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Trade talks trail expectations

Key issues remain the same after Hong Kong

TRADE TALKS among countries are the flavour of the season everywhere, including in India. At the multilateral level, desperate efforts are on to salvage the Doha round of trade negotiations. Trade representatives of some 48 countries are expected to meet this month end in Geneva. They will be striving hard (yet again) to cobble up an agreement on farm exports and export subsidies as well as on tariff cuts on agricultural and industrial products. These have, for a long time, remained the key items to be resolved through multilateral negotiations despite concerted efforts.

The Hong Kong meet attended by all members of the World Trade Organisation last December was expected to make substantial progress in precisely these areas. In fact, months before the meeting, it was believed that two-thirds of the Doha round agenda could be finalised there, leaving the balance to be settled this year. But on the eve of the Hong Kong meet expectations were lowered. So much so its only achievement might well be that all 149 countries unanimously approved the draft treaty. Somehow that by itself was seen to keep the Doha round alive.

Unfinished agenda

Whatever progress was made at Hong Kong was obviously not enough to wrap up the Doha round. Plenty more of spade work needed to be done, often behind the scenes and in smaller groups of trade negotiators. This latter aspect, of a numerically small but economically powerful countries (including some from the developing world) giving themselves the right to negotiate a blueprint for acceptance by all countries, has been widely criticised. However, it was agreed at Hong Kong that another ministerial would be held. A deadline was set for April this year. But in the absence of any significant consensus building groundwork in the intervening period the proposed meeting did not take place.

In such a context of repeatedly missing deadlines, no one is optimistic about the outcome of the forthcoming mini-ministerial. The issues that have confounded trade negotiators from India and other developing countries remain the same, five and a half months after Hong Kong. They affect agriculture as well as industrial goods, the latter covered under the so-called non-agricultural market access or NAMA.

Negotiating as a bloc in Hong Kong, India and other developing countries did wrest an important concession from the U.S. and the EU — the phasing out of all agricultural subsidies by 2013. However for this deal, to be really effective the loopholes that allow hidden subsidies in export credit and food aid will have to be plugged. The related contentious issue of domestic support has also eluded an agreement. Experience of the post-Hong Kong period shows that the differences between the EU and the U.S., always a disruptive factor, have not narrowed down. As for NAMA, the principle "of less than full reciprocity'' was accepted. Developing countries are not bound to cut tariffs to the same extent as developed ones. Here again, the gains from the acceptance of such principles are consolidated only if the complex modalities are worked out and agreed upon.

The relatively slow progress of the multilateral negotiations under the aegis of the WTO has spurred efforts by many countries to enter into regional and bilateral trade agreements. India has concluded trade agreements with many countries and has also embarked on major trade initiatives with important regional groupings. There is an agreement in place with SAFTA and negotiations are on for a more ambitious pact with the ASEAN. The latter, when concluded, will have the potential to alter the pattern of trade pacts everywhere, not just in Asia.

It will also support the view of many experts that while there is a revival of regionalism (in economic and trade pacts) the renewed efforts at creating or extending free trade zones, bilateral pacts and regional groupings are an inevitable consequence of the failure of the multilateral negotiations to move forward on the trade front.

India's reservations

India's experience suggests that there are many glitches to be ironed out to make these agreements work in the ways intended. Also, major difficulties have been experienced at the preparatory stage itself, that is, during the negotiations themselves. For instance, the talks with ASEAN have temporarily stalled. There are major differences over India's negative list (ASEAN says the list is too long). Import of specific products into India has been controversial. Palm oil, one of ASEAN's best known exports, is one of the items India would like to restrain, to protect its domestic industry. A common problem of all trade pacts India has entered into is its "inverted duty'' structure — of (imported) finished products being taxed less than raw materials/intermediates used in their manufacture.

In the agreements concluded, there are major operational issues that include possible revenue loss. This has been a bone of contention between the Finance and Commerce Ministries. Also, the choice of "early harvest schemes" becomes critical when segments of the domestic industry risk being swamped by imports and therefore need time to prepare for the competition. All these suggest that India is still on a learning curve. An even bigger challenge lies ahead. Assuming that the multilateral trade negotiations take off and the Doha round is salvaged, it is going to be a tough task to dovetail regional agreements with multilateral agreements.

C. R. L. NARASIMHAN

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