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Africa: Trade Update, Commonwealth

AfricaFocus Bulletin
Jun 22, 2004 (040622)
(Reposted from sources cited below)

Editor's Note

"The development focus of the Doha Round emerged from a renewed spirit of collective responsibility for the challenges faced by poor countries, and also as a response to the perceived inequities generated by previous rounds of trade negotiations. Unfortunately, in the years since it was launched, the Doha Round has not delivered on its development mandate."

In a new report commissioned by the Commonwealth Secretariat, Nobel Laureate and former World Bank senior economist Joseph Stiglitz has launched a broad critique of current trade talks, which he argues does not truly represent the interests of developing countries. The report, from which brief excerpts are presented below, presents the case for a new framework for international trade negotiations, in which development needs are taken seriously and the inequities of previous agreements are addressed.

World Trade Organization (WTO) negotiations will continue as scheduled next month in Geneva. But developing countries are increasingly making use of other fora to strengthen the case for different perspectives and to increase the leverage of developing country groups within the WTO discussions. Even within the WTO, moreover, rulings such as last week's decision that U.S. cotton subsidies violate international trade rules are reinforcing the need to address the North-South inequities in the current international trade regime.

Another AfricaFocus Bulletin sent out today contains excerpts from reports by the Third World Network on the UNCTAD XI meeting just concluded in Brazil.

Recent AfricaFocus Bulletin with an emphasis on trade include http://www.africafocus.org/docs04/eca0405.php,
http://www.africafocus.org/docs04/cot0405.php,
http://www.africafocus.org/docs04/sw0404.php, and http://www.africafocus.org/docs04/unct0403.php.

++++++++++++++++++++++end editor's note+++++++++++++++++++++++

The Development Round of Trade Negotiations In The Aftermath of Cancun

A report for the Commonwealth Secretariat prepared by Joseph E. Stiglitz and Andrew Charlton, with the Initiative for Policy Dialogue (IPD)

[brief excerpts only: the full 159 page report is available on the Commonwealth website - http://www.thecommonwealth.org]

Executive Summary:

The development focus of the Doha Round emerged from a renewed spirit of collective responsibility for the challenges faced by poor countries, and also as a response to the perceived inequities generated by previous rounds of trade negotiations. Unfortunately, in the years since it was launched, the Doha Round has not delivered on its development mandate in several important respects. First, there has been little progress on the issues of interest to developing countries (especially agriculture, labor mobility, and labor-intensive manufactures and services). Second, the new issues on the agenda, the so-called 'Singapore Issues', primarily reflect the interests of the advanced industrial countries and have been strongly opposed by many developing countries. Third, the domestic and bilateral actions of several OECD countries have led to questions about their commitment to the multilateral development agenda. Finally, there has been only limited reform to the culture and procedures of the WTO.

This report presents an alternative way forward for the Doha Round based on social justice and economic analysis. The first part of the report proposes an alternative agenda for the Round. It suggests principles that should motivate the negotiations and identifies priority initiatives which would deliver significant gains to developing countries and increase global efficiency. It also recommends institutional reforms necessary to make global trade negotiations more effective and inclusive.

The primary principle of the Doha Round must be to ensure that the agreements promote development in poor countries. To make this principle operational, the WTO needs to foster a culture of robust economic analysis to identify pro-development proposals and promote them to the top of the agenda. In practice this means establishing a source of impartial and publicly available analysis of the effects of different initiatives on different countries and groups within countries. This should be a core responsibility of an expanded WTO Secretariat. Based on this analysis, any agreement that differentially hurts developing countries or provides disproportionate benefits to developed countries should be presumptively viewed as unfair and regarded as being against the spirit of the Development Round.

The agreements must enshrine both de jure and de facto fairness. This means ensuring that developing countries are not prevented from unlocking the benefits of free trade because of a lack of institutional capacity. In this regard, developing countries will require special assistance to enable them to participate equally in the WTO.

The principle of fairness should also be sensitive to countries' initial conditions. Special and differential treatment is needed to recognize that adjustment to new trading rules involves particularly high costs for developing countries whose institutions are weakest and whose populations are most vulnerable. Prescriptive multilateral agreements must not be allowed to run roughshod over national strategies to deal with idiosyncratic development problems.

This report presents pro-development priorities that should form the core of the Doha Round agreements. Primary attention should be given to market access for goods produced by developing countries. There is an urgent need to reduce protection on labor-intensive manufactures (textiles and food processing), agricultural goods, and unskilled services (maritime and construction services). Priority should also be given to the development of schemes to increase labor mobility particularly the facilitation of temporary migration for unskilled workers. As tariff barriers have come down, developed countries have increasingly resorted to non-tariff barriers; these need to be circumscribed. Significant change in the outcomes of multilateral trade agreements must be supported by institutional reforms. A fair agreement is unlikely to be produced through an unfair process. In particular, greater transparency and openness is required to create a more inclusive bargaining process and put an end to the infamous 'green room' negotiations.

