Transparency, openness and predictability are primary attributes for trade agreements to remain relevant for member countries. What is equally important, however, especially in turbulent times, is policy space available to countries for meeting domestic compulsions — political or economic.
The recent meetings at the World Trade Organisation (WTO) — the regular agricultural committee meeting and the US trade policy review — and the verbal duel between China and the western world on the currency issue at various forums have brought home the point of keeping enough room for policy space by countries while accepting multilateral obligations.
The agricultural committee meeting at Geneva recently saw Costa Rica admitting that it had spent well in excess of its bound WTO ceiling for the most trade-distorting kinds of farm subsidies in 2008 and 2009. The country notified to the WTO that it’s “Aggregate Measurement of Support” (AMS) amounted to about $62.5 million in 2008 and $91.7 million in 2009, which is much higher than its legally binding ceiling of $15.9 million for such payments.
It came under criticism for its excesses, but the Central American country attributed the increase in subsidies to higher production and fluctuating world prices for commodities. The country, however, set an example in transparency which, many a time, is missing in developed countries that fail to notify their spending on subsidies on time. What, however, is obvious in this case is that Costa Rica, an agricultural exporting country and member of the Cairns Group, would not have thought of the need to keep enough policy space to increase its support to farmers when global markets fluctuate. This is an important pointer for countries, especially when they are negotiating bindings for goods or services in which livelihood concerns are dominant.
The second case in which policy space helped manage domestic concerns was the recent US trade policy review at the WTO. The US was praised for remaining among the world’s open economies in the face of a global economic downturn in the WTO report despite many important trade partners making hard -hitting critical statements on a wide range of US policies at this meeting.
The US, which, over the years, is viewed as a leader in multilateral trade negotiations, is now being perceived as a reluctant participant in the Doha negotiations by several countries. Beijing, for instance, is of the view that the US has stepped back from its leadership role and has in the wake of the global recession pushed state bailouts for the automotive, steel and financial sector. Chinese Ambassador to WTO Sun Zhenyu wondered in a statement “about how the US would take practical and responsible measures to prevent the dollar glut and maintain the stability of the currency”.
The growing export thrust and the focus on increasing prospects for jobs through legislation by the Obama administration are indicative of a growing pressure on the American lawmakers to use policy space to address domestic concerns.
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The Chinese, too, have been pushing back efforts by other countries to revalue the yuan. Beijing has been stating that undue pressure on currency reforms could have disastrous consequences for China and the world. At the recent EU-China Summit at Brussels, the Chinese president said that any sudden change in the currency could lead to a possible social unrest in the country since many jobs may be lost. Again, the focus was on domestic concerns and the need for policy space to navigate the thin line that divides domestic policy concerns and multilateral and bilateral obligations and responsibilities.
In the last six months, top Chinese officials have been giving clear indications that they would not like to come under pressure to revalue the yuan as it would have a negative fallout on employment in the country and lead to social instability. The European and American businesses have been very vocal in the last one year in pointing out several areas where the Chinese laws do not provide a level playing field to western companies.
In the last nine years, when countries have tried to conclude the Doha Round, the biggest issue that has been brought to the fore by most nations, especially the developing countries, is the need for maintaining domestic policy space while reducing barriers to trade.
Given the state of the Doha negotiations, it may be prudent for member countries to look at how the WTO can provide higher market access without curtailing the power to use policy to address domestic concerns. Without such a pragmatic approach, it may be difficult to move the Doha agenda towards a conclusion even in 2011.
The author is principal adviser APJ-SLG Law Offices