‘Champagne and Basmati’ – Report from HK-WTO

Early on the morning of 17 December, the second ranking member of the US negotiating team came out with the first reasonably upbeat forecast for the ministerial conference of the World Trade Organisation (WTO) at Hong Kong. Delegations, huddled in intense and often acrimonious bargaining over four days, had the historic opportunity to close out a deal that would enshrine the developmental dimensions of international trade, said Peter Allgeier, Deputy U.S. Trade Representative and Ambassador to the WTO. But time was of the essence: just over a day remained for the conference to run its course and those 24 hours indeed, would test the will of the international community in doing what was fair for the developing countries.

Just the previous evening, the developing countries had shown themselves united as never before within WTO councils. Addressing a media conference, the Brazilian foreign minister Celso Amorim, spoke of a new dynamic in WTO negotiations. "This is a historic moment", he announced, and a "revolution" was "graphically" unfolding in WTO affairs. For the first time in a ministerial conference, "developing countries were harmonising their positions across a wide range" of issues. Accompanying the Brazilian minister at the event, were the heads of delegation from India, Mauritius, Egypt, Zambia, Indonesia and Jamaica, representing between them a diverse range of country groupings – often overlapping – the G20, the Africa Caribbean and Pacific, the Africa Group, the Least Developed Countries, the G33, the G90 and the small and vulnerable economies. Arithmetical skills being at a premium in the hothouse of the ministerial conference, the gathering adopted the simplest technique of adding the numbers of its smallest and largest groupings, to arrive at the figure of 110 members. That little artifice apart, the event was momentous in the scope of shared interests it brought to the bargaining table.

Politics of agriculture
The manifest sense of impatience seemed entirely appropriate for the fourth day of a ministerial conference that had seen much time wasted in diversionary manoeuvres by the WTO's two big players, the United States and the European Union. Agriculture was the focus of the conference from literally the moment it kicked off; and within this track of negotiations, the vast subsidies that the developed nations maintain came in for much adverse notice.

There were of course reasonable grounds to question whether agriculture was the key that would unlock the developmental potentialities of the poorer countries. In particular, the populous countries of Southasia, which have little by way of an agricultural surplus and indeed, continue to depend on imports to meet vital gaps in their nutritional baskets, have little to gain from trade liberalisation. Yet India joined Brazil, Argentina and other major agricultural exporters in the G20 grouping to demand movement in agriculture before any other issue could be addressed.

India was in this respect, playing a defensive hand. Its interest is not so much gaining access to markets in the West, as keeping foreign producers out of its turf. With 60 percent of its population dependent on agriculture, the compulsions are fairly clear. Opening up the Indian market to predatory exports from developed countries would ruin the small-holder and the peasant. Market access, in other words, would become a synonym for the destruction of purchasing power and the demise of the market.

Brazil, the main spokesman for the G20, has a rather different set of interests. Two of the most significant verdicts delivered by the WTO's dispute settlement body (DSB) in recent years have involved Brazil as a complainant. In June 2004, the DSB held the U.S. cotton subsidy regime to be in breach of the Agreement on Agriculture (AoA) concluded after the Uruguay round of trade negotiations, which was itself an arduous and enervating process stretching between 1986 and 1994. Two months after delivering this judgment, it ruled that the EU sugar subsidy violated agreed international trade rules. Both rulings were reaffirmed in August and upheld after appeals were exhausted in January 2005.

WTO agreements are ostensibly based on consensus among its 149 member countries. But since all members are expected to move in tandem towards mutual agreement, the recalcitrance of any one member could often be a camouflage behind which various other interests could shelter. Any one country can refuse to move merely because one other does so.

This rather unsavoury game was played out for more than half the length of the Hong Kong conference. As recently as the November 2005 gathering of the Asia Pacific Economic Cooperation forum in South Korea, the US had sought – and failed – to have the EU named as the principal offender behind distortions in world agricultural trade. Arriving in Hong Kong a month later, the US delegation gauged the current of opinion among the WTO membership and eagerly joined the chorus for an end to export subsidies in agriculture.

For tactical reasons that were as obvious as they were disingenuous, the EU held out till the bitter end in refusing to specify a date by which it would be willing to eliminate export subsidies in agriculture. But while enjoying the discomfiture of the Europeans, the U.S. found itself the focus of some unsavoury attention when the discussion turned to specific problem areas: like cotton subsidy and market access for the least developed countries (LDCs).

The final deal knotted all the problems in agriculture into one tangle that will either be unravelled all at once, or not at all. The EU will eliminate export subsidies by 2013 but only if the US ends its practice of disguising exports as aid. Further, should Canada, Australia and New Zealand fail to correct the market distortions arising from their giant agricultural trade monopolies, neither obligation would be binding. The US in turn has agreed to end its cotton subsidy and restrain domestic support for the crop, over a briefer time scale than that agreed for agriculture as a whole. But again, the agreement is couched in the best endeavour language of 'should' rather than the imperative of 'shall' or the temporally determined 'will'.

