People's Democracy

A collage of protests in Hong Kong

AFTER the Cancun meeting of the World Trade Organisation collapsed in an untidy mess in September 2003, Pascal Lamy, then the Trade Commissioner of the European Union, came out with a public disavowal of any intention to play the blame game. He managed all the same, to have a swipe at the global trade body as a "medieval" institution.

Today, the French socialist politician, finds himself in the position of the Director-General of the medieval organisation. By some miracle, he has been transformed from a hard-nosed partisan on behalf of EU interests, into an ostensibly fair umpire who will hold the scales even in the complex negotiations between the trade body’s 150 members. The ambivalence of his position was not seriously on display at the recently concluded Hong Kong ministerial conference of the WTO. But Hong Kong was at best a holding operation, an effort to avert a second successive ministerial failure that would have spelt the end of the WTO. Principles have been agreed for the further pursuit of international trade negotiations under the Doha Round. But as the history of the Uruguay Round shows, principles are notoriously malleable and can be moulded into any shape in accordance with the interests of the WTO’s big two.

Lamy’s US counterpart at Cancun, Robert Zoellick, had after the conference crumbled, reserved his disdain not for the organisation, but for the member countries that had blocked agreement. The US came with the intention to negotiate, but found itself confronting political postures rather than reason. The developing countries, Zoellick commented with scarcely disguised anger, were playing the self-defeating game of the 1970s, when they had set out in vain pursuit of a new international economic order. That quest, he darkly warned, had only brought for them the "lost decade" of the 1980s.

If reason was to prove completely elusive for the developing countries, then the US, said Zoellick, would waste no more time in chasing the dream of a world free for trade. It would rather, "move on", concluding bilateral deals with countries that had the "can do" rather than the "will not do" spirit.

Two years, on, Zoellick has moved on to become US deputy secretary of state, where his mission presumably will be to isolate those countries that "will not" go along with the recent disasters in US foreign policy from those who "can". His job should by all accounts, be much easier than negotiating a complex trade agreement between 150 countries, since a large majority have clearly signalled that they "will not" go along with any of the recent military adventures launched by the US in defence of its waning global hegemony.

Robert Portman, Zoellick’s successor as US Trade Representative, came to Hong Kong with certain advantages. Export subsidies in agriculture were widely recognised as the central issue the conference had to grapple with. In this respect, the scenario was a virtual repeat of Cancun. Yet, for all the importance that member countries attached to it, Cancun never seriously engaged with export subsidies, since the E.U. successfully managed to stop the discussions at the defensive barricade it had erected around its core interests. The so-called Singapore issues – investment, trade facilitation, government procurement, and competition policy – dominated discussions for much of the duration of the conference, though it was rather remote from the publicly stated concerns of most member countries. Clearly, the E.U. was using these issues as a smokescreen to obscure the seriously distortionary effects of its subsidies in agriculture. Finally, the Singapore issues proved the hurdle at which the Cancun conference stumbled.

Memories of the Cancun collapse remained vivid in the minds of negotiators as they assembled at Hong Kong. And the verdict seemed inescapable: as far as agriculture was concerned, the EU was the greater problem. Yet, as the Nobel laureate economist Joseph Stiglitz has pointed out, this perception was a triumph of illusion over reality. The US in truth maintains agricultural subsidies that are as flagrant in their trade distortion as the EU’s. The difference merely is in the system of classification, which puts the bulk of these payments under the rubric of domestic support, rather than export subsidies.

At Hong Kong, the EU delegation was to begin with, at pains to underline this fact, though its preference obviously, was to avoid a discussion on agriculture altogether. Hong Kong called for an ambitious outcome, said EU Trade Commissioner Peter Mandelson at his first formal engagement in the city, "but the exclusive focus on agriculture would defeat that ambition". It became clear that the EU had a fight on its hands when the US tilted quite unequivocally towards the developing countries' reading on agriculture. The EU riposte was to play up the package it had put on offer for the least developed countries (LDCs), which was at first glance rather more generous than any other. It also chose to champion the dismantling of the US cotton subsidy, which had caused havoc with the livelihoods of farmers in Africa, especially in the countries that came collectively to be known as the "cotton four" – Benin, Burkina Faso, Mali and Chad.

The EU stated its willingness to yield ground if the US would review its cotton subsidy and also agree to discipline its food aid programs, which were in many cases, a disguised form of export subsidy for its farmers. The US responded by rebuking the EU for its "obsession" with food aid. And referring to the July 2004 framework agreement arrived at in the WTO headquarters in Geneva, which had shown the way forward from the stalemate of Cancun, the US insisted that cotton was a part of the liberalisation process in agriculture. With the EU in turn, underlining sections of the same document that spoke of the sectoral autonomy of the cotton initiative, that round of rhetorical engagement between the two biggest players in the WTO was deemed a dishonourable draw.

