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Bridging
the Differences
Analyses of Five Issues of the WTO Agenda
Contents
Foreword
Acknowledgements
Abbreviations
Introduction
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Chapter
1
Why the Economic Case
for a Multilateral
Agreement on Investment is Weak
Chapter
2
The EU and India on Competition Policy at the WTO:
Is There a Common Ground?
Chapter
3
The Temporary Movement of Workers- GATS Mode 4
Chapter
4
The Use and Reform of Anti-dumping Measures
Chapter
5
The Coming Death of the ATC and China’s WTO Accession:
Will Push Come to Shove for Indian T&C Exports?
Introduction
This
book is a product of the programme known as the EU-India Network on
Trade and Development or EINTAD, launched by CUTS Centre for Trade,
Economics & Environment in May 2002 in Brussels. The University of
Sussex, the UK and the European Institute for Asian Studies, Brussels,
agreed to be partners in the project, and their representatives, along
with other researchers from the two regions, participated in the launch
meeting. This publication contains research papers undertaken jointly by
Indian and European economists and lawyers under this initiative. It
has, thus, established a platform for doing collaborative
policy-oriented research on the relationship between trade and
development, which, it is intended, will become an important forum for
exchange of ideas, knowledge and information on emerging trade issues in
the multilateral context and on the political relationship between the
EU and India.1
The
project was designed for both analysing some of the contentious issues
of the Doha Development Agenda (DDA) and increasing the mutual
understanding and trust between the developing and the developed
countries. While there are obvious and real differences of interest
among countries on many of the issues on the DDA, these have been
magnified and appear less tractable, because the parties often do not
understand their partners’ positions or trust their motives. The
EINTAD project sought to address this impasse by analysing some of the
contentious issues in teams of European and Indian economists and legal
scholars. In part, it is hoped that new approaches to old problems will
provide inspiration to negotiators and technical solutions to their
problems and fears. The EINTAD hopes that by pairing Indian and European
researchers, it will both show that co-operation is feasible (albeit at
a lower level than that of the negotiators) and furnish a stock of
experts on each side of the debate, who have some experience of the
other.
The
context for this co-operation could hardly be more critical. The DDA is
struggling to reach even provisional commitment on various critical
issues that were accepted as necessary precursors to full negotiation
— essential medicines, publication of offers on agricultural
reform and the special and differential treatment of developing
countries. These issues have highlighted a whole series of rifts between
participants and led to a diminution, if not a complete breakdown, of
mutual trust. Prominent among these rifts is that between the EU and the
developing countries, which is the one that we hope to bridge.
The
Cancun meeting was always going to be important, but in the last few
months, it has assumed a broader and more critical significance. The
souring of relations between the US and Europe and between the developed
and developing countries is beginning to threaten the notion of
multilateralism more deeply than had been imagined even a few years ago.
In fact, determining relatively small changes in trade policy
instruments and minor changes in the rules of the international trading
game should be among the easiest of subjects for multilateral action.
Thus, if Cancun does not push the DDA forward significantly, it will
send an unmistakable signal of erosion of the post-war multilateral
ideal and cast a deep-shadow on many
other aspects of the global system, including issues of war and peace.
For
minimum, Cancun must demonstrate clear progress on the precursor issues,
like medicines and Special and Differential Treatment (S & DT); on
agriculture, which has (rightly) become the touchstone of developed
countries’ willingness to use trade policy as a tool for reducing
global poverty; on services, which offer the greatest scope for mutual
gains from trade liberalisation; on barriers to manufacturing trade,
where the issue is developing countries’ own trade barriers that
penalise their consumers and prevent the emergence of profitable trade
amongst the developing countries; and on the Singapore
issues-investment, competition policy, trade facilitation and government
procurement, which have become a focus of intense developed-developing
country debate. Among the other areas, on which one might hope to see
progress, are anti-dumping duties and dispute settlement, which are
major concerns in parts of the developing world.
