Towards a global consensus

Towards a global consensus
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First Published: Tue, Oct 06 2009. 09 02 PM IST

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Updated: Tue, Oct 06 2009. 09 02 PM IST
The recent gathering of trade ministers in New Delhi is seen as an attempt to conclude the Doha Development Round. In July 2008, in Geneva, World Trade Organization (WTO) talks failed mainly because of arguments centring on agriculture, although non-agricultural market access (NAMA), services, trade-related aspects of intellectual property rights (TRIPS), and trade-related investment measures (TRIMS), were other important areas where there was a lack of consensus.
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In the case of agriculture, broadly, the association of developing nations wants subsidies given by developed countries to their farmers and processed food producers (items such as beef, poultry, etc.) to be reduced. On the other side, the US and the European Union want big developing economies, such as China and India, to open up their markets in industrial goods and farm products in return for reducing subsidies on agriculture items. The argument of the Group of Twenty countries was that firm subsidies are against the livelihood security and subsistence of poor farmers living in developing and less developed countries. Although the US was willing to reduce its firm subsidies from the present $15 billion level to $14.5 billion, it had a problem with a key demand of India—a safeguards clause to kick in at around the 20% level of imports.
In the case of items such as manufacturing products, fuels and mining products, fish and fish products, and forestry products—that is, items not covered by the agreement on agriculture but classified under NAMA—developing countries submitted a number of proposals to modify the Swiss formula. According to this formula, the tariffs should be reduced on a pro-rata basis—higher tariffs subject to a greater cut compared with lower tariffs. Since the tariff level for most developing countries is higher compared with high-income countries, developing countries are opposing the Swiss formula.
Developing countries are also opposing the inclusion of TRIPS and TRIMS. They feel TRIPS is discriminatory and welfare reducing. On discrimination, the TRIPS agreement provides a higher degree of protection for wines and spirit, with a lesser degree of protection for exports such as basmati rice and Darjeeling tea from India, or tequila from Mexico, etc. Also, the royalties accruing to firms from patent protection are seldom welfare-improving. Recent studies have suggested that patent protection does not necessarily lead to innovation.
The argument for TRIMS is that its provisions impede the process of industrialization and the balance of payment stability for developing, and less developed nations. Moreover, there is a belief that firms with considerable lobbying power in developed countries are using TRIMS for their own benefit.
Finally, services relate to market access. Typically, developing countries have advantages in cross border trade in business services (Mode 1) and temporary movement of natural persons (Mode 4). They want market access for these services in developed countries. Similarly, developed countries have advantages in financial and professional services (Mode 3) and want market access for these. In addition, the tourism industry (Mode 2) is characterized by a vertically integrated market structure (dominated by firms from developed countries) and has been a cause of concern for developing countries.
So is it worth fighting over these issues at a time when trade is seen as a saviour from global recession? Based on the discussion here are some suggestions on breaking the impasse:
On agriculture, while protecting the interest of marginal farmers is justified, developing countries such as India should also make a conscious effort to remove domestic distortions. For the marginal farmers, much of the producer surplus is lost because of market imperfections, with the middlemen between the farmer and the retailer of farm products getting to keep most of the agricultural income.
About NAMA, there is a need to try and understand whether the reasons for restricting market access are genuine. For instance, in the era of globalization, a predatory pricing policy is very difficult to practise. So using anti-dumping measures on the presumption of stopping a predatory pricing strategy would be meaningless. By the same token, if some items are considered safe by World Health Organization regulations, then there is little justification to restrict market access using sanitary and phytosanitary sanctions.
On TRIMS, the system requires an effective competition policy. There is a need to address private sector-induced distortion before market access is granted to firms from richer nations. From a macro-level perspective it is essential to have property rights. A lack of property rights and an effective competition policy in many less developed nations has a direct implication on the distribution of resources. Developed countries should put in conditionalities such as linking government assistance programmes with enforcement of property rights.
In services, there will be a lot of resistance if basic services such as the provision of health, education, water and sanitation are privatized, especially in the context of less developed economies. Citizens from less developed nations are averse to paying the price for these basic services—something they consider part of their democratic right. Hence, developed countries asking for market access in these sectors will not be meaningful; nor will it be desirable from a welfare perspective. Instead, developed countries can argue for market access in services such as finance, telecommunication, etc., in exchange for removing restrictions on Mode 1 and Mode 4 services.
Nilanjan Banik is with the Institute for Financial Management and Research, Chennai. Comment at theirview@livemint.com
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First Published: Tue, Oct 06 2009. 09 02 PM IST