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Africa: Trade Update, Commonwealth
AfricaFocus Bulletin
Jun 22, 2004 (040622)
(Reposted from sources cited below)
Editor's Note
"The development focus of the Doha Round emerged from a renewed
spirit of collective responsibility for the challenges faced by
poor countries, and also as a response to the perceived inequities
generated by previous rounds of trade negotiations. Unfortunately,
in the years since it was launched, the Doha Round has not
delivered on its development mandate."
In a new report commissioned by the Commonwealth Secretariat, Nobel
Laureate and former World Bank senior economist Joseph Stiglitz has
launched a broad critique of current trade talks, which he argues
does not truly represent the interests of developing countries. The
report, from which brief excerpts are presented below, presents
the case for a new framework for international trade negotiations,
in which development needs are taken seriously and the inequities
of previous agreements are addressed.
World Trade Organization (WTO) negotiations will continue as
scheduled next month in Geneva. But developing countries are
increasingly making use of other fora to strengthen the case for
different perspectives and to increase the leverage of developing
country groups within the WTO discussions. Even within the WTO,
moreover, rulings such as last week's decision that U.S. cotton
subsidies violate international trade rules are reinforcing the
need to address the North-South inequities in the current
international trade regime.
Another AfricaFocus Bulletin sent out today contains excerpts from
reports by the Third World Network on the UNCTAD XI meeting just
concluded in Brazil.
Recent AfricaFocus Bulletin with an emphasis on trade include
http://www.africafocus.org/docs04/eca0405.php,
http://www.africafocus.org/docs04/cot0405.php,
http://www.africafocus.org/docs04/sw0404.php, and
http://www.africafocus.org/docs04/unct0403.php.
++++++++++++++++++++++end editor's note+++++++++++++++++++++++
The Development Round of Trade Negotiations In The Aftermath of
Cancun
A report for the Commonwealth Secretariat prepared by Joseph E.
Stiglitz and Andrew Charlton, with the Initiative for Policy
Dialogue (IPD)
[brief excerpts only: the full 159 page report is available on the
Commonwealth website - http://www.thecommonwealth.org]
Executive Summary:
The development focus of the Doha Round emerged from a renewed
spirit of collective responsibility for the challenges faced by
poor countries, and also as a response to the perceived inequities
generated by previous rounds of trade negotiations. Unfortunately,
in the years since it was launched, the Doha Round has not
delivered on its development mandate in several important respects.
First, there has been little progress on the issues of interest to
developing countries (especially agriculture, labor mobility, and
labor-intensive manufactures and services). Second, the new issues
on the agenda, the so-called 'Singapore Issues', primarily reflect
the interests of the advanced industrial countries and have been
strongly opposed by many developing countries. Third, the domestic
and bilateral actions of several OECD countries have led to
questions about their commitment to the multilateral development
agenda. Finally, there has been only limited reform to the culture
and procedures of the WTO.
This report presents an alternative way forward for the Doha Round
based on social justice and economic analysis. The first part of
the report proposes an alternative agenda for the Round. It
suggests principles that should motivate the negotiations and
identifies priority initiatives which would deliver significant
gains to developing countries and increase global efficiency. It
also recommends institutional reforms necessary to make global
trade negotiations more effective and inclusive.
The primary principle of the Doha Round must be to ensure that the
agreements promote development in poor countries. To make this
principle operational, the WTO needs to foster a culture of robust
economic analysis to identify pro-development proposals and promote
them to the top of the agenda. In practice this means establishing
a source of impartial and publicly available analysis of the
effects of different initiatives on different countries and groups
within countries. This should be a core responsibility of an
expanded WTO Secretariat. Based on this analysis, any agreement
that differentially hurts developing countries or provides
disproportionate benefits to developed countries should be
presumptively viewed as unfair and regarded as being against the
spirit of the Development Round.
The agreements must enshrine both de jure and de facto fairness.
This means ensuring that developing countries are not prevented
from unlocking the benefits of free trade because of a lack of
institutional capacity. In this regard, developing countries will
require special assistance to enable them to participate equally in
the WTO.
The principle of fairness should also be sensitive to countries'
initial conditions. Special and differential treatment is needed to
recognize that adjustment to new trading rules involves
particularly high costs for developing countries whose institutions
are weakest and whose populations are most vulnerable. Prescriptive
multilateral agreements must not be allowed to run roughshod over
national strategies to deal with idiosyncratic development
problems.
This report presents pro-development priorities that should form
the core of the Doha Round agreements. Primary attention should be
given to market access for goods produced by developing countries.
There is an urgent need to reduce protection on labor-intensive
manufactures (textiles and food processing), agricultural goods,
and unskilled services (maritime and construction services).
Priority should also be given to the development of schemes to
increase labor mobility particularly the facilitation of
temporary migration for unskilled workers. As tariff barriers have
come down, developed countries have increasingly resorted to
non-tariff barriers; these need to be circumscribed. Significant
change in the outcomes of multilateral trade agreements must be
supported by institutional reforms. A fair agreement is unlikely to
be produced through an unfair process. In particular, greater
transparency and openness is required to create a more inclusive
bargaining process and put an end to the infamous 'green room'
negotiations.
