Published:The Hindu Business Line, December 29, 2005


By Pradeep S. Mehta and Pranav Kumar

The result of the Hong Kong Ministerial is not as important as the message it sends for the developing countries. After having flexed their muscles in the multilateral trade arena, they need to develop an alternative to the markets of the North. This is possible only through greater South-South cooperation on trade and economic issues, say Pradeep S. Mehta and Pranav Kumar.

UNDOUBTEDLY the outcome of the Sixth Ministerial Conference of the World Trade Organisation (WTO), that concluded in Hong Kong on December 25, was modest. The biggest achievement is that the Ministerial did not flop. A second collapse after Cancun would have been really disastrous for the multilateral trading system. While a failed Ministerial puts the agenda in a reverse gear, a successful one at least sends a positive signal. The second important result is, for the second time in a row, countries of the South not only remained united, but reinforced their unity, telling the North that enough is enough.

If one recalls, the Cancun Ministerial had ended on a bitter note. Soon after, the WTO members indulged in a blame game. The then US Trade Representative, Mr Robert Zoellick, in his post-Ministerial press conference said, “Whether developed or developing, there were `can do’ and `won’t do’ countries here. The rhetoric of the `won’t do’ overwhelmed the concerted efforts of the `can do’. `Won’t do’ led to impasse.” The WTO Director-General, Mr Pascal Lamy, who was the chief negotiator of the EU at Cancun, termed the WTO a `medieval’ organisation. The then Commerce Minister, Mr Arun Jaitley, had summed up the outcome of Cancun in a one liner: “No deal is better than a bad deal”.

Cancun to Hong Kong
After the Cancun fiasco, it took three-four months for the negotiators to come to the negotiating table and resume the dialogue. This resulted in the “July Package”, which once again raised the expectations of the developing countries. Alas, the euphoria created by the July Framework Agreement proved short-lived. Back home, WTO members succumbed to the realpolitik and started singing in different tunes. Theresult: The Doha Round once again plunged into serious crisis. This is evident from the fact that in the run up to the Hong Kong Ministerial, the draft declaration was supposed to be released after the General Council (GC) meeting of July 2005, in what was called “July Approximations”. But the GC meeting failed to evolve a consensus. The next GC meeting, in October, ended similarly. Finally, when the November 2005 GC meeting also could not break ice, Mr Lamy came out with his own draft declaration, which was modest in terms of substance. He put the Chair’s reports in the annexure, urging members to build upon that.

What happened at Hong Kong?
The Hong Kong Ministerial Meeting began on a pessimistic note. A day before the inaugural, the attendance was poor. Delegates of some of the WTO member-countries were not present, giving the general impression that nothing much was going to happen. However, soon it turned into a four-corner contest, with the G-20 and the G-33 on one side, and the EU, the US and the least developed countries (LDCs) on the other.

As usual, developed countries started shedding crocodile tears for LDCs. A plethora of hollow promises in the form “aid for trade”, duty- and quota-free market access and many more were served to the LDCs. The main objective was to shift the focus from the core agenda of trade liberalisation, as was evident from the EU Trade Commissioner,

Mr Peter Mandelson’s statement that he was at the outer limit of his mandate and had nothing much to offer. At the same time, Mr Mandelson repeatedly skirted the negotiations citing reasons that there was nothing much to negotiate about. On the other hand, the US too was non-committal on the LDCs’ demand of duty- and quota-free market access for all their products and, particularly, on the issue of eliminating domestic cotton subsidies.

The G-20 and the G-33, on their part, tried to be practical. They realised that it would be foolish to expect any ambitious result from Hong Kong, given the prevailing divergence of opinions on agriculture. They demanded that on export subsidies, as per the “July Framework” Agreement, the WTO members had to agree only on the end date of their elimination, which would have been the easiest thing to implement.

Unfortunately, instead of discussing this, the two major trading giants ā€” the EU and the US ā€” got entangled in a dog and cat fight over giving food aid to poor countries. The EU argued that cash was the best way to provide food aid, alleging that the US’ food-aid-programme was causing commercial displacement. Finally, on December 16, the first-ever joint G-20 and G-90 Ministerial-level meeting took place. The Commerce Minister, Mr Kamal Nath, and his Brazilian counterpart, Mr Celso Amorin, were both instrumental in building this grand alliance of 110 countries covering four-fifth of the humanity. This thwarted and called the bluff of the rich countries to lure the LDCs and divide the unity of the South.

The G-110 meeting also proved that their unity at Cancun was not a fluke and would sustain. Only after this was the focus of the negotiations brought back to the main agenda, resulting in the release of a revised text on December 17 and the adoption of the final Declaration on December 18.

End result of Hong Kong
The outcome of Hong Kong was modest, which was not unexpected. The main demand of the G-20 to eliminate export subsidies by 2010 was not accepted by the EU; instead, a compromise date of 2013 was agreed with some frontloading. This also culminates with the EU Common Agricultural Policy’ reform. What is most unfortunate is that the language on export subsidies has been made more complex. The G-20 can no more say that this will be easy to implement.

On providing duty and quota-free market access to LDCs, the demand of including all products has not been accepted unequivocally. In fact, some of the LDCs might be completely denied this preferential market access. The language of the text on cotton is disappointing in contrast to the pressure mounted by the cotton-producing LDCs in West Africa. There is no clear and firm commitment from the US on reduction of domestic subsidies on cotton. The EU is a very minor cotton producer. Also, with regard to the demand of creating a “special development fund” for the transition period, the US remained non-committal.

However, the text on non-agricultural market access (NAMA) gives a sense of comfort to some extent as tariff peaks and escalation would be reduced or appropriately eliminated by using the Swiss Formula with multiple coefficients. Preference erosion, which is one of the major fears of LDCs, has been recognised in the text.

Lessons from Hong Kong
The result of the Hong Kong Ministerial is not as important as the message it sends for the developing countries. The latter’s major demand was to seek greater market access in the North, particularly in the products of export interest to them. The Hong Kong Declaration does not promise much on this front as the ticklish issues of modalities are yet to be sorted out.

After flexing their muscles in the multilateral trade arena, developing countries need to develop an alternative to Northern markets. This is only possible through greater South-South cooperation on trade and economic issues. This should also cover the larger issues of technical assistance and capacity-building. Greater South-South trade will further strengthen different South alliances in the WTO which, at present, are more political in nature.

Over the last decade (1990-2001), developing economies have grown much faster than developed ones and transition countries and are expected to continue to do so in the coming years. This positive growth performance in the 1990s did result in increased share of South-South trade in world trade. The South-South trade almost doubled, reaching 10.7 per cent in 2001 from 6.5 per cent of world trade in 1990. But this is definitely not enough to reduce their dependence on North and to diversify exports of many LDCs beyond primary products.

What is required is greater facilitation of South-South trade, which is facing hurdles from its own barriers and from the distortions caused by the protectionist trade policy of the North. Despite significant reductions in the obstacles to trade, the developing countries among themselves still maintain higher tariff and non-tariff barriers. The cost of doing trade is also high among Southern countries. It is, therefore, important for them to not only reduce these barriers but also undertake the exercise of trade facilitation measures at the regional level.

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