Break WTO deadlock

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Break WTO Deadlock

4 Jul 2007, 0056 hrs IST

Amit Mitra
THE TIMES OF INDIA

The Doha Development Round of WTO received a double whammy within a short space of time. First, the G4 talks between US, EU, Brazil and India crumbled in Potsdam and then on June 30, the US Congress refused to renew the term of the Trade Promotion Authority (TPA), popularly known as the fast track. A major view is now emerging that the Doha Development Round will be on hold till a new president is elected in the US. What is at the heart of the impasse on this Round and is there a light at the end of the tunnel?

I recall an almost similar impasse in Doha nearly six years ago. The FICCI team sat on the sidelines of the green room throughout the night, as the late commerce and industry minister, Murasoli Maran, despite his ill health, refused to give in. Around 7 a.m., Robert Zoellick, then US trade representative and now World Bank president, came up to Maran in exasperation: "What do you really want?" Maran handed over a chit of paper which read "reductions of, with a view to phasing out, all forms of export subsidies; and substantial reductions in trade-distorting domestic support". This was included and thus the Doha Round was born. Two years later, one witnessed the crumbling of the negotiations in Cancun as Arun Jaitley stood firm, aided ably by his ambassador in Geneva, who is now the new cabinet secretary.

Today, the situation is grimmer, since we have already overshot the time of completion of the Doha Round by over two years. Yes, we undoubtedly need a multilateral trading regime, the WTO, to keep nations from following the policy of 'beggar thy neighbour' or crafting conflictual bilateral and regional agreements, 370 of which have already come into existence.

India has a strong case in opposing trade-distorting agricultural subsidies of the US and EU. The quantum of this subsidy is mind-boggling and therefore Kamal Nath has been unrelenting, arm in arm with Celso Amorim of Brazil and supported strongly by the major developing countries of G-20.

The rich nations' club, OECD, provides $280 billion of support to its farmers. WTO permits the US alone to offer $48 billion of overall trade-distorting support (OTDS). EU is allowed 110 billion euros. Yet, they are pushing developing countries for a steep reduction in agricultural tariffs, far in excess of the 36 per cent cut offered by G-20 countries. Even more alarming is their insistence on restricting Special Products (products of developing countries that would be exempted from tariff cuts) to just five items. Is all of this fair?

There is also another ominous process at work. Developed countries are cleverly shifting some of their actual trade-distorting subsidies to the Green Box which is supposed to contain only minimally trade-distorting support. For example, US has already placed $50 billion into the Green Box, all of which is immune from subsidy cuts. US has also created a novel instrument called the Production Flexibility Contract Payments (PFC) and placed it into the Green Box as an escape route. Similarly, EU has created the Single Farm Payment Scheme and positioned it in the Green Box to avoid reduction commitments. How can India agree to such tactics? In the area of non-agricultural market access, developed countries would like India to lower its bound tariffs by a hefty 64-70 per cent, while they have not made significant commitments to address their tariff peaks, tariff escalations or non-tariff barriers. For instance, maximum duty for leather and footwear in the US is 55 per cent, while their average tariff, they claim, is only 3.5 per cent. Thus, peak tariffs are camouflaged. In fact, 2.4 per cent of US's non-agricultural tariff lines attract duties as high as 15 per cent or more.

The phenomenon of tariff escalations in developed nations continues to discourage developing countries from producing value-added products. While the US imposes zero or a rather low rate of duty on raw/tanned leather, its tariff on some categories of trunks and suitcases made of leather is as high as 20 per cent. In fact, tariff escalation explains why developing countries despite producing 90 per cent of global cocoa beans, manage to produce only 44 per cent of cocoa liquor, 30 per cent of cocoa butter, 29 per cent of cocoa powder and just 4 per cent of worldwide chocolate output.

Against such a backdrop, accepting the developed countries' proposal of deep tariff cuts on manufactured products would only imply allowing their goods to flood Indian markets, while Indian goods would still continue to face tariff peaks and tariff escalations in the West. Should we give market access without the elimina-tion of peaks and escalations in developed countries?

Our core strength lies in delivering services to the developed world. A mechanism to make this happen still remains in a limbo. The movement of professionals requires liberal issuance of visas and work permits. This remains elusive. And those who are there pay social security taxes without the hope of ever benefiting from it.

In the absence of any concrete and matching benefits for India, it does not make sense to accept a half-baked solution for the Doha Development Round. This will satisfy no one fully, and in the process compromise the interests of developing countries. The light at the end of the tunnel is rather dim today. The developed world would have to give a big push to make multilateralism glow and thrive.

The writer is secretary general, FICCI.