D Ravi Kanth: The devil's in the draft

TRADING THOUGHTS

Trade negotiations move in a spasmodic pattern. Long periods of inaction and lack of progress are transformed into a sudden burst of negotiating activity. The Doha trade round is no exception, and the same thing happened in the Uruguay Round as well.

Over the last 10 days, negotiators have burnt the midnight oil to study the revised draft modalities (parameters) issued by the chairs of the negotiating bodies for Doha agriculture and industrial products. After all, these parameters, which are essentially figures and textual language, will ultimately become commitments depending upon the final agreement among the 151 members of the WTO.

Given the play of power politics in multilateral trade negotiations, it is invariably the case that half the battle is won at the time of circulating a draft at every stage, as it can tilt the scales one way or the other. Japan's ambassador, Ichiro Fujisaki, observed at an informal meeting last Friday that the revised agriculture text reflected the concerns of members at large, adding that this is a rare occurrence at the WTO.

Consider, for example, the revised draft texts on agriculture and industrial products to determine the balance within them as well as between them. That agriculture is at the core of the Doha trade negotiations is well-known. The chair for the agriculture dossier, Ambassador Crawford Falconer of New Zealand, has meticulously worked out the revised draft by taking on board the conflicting interests of different members as much as possible.

He has suggested a minimum average tariff cut of 54 per cent for developed countries and a maximum overall average reduction of 36 per cent for developing countries. These two averages correspond to what the G20 had proposed. Almost certainly, these proposals will not be acceptable to the farm-defensive rich countries such as Japan, Norway, Switzerland, France and Ireland.

Ambassador Falconer has spelt out figures for developing countries like India to shelter farm products from any reduction commitments. Besides, he has provided thresholds for a special safeguard mechanism (SSM) for countries such as India and Indonesia to curb any unforeseen rise in imports of farm products. Some of the conditions attached to the SSM are unworkable, India maintains. Further, the agriculture text has tried to balance market access commitments with a credible framework on how to reduce trade-distorting farm subsidies by the EU, the US, Japan, Norway and other rich countries.

Thus, the EU would have to cut its overall trade-distorting farm subsidies to a level between $24 bn and $40.3 bn while the US will have to reduce them to a level between $13 bn and $16.4 bn. The major subsidisers have to commit on what is called down-payment in the very first year by reducing 33 per cent of their overall subsidy support. There are several disciplines to ensure that global champions of unfair trade in farm products do not easily shift subsidies from one product to the other or from one box to the other.

The US, which is the main subsidiser of cotton and which causes havoc to the poorest cotton-producing countries in Africa, is required to agree to drastic cotton-specific subsidy reduction commitments. All in all, the text contains over 170 square brackets, implying there is still no agreement among members right now. Though many members are not happy with some of the proposals contained in the revised agriculture draft, nobody said that the chair turned his back to the core concerns of members at large.

But this is not the case with the other revised draft, on how to cut industrial tariffs. Here the chair, Ambassador Don Stephenson of Canada, has already come in for criticism for his previous set of proposals on how to cut industrial tariffs. Instead of addressing the problems at hand in a balanced manner, Ambassador Stephenson simply opted to hijack the revised draft from what was decided by trade ministers in the July 2004 framework agreement and the Hong Kong Ministerial Declaration. For example, he retained the controversial figures "" a coefficient between eight and nine for industrialised countries and between 19 and 23 for developing countries to be used in the Swiss formula to cut industrial tariffs "" despite opposition from several quarters. If these coefficients are translated into percentage cuts, the developing countries would have to undertake much bigger cuts in their tariffs than their industrialised country counterparts.

More worryingly, he removed the figures for flexibilities for developing countries, even though he has no mandate for this. He has created new linkages between the formula to cut import tariffs and the flexibilities for developing countries, which are not part of the Doha mandate. By doing so, he has ensured developing countries will pay a bigger price in a Round dedicated to achieving a development dimension in international trade. He can also claim credit for creating an uneven playing field in the final lap of the Doha marathon!