Negotiations on the Doha Development Agenda (DDA) began in December 2001, but are currently deadlocked. To know why, four points must be appreciated.
First, negotiations have become more complicated. There?s no longer a clean line between external sector liberalisation and the domestic economy. Agriculture is the most obvious example. It is significant that not a single RTA (regional trade agreement) touches agriculture.
Second, the GATT/WTO system has, in a way, become a victim of its own success. Negotiating between 23 countries in 1947 was relatively easy. With 153 member countries, each one of whom has an in-principle right of veto, negotiations become impossible. WTO (and GATT earlier) resolves the problem by recognising that the relative democracy of WTO vis-?-vis IMF is de jure rather than de facto. The core group consists of around 25-30 countries, including the developed ones. Earlier, if the US and EU agreed (with Japan and Canada co-opted), there was little developing countries could do to stop the agreement. DDA negotiations witnessed the somewhat more formal constitution of developing country coalitions. G-20 was formed through the Brasilia Declaration in June 2003 by India, Brazil and South Africa and with China joining, these four countries form the core of G-20. G-33 actually has 44 countries as members. Then there is the G-90 coalition that emerged in Cancun in 2003.
But coalitions are only as strong as their economic clout. As countervailing pressure to the US/EU and Japan, the group that matters is India, Brazil, South Africa and China, particularly when the negotiating position is a collective and united one.
Therefore, the third point: Have developed countries adjusted to this altered economic reality and recognised that decision-making processes within WTO must change? Or do they still tend to take that core group for granted and believe that carrots and sticks can break it up.
So, the fourth point: how homogeneous is this core group of emerging economies? Homogeneity in negotiating stances is easier when one is arguing for liberalisation in developed countries. However, WTO negotiations involve quid pro quo and apparent unity may break down when it comes to opening up in one?s own country. One must also remember that many barriers to inter-country trade are not in developed countries, but in developing ones. Agriculture is a good example of this, where the interests of net agricultural exporters and net agricultural importers aren?t likely to converge. As a net agricultural exporter, Brazil would like dismantling of agricultural import barriers not only in developed countries, but also in India and China.
Since negotiations are about give and take, there will always be tensions and contentious haggling until a mutually acceptable agreement is hammered out. But once the controversial Singapore issues (investment protection, competition policy, transparency in government procurement and trade facilitation) were junked in Cancun 2003 and DDA?s agenda was no longer over-loaded, the negotiating points were NAMA (non-agricultural market access) and agriculture.
In Hong Kong negotiations, it was decided that a Swiss formula (see box) would be used for NAMA. For the July 2008 talks, a coefficient of 7-9 was proposed for developed countries. For developing countries, the suggested bands were 19-21, 21-23 or 23-26, with a country free to choose between these three options. Developing countries were allowed less-than-formula cuts on sensitive products.
This isn?t a package India would have been happy with. However, no country would have been happy with the package. That is the hallmark of any good compromise agreement. Plus, with India migrating to a unified goods and services tax and unilateral reform and regional agreements bringing down manufacture tariffs, NAMA provisions are not the deal breaker. Agriculture broke the talks, as it always has.
The three pillars
Following the Uruguay Round agreement on agriculture, agricultural negotiations have followed the so-called three pillars of domestic support, market access and export competition. Market access means opening up markets. Since quantitative restrictions (QRs) are virtually non-existent for imports of agricultural products, opening up markets primarily means tariffs. There has been consensus for some time that there will be four tariff bands, with average tariff reductions varying across these bands. There has also been consensus that average tariff reductions will be lower for developing countries than for developed ones. The dispute has been over the precise numbers.
In addition, over and above the overall safeguards clause, there was consensus that there should be a special safeguard mechanism (SSM) that would be available to developing countries. If there are significant agricultural imports, safeguards duties can be imposed. How high will these duties be? What will be the trigger for invoking the SSM clause? Will it be based on the volume of imports or the price at which imports take place? These have been controversial negotiating issues.
On domestic support, not all government help to agriculture necessarily distorts trade. Hence, there is a concept of overall trade-distorting domestic support. Ideally, all such support should be scrapped. But that can, at best, be an end-point goal. No country is in a position to contemplate that, not even the developed countries.
For instance, in EU, no substantial CAP (Common Agricultural Policy) reform is possible before 2012. Hence, negotiations are about how much one can get the developed countries to reduce domestic support and how much reduction do developing countries have to accept in return?
Finally, export competition used to be contentious, but is less so now. Developed countries will eliminate scheduled export subsidies by the end of 2013, with budgetary outlays reduced in equal installments by 50% by the end of 2010.
Developing countries would have a timeline of 2016 in some instances and 2021 in others.
India: agricultural liberalisation
How does India look at agriculture liberalisation? First, Indian agriculture has been in bad shape and agriculture remains important, notwithstanding the declining contribution of agriculture in sectoral composition of GDP or employment. While the reasons for this malaise have little to do with WTO and external sector liberalisation, there is a perception that trade liberalisation has contributed to problems. Policies are framed not just on facts, but perceptions too. Second, Indian agriculture may be price competitive in general, although India remains a marginal player still in agricultural exports. However, there are sectors like edible oils, dairy and poultry where India isn?t price competitive yet. In an overall macro sense, these may not be that quantitatively important. However, in a geographical and regional sense, there are areas where these are important crops. Adjusting and moving away from price uncompetitive areas is easier said than done. Therefore, it is understandable that the commerce ministry should be wary of market access commitments without sufficient safeguards.
In July 2008, the agriculture negotiations involved 37 countries. However, the high table in Geneva had the G-7 (US, EU, Japan, Australia, India, Brazil and China). Had G-7 agreed, DDA would have come to a successful conclusion. But G-7 didn?t agree and this happened over the SSM clause alone.
The SSM clause, remember, is something available to developing countries to check excessive imports of farm products. WTO has to have an agreement on what would be the price and volume triggers that would warrant usage of SSM. There was no agreement on that. And there was no agreement on whether SSM duties could be above bound (that is, already-agreed maximum level) duties.
Breaking ranks
The emerging economies broke ranks. Brazil was weaned away from the core developing country group, perhaps more because of winning a cotton subsidy dispute with the US and less because of the extension of the EU?s ACP (Africa-Caribbean-Pacific) preferences to Latin America. The conflict of interest between a net agricultural exporter and net (even if marginal) agricultural importers couldn?t be reconciled. Because of dissatisfaction with SSM clauses, the agreement was blocked by India and China.
But let?s question India?s stance a bit? Did India really expect safeguard duties above bound levels? Are there any agricultural products (dairy, edible oils) where bound duties wouldn?t have offered enough protection? Or did India not care about a successful multilateral package? Also, did the US and EU miscalculate about the extent to which India and China would hold out on SSM?
Perhaps 2008 was just a bad year for trade negotiations. First, there are US presidential elections. Any trade agreement will have to go to US Congress. This is compounded by possibility of a different trade policy focus under a non-Republican administration.
Second, EU will not contemplate serious agricultural liberalisation before 2012. Third, with global food price inflation and agro export curbs in many countries, this is not the best of times to mention agricultural liberalisation either. Fourth, India is in election mode and agriculture is politically sensitive.
The only person who was keen to broker consensus was Pascal Lamy, since his term expires in 2009. WTO and the multilateral system should recover around 2010. That will be no fault of Pascal Lamy but it will be after his tenure.
And the new director-general will be elected under new power equations?that will be another test of the clout of the core group of emerging countries.
?The author is a noted economist
