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THE Nairobi package, representing the outcome of the 10th WTO Ministerial Conference held in the Kenyan capital two weeks back, is a mixed bag.
Arguably the most significant part of the package relates to agricultural export subsidies. The Agreement on Agriculture (AoA) prohibits export subsidies unless they are specified in a member’s schedule of commitments. In the 2005 ministerial conference in Hong Kong, the members had agreed to phase out export subsidies by 2013. The commitment, however, was not honoured.
At Nairobi, the developed countries agreed to remove these subsidies, except for those on processed and dairy products, with immediate effect. Meanwhile, the cut-off date for developing countries to do so is end-2018. However, these countries may continue to maintain export subsidies on marketing and transport costs until the end of 2023.
The least developed countries (LDCs) and net food importing countries may continue to grant such subsidies until the end of 2030.
Since export subsidies inherently distort trade, their removal will contribute to further liberalisation of farm trade. The million-dollar question is whether WTO members, particularly the developed countries, will honour their word.
Another important decision adopted by the ministers relates to the provision of domestic support for food security. The AoA classifies domestic subsidies into those that stimulate production and thus distort trade, and those which do not have such effects. The former have to be scaled down.
The total trade distorting domestic support provided by a country, called the Aggregate Measure of Support (ASM), must not exceed the corresponding annual or final-bound commitment level undertaken by that country. If it does, other WTO members can file a complaint against that member.
Developing countries like India, which provide substantial domestic support in the name of food security (thus exceeding their reduction commitments), have been demanding that they be provided permanent exemption from having to fulfil this commitment. Such an exemption would require an amendment in the AoA.
At the 2013 ministerial conference in Bali, it was agreed that until a permanent solution to the problem was reached, WTO members shall temporarily refrain (until 2017) from invoking the dispute settlement mechanism if any developing country failed to meet its AMS obligations in the name of food security. In Nairobi, the ministers reiterated the Bali decision, resisting, once again, attempts by nations like India to make the exemption permanent.
The AoA also provides that in the event of a rapid surge in imports, countries can impose additional duties even if serious injury is not being caused to the domestic industry. This is called the Special Safeguard Mechanism (SSM). The AoA further provides that the SSM shall remain in force for the duration of the reform process that is currently underway in farm trade.
The 2005 ministerial conference had agreed that developing nations would be entitled to SSM on a permanent basis. This, again, would entail an amendment to the AoA. At Nairobi, the ministers reaffirmed the Hong Kong decision and agreed to thrash out the modalities for a new SSM.
Also at Nairobi, members representing major exporters of information technology (IT) products agreed on a three-year timetable (2016-19) for implementing the agreement to eliminate tariffs on 201 IT products. The decision would drive up trade in IT products. However, the major beneficiaries will be mega exporters of IT products.
The Nairobi package contains a lot to make the LDCs happy. To begin with, the ministers extended for another 15 years (till end-2030) the waiver that allows non-LDC members to grant preferential treatment to LDCs’ services and service suppliers.
As per the WTO’s MFN principle, importing countries cannot discriminate among services or service suppliers on the basis of their country of origin. Already, merchandise exports from LDCs enjoy duty-free and quota-free access in the markets of developed nations.
Another ministerial decision will facilitate the LDCs’ preferential market access to developed and developing countries by providing detailed directions on simplified rules of origin for products originating in the LDCs. The Nairobi decision builds on a similar decision made in Bali two years ago. Since some LDCs, like Bangladesh, are Pakistan’s direct competitors (notably in textiles), the decision may undercut the interests of Pakistani exporters.
The Nairobi package, however, fails to effectively address most of the thorny issues that underlie the current Doha Round stalemate. For instance, it fails to address the issue of tariff escalation for both agricultural and industrial products.
Economies across the globe have highly protected sectors that are reluctant to liberalise. Developed countries have a highly protected and heavily subsidised agricultural sector, while developing countries by and large have highly sensitive industrial sub sectors. Regrettably, the deal struck in Nairobi has not looked into the issue of tariff escalation. This may be dubbed its single largest failure.
Similarly, the issue of domestic support to agriculture has not been addressed. Developed countries, particularly European Union members, dole out heaps of subsidies to their farmers at the expense of those from poor countries.
Published in Dawn, Business & Finance weekly, December 28th, 2015