The
EINTAD project has considered five of these areas—directly or
indirectly—to identify similarities and differences in the developed
(EU) and the developing (India) countries’ interests, and to help
bridge the differences by providing a sound analytical basis for
thinking about them. While we have not attempted to solve all of the
outstanding issues, the project has focussed on several of the most
important among them. This chapter briefly introduces the five studies.
Multilateral
Agreement on Investment
Chapter
1, by Peter Nunnenkamp and Manoj Pant, starts by observing that the
demand by industrialised countries for a multilateral agreement on
investment, to be negotiated under the WTO, has aroused considerable
resistance on the part of most developing countries and the groups, such
as the western NGOs, which claim to speak for them. The proponents of
such a multilateral agreement argue that binding disciplines on
capital-importing countries would help reduce uncertainty and, hence,
result in more foreign direct investment (FDI) in developing countries.
By contrast, the opponents argue that such an agreement will be biased
in favour of business interests and against the development objectives
of developing economies.
Although
appealing to more empirical and pragmatic arguments than the NGOs and
expressing them in much more measured tones, Nunnenkamp and Pant
conclude that the case for a multilateral agreement on investment is not
compelling:
-
Investment regulations have been progressively liberalised via
unilateral measures in the complete absence of multilateral obligations
to do so. Moreover, the protection of foreign investors against
political risk is frequently achieved via the large number of bilateral
and plurilateral investment treaties.
-
A multilateral agreement could reduce FDI-related transaction
costs significantly only in the unlikely event that it replaced the
complex net of 2000-plus existing bilateral arrangements. A
“WTO-plus” framework appears to be the more realistic outcome of
negotiations, with a multilateral agreement defining the lowest common
denominator and WTO members continuing to maintain more substantive
agreements with limited membership.
-
The empirical evidence suggests that WTO negotiations on
investment are neither sufficient nor necessary to induce higher FDI
flows to developing countries. Transaction cost-related impediments to
FDI have played a minor role in driving FDI, and the absence of a
multilateral agreement has not prevented the recent boom of FDI in
developing countries.
The
authors then note that wishful thinking also pervades the position of
the developing countries. The latter want to insist on preferential
treatment with regard to their own obligations as host countries but on
binding obligations on foreign investors and their home countries. It is
highly questionable whether developing countries could derive more
benefits from FDI if a multilateral agreement were to include a
“development clause” allowing for flexible and selective approval
procedures and performance requirements, such as local-content rules.
The call for binding rules on the behavior of foreign investors may very
well discourage multinational enterprises from investing in developing
countries altogether, instead of fostering transfers of technology and
improving the quality of FDI. By insisting on preferential treatment
with regard to FDI incentives, developing countries tend to ignore the
fact that incentives-based competition for FDI is mainly among
themselves. Nunnenkamp and Pant argue that an agreement to limit
investment incentives by developing country governments would be very
desirable, but equally, very unlikely in the present climate.
Unless
developing countries are prepared to tie their own hands, they cannot
reasonably expect significant concessions from industrialised countries.
Developing countries will become relevant negotiation partners in the
WTO only by offering something of their own. Rather than engaging in a
futile attempt to block multilateral negotiations on investment
altogether, therefore, Nunnenkamp and Pant argue, developing countries
should commit themselves to rule-based FDI policies as a negotiating
chip. Besides, they say, the pressure on industrialised countries to
engage in negotiations on labour mobility would mount if developing
countries refrain from performance requirements and grant national
treatment to foreign investors.
Competition
Policy
If
investment is the most sensitive of the Singapore issues, competition
policy is the second. In Chapter 2, T. C. Anant, Simon Everett, Peter
Holmes and James Mathis analyse several of the issues at stake in the
discussions surrounding the creation of a competition policy agreement
at the WTO.
