A Right-On Analyis of What Transpired at the World Trade Organization's Nairobi Ministerial Conference by Tuft's University's Global Development and Economic Institute

Don't Buy the Spin
The WTO talks in Nairobi ended badly and
India will pay a price

Biraj Patnaik and Timothy A Wise
Scroll (India)
December 24, 2015

It didn’t take long for the spin masters to begin working their magic on the latest dismal World Trade Organisation summit in Nairobi. WTO Director General Roberto Azevedo waxed eloquent about the “historic” agreement, stating in a post-meeting press conference that the agreement “will improve the lives of those who most need to benefit from trade, especially those in Africa”.

But what really happened in Nairobi and what does it mean for future trade negotiations?

We've had the Financial Times declaring the Doha Development Agenda dead, if not buried. For those unfamiliar with the Doha Round, it has been the only negotiating platform to discuss the concerns of developing countries, particularly with reference to agriculture and farm subsidies, in the 15 years at the WTO.

While the claims of Doha death are, as Mark Twain might have said, premature, there is no doubt the development agenda has been undermined. Developing countries got very little in Nairobi, official press releases aside, and they are likely to get even less in a future characterised by Southern incoherence and Northern dominance.

Taking stock of the real development outcomes

Beyond the future of Doha, Azevedo and  claimed major advances were made in Nairobi. They touted the “breakthrough” on export competition between countries, cited advances on the controversial issues of special import protection for the agriculture produce of developing countries, and the public stockholding of food. A permanent solution on the public stockholding issue would allow countries like India to buy food grains from farmers at the minimum support price and provide it to the poor under the provisions of the National Food Security Act.

While India has a “peace clause” that allows it to continue with the programme, till such time that a permanent solution is reached, developed countries like the United States, European Union and Japan continue to stall the permanent solution and have rejected every constructive proposal put forth by the developing countries.

In Nairobi, WTO leaders also pointed to the technology agreement and hailed market access agreements for the world’s Least Developed Countries, which are home to some of the planet's poorest and most marginalised communities. And they claimed long-overdue action on cotton.

Sounds good, doesn’t it? Don’t believe the spin.

The technology agreement? It does not affect all countries, just the ones that opt in. China opted in. Kenya didn't. A win for developing countries? Nope: it’s great for technology exporters. Not too many of those in Africa right now.

What about the LDC package? Surely, enhancing access to rich country markets for goods produced in LDCs is good for development? The agreements reached in Nairobi extend so-called “duty-free, quota-free” exports from LDCs, but not all exports are covered. Industrialised nations exclude “sensitive” tariff lines on products such as textiles to such an extent that more than 90% of LDC exports may be excluded.

Agriculture subsidies

The most misleading spin, however, concerns measures in agriculture, so oversold that one Kenyan paper headlined the end of rich country agricultural subsidies. Not by a long shot, in fact, they weren’t even on the table.

What was agreed was an elimination of export subsidies and limits on other forms of rich country export promotion, such as food aid and subsidized export financing, practiced extensively by the United States. This is indeed a positive step – export subsidies are the most trade-distorting of all as they undercut markets in importing countries by defraying some export costs, which in turn makes products from the European Union and the US cheaper in foreign markets. Those products, and the companies that make them, get an unfair competitive advantage, and the WTO long ago agreed in principle to eliminate them.

But the Nairobi agreement really did little more than put a firm cap on existing practices. The EU had already stopped subsidizing its exports, and US resisted putting binding restrictions on most of its export promotion, so the Nairobi deal is unlikely to reduce export promotion much from current levels.

And other Northern agricultural subsidies? They remain untouched, removed from the agenda by the United States and other rich countries. These are indeed the most trade-distorting agricultural policies in rich countries today, as they are very large and encourage overproduction of crops, which then get exported cheaply to developing countries.

The 2014 US farm legislation, in fact, has been shown to likely result in subsidies in excess of the country’s current WTO commitments and well beyond the commitments negotiated in the Doha Round before the US walked away from the negotiations in 2008. And that’s one of the reasons the US walked away.

Spinning cotton

Kenya’s Amina Mohamed put a particularly heavy spin on the cotton agreement reached in Nairobi, saying it “will contribute even more to economic growth in all countries, particularly the Cotton 4 (the four major cotton producing countries in West Africa – Benin, Burkina Faso, Chad and Mali, popularly known as the Cotton 4 or C4) which have been waiting for this outcome for many years”.

But the much-touted cotton deal only gives preferred market access for some cotton products and expedites the elimination of export subsidies. It does not touch domestic subsidies in the United States, by far the greatest source of trade distortion.

