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Mainstream, Vol XLVII, No 44, October 17, 2009

Use Doha Round to Correct Past Mistakes of the WTO Regime

Saturday 17 October 2009, by Bharat Dogra

Concerted efforts have been made to give a new lease of life to the Doha Round of WTO negotiations. The question before us is: what is the most relevant role which this revived round of trade talks can play? If we take an overview of the entire international trade scene and the changes that have taken place ever since the WTO was created (including the negotiations which preceded the WTO’s creation to replace the GATT) then the most credible answer to this question is: the most relevant and useful role for the remaining Doha Round would be to strive to correct the many serious mistakes of the WTO regime and the terrible distortions created by it in world trade and economy.

The scale and enormity of the distortions created by the WTO regime is already such that even if developing countries are successful in preventing further losses (which itself is most unlikely as a certain base has already been created which will push towards an opposite outcome), this will at best amount to salvaging a few coins from a huge robbery. Why not try to recover the entire loss, particularly as the plunder has taken place mostly at the cost of poor and vulnerable people.

To reason why such a review of major decisions made under the WTO regime is needed, here we quote from some important studies and reports to prepare which several highly qualified experts in the field of trade talks (and related issues) contributed (or were consulted).

Around the time when the Doha Round started (2001-02) Oxfam International, one of world’s leading NGOs, had prepared a very comprehensive report on this issue (appropriately) titled, ‘Rigged rules and double standards’. This report pointed to the important differences between the GATT and its successor, the WTO: “When countries participate in the WTO, they do so on the basis of a ‘Single Undertaking’ that is they accept all its rules unconditionally. Unlike the GATT, the WTO does not offer its members the option to choose which of its rules to enforce.” Moreover the rules extend far beyond tariff and non-tariff barriers—they cover investment, services, intellectual property rights, textiles and above all agriculture. “Policy issues previously considered to be the sole preserve of national governments are now subject to scrutiny by the WTO.” WTO rules operate on a global scale in over 142 countries. Its dispute-settlement system can be used to punish violators.

This Oxfam report stated frankly that “the WTO is fundamentally failing poor people and poor countries. The authority of the WTO has been extended into broad new areas of public policy, thus limiting the autonomy of national governments in the process. For them there is an increasing tension between the imperative of complying with WTO rules, and the need to adopt policies which will reduce poverty.” At the same time, “the system of trade governance is failing to respond to major new challenges posed by globalisation, including the threats arising from the enormous concentration of corporate power”.

Many of the rules enshrined in the WTO, this report argues, “threaten to marginalise developing countries and the world’s poorest people within an already unequal global trading system.” Many WTO agreements as well as the manner of their implementation reflect the strength of rich countries and TNCs. In some areas, this report asserts, the multilateral system is “now little more than a smoke-screen for the pursuit of private interests and the subordination of developing countries to the dictates of rich countries”.

This study further added: “Oxfam has developed a new measure of the scale of export dumping by the EU and the United States. It suggests that both these agricultural superpowers are exporting at prices more than one-third lower than the costs of production. These subsidised exports from rich countries are driving down prices for exports from developing countries, and devastating the prospects for smallholder agriculture. In countries such as Haiti, Mexico, and Jamaica, heavily subsidised imports of cheap food are destroying local markets. Some of the world’s poorest farmers are competing against its richest treasures.”

This widely quoted study of Oxfam presented some highly significant statistics.

• The USA and EU account for around half of all wheat exports. Their export prices are respectively 46 per cent and 34 per cent below costs of production.

• The USA accounts for more than one-half of all maize exports. It exports at prices one-fifth below the costs of production.

• The EU is the world’s largest exporter of skimmed-milk powder. It exports at prices representing around one-half of the costs of production.

• The EU is the world’s largest exporter of white sugar. Export prices are only one quarter of production costs.

“The dominance of the EU and the USA in world markets means that these dumping margins effectively set world market prices. This is because rival exporters have to follow the export price levels set by EU and the USA, or lose market share. For practical purposes, the world agricultural market is a dumping market in which prices are unrelated to costs of production.