They
begin by surveying the formal submissions of India and the EC to the WTO
Working Group on Trade and Competition and try to identify the exact
location and nature of the differences between them. Despite the very
strong reservations expressed by India about the EC’s proposals, they
nevertheless find that the Indian position is actually not particularly
far removed from them. India has expressed support for the UNCTAD “Set
of Multilaterally Agreed Equitable Principles and Rules for the Control
of Restrictive Business Practices”, and, once one gets below the
rhetoric and legalese, the EC’s current proposals differ little from
the Set.
The
authors next look in more depth at the EC’s proposals, asking just
what new rights and obligations are implied by and what a WTO agreement
inspired by them would mean for a developing country like India. They
suggest that the EC’s current proposals involve surprisingly limited
additional obligations for signatories to a multilateral agreement.
Indeed, in some important respects, the EC’s proposal would
actually reduce the extent of WTO obligations in competition policy, by
confining GATT Article III, on National Treatment obligations in
competition law, to de jure discrimination (i.e.
implicitly permitting de facto discrimination, which is currently
disciplined if it disadvantages imports) and by making further provision
for special exceptions.
However,
if there were no further exclusions, an agreement along the lines
of the EC’s proposals would extend the scope of the de jure national
treatment requirement beyond its present application to include
non-traded goods and to non-scheduled services. The chapter explores a
variety of different means, by which exclusions could be articulated,
including the possibilities of codifying existing obligations, and of
adopting a “GATS” model, whereby members schedule, when they are
ready, specific sectors and specific violations of competition as
actionable under the agreement.
The
final part of the chapter looks in depth at the costs and benefits of
the EC’s proposed provisions on hardcore cartels. The authors
argue that recent evidence makes it hard to sustain the view that free
trade alone guarantees contestable markets. In particular, private
international cartels have been active in both industrial and developing
countries. Moreover, recent evidence suggests that the deterrent effect
of effective anti-cartel enforcement measures is considerable. They also
cast doubts on the often-heard claim that the enforcement of competition
law is an unjustifiably expensive activity. The authors explore a number
of specific issues on cartel enforcement, including the Indian concern
about the withholding of “confidential” information and related
concerns about the viability of amnesty provisions. They believe that
developing economies’ interests would be best served by exploring
arrangements, where the amnesty provisions in industrialised
countries’ competition laws could be used to provide incentives for
cartel conspirators to willingly reveal the extent of their activity to
enforcement officials in developing as well as developed countries.
Overall,
Chapter 2 concludes that from India’s point of view, the weakness of
the EC proposals at the time of writing is not so much that they would
be invasive of India’s sovereignty, as they would deliver relatively
little of what India seeks.
Temporary
Movement of Workers – GATS Mode
4
Even
before the General Agreement on Trade in Services (GATS) can flap its
nascent wings, the literature is already overflowing with its likely
hap. A group of developing countries has concluded that, “The
fundamental objective of the GATS Preamble – to achieve an overall
balance of rights and obligations for all the WTO Members – has not
been attained”.
Christine
Breining, Rajesh Chadha and L. Alan Winters start Chapter 3 by observing
that arguably, the least liberal and most inequitable areas of the GATS
is the Temporary Movement of Natural Persons (TMNP - Mode 4). Developing
countries are replete with labour willing to move temporarily to work,
and yet TMNP accounts for less than 2 percent of services trade and even
less of GATS concessions. This neglect of TMNP as a route to market
liberalisation almost certainly stems from the extreme political
sensitivity of migration within developed countries coupled with the
current tendency to equate temporary mobility with migration in both
popular perception and bureaucratic treatment.
Breining,
Chadha and Winters argue, however, that the issue will become
unavoidable in the developed countries as economic pressures build up.
The need for inflows of labour is already high and is certainly growing,
as developed countries’ work forces age and their relative skill level
and job aspirations rise above those needed for many important services.
TMNP offers a way out of this impasse: while the direct economic
consequences of TMNP are similar to those of migration, TMNP is not the
same as international migration, for it does not entail commitments to
social welfare or shifts in residence of the workers concerned.
