Themes > Current Issues
10.08.2001
C.P.
Chandrasekhar
Robert
Zoellick, freshman appointee to the post of United States' Trade
Representative, is a man with a mission. Early into his tenure, he has
been assigned the challenging job of winning universal support for the
highly controversial new Round of world trade negotiations. He has a tight
deadline too: the next ministerial meeting at Doha, Qatar in November.
Success in this effort depends on his ability to soften two principal
targets. One is the European Union, that is unwilling to cutback
significantly on its support to agriculture, and is willing to even talk
about the matter only if a whole range of new issues ranging from
protecting the environment to reducing foreign investment regulations and
implementing a competition policy are implemented. The other is the group
of developing countries, led by the "like-minded five", which includes
India, Pakistan, Egypt and Malaysia, that has held that no new Round
should be considered before a review of the impact of the Uruguay Round
(UR) agreement is made and a number of inadequacies in its implementation
are addressed.
Of these targets, the EU appeared the more difficult nut to crack. Getting it to budge on agricultural support would be difficult, given the crucial role of such support for its farming community. What is more, with the US having provided the lead, the EU has been reforming its Common Agricultural Policy to shift from forms of support that obviously affect prices and trade, to other ostensibly "decoupled" forms of support, such as income transfers and "deficiency payments". In the UR, the US and the EU had come together and manoeuvred to keep such forms of support out of the definition of "trade-distorting" subsidies. Thus, though the total subsidy provided to American and European farmers, a figure captured in the OECD's computations of the "producer subsidy equivalent", has remained high and even increased over the 1990s, these countries claimed to be meeting their Uruguay Round commitments with regarding to reducing tariff support and subsidies provided to their agricultural sector. Further, in an effort to completely legitimise such support to agriculture, the US and EU had ensured the inclusion of a "peace clause" in the Uruguay Round Agreement on Agriculture (AoA) that decreed that no disputes could be raised regarding the "green-box policies" and other AoA conforming support and subsidy measures, during the phase when the agreement was being implemented.
The results of these features of the UR, are now proving a thorn in the flesh of Mr. Zoellick. The American farming community is unhappy over the high support afforded to European farmers, despite the massive support it receives from its own government. And the Cairns group of agricultural exporters, which includes Australia and Argentina among others, is keen on enforcing its one point programme when it comes to world trade: the complete freeing of trade in agricultural products. The end-July meet of trade officials in Geneva, was the occasion chosen by Zoellick to try and convince the EU that it must give on this matter. In this effort he found an ally in Pascal Lamy, EU Trade Commissioner and reported long term friend, who is busy working out the quid pro quo needed to win the support of EU members for progress on agricultural trade front. In the event Lamy has come up with a long list of issues that need to be discussed along with reduction of support for agriculture. These include regulation to protect the environment, competition policies and multilateral rules governing investment. Thus the next stage in world trade negotiations should, in its view, not be just about reducing tariffs on manufactures further and reducing trade-limiting forms of support to agriculture, but rather a comprehensive new Round that brings in issues that have hitherto been substantially delinked from trade.
The EU stance is both a loss and a gain for Zoellick. A loss because it seeks to bring in issues such as competition policy and environmental protection, that are unlikely to be popular at home. Giant American corporations, that straddle world markets and zealously guard their turf through means fair and foul, as Microsoft has done, would not be too happy if regulations that limit their spread into Europe through mergers and acquisitions are to be discussed. The EU's notion of environmental protection, which includes ensuring food safety, by keeping out genetically modified foods for instance, has already upset American farmers who account for a large share of acreage under GM crops. And these fresh demands to use such grounds to limit trade come at time when US farmers would have to give in to the Cairns group's call to reduce income support.