So the C-4 can expect to see continued US cotton subsidies estimated at $1.5 billion per year, which will increase US exports 29% and suppress cotton prices 7%. This will cost the C-4 an estimated $80 million per year in lost cotton revenues. That is more than 300 times the gains last year from market access under US Africa Growth and Opportunity Act, which totaled just $264,000.

Jump-starting further negotiations?

Officials most hailed the Nairobi agreement for reinvigorating the WTO’s negotiating function, and there is no doubt that reaching an agreement prevented the complete abandonment of the institution by rich countries.

But the agreement itself, by failing to reaffirm clearly the commitment to the Doha Round, eliminated any incentive for rich countries to negotiate. They can now condition further negotiations over “outstanding Doha issues” on the inclusion of “new issues”, a huge setback for developing countries.

Developing countries won only vague commitments in Nairobi to resolve the public stockholding issue and to enable a safeguard mechanism to slow import surges that undermine domestic producers, a right rich countries have enjoyed for years. Expect no further progress unless developing countries are prepared to pay a price, such as putting public procurement that favours domestic industries on the chopping block.

After Nairobi, it is hard to imagine US negotiators even discussing reductions in its domestic farm subsidies. If they do, what will India need to give in return? Perhaps a WTO version of the kind of investment agreement that India has firmly rejected in bilateral talks with the US.

India caved in

At Nairobi, despite a valiant fight put up by Indian negotiators, in the final moments of the drafting of the ministerial declaration, the political leadership caved in and refused to seek amendments to it, or block it, as they could have done. Commerce Minister Nirmala Sitharamans’ predecessors Murasoli Maran and Kamal Nath had done precisely this in past ministerial summits, protecting India’s interests at the WTO.

But with little support from the political leadership at the highest level, Sitharaman, invited into the select group of five countries (with the US, EU, Brazil and China) to negotiate the final text of the Nairobi agreement, let the rich countries have their way. In the end, she merely expressed her “disappointment” at India’s red lines being breached with no reaffirmation of the Doha Development Agenda in the final ministerial, no permanent solution on the public stockholding issue and just a promise to negotiate an unspecified safeguard mechanism for developing countries.

The price that India will pay for this in the years to come will be far higher than what the government is willing to concede now, as future generation of negotiators will discover.

Biraj Patnaik is the Principal Adviser to the Commissioners of the Supreme Court in the Right to Food case. Timothy A. Wise is a researcher at Tufts University in the United States.
 

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NEGOTIATING A US-BRITISH TREATY OF FRIENDSHIP, COMMERCE AND NAVIGATION 200 YEARS AGO

      Here's Washington Trade Daily's Jim Berger and US Trade Representative Michael Froman discussing how the United States and Britain negotiated a treaty of friendship, commerce and navigation 200 years ago -- a precursor to the current series of bilateral investment treaties. First British ships sailed past Baltimore, then troops scared away defenders in Bladensburg and marched to Washington to burn the Capitol and run President and Mrs. Madison out of the White House.

A SECRET US STRATEGY FOR A POST-NAIROBI WORLD TRADE ORGANIZATION.

WHAT'S UP UNITED STATES

As the world economy declines – driven by a fall-off in trade and increased protectionist barriers, according to recent reports by the World Trade Organization and analyses by some prestigious think tanks – trade negotiators are not helping much to avoid a possible catastrophe.

Even though the United States and 11 other countries of the Asia-Pacific region – some huge economies like Canada, Mexico and Japan – have just agreed to a massive “free trade” agreement, the real impact of the “reforms” is in doubt.  The agreement is advertised as covering some 64 percent of the world economy.

But the real task of getting the world economy on the right path is to deal with underlying economic issues on an inclusive basis.  The nearly 15-year-old Doha Development Agenda negotiations were intended to do just that by forcing structural adjustments in industrial and developing countries alike.  Many of the same nontariff reforms – as written into the TPP and anticipated in the ongoing TransAtlantic Trade and Investment Partnership between the United States and the European Union – are contained in the still incomplete Doha negotiating package.

There has been a distinctive lack of momentum in the past decade and a half on Doha – almost from the very beginning in 2001.  Except for a brief period under President George W. Bush, the United States has shown little interest in getting the multifaceted negotiations off the ground.

While TPP, for instance, encompasses only two real developing countries under its umbrella – Malaysia and Vietnam – Doha takes into account the benefits of 162 members – including a vast majority of the world’s least-developed and developing countries.