Doctrine of Proportionality
Developing countries have to beware when the US and the EU concur. Effectively  the two have managed to roll over the binding obligations of the Uruguay Round into the indefinite future. They will be renegotiated under the Doha Round, and rather than incur a penalty for default, the strangely skewed negotiating processes within the WTO have ensured that the 'big two' earn a reward. The promise to eliminate the worst abuses in agricultural trade was the quid pro quo that the US and the EU extended under the Uruguay Round to garner major concessions from the developing countries on services and intellectual property rights. The two are now demanding that the developing countries pay a further price before they themselves deliver on the promises of the distant past.

Part of the reason Hong Kong did not collapse in a disorderly mess, like the preceding ministerial conference at Cancun, was its relative lack of ambition. Agreement was forged by merely deferring the consideration of specific commitments to a later date. And the hard bargaining to follow will not be conducted within the apex decision-making body of the WTO, which is its ministerial conference. The "modalities" of trade liberalisation – or specific targets and numerical commitments – will be discussed at the level of ambassadors at the General Council of the WTO in Geneva. It is likely that ministers from key countries will be called in to ratify the agreements concluded at the General Council. This would be consistent with the pattern set in July 2004, when the General Council, with a handful of ministers participating, ratified a "framework agreement" that showed the way forward from the Cancun collapse. That the July Framework, as it came to be called, still did not constitute an adequate basis for a broader and more specific consensus, became clear as subsequent discussions meandered into a slough of discord.

The key question now is whether the Hong Kong declaration represents a sufficiently evolved consensus for cutting through the tangled thicket of interests and compulsions that is the global trade scenario. If the EU and the US differed publicly in their reading of the centrality of agriculture in the development dialogue, they have a common interest in forcing down the protective barriers that developing countries have erected around their nascent industrial sectors. This area of negotiations – called non-agricultural market access, or NAMA, in WTO circles – is likely to witness a concerted push by the EU and the US in the months ahead. Developing countries have accepted in principle that they will apply the same formula as the developed world in cutting tariffs on industrial products. But they have successfully argued the case for cuts that are less sharp, as also for the principle of "special and differential treatment" that they would be the beneficiaries of.

Developing countries have succeeded in introducing a doctrine of proportionality into the WTO negotiating process, perhaps for the first time. The level of ambition that they will be expected to display in the NAMA area will, under this principle, be proportional to that displayed by the developed countries in agriculture. Without major concessions in agricultural market access in short, developed countries cannot expect much by way of tariff cuts in industrial goods by the developing countries.

The proportionality doctrine was opposed by the E.U. but it has since been espoused by the U.S. as the reason why sharp cuts in tariffs should be effected in both agriculture and NAMA. There is likely to be an effort by developed countries to narrow the focus of discussion in market access, to tariffs alone, rather than deal with the broader canvas that includes domestic support too. This is unlikely to win much favour with the developing countries. Indications are that a logjam will ensue. The Hong Kong declaration has laid down 30 April 2006 as the deadline for working out modalities on all these areas. But the smart money would be on this deadline being missed.

TRIPS tangle
This should occasion no pangs of conscience, since delay and dilatoriness continue to be favoured as negotiating strategies by the US and the EU where issues of vital interest to developing countries are concerned. From the moment it became the binding international law, the Uruguay Round agreement on "trade related aspects of intellectual property rights" (TRIPS) – rendered in plain language as patents, trademarks and copyright – had been widely recognised as iniquitous and unfair. This was especially evident in the domain of public health, since the rigorous system of patents instituted had deeply eroded many countries' ability to access the drugs essential to treat chronic and endemic illnesses. Fearing that the patents regime itself would lose legitimacy, the US and the EU, with the former being relatively the less amenable, agreed to the much cited and celebrated "Doha Declaration" that upheld public health and access to essential medicine as a right that overrode any privilege conferred by the TRIPS agreement.

That seemed a hard won triumph, but it was only the beginning. The modalities to operationalise the Doha Declaration were only agreed prior to the fifth ministerial conference in 2003. And it took till the eve of the Hong Kong conference to work out the required amendments to the TRIPS act. Evidently, the WTO believes in delivering on its most significant promises to the poor only when ministerial conferences are imminent.

The final outcome of the TRIPS amendment has been held grossly inadequate to the scale of the public health crises developing countries face. Countries seeking to import essential drugs have to go through an irksome process of clearance that puts each potential source of supply and each required drug through minute scrutiny. As Ellen t'Hoen of the Nobel Prize winning voluntary group, Medicins Sans Frontieres put it: "the WTO has decided to sacrifice access to medicines before the Hong Kong meeting, settling for inadequate measures simply to get it off the agenda".

