TRADE ISSUES

Winding down to Seattle

Although no agreement on an agenda incorporating a new round of negotiations could be arrived at in Lausanne, the idea of such an agenda is winning support even among some developing countries. Will the transition from opposition to acquiescence which led up to the inequities in the Uruguay Round be repeated in Seattle?

C.P. CHANDRASEKHAR

AS the debate on the agenda of the Ministerial Conference of the World Trade Organisation (WTO) in Seattle nears resolution, the discussions appear to be following a course similar to the negotiations which led up to the Uruguay Round agreement. The debate began with most developing countries opposed to an agenda proposing a new round of multilateral trade negotiations. But it is likely to end with a consensus which incorporates such a proposal.

The grounds for developing country opposition to a new round were clear. Agreeing to such a round amounts to transforming the mandated review and renegotiation of the agreements in the contentious areas of agriculture and services into a set of wholly new negotiations, with a wholly new agenda.

The developing countries did want the review to be expanded to include an appraisal of the impact of the Uruguay Round on their trade performance and prospects, in order to assess whether the benefits promised from agreements in that round were being realised.

But going beyond this proposal for an extended review to a full-fledged new round does have important implications. To start with, it implies that the fundamental thrust of the next set of negotiations should be further liberalisation in chosen areas, with no review and roll-back of past agreements. Secondly, it signals to the world that what is at stake are not marginal adjustments around Uruguay Round benchmarks, but significant advances in the direction of further liberalisation. Third, it opens the door to the introduction of new areas of negotiation involving linkages between trade and environment issues, trade and labour questions and finally a multilateral agreement on investment.

For the developed countries as a group this offers substantial gains. Principally, it would shift the focus away from the need to redress the obvious imbalances in the Uruguay Round agreement with regard to market access. The evidence is clear (see charts) that the concessions received by developing countries in terms of the share of imports over which tariff concessions apply and the depth of the tariff cut they benefited from was lower than that which applied to the developed countries. That is, starting from a position of subordination, developing countries appeared to have offered more in the nature of concessions with regard to market access than the developed countries did.

But even this picture is partial, inasmuch as it does not capture the actual extent of trade liberalisation and the commodity composition of the areas in which the concessions were offered by the two sides. In fact, as a result of the enforced or voluntary pursuit of liberalisation strategies, developing countries have proceeded much further in doing away with non-tariff barriers and reducing tariffs than warranted by the commitments in the Uruguay Round. In the event, the evidence is now overwhelming that both across and within product groups, the developing countries began to give virtually immediately after the Uruguay round negotiations were complete, but they are yet to begin to receive much by way of benefits in areas that matter to them from an export point of view.

Nothing epitomises this more than the agreement relating to textiles. From the point of view of the developing countries, the most visible and "multilaterally" accepted non-tariff barrier regime prior to the Uruguay Round was the Multi-Fibre Arrangement (MFA). That arrangement was the end-result of a series of negotiated agreements starting in the 1960s, all of which sought to provide the developed countries with the time needed to restructure their industries so that competitive textile exports from lower-cost developing countries do not "disrupt" their markets. Despite three decades of agreement on that principle and periodic revisions of the deadline to end import restrictions, textiles still were by the late-1980s not permitted free entry into developed-country markets. The case for an immediate end to such restrictions, under a new multilateral trade regime, was therefore strong. However, though the Uruguay Round agreement on textiles and clothing provided for the phasing out of restraints stemming from the MFA, it once again diluted and delayed the process of liberalisation. To start with, the agreement was made applicable to all textile imports into developed countries rather than those on which quotas applied at that time. Further, the process which was designed to occur in four stages over a ten-year period was heavily "back-loaded", in the sense that most of the liberalisation was to occur during the final stages. Thus, more than five years after the agreement has been in place, only 33 per cent of imports of four categories of textiles and clothing in 1990 (tops and yarns, fabrics, made-up textile products and clothing) have been rendered quota-free. Quotas on another 18 per cent are to be removed after another two years and on the remaining 49 per cent in 2004.

This prolonged and back-loaded agreement in a labour-intensive area in which the developed countries had agreed to open up markets more than three decades back, points both to the relative positions of power of developed and developing countries in the Uruguay Round negotiations as well as to the extent of commitment of the latter to offer greater market access as a quid pro quo for the rapid liberalisation of trade and investment rules in the developing countries.

What is more revealing is the evidence on the progress on this front. With two stages of the phase-out process being complete out of the quotas under MFA that had been notified by the United States, the European Union (E.U.) and Canada, only 1, 7 and 14 per cent respectively have been withdrawn. Much of the phase-out thus far has covered commodities which were not even in consideration. Further, most of these are textile products which do not dominate the developing countries' export basket. Above all, the extent of tariff concessions, both in terms of tariff reduction and the share of the relevant imports subject to cuts, provided by the developing countries have been higher than that provided by the developed countries in industrial products in general and in the textile area in particular. That is, five years after the completion of the Round and at a time when talk is already on with regard to initiating a new round, developing-country, market-access "gains" in an area most crucial to them have been minimal.

