People's Democracy

A Bad Deal for Developing Countries

Prasenjit Bose

THE WTO Ministerial Conference, which commenced in Hongkong on December 13, 2005, adopted a declaration on December 18, after six days of acrimonious negotiations between the developed and the developing countries. Although initially there was a show of unity among the developing countries especially on the issue of agriculture, which was reflected in the formation of the G 110, the final outcome of the Ministerial has been thoroughly anti-development. The Ministerial Declaration has not only failed to substantially address the concerns of the developing countries but has actually paved the way for an eventual trade deal by the end of 2006 that is going to be severely detrimental for their interests. It is clear by now that the so-called “Development Round” launched in Doha in 2001, has been manipulated by the developed countries, especially the US and the EU, to push for further trade liberalisation in the developing countries while the developed countries themselves continue to protect their economies through high subsidies and non-tariff barriers. Far from redressing the asymmetries of the global trading system, the Doha round seems to be heading for another catastrophe for the developing world.

PITIFUL “CONCESSIONS”

The EU stuck to its intransigent position on the end date of 2013 for the elimination of export subsidies and the developing countries gave up their demand for an earlier end date despite the initial collective efforts of the G 110. The gross inadequacy of this so-called “concession” can be understood from the fact that export subsidies comprise less than 2 per cent of the total farm subsidies in the developed world. There has been no concrete commitment on reduction of domestic support other than export subsidies. The EU can continue to subsidise agriculture to the tune of 55 billion euros per year. The EU budget adopted recently ensures that nothing can be touched in the agriculture budget till at least 2013. The US budget reconciliation process and the final vote in the Congress is set to extend the domestic support to agriculture and the counter-cyclical support to commodities upto around 2011.

Even in the case of Cotton, the agreement to eliminate subsidies by 2006 is restricted to export subsidies only and does not include other forms of domestic support. The US refused to give duty-free access to exports from the LDCs for 99.9 per cent of product lines and finally the agreement has been on 97 per cent, which would enable the US and Japan to deny market access to the LDCs in several product lines like rice and textiles. Much of the Aid for Trade for LDCs, which is being showcased by the developed countries as a “development package”, is disguised under conditional loan packages that are contingent upon further opening up of their markets.

INDIA’S DISAPPOINTING ROLE

India stands to gain almost nothing from the so-called “concessions” offered by the developed countries. Whatever little benefit in terms of enhanced market access would accrue to developing countries would be cornered by agri-exporters like Brazil, Argentina etc. India’s proactive support to the Annex C of the Ministerial Text (on Services), which was opposed by a large number of developing countries with the G 90 submitting an alternative draft, was most unfortunate. This reflected lack of commitment on India’s part to the unity of the developing nations. The supposed gains in terms of Mode 1 and Mode 4 liberalisation that might accrue to India, which would only benefit some sections of the corporate sector like the BPO industry and a small segment of the skilled professionals, does not justify compromising the interests of the overwhelming majority of our population.

The union commerce minister had categorically assured the parliament before travelling to Hongkong that there would be no compromise on India’s defensive interests in agriculture and industry in return for some concessions in Services. Kamal Nath spoke almost on the same lines at the Plenary session of the Ministerial as well. However, all this was forgotten during the final stages of the negotiations. Rather than standing up to the pressure exerted by the developed countries, India played the most disappointing role of facilitating the adoption of the Ministerial Text despite unwillingness on the part of several developing countries. India’s complicity in pushing the final agreement along with Brazil, the leading countries of the G 20, reflects poorly on their ability to provide leadership to the developing countries. It is noteworthy that Cuba and Venezuela categorically expressed their reservations on the texts on NAMA and Services in the concluding session of the Ministerial.

DISTURBING DEAL ON SERVICES

The most dangerous aspect of the Hongkong deal is the agreement on Services (Annex C of the Ministerial Text) that seeks to subvert the basic structure of the GATS, where countries are hitherto allowed to make voluntary commitments to liberalise their services sectors in accordance with the level of their economic development and national requirements. Para 7 of Annex C emphasises request-offer negotiations on a ‘plurilateral basis’, which would undermine that flexibility. Though these 'plurilateral negotiations' (in a specific sector or Mode) are seemingly envisaged as part of the 'request-offer' approach, the way the text is worded in para 7(b) makes it clear that those who receive such a request "shall enter" into plurilateral negotiations on such requests "so organised" as to facilitate participation by all members. In effect, any individual developing country receiving such 'plurilateral' requests will find it very difficult to resist them. With a timeline for the final draft schedules of commitments agreed for October 2006 in the Ministerial Text, it is evident that developing countries like India would be soon forced into sectoral and government procurement negotiations through offers made by the developed countries for across-the-board opening up of Services sectors.

While the government has already launched its propaganda on the supposed gains accruing to India following further liberalisation in Mode 1 and Mode 4, in terms of more outsourcing and more H1B visas, it is silent on the agreed “objectives” with regard to Mode 3 i.e. “commercial presence” category of service providers, which is a euphemism for FDI in a huge range of services from banking and insurance to health and education. Major concessions on the part of developing countries have been made here which would only benefit the MNCs based in the developed world. On Mode 3, the agreed “objectives” are “Commitments on enhanced levels of foreign equity participation; removal or substantial reduction of economic needs test; commitments allowing greater flexibility on the types of legal entity permitted.” The objectives of the multilateral investment regime and government procurement, which developed countries had pushed earlier on from the Singapore Conference in 1997 (hence the name Singapore issues) and given up in the aftermath of Cancun after strong resistance from the developing countries, have made a reentry through the backdoor in the Services text in Hongkong, this time with the active support and collaboration of India. The gains of Cancun have thus been frittered away.