The other problem areas in the TRIPS regime arise from its failure to examine the merit of extending "geographical indications" protection to products other than wines and spirits. Under the Uruguay Round mandate, the relevant body within the WTO was required to begin examining this issue within two years of the agreement being implemented. Four years into this mandated review, the Doha ministerial declaration affirmed that a multilateral system of registration of geographical indications for wines and spirits would be negotiated. French champagne and cognac could thus count on the prospect of protection from counterfeits and imitations. On other products, like basmati rice or Darjeeling tea, the promise held out was relatively vague: that the WTO body tasked with monitoring the TRIPS agreement would "address" the issue.

Apart from agricultural and plantation products, developing countries have a strong interest in safeguarding location-specific appellations for certain varieties of textiles and garments. This is quite evidently so in the case of all Southasian countries. But the Hong Kong declaration only asks the Director General to consult a range of member countries on the desirability of extending geographical indications protection to products other than wines and spirits.

The same rather indeterminate procedure has been prescribed for examining the relationship between the TRIPS agreement and the Convention on Biodiversity (CBD) agreed at the Rio de Janeiro Earth Summit in 1992. The Southasian region has had ample reason for heightened sensitivities on this count – in the past decade since the WTO came into existence, there have been attempts to patent the curative and health-sustaining properties of at least two traditional plants of the region, neem and turmeric. But the General Council of the WTO has taken on a very limited onus in this regard. It will receive reports from the Director General by July 31, 2006, by which time it will take an "appropriate decision". With the U.S. having clearly signified that it attaches little value to the CBD and indeed, views it as a violation of free trade principles, the outlook on this score cannot be very good.

Rethinking the market
There is an unthinking belief today that economic development, the bootstraps operation by which many hundreds of millions would find a pathway out of a life of grinding poverty, is a natural outcome of unfettered trade. Market access, in other words, is the key to development. To gain access to world markets and to provide access to one's own, would unlock the door to development for those suffering the worst of poverty and its consequences. The development dialogue at Hong Kong was thus confined to a range of very limited issues: providing preferential market access to the LDCs and working out a package of aid that would enhance their capacity to trade in the international marketplace.

The wealth of nations, said Adam Smith, is a consequence of the progress in the division of labour. The division of labour in turn is dependent on the extent of the market. And the extent of the market is a function of the division of labour. If this most fundamental theorem of Smith's reduces itself to a mere tautology, the reason partly is that reciprocal causation is the rule in the real world, rather than linear determination of one phenomenon by another. But the better part of Smith's discourse on the "wealth of nations" was devoted to a study of distributive relations. How is the aggregate national income allocated amongst the main social classes comprising the nation? What are its underlying principles? And how equitable are the procedures inherent in modern capitalism? His answers were always equivocal, but underlying his inquiries was the powerful finding that a system of unfettered capitalism and free trade invariably results in an outcome that is unjust and inequitable, especially hard on those without means. The decade-and-half of globalisation testifies to the enduring validity of this finding by the pioneer in the study of modern political economy.

A study of the international coffee trade by the UK- based advocacy group, Oxfam, has found that between the farm gate and the supermarket shopping trolley in the West, the price of a kilogram of coffee increases by the order of 7000 percent. What the grower sells for 14 US cents ends up in the supermarket with a price tag of USD 26.40. The difference accrues to the entities that at the intervening stages, particularly the multinational corporations that dominate the roasting, grinding and blending processes:  Nestle, Kraft, Procter and Gamble, and Sara Lee. Free trade in coffee has been the norm since the old cartels collapsed in the 1980s. But free trade has meant the progressive impoverishment of the grower and the enrichment of the multinational corporation. By this same measure, the granting of duty-free and quota-free access to affluent Western markets is unlikely to improve the economic condition of the LDCs. The reason simply is that equity in trade is yet to be addressed, in particular the massive asymmetry in economic power that has emerged between the primary producer and the corporations that dominate world markets.

This is an issue that the WTO as an organisation is institutionally incapable of addressing. But the Hong Kong ministerial conference did witness a consolidation of developing countries unlike any seen before within the body. This was no more than a qualified success. Developing countries managed to deny the US and the EU some of the benefits that they sought, but failed to garner any for themselves. With the strengthening of their unity, though, it is conceivable that the WTO's predatory commercial agenda could be checked and rolled back. The development dialogue could then move on to forums that could address its basic issues with a great deal more credibility.

~ Sukumar Muralidharan is a freelance journalist and visiting professor at the Centre for Jawaharlal Nehru Studies, Jamia Millia Islamia, New Delhi.