The Report makes clear that there is a huge discrepancy between the
Development Round trade agenda, both as it was formulated at Doha
and as it has evolved since, and a true Development Round agenda,
that would reflect the interests and concerns of the developing
world. Such an agenda would promote growth in developing countries
and work to reduce the huge disparity that separates them from the
more advanced industrial countries.
Part 2 of this report considers some of the issues associated with
the adjustment process to a new trade regime. In one sense these
adjustment costs can be thought of as the price to be paid for the
benefits of multilateral trade liberalization. It is these
adjustment costs together with the trade benefits that determine
the net effect of trade reform for each country. The Doha Round has
placed renewed emphasis on the importance of sharing the benefits
of trade reform fairly among developed and developing countries.
However there has been less attention to the distribution of
adjustment costs among countries. The fact that implementation and
adjustment costs are likely to be larger in developing countries,
unemployment rates are likely to be higher, safety nets weaker, and
risk markets poor are all facts that have to be taken into account
in trade negotiations. For the some of the smallest and poorest
states, the adjustment costs of trade liberalization may
significantly outweigh the benefits available.
If the Development Round is to bring widespread benefits to people
living in developing countries - and if there is to be widespread
support for the continuing agenda for trade reform and
liberalization - the developed world must make a stronger
commitment than it has provided in the past to giving assistance to
the developing world. Assistance is required not only to help bear
the often large costs associated with trade reform, but also to
enable developing countries to avail themselves of the new
opportunities provided by a more integrated global economy.
1 Introduction
In the aftermath of the failure of Cancun, there is a need to
reassess the direction of global trade negotiations. In Doha, the
nations of the world agreed to a new round of trade negotiations,
which would redress some of the imbalances of the past, imbalances
which it was widely felt had benefited the advanced industrial
countries at the expense of developing countries. There was, in
fact, some basis for the complaints of the developing countries,
both in terms of the manner in which trade negotiations had been
conducted in the past and in terms of the outcomes. Many of the
participants in the Cancun meeting felt that Europe and the United
States had reneged on the promises that had been made at Doha,
emblemized by the lack of progress in agriculture.
There were mutual recriminations about who was to blame for the
failure. There was even disagreement about who would suffer the
most. The United States and Europe were quick to assert that it was
the developing countries who were the ultimate losers. But many
developing countries had taken the view that no agreement was
better than a bad agreement, and that the Doha round was rushing
headlong (if any trade agreement can be described as "rushing")
into one which, rather than redressing the imbalances of the past,
would actually make them worse off. Though some progress had been
made in addressing the concerns about the manner in which the
negotiations were conducted, the failure to address these concerns
fully generated the further worry that the developing countries
would, somehow, be strong-armed in the end into an agreement that
was disadvantageous to them. There were also threats, especially by
the United States, that it would effectively abandon the
multilateral approach, taking up a bilateral approach. It
differentiated between the "can do" countries and others, and
suggested that the "can do" countries would benefit from a series
of bilateral agreements.
This paper takes a step back from these disputes. It attempts to
support progress in the current round by asking, what should a
Development Round of trade negotiations look like? What would an
agreement that was based on principles of economic analysis and
social justice not on economic power and special interests look
like? Our analysis concludes that the agenda would look markedly
different from that which has been at the center of discussions for
the past two years, and that the fears of the developing countries
that the Doha round of trade negotiations (were the demands of the
developed countries acceded to) would disadvantage them were in
fact justified.
2 The Need for a Development Round
2.1 Redressing past imbalances
In June 1993 the Uruguay Round (UR) was finally brought to a close.
Part of the impetus for members to conclude the round was the
promise of large welfare gains that had been projected by many
researchers. In 1992-1993, the World Bank, the Organization for
Economic Cooperation and Development, and various other
institutions made projections of welfare gains in the order of $200
billion a year. A large share of the gains was predicted to accrue
to developing countries.
In hindsight these estimates particularly in relation to
developing countries were over-optimistic. It has since been
estimated that 70% of the gains from the Uruguay Round will go to
developed countries, with most of the rest going to a relatively
few large export-oriented developing countries. Indeed many of the
poorest countries in the world would actually be worse off as a
result of the round. In the first six years of the Uruguay round
(1995-2001), the 48 least developed countries will actually be
worse off by some $600 million a year, with sub-Saharan Africa
worse off by $1.2 billion. (UNDP HDR [1997], p. 82). One reason was
that the modeled scenarios were not fully reflected in actual
events. Several reforms, which were significant sources of
predicted gains, did not proceed as had been hoped early in the
negotiations. For example, the Agreement on Textiles and Clothing
(ATC) was structured to significantly backload liberalization;
the ability of tariff-rate quotas (TRQs) to liberalize agricultural
market access was overestimated; and the costs of implementation
were almost completely ignored.