By agreeing to the objective of securing “commitments on enhanced levels of foreign equity participation” under Mode 3, India has paved the way for greater liberalisation of the Services sector in future. Besides the threat of commercialisation of social services like higher education and health facilities (which have already figured in India’s Offer list), this would also come into conflict with India’s domestic regulations in terms of the FDI caps in financial services like Banking, Insurance etc. GATS clauses of progressive liberalisation will also ensure that foreign service providers will have to be given the same regulatory treatment as domestic ones. This will severely compromise the ability of developing countries to regulate foreign service providers.

DC's TO SLASH AGRICULTURAL TARIFF

India’s prime interest in agriculture was to ensure the protection of our small and marginal farmers from the onslaught of artificially low priced imports or threat thereof. The proposals for agricultural tariff cuts, which are already on the table, are quite ambitious and the G 20 has already committed itself to undertake cuts to the extent of two-third the level of the cuts applicable to developed countries. Moreover, India has 100 per cent tariff lines bound in agriculture with the difference in the applied level and the bound level not very marked in many lines. In this context, the systemic problem faced by our small and marginal farmers practicing subsistence agriculture will only get aggravated as a result of the impending tariff cuts that have been agreed. It is being claimed by the government that the right to designate a number of agricultural product lines as Special Products based upon the considerations of food and livelihood security and Special Safeguard Mechanism based on import quantity and price triggers, which have been mentioned in the Ministerial Text, adequately addresses the concerns of our farmers. The claim is questionable since the nature as well as the extent of protection under Special Products remains restricted and the Special Safeguard Mechanism, admittedly, is a measure to deal with an emergency and is of “a temporary nature”. In the light of the insignificant reductions in domestic farm subsidies by the developed countries therefore, tariff reduction commitments by the developing countries seem to be totally unjustifiable.

LACKING FULL RECIPROCITY

Developing countries have also agreed on the Swiss formula for tariff cuts under NAMA. Although the coefficients will be negotiated later, it is unlikely that the developed countries will agree upon sufficiently large coefficients for the formula that would ensure adequate policy space for developing countries in future to facilitate development of different sectors of their industries. The ritual references to “less than full reciprocity” and “special and differential treatment” in the Ministerial text fails to conceal the fact that the flexibilities provided by the July framework (Para 8) regarding the nature of the tariff reduction formula, product overage, extent of binding and depth of cuts have been done away with. Moreover, no concrete commitment has been obtained in the Ministerial Text for the removal of the Non-Tariff Barriers by the developed countries, which is their principal mode of protection, despite the developing countries making such major concessions on industrial tariff cuts.

The fact of the matter is that the developing countries have committed themselves to cuts in both agriculture and industrial tariffs, without getting anything substantial in return from the developed countries. And India has facilitated the adoption of this bad deal in the backdrop of an acute crisis faced by Indian agriculture. The opportunity to fundamentally rework the iniquitous Agreement on Agriculture and protecting domestic policy space vis-à-vis industrial protection by the developing countries, which could have been achieved by galvanizing the unity of the G 110, has unfortunately been lost.

TRIPS REVIEW NOT CONSIDERED

The developed countries have been able to extract the maximum advantage possible out of the TRIPS agreement. Therefore they are not interested in a Review of the TRIPS Agreement. However, it was in India’s interest to bring to the table issues related to TRIPS that should be considered for review and for necessary amendments. Specifically they pertain to issues such as Patent period, patenting of life forms, the possibility of having special provisions for sectors related to health and food security. This is well within the mandate of the TRIPS agreement, where a mandated review of the agreement is long overdue.  Many developing countries have already called for such a review.

It is also surprising that India did not oppose the decision of the WTO (announced on December 6) to amend the TRIPS Agreement based on a mechanism that has failed to prove it can increase access to medicines. The so-called “August 30th decision” which was designed in 2003 –- in the aftermath of the Doha Declaration on Public Health and Access to Medicines –- to allow production and export of generic medicines to countries without manufacturing capability, is widely acknowledged to be cumbersome and inefficient.  Till date there is not a single instance where the mechanism has been used, and not one patient has benefited from its use despite the fact that newer medicines, such as second-line AIDS drugs, are priced out of reach of poor patients. India should have argued for delaying of the amendment and exploring the possibility of an improved mechanism for supply of Patented drugs at affordable prices to countries without manufacturing capabilities. The amendment has made permanent a burdensome drug-by-drug, country-by-country decision-making process, which does not take into account the fact that economies of scale are needed to attract interest from manufacturers of medicines. Without the pull of a viable market for generic pharmaceutical products, manufacturers are not likely to want to take part in the production-for-export system on a large scale.

CONCLUSION

Kamal Nath was among the first few developing country ministers who publicly endorsed the Draft of the Ministerial Text in Hongkong and its development content. A study of the fine print of the Hongkong Ministerial Text, however, shows that the gains for the developing countries in general or India in particular, are by far too few. Moreover, the costs in terms of agricultural and industrial tariff cuts and service sector liberalisation far outweigh the supposed benefits. The Union commerce minister has to explain why such a bad deal was eventually agreed upon and why India acted as a facilitator for its adoption.