Are developing economies not worth the attention?  Hardly.  Most are experiencing rapid and high economic growth compared to the mature industrial countries.  For developing countries the potential for growth and trade often is just below the surface – to be exploited by all WTO members, including the United States.  A special issue of National Geographic magazine on Africa last year suggested that the continent – with all its poverty and lack of infrastructure – has massive economic potential.  Unexploited oil reserves are greater than those in all of the Middle East and the agriculture potential – to feed the world – is massive.  That is why China, Japan, South Korea, a scattering of Gulf countries and even European nations and the United States are buying up tracks of land there.

Yet Africa is the only continent left out of bilateral and regional free trade agreements and are being ignore in the Geneva negotiations by the economic powers that be there.

Rather, the United States is taking a different approach by focusing on more immediate concerns – what it can get from “like-minded” countries via free trade agreements.  The World Trade Organization at present counts has some 600 FTAs in force – and a lot more coming.  Some 123 agreements this year alone are still unreported to the WTO.

The good thing, according to a recent report on RTAs, is that they are all reciprocal – and most mirror WTO principles.  But the bad thing, according to a senior WTO trade official recently, is that no one quite knows where they are leading.  Should members start stepping away from the WTO to write rules on trade on their own, the organization as a negotiating body would be in jeopardy.

The United States is doing as little as it can since the short term of former USTR Rob Portman – now US senator from Ohio – to move the global trade agenda along.  Apparently the Obama Administration prefers to see a return after 20 years to the old GATT – General Agreement to Talk and Talk – where leisurely philosophical discussions with no deadlines can take place around a placid Lake Geneva.

That may be the reality after the December 15 to 18 ministerial conference.  There has been urgent consultations among WTO members to salvage the talks – and the moribund Doha Development Agenda.  The United States, supported by its major industrial allies – the European Union appears to be a notable exception – wants nothing more than to see the final nail driven into the Doha coffin.

What happens now?  The Nairobi agenda will be a “small” – read microscopic – package of proposals.  It will include another one-year extension of the moratorium on bringing non-violation complaints to the WTO Trade-Relations Intellectual Property Rights Agreement along with new – unexamined – work plans for electronic commerce and small economies.  Essentially those agenda items amount to nil in the scheme of things global.

Developing countries – led courageously by India, China and South Africa – are fighting for commitments from all WTO members – at least to recognize the work that has been done on Doha.  But because they are up against the political behemoths of the United States, South Korea and Japan, in particular, those efforts are likely to fall flat in Nairobi.

In the meantime the United States is showing its real intentions.  It has just wrapped up TPP – and is now actively pushing for an extension to other “like-minded” countries.  India – which some Administration officials had suggested could join the TPP – now seems out of the running.  You can say the same about the other BRICS countries – Brazil, China and South Africa – the largest and fastest-growing economies in the world.  Russia is not even a consideration given the current state of political affairs with the United States.

Not only is the United States pursuing a policy of exclusion, but last week it started pursuing a policy of retribution.  It announced rare labor practices reviews with some very major non-TPP countries like – Thailand, the Philippines, Ecuador, Fiji, Georgia, Iraq, Niger and Uzbekistan.

The only hope of the United States getting back into the business leading the process of expanding and improving global trade will be up to the next President.  While many of the front runners have turned away from supporting TPP, all have left open prospects of acting multilaterally – in the WTO?   We’ll see how the campaign debate on trade evolves – IF AT ALL.

— Jim Berger

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Washington Trade Daily and Transparency in Geneva

FOLLOWING IS A MAY 27 ARTICLE IN THE JAKARTA POST BY INDONESIA AMBASSADOR TO THE WORLD TRADE ORGANIZATION IMAN PAMBAGYO ON THE NEED FOR TRANSPARENCY IN THE WTO, ESPECIALLY IF IT WANTS TO INCLUDE DEVELOPING NATIONS IN DECISION-MAKING.

WE -- WASHINGTON TRADE DAILY -- AND THE PRESTIGEOUS SUNS NEWS SERVICE ARE MENTIONED AS HELPING TO PROMOTE THAT NECESSARY TRANSPARENCY.

ON THE OTHER HAND, WTD HAS BEEN HARSHLY CRITICIZED BY WTO DIRECTOR GENERAL ROBERTO AZEVEDO AND US AMBASSADOR TO GENEVA MICHAEL PUNKE FOR INTENTIONALLY MISREPRESENGING EXCHANGES BEHIND CLOSED DOORS.  USTR'S PUNKE HAS COME CLOSE TO ACCUSING WTD OF OUTRIGHT TREASON FOR
WRITING ABOUT THOSE CONFIDENTIAL CONVERSATIONS.

