Other trade an­a­lysts, at Third World Net­work (twn), for in­stance, also say there is no ad­e­quate bal­ance be­tween the de­mands of the de­vel­op­ing coun­tries and what is be­ing pro­vided as a pack­age with tfa. twn is an in­de­pen­dent non-profit that con­ducts re­search on eco­nomic, so­cial and en­vi­ron­men­tal is­sues per­tain­ing to the South.

Es­sen­tially, de­vel­oped coun­tries are seek­ing speedy clear­ance of con­sign­ments (in 24 hours or less), clear­ance of con­sign­ments on the ba­sis of bank guar­an­tees or cor­po­rate guar­an­tees, and the set­ting of ad­vance rul­ing ma­chin­ery to deal with a uni­verse of mer­can­tile is­sues that the majority of de­vel­op­ing coun­tries are ill-equipped to deal with, tech­ni­cally or fi­nan­cially.

Just prior to the Bali min­is­te­rial, rich na­tions had blan­dished a well-pub­li­cised study re­leased by the Paris-based In­ter­na­tional Cham­ber of Com­merce that claimed trade fa­cil­i­ta­tion would push up global in­come by US $1 tril­lion and add a whop­ping 20 mil­lion jobs, the big­gest chunk of it, 18 mil­lion, pur­port­edly in the de­vel­op­ing world. The re­port has been slammed by an­a­lysts for its “un­war­ranted as­sump­tions” and flawed method­ol­ogy (see ‘The Bali myth of $1 tril­lion trade gains’, Down To Earth Jan­uary 1-15,2014).

A pre­vi­ous World Bank study had con­cluded that trade fa­cil­i­ta­tion will ac­count for over­all trade gain of just $377 bil­lion. Of this, de­vel­op­ing coun­tries would net ad­di­tional trade of just $33 bil­lion against a global trade vol­ume of $14.5 tril­lion at the time.“This is next to noth­ing,” says the for­mer en­voy.

Talk­ing to Down To Earth, Das­gupta says the stan­dard ar­gu­ment of de­vel­oped coun­tries is that tfa is good for de­vel­op­ing coun­tries. But this is clearly mis­lead­ing. Since de­vel­oped coun­tries al­ready have ad­vanced lev­els of in­fra­struc­ture, com­put­er­i­sa­tion and hu­man re­source de­vel­op­ment, no ad­di­tional ef­fort is re­quired on their part to meet the norms laid down in tfa.On the other hand, de­vel­op­ing coun­tries will need to spend hugely to im­prove their in­fra­struc­ture for ex­ports growth and that will not be paid for by the rich world.

Be­sides, there is the ques­tion of how much fund­ing will be re­quired by de­vel­op­ing coun­tries for this ex­er­cise and who will pro­vide the as­sis­tance. Ini­tially, the wto sec­re­tariat had es­ti­mated that de­vel­op­ing coun­tries would re­quire $3-7 mil­lion each to im­prove their in­fra­struc­ture. An­a­lysts say this is a laugh­able fig­ure.An In­dian diplo­mat who served in Geneva dis­misses this fig­ure out of hand point­ing out: “There is a re­port that Afghanistan spent $289 mil­lion on spruc­ing up its cus­toms fa­cil­i­ta­tion. Re­mem­ber, Afghanistan has no ports. So what would be the ac­tual re­quire­ments of less de­vel­oped wto mem­bers?”

There is no clear an­swer to that or many other crit­i­cal is­sues rel­e­vant to de­vel­op­ing coun­tries. In­stead, there are new threats loom­ing at wto. The most crit­i­cal is­sue is nama, which is short­hand for nona­gri­cul­tural mar­ket ac­cess, or tar­iffs on in­dus­trial goods. Das­gupta warns that the fo­cus will be on bring­ing down the ap­plied rates of tar­iffs through sec­toral agree­ments. Ap­plied tar­iff is the ac­tual duty levied on im­ports which is much lower than the bound rate which is the max­i­mum rate on com­mod­ity lines that coun­tries have ne­go­ti­ated at wto. Among the sec­tors which are be­ing tar­geted are in­dus­trial goods and ma­chin­ery, elec­tronic prod­ucts and chem­i­cals, in­clud­ing phar­ma­ceu­ti­cals.

None of th­ese sec­tors is well de­vel­oped in In­dia and bring­ing down tar­iffs fur­ther would ef­fec­tively crip­ple growth in th­ese man­u­fac­tur­ing in­dus­tries which are ex­pected to pro­vide jobs for the le­gions of un­em­ployed youth in the coun­try. Modi, who is hop­ing to take the coun­try on a new wave of in­dus­trial growth and job cre­ation with his Make-in­In­dia pol­icy, needs to keep close tabs on what comes next at the wto. If not, he could find that his pet project and In­dia’s de­vel­op­ment are de­railed for­ever by the agenda of rich na­tions.He can­not claim he was not warned, or un­pre­pared.

"The new fo­cus will be on bring­ing down the ap­plied rates of tar­iffs on in­dus­trial prod­ucts through sec­toral agree­ment"

REUTERS

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