But this loss is no unmixed blessing, since it brings with it the assurance that if some at least of these issues are included in the negotiating agenda, the all-important EU would be willing to go along with the American desire for a new round of trade negotiations. Having registered this gain, Zoellick set out on a whirlwind tour, that brought him to India, with the aim of neutralising the developing country block opposed to a new round before UR implementation issues are discussed. In this effort, Zoellick has three grounds on which to bargain. The first is the claim that any advance on the agricultural front could be of benefit to developing countries that can also demand that some of the other inadequacies of the UR should be addressed in the new round. The second is that with him having won EU support, it is unlikely that the new round can be stalled for long. This would condemn opponents of the round to isolation. In an address to industrialists at New Delhi, he in fact warned that India is likely to be left behind and would lose out at the coming Doha ministerial conference, if it stuck to its opposition to a new trade round. Finally, in New Delhi, he combined the demand for support for a new round with the promise of cooperation on sensitive issues like counter-terrorism, nuclear non-proliferation and human rights. This is nothing but a veiled threat of political boycott if India did not fall in line.
Developing country opposition to a new round just now is, however, based on strong grounds. They point to the fact that the US and the EU had used their strong negotiating position in the UR to virtually deprive developing countries of any benefits from trade in agriculture. In fact, some countries like India have lost out substantially. Lulled into complacence by the fact that international prices of a range of agricultural crops ruled well above domestic prices, India bound its tariffs on a number of commodities like maize, rice and spelt wheat at zero, even while it set overall tariff binding commitments at 100 per cent for unprocessed products, 150 per cent for processed cereals and 300 per cent for certain categories of edible oils. Since then there have been two developments. First, international prices of agricultural commodities have collapsed, taking them below India's domestic prices. The price of Copra, which stood at $461.5 per metric tonne in 1999 (annual average) fell to an average of $304.8 per metric tonne in 2000, and stood at $191.3 per metric tonne in the first half (Jan-Jun) of 2001.The price of Coffee, Arabica, which stood at 229.1 cents per kg in 1999 (annual average) fell to an average of 192 cents in 2000, and stood at 140.6 cents per kg in the first half (Jan-Jun) of 2001. The price of Coffee, Robusta, which stood at 148.9 cents per kg in 1999 (annual average) fell to an average of 91.3 cents in 2000, and stood at 66.8 cents per kg in the first half (Jan-Jun) of 2001. The price of Tea in the Calcutta auctions, which stood at 206.8 cents per kg in 1999 (annual average) fell to an average of 170.2 cents in 2000, and stood at cents per kg in the first half (Jan-Jun) of 2001. The price of Palm Oil, which stood at $436 per metric tonne in 1999 (annual average) fell to an average of $310 per metric tonne in 2000, and stood at $248 per metric tonne in the first half (Jan-Jun) of 2001. This makes existing tariff bindings inadequate to protect domestic farmers.
Second, as part of its commitments and under US pressure, India has had to remove all quantitative restrictions on imports, including on imports of agricultural commodities. This would aggravate the surge in imports of a number of commodities. For example, the imports of palm oil rose from 970,000 tonnes in marketing year 1995 to 4 million tones in marketing year 2000. Though India has subsequently renegotiated its bound tariffs under Article XXVIII, there are limits to the protection it can ensure since the relevant clause requires renegotiation with individual or groups of members. As a result, while India obtained the right to raise ceiling duty levels and actually raised duties to 50-80 per cent in the case of a number of agricultural commodities (rice, maize, wheat, sorghum), the duties on soybean oil imports have been fixed at 45 per cent, ostensibly as a concession to the US.
Similar losses on the agricultural front have been true of other developing countries as well, which contrasts sharply with the huge gains that the US and EU have made. On the subsidy front, according to one analyst, "the top five users of export subsidies for wheat accounted for 95 per cent of subsidised wheat exports (which is over 50 million tonnes) every year between 1986 and 1990." It has been estimated that even after meeting the AoA cutback commitments, these five exporters would be able to channelise about 40 million tonnes of subsidised wheat into the world market. This amounts to about 40 per cent of the wheat trade in the mid-1990s. Similar estimates for coarse cereals and poultry place the figures at 22 and 25 per cent respectively.