JIM BERGER
EDITOR, OWNER WTD

Insight: WTO: Where are
we heading?

Iman Pambagyo, Geneva | Insight | Wed, May 27 2015, 1:16 PM

APEC ministers responsible for trade have just completed a two-day meeting in the resort area of Boracay, the Philippines, on May 24. In keeping with a long tradition, the trade ministers discussed better ways for APEC to strengthen its support for the multilateral trading system and the World Trade Organization (WTO). The director general of the WTO, ambassador Roberto Azevedo, was invited to the meeting and briefed ministers on the latest status of defining post-Bali work programs and working toward a successful WTO Ministerial Conference in Nairobi, Kenya, later this year.

It seems all critical issues under the Doha Development Agenda have seen their respective comfortable landing zones, and ministers are now looking into ways to nicely pack them all by July for a final conclusion of the Doha negotiations in Nairobi.

Unfortunately, this is not the case. Developing countries’ trade envoys in Geneva have become more concerned these days that discussions on such important issues have been kept behind closed doors in meetings among the so-called G5-Plus countries — namely the US, the EU, China, India, Brazil, Australia and Japan, with the director-general as the chair. To make things even worse, the rest of the WTO members could get information on what has been discussed only from some publications such as the Washington Trade Daily and more recently, the Third World Network’s journal SUNS.

In its May 19 edition, SUNS reported how developed countries of the G5 put pressure on China and India to agree to a much-lowered ambition on market-liberalization of agricultural and industrial goods in a clear attempt to set the scene so that flexibility sought by developing countries would lose ground. Such a concerted effort by key developed countries is pursued in the spirit of what the US called a “recalibrated” approach and the EU idea of a “simplified” approach to defining post-Bali work programs, which should help concluding the Doha negotiations.

The report has raised even more concerns among developing countries as it became much clearer that developed countries did practically nothing to rectify the existing imbalances in global trade. These rich countries are allowed to provide a huge amount of subsidies in agriculture while developing countries needing to expand their support to poor farmers and addressing rural poverty are prevented from doing so by the existing agreements.

Developing countries also realize that with a much lowered ambition on market access combined with no commitment to reducing domestic subsidies, the developed countries will continue enjoying their unchallenged muscle to access markets in developing countries with heavily subsidized agriculture products.

Is this the terms on which developing countries will be willing to conclude the Doha negotiations and allow developed countries to introduce a new round of multilateral trade negotiations focusing purely on commercial issues?

When WTO trade ministers agreed to launch the Doha Development Agenda in 2001, it was understood that the agenda would be balanced: it will further improve global trade by lowering barriers and rectify the imbalances that have been in favor of rich countries, and at the same time provide additional flexibility for developing countries to address their development challenges.

This mandate has been reiterated by the 2004 July framework agreement, the 2005 Hong Kong ministerial declaration and the 2008 revised draft modalities in agricultural and industrial goods. While it is widely understood that they are not cast in stone, developing countries believe that the 2008 draft modalities provide the best basis to define a roadmap to conclude the round, and they are willing to consider recalibrating these draft modalities to make them more relevant to the current dynamics of the negotiations.

Ambassador Azevedo himself, as the Brazilian ambassador to the WTO, wrote in 2012 that “the December 2008 draft modalities are the basis for negotiations and represent the end-game in terms of the landing zones of ambition. Any marginal adjustments in the level of ambition of those texts may be assessed only in the context of the overall balance of trade-off, bearing in mind that agriculture is the engine of the round.”

He went on to argue that “the draft modalities embody a delicate balance achieved after 10 years of negotiations. This equilibrium cannot be ignored, or we will need adjustments of the entire package with horizontal repercussions. Such readjustments cannot entail additional unilateral concessions from developing countries.”

The questions the developing-country trade envoys have now are how could a few developed countries working with the director-general think that they could just focus on lowering the ambition on tariff liberalization and getting rid of all other issues which could be critical to developing countries? And do we abandon all the mandates agreed by ministers just to conclude the round in December and praise Africa as the land of the Doha conclusion?

It is obvious, however, that ministers from the developing world need to insist strongly that the conversations in Geneva should be inclusive and transparent, that flexibility for developing countries is a must and that there is no need to rush to conclude the Doha Development Agenda so long as there is no proper balance between improving the global trade for all and leveling the playing field for developing countries.

To countries like Indonesia and to members of a group of developing countries known as the G33 with its 47 members, this would mean that the group’s proposals on agricultural special products and a special safeguard mechanism should be accommodated as part of the Doha outcomes.
_______________________

The writer is the Indonesian ambassador in charge of the WTO. This is a personal view.

 

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