It
might, thus, appear surprising that so little enthusiasm has been
evinced for the GATS Mode 4. The authors of Chapter 3 suggest a number
of possible reasons, including the lack of flexibility of GATS bindings
and the MFN requirement. Their behaviour suggests that developed Member
government prefer restricted or regional arrangements for recruiting
specific service providers. This tendency is further strengthened by
fears that labour mobility under the GATS could serve as a tool to
establish permanent residence and, thus, conflict with the existing
immigration policies. From this point of view, existing immigration
rules allow for more flexibility by granting more room for discretion.
This flexibility contrasts with the need for transparency and
predictability, which is required by the GATS. The authors suggest that
the introduction of a GATS visa should be further examined as a way of
generating additional mobility without having to change immigration
policies fundamentally.
The
Chapter offers a detailed discussion of the movement of doctors from
India to the UK based on new data. This is a major flow and a critical
one for the UK’s national health service (NHS); it takes place outside
any GATS provisions. The flows are ostensibly temporary, but in fact,
rates of staying are quite significant, and the data raise at least the
possibility of brain-drain losses to India. One interpretation of the
situation is that the movement of doctors reflect comparative advantage
in the production of fully qualified doctors. India’s comparative
advantage might lie in providing basic education and first degrees in
medicine, while the UK’s might lie in high-level practical training
with modern technology.
Obviously,
the movement of health workers from Asia to Europe takes place at
present despite the absence of commitments under GATS. Three arguments
are made in the chapter for extending the commitments under Mode 4 of
the GATS: first, such commitments would benefit the sending countries by
providing a more predictable and transparent framework that is based on
non-discrimination. This would encourage the flow to developed
countries, which are coming to depend more heavily on them. Second, by
making the inflow more secure, a GATS commitment will allow employers
more confidence in its continuation and, thus, allow greater adjustment
in the direction of comparative advantage. And third, expanding Mode - 4
commitments could be used as a tool to overcome the bias in favour of
highly qualified labour. Since the evidence suggests that the brain
drain may be a problem for countries with extensive export of health
workers, a GATS framework could serve as a safeguard because it
encourages explicitly temporary movement of persons rather than
pseudo-permanent moves. A study on Filipino nurses reported in the
chapter shows that domestic health service delivery may seriously suffer
if the movement of nurses to foreign destinations is left unregulated.
Anti-dumping
Chapter
4, by Krista Lucenti and Sharad Bhansali, considers anti-dumping duties
(ADD). It documents their recent evolution – especially the growth in
their use by large developing countries –
makes a case for their existence and offers some suggestions for
their reform at the DDA. While ADDs are very sensitive, there appears to
be a little willingness to consider their administration, even by the
USA. The authors draw a number of strong conclusions from their study.
They argue, and uncontroversially, that despite the widespread agreement
about the welfare-reducing effects of ADDs, governments will continue to
view them as a politically-easier alternative for promoting efficient
and competitive domestic industries. That is, the DDA will not abolish
ADDs.
Over
1987-2001, anti-dumping cases accounted for 86 percent of all types of
contingent protection measures (anti-dumping, countervailing duty,
safeguards, etc.) used by WTO members.
At the same time, developing economies surpassed the traditional
users (the US, the EC, Canada and Australia), accounting for over half
of the AD complaints, measured by the number of cases filed. The major
new users are the large developing countries, such as South Africa,
Brazil and India. Small economies are mostly still small users. Within
this growth, there has been an increase in “South-South”
anti-dumping cases: India has levied over 50 percent of its measures
against other developing countries; Argentina levied 50 percent of its
measures against Brazil and China; and South Africa, though its targets
were more dispersed, still levied 25 percent of its measures against
China and Korea.
Turning
to the other side of the ledger, developing countries are significantly
more vulnerable to anti-dumping measures than they were 10 years ago.
