1. Column: WTO talks once again on the edge

Column: WTO talks once again on the edge

Developed countries now support a proposal that jettisons the tiered reduction approach

By: | Published: June 17, 2015 12:20 AM

In the last few months, the preoccupation in the WTO has been with implementing the Trade Facilitation Agreement (TFA) and resolving the row over the rules on public stockholding of food grains for food security purposes. The weightier matter, of addressing the remaining issues in the Doha Development Agenda (DDA), has receded into the background. In December 2013, at Bali, the ministers had mandated the Trade Negotiations Committee to prepare a work programme on these issues within 12 months and the new deadline for this is July 31, 2015.

As the target date approaches, the DDA is back in focus. But there is a North-South split on the way forward and the ministers face the prospect of a thin agenda for the 10th Ministerial Meeting scheduled for December, 2015, at Nairobi. Ironically, it is the major developed countries—the US and the EU—which appear to be on the defensive in wanting a modest outcome. The major developing countries, China and India, are keen on an ambitious result. The matter came to a head at the Trade Negotiations Committee on April 27, 2015, when the US and the EU called for a recalibration of the original liberalisation objectives of the Doha Round, while China and India pressed for making the Chair’s texts of 2008, particularly on agriculture and industrial tariffs, the benchmarks for the renewal of attempts to reach an agreement.

At the discussions since then, most recently at Paris on the sidelines of an OECD ministerial meeting on June 4, 2015, the elements of the stand on DDA by the major players have been gradually unfolding. By their call for recalibration, the major players imply that the level of ambition must be sharply scaled down. In the market access pillar, for instance, the Chair’s text of 2008, which developing countries support, proposes tiered reduction of tariffs by 50-70% by developed and two-thirds of that by developing countries, lower reduction in 4% of tariff lines designated as sensitive, and tariff ceilings of 100% for developed and 150% for developing countries. Developed countries now support a proposal (made by Paraguay) that jettisons the tiered reduction approach and proposes a reduction in the average tariff level by an undisclosed but presumably low percentage, combined with a minimum cut in each tariff line. There is no mention of limits on sensitive products or of tariff ceilings.

An important element in the Chair’s text allows developing countries to self-designate 12% of the tariff lines as special products (SP), on which lower reduction would be allowed, including no cuts at all on 5% of tariff lines. Another significant proposal is that on the special safeguard mechanism (SSM), which would allow developing countries to impose additional tariffs on a temporary basis if the volume of imports rises above or the import price falls below designated benchmarks. The attempt of the US and the EU is to talk out developing countries of the proposals on SP and SSM, with the argument that lowered level of ambition for reduction of tariffs would render these provisions redundant.

On domestic support, the developing countries support the Chair’s text which calls for tiered reduction of overall trade distorting support (OTDS) by 55-80% by developed countries and by two-thirds of that by developing countries. Developing countries are not required to make any reductions if their aggregate measurement of support (AMS) is less than the maximum limit of 10% (8.5% for China), both on product-specific and non-product-specific basis. Both China and India claim that their domestic support is less than the above limits, but the US disputes China’s claim. The US has declared that it would not make any reduction in its domestic support unless reductions are made also by major economies that have the capacity to distort global trade. In the past, the US used to insist on matching contributions on reduction of subsidies by the EU, but now it has made demands on China and India as well. It asserts that these developing countries too are responsible for trade-distorting subsidies in the world agricultural market. At present, it is not clear how far the new demands on China and India are merely a ploy to persuade these countries to lower their level of ambition in the DDA.

If developed countries are committed to progress in the trade talks while rejecting the texts on the table, they need to submit concrete proposals to enable negotiations to move forward. If they do not, they are taking a risk that the Nairobi meeting would end in another fiasco. The bigger question now is whether these countries will continue to support the multilateral trading system. At their summit meeting over the last weekend, the G7 have talked big on the Transatlantic Trade and Investment Partnership (TTIP) and the Trans-Pacific Partnership (TPP). Have they now fixed their sights on these mega-regional projects and want to limit their multilateral engagement? From India’s perspective, the implications of the mega-regional initiatives are obvious. The successful conclusion of these agreements will result in diversion of both trade and investment from excluded countries and hurt their interest. As non-participants, we cannot stop the mega-regional agreements from going forward but we can certainly work for deeper levels of multilateral liberalisation in the WTO so that the preferences in these future agreements are eroded and hurt us less. In pressing for ambitious results in the DDA, India is on the right track.

However, India must also provide the leadership to steer the negotiations away from a developing impasse. This is the first round under the WTO, not the last. We should be willing to consider a lower level of liberalisation and not adhere rigidly to our position, if this helps in pushing multilateral liberalisation forward. There is another initiative that India could take. Since the current round was launched 14 years ago, it is time to initiate another one. Why not test the faith of the major industrial countries in the multilateral trading system by proposing the commencement of a new round simultaneously with the conclusion of the DDA, or soon thereafter?

The author is professor, ICRIER

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