In the run up to the Hong Kong WTO Ministerial, the
focus of attention is the deadlock over liberalisation
of agriculture. This is not surprising, given the fact
that the unwillingness of EU members, especially France,
to agree to ''adequate'' concessions on agricultural tariffs
and subsidies, has stalled negotiations on further liberalisation
of trade in areas outside of agriculture. What is disturbing,
however, is the perception purveyed by the negotiators,
government spokespersons and the media that once the
agriculture deadlock is resolved, the task of moving
the Doha Round forward is rendered easy: that is, the
prospect of getting the developing countries to agree
to substantial liberalisation of the trade in industrial
goods and services is seen as extremely bright.
This is disconcerting because the walls of protection
built by developing countries since the Great Depression
and during the years of decolonisation, to overcome
the debilitating effects of international inequality,
were predominantly in these areas. Protection was seen
in the first instance as the means to build an indigenous
industrial base, thereby ensuring the structural diversification
needed in predominantly agricultural economies to garner
productivity gains and obtain a sustainable position
within the unequal international division of labour.
But, more importantly it was recognised as the means
to carve out the necessary domestic policy space within
which national governments could pursue their own economic
and social objectives.
It is indeed true that in the wave of liberalisation
and globalisation, which saw domestic elites in the
Third World scrambling to attract international capital
in a desperate attempt to overcome the constraints to
their own expansion set by the failure to introduce
the institutional reforms needed to expand domestic
markets and trigger domestic investment, much of this
protection has been dismantled. But rather than learn
the lessons delivered by the deindustrialisation that
this process of liberalisation has spurred, the effort
seem to be to accept the intensification and institutionalisation
of such liberalisation that the developed countries
are seeking to achieve through the WTO and the Doha
Round.
A typical example of this is, of course. the negotiations
on non-agricultural market access (NAMA). The NAMA negotiations,
mandated under the Doha ministerial declaration of November
2001, are aimed at reducing border restrictions to trade
such as tariffs and other barriers to market access
for industrial exports. The negotiations cover all goods
not covered under the Agreement on Agriculture. Since
2002, NAMA negotiators have sought to establish modalities
or rules specifying how and to what extent a country
should reduce their trade barriers. At the 2003 Cancun
ministerial conference, conference chairman and Mexican
trade minister Luis Ernesto Derbez submitted a text,
commonly known as the ''Derbez Text,'' proposing a framework
for modalities in NAMA.
The Derbez text reflects the objectives of the developed
countries with regard to increasing non-agricultural
market access. As argued by Yilmaz Akyuz, former Director
of the Division on Globalization and Development Strategies,
UNCTAD, these objectives are of four kinds. The first,
is to ensure that ultimately tariffs on all product
lines should be bound or subject to a maximum ceiling,
constraining across-the-board the ability of developing
countries to exercise the tariff protection option to
foster or expand particular industries. This is of significance
because unlike the developed countries in whose case
almost all industrial products are subject to a ceiling,
a large number of products, particularly in the case
of the African countries, are still not covered by tariff
binds. In fact, coverage in the case of as many as 30
countries is less than 35 per cent. Binding tariffs
obviously reduces policy flexibility substantially,
inasmuch as these maximum levels set a ceiling on what
developing countries can do to protect an industry they
choose to develop at some point in the future.
The second objective seems to be a continuous process
of trade liberalisation culminating in a situation where
trade is near-completely free. This requires that the
liberalisation and tariff reduction achieved during
the Uruguay Round is advanced further through tariff
reduction in the Doha Round. In fact, Annex B even proposes
a sectoral initiative where WTO members select several
products for complete tariff elimination, also called
''zero-for-zero'' reductions.
The third and related objective is to reduce tariff
dispersion across countries. The intention is to reduce
the current 11 percentage point difference in average
weighted bound tariffs between developed (3 per cent)
and developing (14 per cent) countries, initially to
around 4 per cent and finally to zero. The absurdity
of believing that in an obviously unequal global industrial
environment the extent of protection must be homogenised
should be obvious. That belief is even more absurd when
judged in the context of evidence that all developed
countries used protection as the means to industrialize
in their early stage of development, and continue to
do so even now.
Finally, the intention is to reduce tariff dispersion
across tariff lines by forcing a greater proportionate
reduction in tariffs in the case of products currently
protected with higher tariffs. Since it is known that
in an increasingly diversified economic world complete
insularity is not an option open to any country, this
measure undermines the ability of countries to adopt
strategies that focus on fostering and developing individual
industries.
Given these objectives embedded in the Derbez text and
the strength of the developed countries, it is not surprising
that the NAMA negotiations are centred on the extent
of binding coverage and the formula to be used for tariff
reduction. The text seeks to combine increased binding
with a single ''non-linear'' tariff-reduction formula.
The latter is designed to ensure larger proportionate
reductions in tariffs in countries and sectors with
higher tariffs in order to realize the homogenization
agenda. The intent of the exercise was clear from the
fact that this ''Swiss formula'' is often referred to
as ''the harmonizing formula'' inasmuch as it is a move
towards uniform tariff structures across different sectors
and countries.
