Negotiating a viable trade deal

Negotiating a viable trade deal
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First Published: Tue, Jun 24 2008. 11 12 PM IST

Illustration: StockXpert
Illustration: StockXpert
Updated: Tue, Jun 24 2008. 11 12 PM IST
The positivism from various stakeholders on an imminent conclusion of the Doha Round notwithstanding, realism seems to have crept into recent statements made even by the World Trade Organization (WTO) chief Pascal Lamy. While he urged negotiators to work towards a ministerial meeting in Geneva at the end of June, he also identified three “fundamental elements” — a worsening economic climate, high commodity prices and the “technical maturity” of the Doha negotiations — that have brought the round, now in its seventh year, to a “moment of truth.”
Illustration: StockXpert
200Truth be said, in the present scenario of weakened economic prospects, the raging food and fuel inflation, and the general mood of rising protectionism, it is unlikely that member countries will make offers with adequate concessions to lead to a successful conclusion of negotiations. A lot of ground remains uncovered. While some still retain hope for a miraculous resolution of the stalemate before the end of the year, a realistic assessment of the proposals seems to indicate that there is little on offer that can lead to anything better than freezing the existing applied regimes in the three market access pillars of agriculture, non-agriculture market access (NAMA) and services. Given the new Farm Bill in the US (already adopted by Congress) has reversed the earlier trend of diminishing farm subsidies, it appears that the erstwhile votaries of aggressive globalization are rolling back their established stance.
The European Union (EU) presidency goes next to France, historically a strong advocate of farmer support and protection, something that bodes ill for the level of ambition that the EU as a bloc would be expected to have. The French position has been that the EU has made too many concessions to the developing world in the trade talks. The French trade minister Anne-Marie Idrac has gone on record saying that “given the size of the challenges, to reduce the matter to ‘June or never’ is a bit simplistic”. The recent no vote by Ireland on the Lisbon Agenda also makes the EU’s position on further global integration uncertain.
In the interim, and in an eerie rerun of the Uruguay Round negotiations, a predictable blame game between key negotiators has started. Also, after a span of almost eight years, the supposedly invincible developing country solidarity seems to have been breached, both in agriculture and NAMA. The US is unlikely to be able to offer much in agriculture, and, as discussed above, the EU may go back on its earlier liberal offers. Weakened developing country coalitions would certainly help their cause. Thus, if there is a deal in the next couple of years, it will most likely be an ultra-low-ambition deal insofar as market access ambitions in all the three designated pillars are concerned. On the other hand, it’s quite likely that to make even this low-ambition deal palatable to industrialized countries, developing countries would need to agree on including new elements in WTO such as labour and environment. A Doha agreement with such clauses would be even less likely to achieve consensus among WTO members, as developing countries such as China and India would strongly oppose it.
However, the main problem with the negotiations lies in the fact that proposed gains from negotiated tariff reduction have failed to enthuse the business community. The history of WTO is witness to the fact that aggressive reductions of industrial tariff have been the mainstay of successive rounds. Further, reciprocity as a pillar of trade negotiations appears to have lost its utility and, in fact, is now being used as a tool for protectionism. As Paul Krugman had famously pointed out in 1997, the economist’s case for opening markets is essentially a unilateral one. Nonetheless, economists go along with reciprocity as it serves a useful political economy purpose, in particular when faced with vested interests within a country.
It appears, therefore, that in the interest of concluding the Doha Round, member countries may consider the following intra-sectoral trade-off: The developing countries (at least the larger ones) should agree to bind their unilateral tariff regimes in return for deep cuts in the protected tariff lines in industrialized countries and rationalization of their applied non-tariff barriers. Since the former are unlikely to reverse the present low-tariff regimes, they can thereby prove themselves as equal players in the round in return for reduction of the pernicious tariff peaks in the industrialized countries in sectors of trade interest. But more importantly, this would allow member countries to focus on the more critical market access barriers in industrialized countries — the non-tariff ones. It needs to be remembered that even under the preferential trade agreements, it is increasingly difficult for less developed country trade partners to enter the US and EU markets the higher they go up the product value chain. The days of substantive gains from reciprocal tariff negotiations seem to have passed; member countries should get tariffs out of the way and start negotiating upfront on the real concerns for market access—trade distorting subsidies, and non-tariff requirements and standards.
Suparna Karmakar is a senior fellow at New Delhi-based think tank Icrier. Comment at theirview@livemint.com
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First Published: Tue, Jun 24 2008. 11 12 PM IST