The Report makes clear that there is a huge discrepancy between the Development Round trade agenda, both as it was formulated at Doha and as it has evolved since, and a true Development Round agenda, that would reflect the interests and concerns of the developing world. Such an agenda would promote growth in developing countries and work to reduce the huge disparity that separates them from the more advanced industrial countries.

Part 2 of this report considers some of the issues associated with the adjustment process to a new trade regime. In one sense these adjustment costs can be thought of as the price to be paid for the benefits of multilateral trade liberalization. It is these adjustment costs together with the trade benefits that determine the net effect of trade reform for each country. The Doha Round has placed renewed emphasis on the importance of sharing the benefits of trade reform fairly among developed and developing countries. However there has been less attention to the distribution of adjustment costs among countries. The fact that implementation and adjustment costs are likely to be larger in developing countries, unemployment rates are likely to be higher, safety nets weaker, and risk markets poor are all facts that have to be taken into account in trade negotiations. For the some of the smallest and poorest states, the adjustment costs of trade liberalization may significantly outweigh the benefits available.

If the Development Round is to bring widespread benefits to people living in developing countries - and if there is to be widespread support for the continuing agenda for trade reform and liberalization - the developed world must make a stronger commitment than it has provided in the past to giving assistance to the developing world. Assistance is required not only to help bear the often large costs associated with trade reform, but also to enable developing countries to avail themselves of the new opportunities provided by a more integrated global economy.

1 Introduction

In the aftermath of the failure of Cancun, there is a need to reassess the direction of global trade negotiations. In Doha, the nations of the world agreed to a new round of trade negotiations, which would redress some of the imbalances of the past, imbalances which it was widely felt had benefited the advanced industrial countries at the expense of developing countries. There was, in fact, some basis for the complaints of the developing countries, both in terms of the manner in which trade negotiations had been conducted in the past and in terms of the outcomes. Many of the participants in the Cancun meeting felt that Europe and the United States had reneged on the promises that had been made at Doha, emblemized by the lack of progress in agriculture.

There were mutual recriminations about who was to blame for the failure. There was even disagreement about who would suffer the most. The United States and Europe were quick to assert that it was the developing countries who were the ultimate losers. But many developing countries had taken the view that no agreement was better than a bad agreement, and that the Doha round was rushing headlong (if any trade agreement can be described as "rushing") into one which, rather than redressing the imbalances of the past, would actually make them worse off. Though some progress had been made in addressing the concerns about the manner in which the negotiations were conducted, the failure to address these concerns fully generated the further worry that the developing countries would, somehow, be strong-armed in the end into an agreement that was disadvantageous to them. There were also threats, especially by the United States, that it would effectively abandon the multilateral approach, taking up a bilateral approach. It differentiated between the "can do" countries and others, and suggested that the "can do" countries would benefit from a series of bilateral agreements.

This paper takes a step back from these disputes. It attempts to support progress in the current round by asking, what should a Development Round of trade negotiations look like? What would an agreement that was based on principles of economic analysis and social justice not on economic power and special interests look like? Our analysis concludes that the agenda would look markedly different from that which has been at the center of discussions for the past two years, and that the fears of the developing countries that the Doha round of trade negotiations (were the demands of the developed countries acceded to) would disadvantage them were in fact justified.

2 The Need for a Development Round

2.1 Redressing past imbalances

In June 1993 the Uruguay Round (UR) was finally brought to a close. Part of the impetus for members to conclude the round was the promise of large welfare gains that had been projected by many researchers. In 1992-1993, the World Bank, the Organization for Economic Cooperation and Development, and various other institutions made projections of welfare gains in the order of $200 billion a year. A large share of the gains was predicted to accrue to developing countries.

In hindsight these estimates particularly in relation to developing countries were over-optimistic. It has since been estimated that 70% of the gains from the Uruguay Round will go to developed countries, with most of the rest going to a relatively few large export-oriented developing countries. Indeed many of the poorest countries in the world would actually be worse off as a result of the round. In the first six years of the Uruguay round (1995-2001), the 48 least developed countries will actually be worse off by some $600 million a year, with sub-Saharan Africa worse off by $1.2 billion. (UNDP HDR [1997], p. 82). One reason was that the modeled scenarios were not fully reflected in actual events. Several reforms, which were significant sources of predicted gains, did not proceed as had been hoped early in the negotiations. For example, the Agreement on Textiles and Clothing (ATC) was structured to significantly backload liberalization; the ability of tariff-rate quotas (TRQs) to liberalize agricultural market access was overestimated; and the costs of implementation were almost completely ignored.