In addition the Uruguay Round agenda reflected, in large part, the
priorities of developed countries. Market access gains for example
were concentrated in areas of interest to developed countries and
there was only marginal progress on the priorities of developing
countries (particularly in agriculture and textiles). The result of
this regressive asymmetry was that after the implementation of
Uruguay Round commitments, the average OECD tariff on imports from
developing countries is four times higher than on imports
originating in the OECD (Laird 2002). Domestic protection
(particularly agricultural subsidies) is also much higher in
developed countries, amounting to more than US$300bn in 2002. The
impact of this protection is particularly regressive since
producers in the poorest developing countries are the most affected
by OECD policies. Only 4 per cent of the exports of developed
countries are subsidized by another WTO member, but 6.4 per cent of
the exports of middle income countries are subsidized. By contrast,
a much larger share (29.4 per cent) of the exports of the poorest
countries (not including China and India) are subsidized by another
WTO member.
As well as receiving a small share of the gains from the Uruguay
Round, developing countries accepted a remarkable range of
obligations and responsibilities. New trade rules and domestic
disciplines were introduced, but they too reflected the priorities
and needs of developed countries more than developing countries
(e.g., subsidies were permitted for agriculture, but not industrial
products). Many of the rules acted to constrain the policy options
(such as industrial policies) of developing countries, in some
cases prohibiting the use of instruments that had been used by
developed countries at comparable stages of their development. Many
of the new obligations imposed significant burdens on developing
countries. In return the least developed countries were promised
financial assistance with implementation costs and extensions of
preferential market access schemes. The common feature of these
commitments is that they were non-binding on developed countries.
As a consequence developing countries found themselves at the mercy
of the goodwill of developed countries. As Finger and Schuler
(2000) aptly note: "the developing countries took a bound
commitments to implement in exchange for unbound commitment of
assistance". Insufficient attention has subsequently been paid to
the enormous demands upon developing countries in implementing the
outcome from the Uruguay Round. Agreements related to intellectual
property, customs valuation, technical barriers to trade and
agricultural food safety have been particular targets of criticism
in this regard.
3 Doha's Development Record So Far
Despite the expressions of goodwill at Doha, progress on the
Development Round has been slow. Part of the problem is that, while
the interests of different developing countries differ, the
evolving agenda itself was not really designed to reflect the real
concerns of developing countries. Throughout 2002 and 2003 it
became apparent that many developing countries felt that the Doha
Round was moving in the wrong direction on many key issues. They
felt that the new round offers them few immediate benefits but
carries the risk of additional obligations. As a consequence
developing countries walked away from the Cancun Ministerial in
September 2003.
Up to that point, Doha had achieved little progress on most of the
critical development issues. One of the key disappointments has
been agricultural reform, which many developing countries and NGOs
viewed as the primary objective of the round. The March 2003
deadline for agreement on agricultural modalities was missed. When
the US and EC finally presented a joint paper on agriculture
modalities in August, the framework was widely criticized by
developing countries, correctly in our judgment, for ignoring their
interests. On the key issues of market access, domestic support,
and export subsidies the text was perceived to fall short of the
level of ambition of the Doha mandate; indeed, in some respects,
what was offered was a step backward.
At the same time, agricultural initiatives within OECD countries
seemed to be undermining multilateral efforts. The U.S. Farm Bill
in 2002 increased the level of support to U.S. farmers and
strengthened the link between subsidies and production decisions.
One year later, the EC's 2003 Luxembourg reform of the common
agricultural policy (CAP) was also disappointing. ...
After the Uruguay round, there was a clear understanding that there
would be further liberalization of agriculture. There is now a
strong sense that the United States has reneged on that commitment;
whether the huge increase in agricultural subsidies is an explicit
violation of earlier agreements is of less importance than that it
represents a violation of the spirit of the agreement (or at least
was taken as the spirit of the agreement by the developing
countries.) Just as the agreement has to be viewed as a whole, so
too, a Development Round agreement has to be viewed in the context
of the unbalanced agreements that preceded it. ...
Another area where achievements have lagged behind rhetoric is in
the delivery of non-reciprocal trade preferences. Recently there
have been a number of initiatives in OECD countries to further
discriminate in favour of LDCs. Most notable among these are the
EU's Everything But Arms (EBA) initiative and the US's African
Growth and Opportunity Act (AGOA). ... Overall, the impact of these
schemes has not yet been very significant, with the exception of
African apparel exports to the U.S. under AGOA [World Bank, 2003].
4 Principles of a Development Round
We begin with an analysis of the principles that should underlay a
development round of trade negotiations. It seems self- evident
that:
- Any agreement should be assessed in terms of its impact on
development; items with a negative effect on development should not
be on the agenda.
- Any agreement should be fair.
- Any agreement should be fairly arrived at.
- The agenda should limited to trade-related and
development-friendly issues.
While these principles may be widely agreed to, there may be
important differences both about the meaning of terms and about how
to respond to conflicts among the principles. ...
AfricaFocus Bulletin is an independent electronic publication
providing reposted commentary and analysis on African issues, with
a particular focus on U.S. and international policies. AfricaFocus
Bulletin is edited by William Minter.
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