Their increasing production of the industrialised products, mostly
subject to ADDs, has not surprisingly, made them more vulnerable to
anti-dumping actions. Least-developed countries, on the other hand, have
not experienced such a significant increase due to their low and static
share of exports in the sectors most hit by anti-dumping measures.
With
this in mind, the authors suggest several ways, in which the
Anti-Dumping Agreement (ADA) may be tightened. While no one expects a
revolution in the ADDs, policymakers in Cancun should aim to amend and
improve some provisions of the agreement to reduce existing distortions
and to prevent its gross misuse. From a legal perspective, this would
help tighten the agreement and reduce the ambiguities, from which it
currently suffers. Among the critical issues the authors identify are:
changes in the calculation of the dumping margin and the determination
of normal value, e.g. procedural improvements involving
transactions between related parties and the prohibition of zeroing;
using a broader definition of ‘domestic industry’ in the
determination of injury; the mandatory analysis of all 15 of the WTO’s
recommended injury parameters; calculating injury margins for the most
efficient producer not the least; the mandatory use of the
‘lesser-duty rule’; taking the public interest criterion seriously;
and provisions for relief to small enterprises in the agreement.
<<For Tables & Diagrams Click
Here>>
Textiles
and Clothing
Implicit
in much of the development debate is concern about the future of the
textile and clothing (T&C) market in the face of Chinese accession
to the WTO and the imminent abolition of the MFA. Dean Spinanger and
Samar Verma take up this subject in Chapter 5. They start from the
growing concern that the impact of China’s WTO membership will
massively impact global T&C exports and, in the context of EINTAD,
specific concerns that India will suffer. They argue that there is
currently no consensus on what the impact of the elimination of T&C
quotas in 2005 might be.
Spinanger
and Verma argue that examining the additional impact of China’s
accession to the WTO, there is little doubt that the elimination of ATC
quotas and any liberalisation of tariffs in the DDA will imply a massive
shift of resources. The accession of China to the WTO will certainly
give China’s exports an additional boost, but based on calculations
presented in this chapter, it is suggested that India will actually be
one of the few countries that has the potential to profit from the net
effects of this and the abolition of T&C quotas. This applies not
just to clothing exports but to exports as a whole.
On the
other hand, surveys carried out for this paper in Hong Kong with major
T&C companies reveal the key factors that are essential to attract
investments and generate demand in T&C; in other words, what is
necessary to become more competitive in the sector. In the critical
areas, like transportation and communications infrastructure and labour
market flexibility, India has long failed to perform adequately. Should
India want to profit from the potential created by the quota
liberalisation and at least retain its market share vis-ŕ-vis China,
upgrading will be essential. If the analysis carried out in this paper
is correct, taking such issues seriously is truly a win-win path that
India should venture down as quickly as possible.
In
view of the observation that lack of efficient physical and bureaucratic
infrastructure causes India to be less competitive, the policy message
is just to open up these sectors to private companies that can quickly
design and construct state-of-the-art facilities to cut down the delays.
Then, the authors argue, back this up with sweeping reform of labour
markets as well as of the financial sector, coupled with a major
elimination of tariff and non-tariff measures. The recent attempts to
jump-start industrial and service sector developments by setting up
special zones should also be intensified. Spinanger and Verma suggest
that India should not wait for the next WTO round to bargain through the
suggested tariff and non-tariff changes. China is in the WTO now and
T&C quotas are being eliminated in less than 600 days. There is no
time to wait. India has already waited too long already.
Through
this book, an attempt is made to feed the results of research on the five
issues summarised above into the Cancun Ministerial Conference in
September 2003. It highlights the role that research and policy
institutions and civil society organisations can play in informing and
influencing policymakers in the field of trade and investment issues,
and in working towards bridging the gap between the development of
knowledge and policy-making. In future, the network proposes to expand
further to cover other policy-oriented issues emerging in the
multilateral trading system and to better understand the development
dimensions of the international trading system.<<For
Tables & Diagrams Click Here>>
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