The message from the
WTO mini-ministerial at Tokyo (February 14-16) is clear. There are no
takers for free trade in the international system. In the second of the
series of "informal" mini-ministerial meetings being convened
to forge an as-yet elusive consensus on the framework for the Doha Round
of world trade talks, the selected 22 participating countries (out of
25 who were invited) could not agree on any issue of significance.
The challenge for the Doha Round we must recall lies in the new issues
that have been taken on board, including the four Singapore issues –
namely investment, competition policy, transparency in public procurement
and trade facilitation. But even before discussion on these could begin,
the "select" invitees were bogged down with the problem of clinching
a deal on many old issues, principally agriculture and trade related intellectual
property rights (TRIPs).
The principal stumbling block is agriculture. Stuart Harbinson, the chairman
of WTO’s agricultural negotiations working group set up to draft
the "modalities", including the numerical targets and formulae,
in terms of which countries can frame their liberalization commitments,
released his draft report well ahead of a March 31 deadline and just prior
to the Tokyo meet. The report has indeed made far reaching recommendations.
On agricultural tariffs, it separates commodities into three categories:
those with ad valorem tariffs, greater than 90 per cent, between 15 and
90 per cent and below 15 per cent. In the case of the developed countries
the report proposes that the simple average tariff reduction rate for
these groups should be 60, 50 and 40 per cent respectively, and the minimum
reduction per tariff line should be 45, 35 and 25 per cent. Thus, the
higher is the currently prevailing tariff, the greater would be the proportionate
reduction commitment.
The report also proposes that domestic support in the form of Blue Box
payments or direct payments under production-limiting programmes, liberally
resorted to by the European Union, be reduced by 50% over five years.
Further, aggregate support, including input and price subsidies, are to
be reduced by 60 per cent over a similar period and export subsidies are
to be completely phased through a two-step process: those accounting for
50 per cent of budgetary outlays are to go at the end of six years and
the rest at the end of nine years.
What the Harbinson report does not do is propose a reduction of Green
Box payments, or fixed payments made to farmers independent of their production
levels, which were defined during the Uruguay Round process as being non-trade
distorting. This has been a demand of some developing countries and critics
of the Uruguay Round Agreement on Agriculture. In practice, these payments
too affect the level of production and, therefore, the volume of world
supplies and world prices. By ignoring these payments, the draft does
not fundamentally go against government protection for farmers in developed
countries at the expense of "freer" world trade. What it does
do is make the case for adopting the US route of migrating from conventional
subsidies to Green Box payments in all countries, including those in the
EU.
The problem here is that the migration from conventional
support, including Blue Box payments, to Green Box payments, is far easier
in land-abundant countries or land-surplus countries, like the US and
parts of Latin America, than in land short countries, like the EU nations
and Japan. In-land abundant countries, implicit or explicit rents are
lower, and farmers do not have to extend cultivation into far less fertile
tracts to maintain a reasonable level of production. Since costs would
rise as less fertile land is broken into, such production levels also
tend to be justified by unsubsidized market prices of inputs and outputs.
As a result, a given Green Box-style fixed payment can go a long way in
sustaining farm incomes. And the US does provide huge direct support payments
especially to large farms.
In land-short countries, however, explicit or implicit rents are much
higher and costs of cultivation rise much faster as farmers extend cultivation
into less fertile, marginal lands. If in such a situation, subsidies and
Blue Box payments are withdrawn and substituted with a fixed direct income
payment, the effect on production is likely to be much larger, resulting
in employment and income losses for farmers and a substantially increased
penetration of imported agricultural commodities. It is possibly this
factor which constrains the process of migration to Green Box payments
in the EU and Japan. If in addition to forcing the pace of such migration,
export subsidies are to be done away with, farmers from land short countries,
especially the EU nations, would be deprived of any access to the large
market for agricultural exports, increasing their income losses.
Not surprisingly, responses to the Harbinson proposals have differed widely
even within the developed country camp. The US trade representative's
office was quick to welcome the draft, expressing its appreciation of
the call for elimination of export subsidies and going on to say that
deeper cuts were needed in tariffs and trade-distorting domestic subsidies
that would narrow wide disparities between WTO members.
Japan agriculture minister, Tadamori Oshima, on the other hand declared
that the draft was "too ambitious", and that the proposed import
tariff reductions were "not acceptable". In his view: "If
this plan is implemented it would be devastating to Japanese farming."
Franz Fischler, the EU agriculture commissioner, argued that the draft
favoured exporting countries and distributed the pain unequally. Pushing
the point that the draft favoured the US as compared with other countries,
he denounced the proposals as "unbalanced", since it unfairly
sought to crack down on export subsidies while being much more lenient
on other forms of farm support. He was also not too happy about the draft’s
effort to extend special and differential treatment to developing countries.
While conceding, that industrialised countries had to "give more
chances" to agricultural imports from developing countries, he went
on to say: "if you look at the paper, everything will be required
of us and nothing of the others."