This strategic victory on the agricultural front on the part of the developed countries was not accompanied by the provision of benefits to the developing countries on other fronts. The most important is the trade in textiles, where commitments to remove quotas were staggered in a manner where close to 50 per cent of imports under quotas were to be freed only at the end of 2004, or the end of the 10-year implementation period. In the interim, since the developed countries have chosen to remove quota on products of little relevance to developing-country textile exporters, hardly any gains have been registered on the textile export front.
Further, even in non-traditional export areas, such as steel, the US has been using the option of introducing "anti-dumping" levies to prevent import surges or market disruption as a protectionist device against manufactured imports from the developing countries. Even the WTO's dispute settlement panel has already ruled against the US in cases filed by some countries, and is expected to do the same in others, including one filed by India.
Finally, the developing countries have been badly affected by the implementation of the unequal TRIPs agreement, which some of them have institutionalised through domestic legislation.
Given all this, the case for developing countries in general, and India in particular, refusing to participate in a new round prior to a review of the UR is indeed extremely strong. But there are signs that developing-country opposition is weakening. The "like-minded group" is in any case handicapped by the fact that within the developing countries, there are some who have reportedly expressed their willingness to divide implementation issues into those that need to be addressed before a new round and those that can be considered as part of the round. This could help postpone discussion of the most controversial issues like textiles and agricultural support.
But they are even more weakened by the fact that many of these governments have internalised the liberalisation and globalisation agenda, and are seeking in the US an ally to pull them out of their economic and political difficulties. It was this weakness that Zoellick was exploiting vis-à-vis India, when he spoke of the possibility of cooperation on issues such as counter-terrorism, nuclear non-proliferation and human rights. The effects of this weakness are already visible. Thus, at the time of the Geneva meeting, the Financial Times reported that besides Brazil, Mexico and South Africa, "that favour a round, as does China, which is poised to enter the WTO", "even India, which has long led the opposition to new global negotiations, seems to be wavering." More recently, the Times of India reported a subtle change in India's stand, from opposing the new round to pressing for a limited agenda. According to that report, senior officials felt that India's focus should be on "keeping out multiple new issues while taking care of its core concerns."
While these reports are by nature speculative, they do reflect a real possibility. And if experience with the Uruguay Round is anything to go by, India's officialdom has an uncanny knack of making huge concessions that are completely at variance with their public postures. This requires emphasis on the need for public debate and parliamentary sanction before a departure from publicly declared positions is made. If not, India could lose far more this time than it did in the last round.
Of these targets, the EU appeared the more difficult nut to crack. Getting it to budge on agricultural support would be difficult, given the crucial role of such support for its farming community. What is more, with the US having provided the lead, the EU has been reforming its Common Agricultural Policy to shift from forms of support that obviously affect prices and trade, to other ostensibly "decoupled" forms of support, such as income transfers and "deficiency payments". In the UR, the US and the EU had come together and manoeuvred to keep such forms of support out of the definition of "trade-distorting" subsidies. Thus, though the total subsidy provided to American and European farmers, a figure captured in the OECD's computations of the "producer subsidy equivalent", has remained high and even increased over the 1990s, these countries claimed to be meeting their Uruguay Round commitments with regarding to reducing tariff support and subsidies provided to their agricultural sector. Further, in an effort to completely legitimise such support to agriculture, the US and EU had ensured the inclusion of a "peace clause" in the Uruguay Round Agreement on Agriculture (AoA) that decreed that no disputes could be raised regarding the "green-box policies" and other AoA conforming support and subsidy measures, during the phase when the agreement was being implemented.