“There is no other area of international trade in which it is legitimate for exporters to sell on world markets at prices so far removed from the costs of production. The intensive use of subsidies that sustain this practice diminish the world market share of rival exporters and drive down prices, producing large foreign-exchange losses. Another effect is to create highly unequal competition in developing-country food markets. All too often, developing-country governments are willing to open their borders to cheap, subsidised imports in the interests of reducing food prices, with highly damaging implications for domestic farmers.”

Pointing another serious problem this report by Oxfam International said: “The TRIPs agreement itself is in direct conflict with efforts to protect diversity. Under the UN Convention on Biological Diversity, governments have well-defined rights over their biological resources. The TRIPs agreement implicitly challenges these rights. It requires governments to recognise—and enforce—corporate claims over the some resources.”

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Four years after the Doha Round was started, the UNDP devoted the Human Development Report (HDR) for the year 2005 to this important issue. This report pointed out that the Doha Round of the WTO launched in 2001 was billed as a ‘development round’ and rich countries promised practical measures to achieve a fairer distribution of benefits from globalisation but “four years later, nothing of substance has been achieved. Trade barriers remain intact, agricultural subsidies have been increased, and rich countries have aggressively pursued rules on investment, services end intellectual property that threaten to reinforce global inequalities.”

The HDR said that the Agreement on Agriculture (AOA) (which is the basic document for WTO’s agriculture related negotiations) “left most EU and US farm subsidy programmes intact for the simple reason that it was in all but name a bilateral agreement between the two parties that was forced into the multilateral rules system. In effect, the world’s economic superpowers were able to tailor the rules to suit their national policies”.

The problem with the “current framework of rules in agriculture”, this Report asserted, “is that it institutionalises unfair trade practices behind a veneer of WTO legality”. Drawing attention to the well-known reality that more than two-thirds of poor people (surviving at less than $ 1 a day) live and work in rural areas either as small holder farmers or as agricultural labourers, this Report asserted that unfair trade practices systematically undermine the livelihoods of these people, hampering progress towards the millennium development goals in the process.

The HDR added: “The problem at the heart of the Doha Round WTO negotiations can be summarised in three words—rich country subsidies..... Rich countries spend just over $ 1 billion a year as aid to developing country agriculture and just under $ 1 billion a day supporting their own agricultural systems.”

What is more, this Report said: “At the WTO itself new threats are emerging. Instead of addressing head on the fundamental challenge of removing market distortions, developed countries have embarked on an elaborate subsidy repackaging exercise. The danger now is that an agreement at the WTO will leave intact the very distortions that the Doha round was tended to remove, in the process under-mining prospects for achieving the Millennium Development Goals.”

The path to the markets of the rich countries remains a difficult one for poorer countries. As the HDR informed us, on average low-income developing countries exporting to high-income countries face tariffs three to four times higher than the barriers applied in trade between high-income countries. Further, “developed countries typically apply low tariffs to raw commodities but rapidly rising rates to intermediate or final products....This tariff structure prevents developing countries from adding value to their exports. Tariff escalation is designed to transfer value from producers in poor countries to agricultural processors and retailers in rich ones and it works.” This is the reason why only 29 per cent of the cocoa powder originates in developing countries even though 90 per cent of cocoa beans are grown there. European companies capture the bulk of the final value of African cocoa production.

Coming to the present times, of course there are very important issues relating to ‘Special Products’, ‘Special Protection Mechanism’, ‘Nama’, services sector etc. which are on the current agenda of the Doha Round. It is, of course, important to protect the interests of farmers and workers of developing and poorest countries relating to all these issues. But as the review of what had already taken place in and under the WTO-trade regime makes it clear, the problems go back much further. If we really want to create a just trading system, then we need to question some basic assumptions on which the WTO system is based as well as several of its rules and agreements. These agreements were reached and rules were enacted at a time when millions of vulnerable people, adversely impacted, even ruined, by them, were not even aware of their implications or existence. In this sense these are fundamentally undemocratic and need to be challenged in the interests of democracy as well as justice.

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