The fact of the matter is that the Harbinson draft, while recognising
the special problems of developing countries leaves untouched their demands
for (i) the reduction and elimination of Green Box support, which they
are financially in no position to match; (ii) freedom to impose countervailing
import duties to match the huge subsidies provided by the OECD countries
to their farmers and reduce imports; (iii) greater freedom to protect
domestic production of strategic crops that are crucial to food security
and the livelihoods of poor farmers; and (iv) more viable special and
differential treatment measures.
Developing countries need to ensure greater unity not just to make sure
that, if and when a deal is struck on agricultural issues, their requirements
are addressed more fully than has been done in the Harbinson text. But
their problems do not end there. They would have a much more difficult
time when it comes to other areas, including industrial tariffs, TRIPs
and the new "Singapore issues". This was clear from the fact
that the US, which was presenting itself as the champion of free trade
in agriculture (even while exploiting to the full the potential of Green
Box payments), refused to give in on the crucial issue of developing-country
access to cheaper, life-saving patented medicines when confronted with
medical emergencies.
At Doha it was recognised that WTO provisions on intellectual property
needed to be amended and poor countries should be allowed to access cheaper
generic versions of expensive patented medicines in order to deal with
public health emergencies resulting from epidemics such as HIV-AIDS, TB
and Malaria. To that end, countries were to be provided the right to resort
to compulsory licensing of the drugs concerned. But, ambiguity remained
on the question of defining a medical emergency and on whether a poor
country without adequate manufacturing capability can obtain a compulsory
licence to have the drug produced in and imported from another country
with the appropriate drug manufacturing capacity.
A final decision on these matters was to be arrived at by a December 2002
deadline, which was missed because the US government succumbed to pressures
from its domestic pharmaceutical industry, which claims that the provision
could be misused and lead to "drug piracy". Critics have long
argued that the case for patent protection on the grounds of encouraging
investment in research and development and ensuring technical progress
has been much overdone. To start with, R&D investments are one among
many forms of sunk costs that an entrepreneur taking a risk to make a
profit has to undertake. If a poor farmer incurring the sunk cost of investing
in land development is not to be protected, but forced to compete in a
liberal trade environment where prices are volatile, the case to protect
R&D investments by large multinationals, which can spend large amounts
on marketing and distribution, from "imitative" competition,
is that much weaker. If in addition such protection is to be granted for
15 to 20 years, despite the fact that rapid technical change has reduced
the economic life of most product innovations, it can hardly be justified
within the framework of free trade that the WTO espouses.
However, having won the concessions for its pharmaceutical industry, which
is molly-coddled as much as the US farmer, the US government is not willing
to step back even in the humanitarian circumstances that a medical emergency
involves. As a concession to the US, Perez Motta, Mexico's WTO envoy and
chairman of the medicines talks, has proposed a compromise which avoids
designating specific diseases and instead limits the compulsory licensing
"concession" to circumstances that are in the nature of "national
emergencies or other circumstances of extreme urgency". But this
not good enough for the US, which has also not welcomed a proposal from
Brazil made at Tokyo on the manufacturing capacity issue. The proposal
suggests that the World Health Organisation should be designated as the
agency which would decide whether poor countries had adequate manufacturing
capacity to manufacture life-saving generic drugs themselves when confronted
with public health crises. Only if they were found lacking in such capacity
would they be permitted to import cheaper versions of imitation drugs
from more advanced developing countries with pharmaceutical sectors, such
as Brazil, India or Thailand.
Though the EU, with its own contingent of large
pharmaceutical producers, has welcomed the Brazilian proposal as a step
forward in solving the "confidence gap", the US has chosen to
ignore the proposal for the time being. In sum, there is no agreement
among the rich countries on freeing trade, on relaxing irrational patent
protection mandated by the Uruguay Round, or on accommodating the special
needs of the developing countries. To give the Tokyo meet some substance,
ministers expressed satisfaction that the Harbinson draft is serving as
a "catalyst" for debate.
This is not to say that the Tokyo meeting is without significance. Like
its predecessor at Sydney, the Tokyo meeting made clear that there is
little democracy in the process through which the shape of the international
system is being forged. Tokyo was another example of the "informal
meetings" that have become the staple of international trade negotiations
since the Uruguay Round. During that Round, "consensus" was
built by first getting a selected set of relatively "influential"
members to agree on a minimum agenda. Having arrived at that consensus,
the other WTO members, especially the smaller countries from Africa, Asia
and Latin America, were forced to accept that programme at the infamous
"green room meetings", in which negotiators deprived of their
aides were huddled together in long drawn out sessions and tired into
submission. There were 25 selected countries out of a total of 145 WTO
members invited to Tokyo, of which 22 attended. There is to be a similar
meeting at New Delhi in March. And in all probability as the "Doha
process" rolls on, there would be even smaller meetings, including
special summits between US and EU negotiators, such as the one at which
the Blair House accord on Blue Box measures and the Peace Clause was worked
out during the Uruguay Round. The real losers in that game would be the
poorest developing countries.
It is just not that there are no takers for free trade among those claiming
to be working towards institutionalizing a freer trade regime. There is
little hope of a fair deal for the developing countries either.