The results of these features of the UR, are now proving a thorn in the flesh of Mr. Zoellick. The American farming community is unhappy over the high support afforded to European farmers, despite the massive support it receives from its own government. And the Cairns group of agricultural exporters, which includes Australia and Argentina among others, is keen on enforcing its one point programme when it comes to world trade: the complete freeing of trade in agricultural products. The end-July meet of trade officials in Geneva, was the occasion chosen by Zoellick to try and convince the EU that it must give on this matter. In this effort he found an ally in Pascal Lamy, EU Trade Commissioner and reported long term friend, who is busy working out the quid pro quo needed to win the support of EU members for progress on agricultural trade front. In the event Lamy has come up with a long list of issues that need to be discussed along with reduction of support for agriculture. These include regulation to protect the environment, competition policies and multilateral rules governing investment. Thus the next stage in world trade negotiations should, in its view, not be just about reducing tariffs on manufactures further and reducing trade-limiting forms of support to agriculture, but rather a comprehensive new Round that brings in issues that have hitherto been substantially delinked from trade.
The EU stance is both a loss and a gain for Zoellick. A loss because it seeks to bring in issues such as competition policy and environmental protection, that are unlikely to be popular at home. Giant American corporations, that straddle world markets and zealously guard their turf through means fair and foul, as Microsoft has done, would not be too happy if regulations that limit their spread into Europe through mergers and acquisitions are to be discussed. The EU's notion of environmental protection, which includes ensuring food safety, by keeping out genetically modified foods for instance, has already upset American farmers who account for a large share of acreage under GM crops. And these fresh demands to use such grounds to limit trade come at time when US farmers would have to give in to the Cairns group's call to reduce income support.
But this loss is no unmixed blessing, since it brings with it the assurance that if some at least of these issues are included in the negotiating agenda, the all-important EU would be willing to go along with the American desire for a new round of trade negotiations. Having registered this gain, Zoellick set out on a whirlwind tour, that brought him to India, with the aim of neutralising the developing country block opposed to a new round before UR implementation issues are discussed. In this effort, Zoellick has three grounds on which to bargain. The first is the claim that any advance on the agricultural front could be of benefit to developing countries that can also demand that some of the other inadequacies of the UR should be addressed in the new round. The second is that with him having won EU support, it is unlikely that the new round can be stalled for long. This would condemn opponents of the round to isolation. In an address to industrialists at New Delhi, he in fact warned that India is likely to be left behind and would lose out at the coming Doha ministerial conference, if it stuck to its opposition to a new trade round. Finally, in New Delhi, he combined the demand for support for a new round with the promise of cooperation on sensitive issues like counter-terrorism, nuclear non-proliferation and human rights. This is nothing but a veiled threat of political boycott if India did not fall in line.
Developing country opposition to a new round just now is, however, based on strong grounds. They point to the fact that the US and the EU had used their strong negotiating position in the UR to virtually deprive developing countries of any benefits from trade in agriculture. In fact, some countries like India have lost out substantially. Lulled into complacence by the fact that international prices of a range of agricultural crops ruled well above domestic prices, India bound its tariffs on a number of commodities like maize, rice and spelt wheat at zero, even while it set overall tariff binding commitments at 100 per cent for unprocessed products, 150 per cent for processed cereals and 300 per cent for certain categories of edible oils. Since then there have been two developments. First, international prices of agricultural commodities have collapsed, taking them below India's domestic prices. The price of Copra, which stood at $461.5 per metric tonne in 1999 (annual average) fell to an average of $304.8 per metric tonne in 2000, and stood at $191.3 per metric tonne in the first half (Jan-Jun) of 2001.The price of Coffee, Arabica, which stood at 229.1 cents per kg in 1999 (annual average) fell to an average of 192 cents in 2000, and stood at 140.6 cents per kg in the first half (Jan-Jun) of 2001. The price of Coffee, Robusta, which stood at 148.9 cents per kg in 1999 (annual average) fell to an average of 91.3 cents in 2000, and stood at 66.8 cents per kg in the first half (Jan-Jun) of 2001. The price of Tea in the Calcutta auctions, which stood at 206.8 cents per kg in 1999 (annual average) fell to an average of 170.2 cents in 2000, and stood at cents per kg in the first half (Jan-Jun) of 2001. The price of Palm Oil, which stood at $436 per metric tonne in 1999 (annual average) fell to an average of $310 per metric tonne in 2000, and stood at $248 per metric tonne in the first half (Jan-Jun) of 2001. This makes existing tariff bindings inadequate to protect domestic farmers.
