WTO: time to pull down shutters

EXPRESSING hope over efforts to revive the deadlocked World Trade Organisation (WTO) negotiations, Indian Prime Minister Manmohan Singh said: “ Development dimension must get the prominence and attention — not in term of words, but in terms of solid deeds.” He was on his way back from the recently concluded G-8 Summit at St Petersburg.

Nearly eleven years after the WTO came into existence, as the impasse over a multilateral trade regime continues, it is the ‘development’ aspect that has been sacrificed at the altar of international trade. To the developing countries, the WTO offers hardly any promise of development, but in reality puts millions of jobs in the manufacturing sector at risk. In agriculture, it promises to turn a majority of the developing countries into food importers thereby playing havoc with food security and adding to global poverty and hunger.

After the failure of a crucial round of talks held between six member states — the United States, European Union, Australia, Japan, India and Brazil — deemed to be representing interests of most of the members, to rescue the Doha development round, the latter can aptly be described as Doha destructive round. Now the crucial question is: do the developing countries stand to gain from a failed WTO?

Now major European and US business lobbies are joining forces to try and revive the World Trade Organization (WTO) talks, whose complete failure, they fear, could spell the loss of major market profits in developing nations. The western multinationals that invested much time and effort in prodding their government officials to conclude a deal that would expand global markets for their products are visibly alarmed. But now these groups are coming together to try to resuscitate the sweeping deal, which covers goods ranging from farm products to textiles and electronics, as well as services like architecture, voice-mail telecommunications and space transport.

Although the WTO Director-General Pascal Lamy has been claiming that the developing countries have everything to lose if the Doha development round fails, his intentions have come under a cloud. Lamy in his earlier ‘avtaar’ as the European Union’s Trade Commissioner is in reality the architect of the inequalities that have been woven into the negotiations. He is primarily responsible for ensuring that the European agricultural subsidies, the highest in the world, are not challenged in the WTO till the year 2013. Pascal Lamy’s interests, therefore, are very clear. He is trying very hard to convince the developing countries of the need to have farm subsidies in the rich and developed countries. No wonder, developing country trade negotiators and civil society leaders are being taken on tour to America to explain the importance of farm subsidies. In nutshell, both America and European Union are reluctant to make any appreciable cuts in their huge agricultural subsidies. Rather, they are exerting all kinds of pressures on the developing countries to agree to one-way trade — from the rich and industrialised countries to the poor and developing countries.

With the US, EU refusing to remove the huge agricultural subsidies, and having further strengthened the fortress around domestic agriculture after July Framework 2004, the modalities in agriculture that they want to be finalised would surely wipe out developing country agriculture. Before we look at the implications of the proposed modalities, let us first take a look at what could have been the project gains had the just-failed talks succeeded.

Projections of global gains from full trade liberalization were initially put at $832 billion, of which the developing countries gain was estimated at $539 billion. These projections were later scaled down to $287 billion; with developing country share coming down to $90 billion. Before the 2003 Cancun Ministerial, World Bank had projected the gains at more than $500 billion for the developing countries. After Hong Kong Ministerial 2005, the projections showed a “likely Doha scenario” of just $16 billion, out of a global total of $96 billion. According to a paper by Timothy A. Wise and Kevin P Gallagher of the Global Development and Environment Institute at Tufts University (Medford, US) adjusting for Special and Sensitive Products in agriculture, developing country gains come to just $6.7 billion out of a total of $38.4 billion.

In other words, $6.7 billion is the total welfare gain that is expected from a successful Doha round. What it means in reality is that 110 developing countries will have to share a welfare gain of just $6.7 billion. If this is all that the developing countries have to gain from ‘development’ it needs a serious rethinking on what constitutes ‘development’. And if this is ‘development’, Pascal Lamy needs to tell us as to what in his dictionary does the word “destruction” stand for?

The Carnegie Endowment for International Peace (CEIP) has also used a different set of projections, and has arrived at more depressing projections. For India, there are no gains, only losses — minus 0.04 billion dollars. The International Food Policy Research Institute, Washington DC, too estimates the gains in agriculture for the developing world between the range of $8-20 billion. This is all that benefits 110 developing countries, but when translated into human cost it will mean millions of livelihoods lost.

