The meeting was expected to agree on a blueprint of “modalities” to impart momentum to the slow moving negotiations under the Doha round. But the talks hit a hitherto invisible rock.
In the words of Peter Mandelson, the articulate EU Commissioner, “unfortunately an irresistible force met an immoveable object in the negotiating room and the rest is history”. He was using the metaphor to depict the clash between India and the US. Mandelson termed the event as absolutely heartbreaking – a collective failure. It is indeed a collective failure and ironically talks floundered on what was thought to be a mere technical issue.
What did exactly break the camel’s back? The answer is: special safeguard mechanism (SSM) issue which raised the question: whether and by how much developing countries would be allowed to temporarily raise tariffs beyond current “bound” levels in order to protect surges in imports of farm products or in the case of sudden fall in their prices? Safeguard provisions are not new to the WTO system. Special safeguard provisions were made (Article 5 of Agreement of Agriculture) to give comfort to many developed countries when agriculture as a result of the Uruguay Round, was brought under a stronger multilateral discipline.
Developing countries had been pleading for a SSM on the analogy of Article 5 of AOA. In 2005, the Hong Kong Ministerial in its Declaration (Para 7) accepted this demand and recognised the right of developing countries to have recourse to a special safeguard mechanism. It was thought that after this Ministerial decision there would not be much of a problem to fill up the blanks to make it operational.
Two things, however, happened to derail the Doha MTNs on this issue. India and China, representing developing countries, demanded a right to substantially raise tariffs above the bound rates in case of relatively modest increase in imports. This stand partly stemmed, on account of the prevalent food crisis which have made many developing countries inclined to revert to the policy of autarky in respect of food stuffs. India and China in particular became convinced of the need of keeping and encouraging more production at home. This called for, among other, things insulating their markets from the rest of the world. This objective was also sought to be achieved, through establishment of a low trigger SSM
On the other hand, the US faced its own problems from a SSM having low triggers. Apart from other objections, it found difficult to sell to its farming community any agreement envisaging reduction of subsidies (which has the persistent demand of developing countries) but failing to secure adequate market access due to the dilution through SSM. As a matter of fact, the US negotiator badly needed a visible victory by securing greater market access for their agriculture and industrial goods, especially in the advance developing countries. SSM was making it difficult to achieve this objective.
G-33, a coalition of developing countries who were proponents of SSM, wanted to invoke safeguard clause through imposition of additional duty of 30 per cent of the bound rates or 30 percentage points (whichever is higher) in case import volume surges were 115 per cent greater than import averages over the previous three years. The US reportedly argued that if developing countries were to be allowed to impose safeguard duties of this high magnitude, the safeguard should only be triggered in case of much larger surges of at least 150 to 155 per cent.
Lamy valiantly tried for the success of negotiations. His first formula did not find favour with developing countries. Thereupon he circulated yet another proposal which elicited a favourable response. However, the US rejected it. Thereafter, a senior EU negotiator (Jean-Luc Dematry) came up with another compromise formula which envisaged a tiered approach allowing imposition of higher duties in case of larger import surges and lower duties in case of smaller surges.
Besides, the objection to SSM on principle, the US expressed serious reservations to the proposed numbers. Schwab claimed that if the safeguard could be triggered even by a 140 per cent surge (deemed definitely high by developing countries) it would impede trade in key products from the point of view of industrial countries’ exporters in most years. According to her, at 140 per cent surge, China could have used the mechanism in eight out of ten years to raise its tariffs above the bound rates.
A lot of progress had been made, prior to this impasse, in respect of several seemingly intractable issues. Reportedly differences on the issue of reduction of farms subsidies and industrial tariffs had been significantly narrowed. Progress had been also made on the issue of preference erosion. Before the collapse of talks, the USA has been showing willingness to limit trade distorting subsidies and volunteered to cap those at $14.5 billion (against the present permissible limit of $40 billion). This limit was far more than the actual expenditure by it during the last year though it was more than the actual expenditure in four of the last seven years.
In a positive negotiating environment characterised by substantial movement, the breakdown of talks was a rude shock. EU Agriculture Commission (Mariana Boel) voicing the sentiments of many members aptly said “Never, never before me have things been so close just to see everything fall apart. Of course disappointment was not only felt by the developed countries. According to Kamal Nath, the Indian trade minister, “it is unfortunate that in a development round, this is the last mile we could not run because of an issue of livelihood security”.
The consequences of latest failure of Doha negotiations for both developed and developing countries are going to be far reaching. Paul Blustein of the Brookings aptly observes, “Looking back in history, we might see this a big blow to multilateral trading system. The collapse risked hurting the credibility of the WTO which is already losing its place as the central rule maker and dispute settler.”
The institutional erosion has already occurred due to the proliferation of bilateral and regional trading arrangements. The latest breakdown will give a big impetus to this trend. Developing countries, (including Pakistan) being weak and vulnerable, in the ultimate analysis, are better off if reforms in the world trade regime take place in the framework of the multilateral system. They are indeed bigger losers if the multilateral system experiences a setback like the one in July.
What happens or does not happen in Geneva has implications for factories and farms in Pakistan. The derailment of negotiating process, among other things means: that long-awaited improvement in the market access as to agricultural goods and reduction of trade distorting subsidies (a matter of critical importance to developing countries) will not come to pass.
An agreement though modest on Special and Differential Treatment (covering nearly thirty SDT provisions on which agreement in principle has been reached) will not materialise. Many progressive developing countries including Pakistan will not see any improvement in respect of non-agriculture market access (NAMA).
Pakistan in particular would be adversely affected by non- resumption of talks in a reasonable time. Due to increase in the per capita income to about $1000 (to some extent artificially contrived by the previous government), Pakistan is not going to remain eligible to give any subsidy to its industries. More importantly, being a country with a per capita income of $1000, it may also start losing preferential treatment under GSP Schemes. Hence a multilateral agreement on better market access for agricultural and NAMA is of much interest to us. This would be relevant not only in respect of markets of industrial countries but also of many developing countries.
Thus inflexibility shown by India and by the US has plainly damaged our interests. Both these countries have shown lack of pragmatism. Pakistan. should more actively pursue this policy and do its best to inject greater flexibility to the negotiating process by building suitable alliances which may work for a balanced outcome. Greater flexibility and pragmatism on the part of both the developed and developing countries is required to save the multilateral trading system and it is worth while to do so. A rigid self-centered approach has to be avoided. The WTO MTNs are an exercise in give and take. Compromise is the essence of such negotiations.
One may inquire if something can be salvaged for the collapsed Doha talks? Reassuringly Susan Schwab, the USTR has declared that the US commitments remain on the table. Likewise the Indian Ambassador to the WTO expressed the hope that ministers would be able to bank the progress they had made and return to the talks.
The world community (both the developed and developing countries) will have to make a befitting response to the challenge.