Second, as part of its commitments and under US pressure, India has had to remove all quantitative restrictions on imports, including on imports of agricultural commodities. This would aggravate the surge in imports of a number of commodities. For example, the imports of palm oil rose from 970,000 tonnes in marketing year 1995 to 4 million tones in marketing year 2000. Though India has subsequently renegotiated its bound tariffs under Article XXVIII, there are limits to the protection it can ensure since the relevant clause requires renegotiation with individual or groups of members. As a result, while India obtained the right to raise ceiling duty levels and actually raised duties to 50-80 per cent in the case of a number of agricultural commodities (rice, maize, wheat, sorghum), the duties on soybean oil imports have been fixed at 45 per cent, ostensibly as a concession to the US.
Similar losses on the agricultural front have been true of other developing countries as well, which contrasts sharply with the huge gains that the US and EU have made. On the subsidy front, according to one analyst, "the top five users of export subsidies for wheat accounted for 95 per cent of subsidised wheat exports (which is over 50 million tonnes) every year between 1986 and 1990." It has been estimated that even after meeting the AoA cutback commitments, these five exporters would be able to channelise about 40 million tonnes of subsidised wheat into the world market. This amounts to about 40 per cent of the wheat trade in the mid-1990s. Similar estimates for coarse cereals and poultry place the figures at 22 and 25 per cent respectively.
This strategic victory on the agricultural front on the part of the developed countries was not accompanied by the provision of benefits to the developing countries on other fronts. The most important is the trade in textiles, where commitments to remove quotas were staggered in a manner where close to 50 per cent of imports under quotas were to be freed only at the end of 2004, or the end of the 10-year implementation period. In the interim, since the developed countries have chosen to remove quota on products of little relevance to developing-country textile exporters, hardly any gains have been registered on the textile export front.
Further, even in non-traditional export areas, such as steel, the US has been using the option of introducing "anti-dumping" levies to prevent import surges or market disruption as a protectionist device against manufactured imports from the developing countries. Even the WTO's dispute settlement panel has already ruled against the US in cases filed by some countries, and is expected to do the same in others, including one filed by India.
Finally, the developing countries have been badly affected by the implementation of the unequal TRIPs agreement, which some of them have institutionalised through domestic legislation.
Given all this, the case for developing countries in general, and India in particular, refusing to participate in a new round prior to a review of the UR is indeed extremely strong. But there are signs that developing-country opposition is weakening. The "like-minded group" is in any case handicapped by the fact that within the developing countries, there are some who have reportedly expressed their willingness to divide implementation issues into those that need to be addressed before a new round and those that can be considered as part of the round. This could help postpone discussion of the most controversial issues like textiles and agricultural support.
But they are even more weakened by the fact that many of these governments have internalised the liberalisation and globalisation agenda, and are seeking in the US an ally to pull them out of their economic and political difficulties. It was this weakness that Zoellick was exploiting vis-à-vis India, when he spoke of the possibility of cooperation on issues such as counter-terrorism, nuclear non-proliferation and human rights. The effects of this weakness are already visible. Thus, at the time of the Geneva meeting, the Financial Times reported that besides Brazil, Mexico and South Africa, "that favour a round, as does China, which is poised to enter the WTO", "even India, which has long led the opposition to new global negotiations, seems to be wavering." More recently, the Times of India reported a subtle change in India's stand, from opposing the new round to pressing for a limited agenda. According to that report, senior officials felt that India's focus should be on "keeping out multiple new issues while taking care of its core concerns."
While these reports are by nature speculative, they do reflect a real possibility. And if experience with the Uruguay Round is anything to go by, India's officialdom has an uncanny knack of making huge concessions that are completely at variance with their public postures. This requires emphasis on the need for public debate and parliamentary sanction before a departure from publicly declared positions is made. If not, India could lose far more this time than it did in the last round.
© MACROSCAN 2001