For India, it means nothing since its annual budget for the rural development ministry is higher than the total gains the entire developing world is being promised. In turn, signing on such a deal would mean the beginning of the end of domestic agriculture. The bells would toll for food self-sufficiency so assiduously built over the past few decades. India and for that matter most of the 110 developing countries will then turn into food importers. If the first ten years of WTO is any indication, the (dis)agreement on agriculture has already played havoc with agriculture and would further exacerbate the marginalisation of the farming communities.

After all, if the impact of the trade liberalization policies in the ten-year period 1995-2005 is any indication, several million farmers all over the developing world have been pushed out of agriculture. With their livelihoods lost, these farmers and their families have mostly migrated to the urban centres in search of menial jobs. Whether it is Africa, Latin America or Asia, the story is the same. What was termed as the decade of economic growth has actually turned into a dark decade for at least 54 developing countries whose economies have worsened. For the remaining developing countries, the situation is no better.

Latest data from simulation studies using various coefficients to analyse the impact of “Swiss formula” for Non-Agricultural Market Access (NAMA) shows that for the major developing countries — India, Brazil, South Africa, Argentina, Mexico and Indonesia — it would translate into millions of job losses. The International Confederation of Free Trade Unions estimates that all major labour-intensive sectors in India would be negatively impacted if a coefficient of 15 is used. Even if a coefficient of 30 is used (as proposed by Pakistan), India will have to cut its average bound tariff by 53 per cent, which will displace millions.

It is now generally recognized that removing state support to agriculture and diluting import restrictions in developing countries during the past 15-20 years has led to degradation of farming there, instead of growth and development. In India, imports have been increasing as tariffs are lowered. So is the case with most of the developing countries. Between 1996-97 and 2003-04, agricultural imports into India have gone up by 270 per cent by volume and 300 per cent in value terms. For an agrarian economy, importing food is like importing unemployment.

Sharp declines in international prices of edible oils and depressed unit value of imports have not only adversely impacted coconut oil producers, but also 3.5 million producers of coconut. In addition, price of coffee fell by 59 percent, tea 41 percent and pepper 69 percent during 1997-98 and 2002-03. The fall in the price of primary products was associated with a significant drop in productivity of tea, coffee and pepper.

What makes Indian agriculture significantly different from the industrial agriculture in America and European Union (and for that matter in other OECD countries) is that Indian agriculture is diverse and based on available biodiversity wealth. India grows 260 crops every year whereas Europe and America cannot count more than 30 crops, of which 10 crops or so are commercially important. In India, each of the 260 crops is linked to millions of livelihoods.

And yet, The Economist, London, (July 8, 2006) wrote: “India is more worried about upsetting subsistence farmers than it is excited by the prize of freer trade in the services that now matter so much to its economy”. What it fails to tell us is that the gains in services only provides employment to less than 1.5 million people whereas 650 million people are directly dependent upon agriculture and another 200 million are indirectly banking upon farming for survival. Moreover, the gains in services would have happened in any case with or without WTO since the service sector required cheaper manpower.

Such kind of stupid arguments have led the trade negotiators to believe that saving the WTO at whatever cost is a necessary prelude to economic growth and development. Unfortunately, except for the rhetoric, there is no economic evidence of any significant welfare gains to the developing countries. Nor has the multilateral trade agreement helped in reducing the number of more complex bilateral trade agreements. In reality, bilateral and regional trade agreements have seen an unprecedented upswing.

It is, therefore, important that the WTO first tells the developing nations of the ‘development gains’ from the so-called Doha Development Round — “not in term of words, but in terms of solid deeds” as Prime Minister Manmohan Singh asked for. Despite the last-minute offer of some ‘flexibilities’ from the US and EU in what appears to be a desperate bid to keep the hopes alive, the time has come to pullull down the shutters on a badly mutilated multilateral trade regime.

The writer is a New Delhi-based food and trade policy analyst.

Ref Link: http://www.dawn.com/weekly/encounter/encounter1.htm