It was only on the last night of the Hong Kong ministerial conference that the EU finally placed on record a firm date by which it would be willing to eliminate export subsidies in agriculture. The pathway towards the final declaration was expected to open up with that. But another roadblock existed in the US reluctance to go beyond a rather vague promise that cotton export subsidies would be eliminated by 2006 and trade-distorting domestic support reduced more ambitiously than the general formula agreed for agriculture. Even here, a significant dilution of US obligations was evident between the first and second revisions of the draft ministerial declaration, the predictive "will" being replaced by the "best endeavour" language of "should". From the imperative that domestic subsidies "will be reduced", the commitment was transformed into the relatively less binding language of "should be reduced".

Behind the scenes, it was evident that much persuasive muscle had been deployed to bring the "cotton four" into line. These backroom procedures remain an undocumented part of the WTO’s negotiations process, though they clearly count for much when the heavy hitters like the US are pitted against relatively weak and unorganised entities such as the "cotton four". The verdict clearly, is that WTO remains as always, a forum of differential rights and obligations. Already held in breach of disciplines imposed by the Agreement on Agriculture concluded under the Uruguay Round of trade talks, US cotton subsidies now threaten the Doha round. And with the credibility of the rule-making and dispute settlement processes in jeopardy, the US still managed to get away relatively lightly from Hong Kong.

The EU too has driven a hard bargain. Its commitment to eliminating export subsidies by 2013 is now premised upon "modalities" being worked out to curtail other forms of trade distortion – including the cotton subsidy and food aid – by April 30, 2006. Should these modalities – or principles and formulae – not be achieved, the deadline of 2013 would cease to be operative.

If developing countries have left Hong Kong relatively unruffled, it is only because they have focused on different parts of the overall picture. Brazil, with its strong ambitions in agriculture, sees a possibility of progress in the commitment by developed countries that they will review all forms of domestic support for possible trade distortion, and make "effective cuts" in the total quantum deemed to have this consequence. India, with its pronounced defensive interests in agriculture, has taken home a deal on services that it sees great potential in.

Impatient with the slow progress of services trade liberalisation under the existing bilateral "request-offer" format, India joined the EU in promoting a possible shift to a plurilateral basis. This alternative format would allow any WTO member or group of members to present requests to other members. And members to whom such requests have been made are obliged – by the imperative "shall" – to consider them under relevant legal provisions of the General Agreement on Trade in Services.

India's ardour on the services front was a constant irritant with other developing country members. But in the preoccupation with agriculture, industry and a clutch of other issues, it passed scrutiny. A token softening of the rigours of the plurilateral format was introduced, but most developing countries will in the days to come, seriously assess whether the new rules make them vulnerable to the intrusive attentions of economies with relatively well-developed service sectors. Developing countries cannot be comfortable with the prospect of India, with its vast reservoir of trained manpower, joining forces with powerful services industries in the developed world, to bid for a share in their markets. Like Indian sensitivities in legal services, retailing, communications and transportation are easily pricked by facile talk of opening up these sectors to foreign participation, other developing countries have their own vulnerabilities. It would undoubtedly be the worst possible outcome for India to break ranks and join forces with the developed countries in pursuit of the chimera of growth led by services.

The gains for the LDCs from Hong Kong are negligible. The EU already grants them duty and quota free access under its "everything but arms" program. Other developed countries can earmark upto 3 per cent of tariff lines where the facility would not be granted. The standard industrial classification used by all member countries specifies 5,000 tariff lines at a high degree of disaggregation. If 3 per cent of this number, or 150 tariff lines, were to be taken out of the scope of duty-and-quota free access, all products of export interest to the LDCs, notably sugar, textiles and garments, would effectively be eliminated. And where developing countries are concerned, few are likely to grant the facility, since they invariably have strong competitive interests in most products with the LDCs.

The derisory package devised for the LDCs must count, along with the failure to take on board strong commitments on the elimination of cotton subsidies, as serious failures. That the LDCs and the cotton producers of Africa did not thwart the final consensus is a consequence as much of their poor bargaining power in the WTO councils, as of the coercive power that the big two deploy. As spokesman for the LDCs, Zambian Trade Minister Dipak Patel had on December 17 warned ominously that it was "easy to walk away from something that will leave us no better off than we were before". The LDCs stood to gain nothing from the ministerial declaration that was then undergoing its second revision, and would "not be part of any attempt to disguise failure". But when the second revision was completed on December 18, the last day of the Hong Kong ministerial, the LDCs had no option but to be part of the forced consensus. For all the talk of development, the asymmetry of power is a fundamental feature of the global trade body.