In addition the Uruguay Round agenda reflected, in large part, the priorities of developed countries. Market access gains for example were concentrated in areas of interest to developed countries and there was only marginal progress on the priorities of developing countries (particularly in agriculture and textiles). The result of this regressive asymmetry was that after the implementation of Uruguay Round commitments, the average OECD tariff on imports from developing countries is four times higher than on imports originating in the OECD (Laird 2002). Domestic protection (particularly agricultural subsidies) is also much higher in developed countries, amounting to more than US$300bn in 2002. The impact of this protection is particularly regressive since producers in the poorest developing countries are the most affected by OECD policies. Only 4 per cent of the exports of developed countries are subsidized by another WTO member, but 6.4 per cent of the exports of middle income countries are subsidized. By contrast, a much larger share (29.4 per cent) of the exports of the poorest countries (not including China and India) are subsidized by another WTO member.

As well as receiving a small share of the gains from the Uruguay Round, developing countries accepted a remarkable range of obligations and responsibilities. New trade rules and domestic disciplines were introduced, but they too reflected the priorities and needs of developed countries more than developing countries (e.g., subsidies were permitted for agriculture, but not industrial products). Many of the rules acted to constrain the policy options (such as industrial policies) of developing countries, in some cases prohibiting the use of instruments that had been used by developed countries at comparable stages of their development. Many of the new obligations imposed significant burdens on developing countries. In return the least developed countries were promised financial assistance with implementation costs and extensions of preferential market access schemes. The common feature of these commitments is that they were non-binding on developed countries. As a consequence developing countries found themselves at the mercy of the goodwill of developed countries. As Finger and Schuler (2000) aptly note: "the developing countries took a bound commitments to implement in exchange for unbound commitment of assistance". Insufficient attention has subsequently been paid to the enormous demands upon developing countries in implementing the outcome from the Uruguay Round. Agreements related to intellectual property, customs valuation, technical barriers to trade and agricultural food safety have been particular targets of criticism in this regard.

3 Doha's Development Record So Far

Despite the expressions of goodwill at Doha, progress on the Development Round has been slow. Part of the problem is that, while the interests of different developing countries differ, the evolving agenda itself was not really designed to reflect the real concerns of developing countries. Throughout 2002 and 2003 it became apparent that many developing countries felt that the Doha Round was moving in the wrong direction on many key issues. They felt that the new round offers them few immediate benefits but carries the risk of additional obligations. As a consequence developing countries walked away from the Cancun Ministerial in September 2003.

Up to that point, Doha had achieved little progress on most of the critical development issues. One of the key disappointments has been agricultural reform, which many developing countries and NGOs viewed as the primary objective of the round. The March 2003 deadline for agreement on agricultural modalities was missed. When the US and EC finally presented a joint paper on agriculture modalities in August, the framework was widely criticized by developing countries, correctly in our judgment, for ignoring their interests. On the key issues of market access, domestic support, and export subsidies the text was perceived to fall short of the level of ambition of the Doha mandate; indeed, in some respects, what was offered was a step backward.

At the same time, agricultural initiatives within OECD countries seemed to be undermining multilateral efforts. The U.S. Farm Bill in 2002 increased the level of support to U.S. farmers and strengthened the link between subsidies and production decisions. One year later, the EC's 2003 Luxembourg reform of the common agricultural policy (CAP) was also disappointing. ...

After the Uruguay round, there was a clear understanding that there would be further liberalization of agriculture. There is now a strong sense that the United States has reneged on that commitment; whether the huge increase in agricultural subsidies is an explicit violation of earlier agreements is of less importance than that it represents a violation of the spirit of the agreement (or at least was taken as the spirit of the agreement by the developing countries.) Just as the agreement has to be viewed as a whole, so too, a Development Round agreement has to be viewed in the context of the unbalanced agreements that preceded it. ...

Another area where achievements have lagged behind rhetoric is in the delivery of non-reciprocal trade preferences. Recently there have been a number of initiatives in OECD countries to further discriminate in favour of LDCs. Most notable among these are the EU's Everything But Arms (EBA) initiative and the US's African Growth and Opportunity Act (AGOA). ... Overall, the impact of these schemes has not yet been very significant, with the exception of African apparel exports to the U.S. under AGOA [World Bank, 2003].

4 Principles of a Development Round

We begin with an analysis of the principles that should underlay a development round of trade negotiations. It seems self- evident that:

  1. Any agreement should be assessed in terms of its impact on development; items with a negative effect on development should not be on the agenda.
  2. Any agreement should be fair.
  3. Any agreement should be fairly arrived at.
  4. The agenda should limited to trade-related and development-friendly issues.

While these principles may be widely agreed to, there may be important differences both about the meaning of terms and about how to respond to conflicts among the principles. ...


AfricaFocus Bulletin is an independent electronic publication providing reposted commentary and analysis on African issues, with a particular focus on U.S. and international policies. AfricaFocus Bulletin is edited by William Minter.

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URL for this file: http://www.africafocus.org/docs04/stig0406.php