THE implication of this is obvious enough. Even in an area as basic as market access, what is called for now is a review of the Uruguay Round aimed at redressing the inequalities it carried through in its fine print, rather than an extension of the Round either in the form of more intensive liberalisation or in the form of extending the multilateral framework into new areas. This view would be strengthened if an appraisal is made of the differential impact of agreements on trade-related investment measures and trade-related aspects of intellectual property rights. Evidence of this kind has been marshalled by the developing countries in their submissions to the WTO. By demanding that the next phase of multilateral engagement should not be restricted to a review but extended into a wholly new round, the developed countries are seeking to shift the focus away from these glaring inequalities that have surfaced since the Marrakesh agreement of 1994, and wrest new concessions in wholly new areas.

But that is not all. If the next stage of multilateral engagement is restricted to a review, the focus would be on agriculture, wherein the U.S. and the E.U., particularly the latter, have in practice made minor concessions in the Uruguay Round. By providing their farmers concessions through alternative routes, they have been able to keep the actual average measure of support (AMS) to agriculture above what would be normally permissible under the Uruguay Round. This is the reason why unlike many of the agricultural exporters who are members of the Cairns group, who want more far-reaching liberalisation in agricultural trade, the U.S. and E.U. want non-agricultural commodities brought into the discussion in order to make it more diffused.

What is more, by bringing in environmental issues, labour standards and social clauses into the negotiations on trade, these developed countries are seeking to win for themselves new protectionist devices which, like the anti-dumping clause under the Uruguay Round, can be used as protectionist devices when and wherever required. Since the standards, if any, set under these heads can never improve upon the current standards in the developed industrial countries, the possibility that such agreements could be used by the developing countries as well does not arise.

Thus, for the developing countries, giving up on the slogan of "standstill, review and, if necessary, roll-back" would be extremely damaging. What is surprising, therefore, is the fact that, though no agreement on an agenda incorporating a new round could be arrived at the pre-Seattle, Lausanne meet, the idea of such an agenda is winning support even among some vocal developing countries. India, for example, has not merely toned down its language and spoken of the need to discuss "implementation issues", but has reportedly turned around to the view that it should not resort to "opposition for opposition's sake". If things take such a turn, the transition from opposition to acquiescence which led up to the inequities in the Uruguay Round would be repeated this time around as well.

On the surface there appears to be no need for the developing countries to succumb to developed country pressures since constitutionally the WTO is an organisation where each member has a vote. The power that the threat of exercising that vote carries was seen in the recent split between the developed and the developing countries over the Director-Generalship of the organisation. The final compromise involves a term of three years each for the two candidates backed by the developed and the developing countries.

Despite this power, the developing countries have gone along with the principle that the contracting parties should adopt a consensus procedure.

This is partly because decisions arrived at any other way could encourage individual developed nations to opt out of the GATT or WTO, and such a development result in a virtual dismemberment of that body. Given the dominance of the developed countries over the world trading system and the dependence of the developing countries on the markets of the developed, having the developed countries in was, and remains, crucial for the developing countries. This in itself puts pressure on the developing nations to accept much of what the developed countries propose, in return for small concessions in other areas.

But what matters more is the fact that in the wake of liberalisation in the developing world, most developing countries are keen to attract larger capital flows from the developed countries in the form of aid, debt and foreign investment. This has substantially increased the implicit and explicit cross-conditionality enforced by the developed countries.

Cooperation and support with regard to capital flows requires acceptance of a specific form of trading arrangement. Such cross-conditionality has helped ensure that the developed countries would have their way that much more often. Even when disputes arise, inequality implies that settlement would follow what has been identified as a "power-oriented approach," in which the relative strengths of the parties rather than a set of predefined rules determine the nature of the settlement.

This has one important implication. If developing countries are to prevent the almost continuous erosion of their economic space through formal institutional arrangements at the global level, without receiving much in return by way of trade concessions, they need to rethink their development strategies as well. Only then would they have the manoeuvrability to exercise a right that the voting principle enshrined in the WTO's constitution guarantees. Unfortunately, a change in the trajectory of development is not a possibility by the time of the Seattle Summit. This could influence the outcome of that summit. But a change in strategy is definitely a prospect that could be explored soon during the prolonged negotiations that the Millennium Round would entail, if it is initiated. A change that is significant enough to ensure an outcome from that round which is better than the failed promises of the agreement signed in Marrakesh.