The real implication of this process of harmonisation
emerges once we consider the following facts that (i)
developing countries have seen in recent years a process
of ''tariffication'' or the replacement of import quotas
on industrial imports with tariffs, making the latter
the principal protectionist device; (ii) developed countries
are known to rely on non-tariff barriers and special
safeguards in the case of sensitive products (such as
textiles) rather than tariffs to protect their industries
and therefore are not too concerned with pure tariff
protection; and (iii) as expected, developing countries
are characterised in most areas by much higher tariffs
rates than the developed countries, so that the effective
increase in market access associated with any particular
proportionate reduction in tariffs would be far greater
in developing countries than in the developed—a 50 per
cent reduction of a 20 per cent tariff rate would bring
it down by 10 percentage points, whereas it would imply
a mere two percentage point reduction in the case of
a four per cent tariff.
Following the failure at Cancun and the subsequent opposition
from developing countries, including India, which supported
the African group, the text Derbez was not accepted.
However, in an enforced compromise, it was included
as Annex B in the July Framework of 2004 with the caveat
that ''additional negotiations ... on the specifics of
some of these elements'' were required. These 'specifics',
though inadequately specified, were to ''relate to the
formula, the issues concerning treatment of unbound
tariffs…the flexibilities for developing country participants,
(and) the issue of participation in the sectoral tariff
component preferences.'' This kept the Derbez text as
the base for negotiations, while providing a window
of opportunity to the developing countries to minimize
the concessions they would have to offer in this area.
However, the more developed among the developing are,
it now appears, not averse to making significant concessions.
In a proposal submitted in April this year, Argentina,
Brazil and India (ABI) advanced and therefore signalled
acceptance of a non-linear Swiss-type formula for line-by-line
tariff reduction for all bound tariff rates. They have
also to differing degrees accepted the demand to bind
unbound tariff lines. This move has been defended on
the grounds that average tariffs are in any case low
in the developed countries and declining in the developing
countries, and what really matters is the problem of
tariff peaks (excessively high tariffs) and tariff escalation
(higher tariffs on end products rather than inputs)
in the developed countries that militate against developing
country exports. Thus a Swiss-type formula applied on
a line-by-line basis is expected to deliver substantial
benefits to developing country exporters, in areas of
interest to them, by dealing with the problem of tariff
peaks and tariff escalation in the developed countries.
What is ignored is the possibility that anti-dumping
measures, non-tariff barriers especially technical barriers
to trade can be used to neutralise these supposed benefits.
Meanwhile, developing countries would be opening up
their own markets to competition from imports
This move on the part of the ABI group, besides being
a unilateral gesture advanced with the hope, but no
guarantee, of obtaining concessions in areas such as
agriculture and services that are seen as promising
substantial benefits to them, completely undermines
the ostensible 'development-oriented' mandate of the
Doha Round. Since Doha was intended to advance a development
agenda, the focus of the NAMA negotiations was to be
on the elimination of tariff peaks and tariff escalation
on products of export interest to developing countries,
without reciprocal offers in their own markets. In fact,
governments had on paper agreed that they would take
into account the special needs and interests of developing
countries. By making their offer, the ABI group has
paved the way for a retreat of the developed countries
on the question of Special and Differential Treatment
(SDT) and ''less than full reciprocity'' and also paved
the way for a degree of erosion of trade preferences,
excepting perhaps for the Least Developed Countries.
There are a number of consequences that can be expected
to follow from these developments. First, the nonlinear
formula approach denies the current day developing countries
from the instruments used by the developed countries
at similar stages of development. Those countries used
tariffs as an important instrument to protect certain
products and allow access for others.
Second, as argued earlier, by increasing their tariff
bindings, developing countries would be forced to forgo
some ?exibility in economic policy. As Martin Khor and
Goh Chien Yen have argued, ''a developing country needs
to be able to modulate the tariffs on various types
of products on a dynamic basis to support its upgradation
of industrial production. It may need to have lower
tariffs on certain products, for example machines, for
some time to encourage their use in the production of
downstream products. But after some time, these tariffs
may need to be raised when the country embarks on producing
the former product, e.g., the machines in this example,
in order to protect its newly emerging machine-building
industry. If a commitment for binding of tariffs on
machines has already been made, such raising of tariffs
will not be possible without compensation.''
Third, the total elimination of tariffs negotiated under
the sectoral initiative will make it virtually impossible
to set up industries in those sectors in the future.
Fourth, reducing tariffs leads to a loss of public revenue
for governments in developing countries. Tariff revenue
contributed 32 percent of total government revenue in
least-developed countries in 2001.
All of this is of significance, not only because the
process of tarffication has made tariffs the most important
protective device, but also because the Uruguay Round
has ensured that through clauses in the Trade Related
Intellectual Property Rights (TRIPs) agreement and the
Trade Related Investment Measures (TRIMs) agreed upon,
developing countries have lost the right to use measures
such as denial of product patents and insistence on
indigenous content requirements as a means of fostering
and developing an indigenous industrial base. Since
the evidence from close to two decades of globalisation
make clear that foreign investors are no substitute
for domestic firms when it comes to ensuring diversification
of output and employment in favour of industry, this
tendency in the NAMA negotiations is essentially a way
of institutionalising through an international agreement
the process of deindustrialisation in the developing
world.
|
