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Opinion

January 28, 2018

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The tip of the iceberg

Much ado about nothing. This is how we may describe the outcome of the 11th Ministerial Conference (MC), the apex body of the 164-member World Trade Organization (WTO), which was held with fanfare in Buenos Aires, Argentina from December 10 to December 13, 2017.

The MC is a biennial event. The outcome of the previous MC hosted by Kenya in December 2015 was fairly mixed. In a significant decision, developed countries had agreed to remove most of the agricultural export subsidies with immediate effect. The agreed cut-off date for developing countries to phase out these subsidies was set as December 31, 2018. The ministers had also extended for another 15 years (until December 31, 2030) the waiver that allowed non-least developed country (LDC) members to grant preferential treatment to LDC services and service suppliers on a unilateral basis. However, most of the substantive issues had remained unaddressed during the 2015 conference.

The Buenos Aires conference has turned out to be even more disappointing. No binding commitment has been made in any significant area. The issues on which agreements have been reached are only the tip of the iceberg. Most of the decisions have largely been made on a goodwill basis. The members have agreed to continue discussing the modalities to reduce or altogether eliminate certain forms of fisheries subsidies. The modalities will be finalised within two years so they can be adopted by the next MC, which is scheduled for 2019.

It was also decided that the work programme to further liberalise electronic commerce will be continued alongside efforts to maintain the current practice of not imposing customs duties on electronic transmissions until the twelfth conference. The members also agreed not to initiate situation and non-violation (SNV) complaints under the Agreement on Trade-Related Aspects of Intellectual Property Rights (the Trips Agreement) until the scope and modalities for such complaints are finalised during the next MC.

Under the WTO’s rules, a member can only invoke the organisation’s dispute settlement mechanism if another member violates a specific WTO agreement or a commitment taken thereunder. However, a complaint can be filed against another member – even though there is no such violation – if the complainant can show that it has been deprived of an expected benefit owing to the respondent country’s action. This is called a SNV complaint. Such complaints are usually possible for goods and services.

In the case of intellectual property rights (IPRs), Article 64 of the Trips Agreement contains a temporary injunction to the effect that members cannot file SNV complaints against each other for five years (1995-1999). It states that such matters will be settled through an MC. However, the issue continues to remains on the table, with members extending the moratorium from time to time. The ministers have finally reaffirmed their commitment to the current work programme on small economies to pave the way for their full integration into the multilateral trading system, particularly in the sphere of trade facilitation.

No headway was made on such substantive issues as domestic support and market access in agricultural trade; non-agricultural market access (Nama); services; trade; and development. A contentious area in which the MC was mandated to conclude negotiations was the public stockholding for food security. To understand this issue, an overview of the domestic support or subsidisation under the Agreement on Agriculture (AoA) is necessary.

The AoA classifies the domestic support provided by the government to farmers into two categories. The first category includes support which has a direct impact on production and distorts trade whereas the second entails assistance which is believed to not have such an effect. The overall trade-distorting domestic support (OTDS) maintained by a member is further classified into three categories: the aggregate measure of support (AMS); de minimis support; and domestic support that is linked to delimiting production. The AoA stipulates that only AMS has to be scaled down. Moreover, the AMS provided by a member must not be greater than its corresponding annual or final bound commitment level. If it does, other members can file a complaint against this particular member.

Some developing countries, such as India, provide substantial domestic support as food security in excess of their AMS commitments. These countries have been itching to get an permanent exemption from having to fulfil their commitments by amending the AoA. The 2013 MC held in Bali (Indonesia) put a temporary moratorium (until 2017) on invoking the dispute settlement mechanism if any developing country failed to meet its AMS obligations until a permanent solution to the problem was reached. The moratorium is also referred to as the peace clause. The 2015 MC reiterated the Bali decision, leaving it to the 2017 conference to decide the issue once and for all. However, no decision was reached at the 2017 session.

Food security is of considerable importance for developing economies, which are, by and large, characterised by endemic rural poverty and a large, impoverished, labour-intensive agricultural sector. Let’s take the Global Food Security Index 2017 published by The Economist. Even the so-called emerging economies are ranked lower than the developed nations on a list comprising 113 countries – with Brazil on the 38th position; Russia on the 41st; South Africa on the 44th; China on the 45th); India on the 74th; and Pakistan on the 77th.

At the same time, it is difficult to dispute the fact that subsidies cost the public exchequer a pretty penny. Providing unlimited domestic support to farmers as food security will benefit bigger or richer developing countries that can afford to dole out huge subsidies at the expense of those which cannot do so – such as Pakistan – by giving a competitive edge to growers in the former. Though developing countries must have greater flexibility in ensuring food security, trade-distorting domestic support – for whatever purposes – ought also not to be left undisciplined.

Other forms of domestic support in agriculture also lead to overproduction. To dispose of the surplus output, export subsidies that are provided as domestic prices tend to be much higher than the world market prices. As a result, curbing the OTDS has been on the WTO’s agenda. However, opinions are divided over the modalities of curtailing OTDS. One view is that the OTDS limits may be based on a percentage of the value of production whereas the other view calls for fixed monetary caps on domestic support. The percentage of the value of production as well as the level of fixed monetary caps is also not agreed.

There is also the issue of tariff escalation for both agricultural and industrial products. Economies across the globe have highly protected sectors, which they are reluctant to liberalise. Developed countries, for instance, have a highly protected and heavily subsidised agricultural sector. In Switzerland, tariffs on some agricultural products exceed 1,000 percent. Japan applies 1,000 percent tariffs on importing rice while the tariffs on dairy products are as high as 600 percent. The EU countries apply tariffs of more than 200 percent on several agricultural products. In the case of the US, tariffs on a number of farm products are approximately 100 percent.

Developing countries, by and large, have highly sensitive industrial subsectors. Let’s consider the example of the two largest developing economies in the world today: China and India. In China’s case, tariff peaks exist in several sectors, such as textiles and clothing; leather articles; chemicals; electrical and mechanical appliances; and the auto sector.

India applies more than 250 percent tariffs on some textiles products while in some other sectors – such as clothing, chemicals, fruits and vegetables and beverages – tariffs exceed 100 per cent. In the case of Pakistan, the auto sector remains highly protected. Such crucial issues continue to remain on the table, scuttling any real progress in multilateral trade negotiations.

The writer is a freelance contributor.

Email: [email protected]

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