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Apr 25, 2019

The Rich Get Richer

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By Vijay D'Souza, UK [ Published Date: January 8, 2006 ]

The ministerial conference, highest body of the World Trade Organisation (WTO) in Hong Kong from December 13th to 18th achieved almost nothing despite lengthy discussions on issues, perhaps dear to the developing world. Politicians from 149 member countries haggled to agree only on few symbolic steps. On the other hand, local authorities had a difficult time, dealing with intense demonstration from South Korean rice farmers who were apprehensive about freer trade in their markets.

The WTO is the only international agency overseeing the rules of international trade. It regulates free trade agreements, settles trade disputes between governments and organises trade negotiations. WTO members are empowered to enforce its decisions by imposing trade sanctions against countries that breach the rules. Based in Geneva, the WTO was set up in 1995, replacing another international organisation known as the General Agreement on Tariffs and Trade (GATT). Whereas GATT regulated trade in merchandise goods, the WTO also covers trade in services, such as telecommunications and banking and other issues like intellectual property rights.

The sole idea behind WTO is to create a “level playing field” for all the countries involved. Also to supervise free trade on a non-discriminatory basis without making special deals for a few countries. Right now, developing countries want abolishment of agriculture subsidies by richest countries so that their farmers can compete at international level. Rich countries in turn ask developing countries to do more to open their markets for industrial goods and services, so that they can expand their business. Countries like India impose tariffs when products are being "dumped" by foreign manufacturers at less than market price, either to win market share or when the producers are helped by government subsidies. The poorest countries have little to bargain with, as they have little to offer other than the concession they make for services and non-agricultural manufactured goods.

Unlike previous such meetings which collapsed in Seattle, in 1999, and Cancún, in 2003, the Hong Kong meeting at least managed to survive, perhaps, to die another day. The delegates agreed on a date, the end of 2013, for the elimination of export subsidies on farm goods, without agreeing on a final deal on the big issues of opening up trade in agriculture, services, and industrial products. Despite the fact that export subsidies are just one type of agricultural subsidies, which make up less than 2% of total subsidies, people involved considered this as a good start.

An ideal trade deal should help towards ending poverty in developing countries, also enabling rich countries to benefit by selling more of their goods and services abroad. The balance is not right now when you see things like the cotton farmers  in US receiving funds worth more than the entire GDP (total value of final goods and services produced within a country per year) of any of the four West African countries - Benin, Burkina, Chad and Mali. So now, America has pledged that it would reduce domestic cotton subsidies more quickly than other farm supports. Its promised cancellation of export subsidies for cotton by the end of next year does not count for real concession, as it is already obliged to do this by a recent WTO ruling.

The deadlock remains, as most countries are united against Japan, the European Union (EU) and the US on farm subsidies. However, they are divided regarding services and non-farm manufactured goods. Larger developing countries like Brazil and India want more liberalisation in these sectors.

World’s richest countries do not give their position of strength that easily as they too have to satisfy their domestic interests first. In a way these talks are bit of farce in the name of development, while, so far, any concessions have been mere acts of playing to the gallery. For example, the rich countries are now cutting down their food subsidies which are already being phased out anyway. Amongst them they also are trying to show that one is doing more than the other and push others for more concessions. For example, the EU which already gives duty-free and quota-free access to the poorest countries and which produces little cotton, hiding their own refusal to make deeper concessions in general farm tariffs, were pointing finger to America to do more in duty-free and quota-free access to the poorest countries. The Americans, however, did just enough on cotton and on duty-free access to avoid being seen as unsympathetic of the poor.

On the whole, the rich members of WTO are under moral obligation to get rid of the agricultural export subsidies and have promised to do so. However unfair may be the rich nations farm policies, they have little impact on global commerce. According to the World Bank, their abolition would yield only 2% gain from free trade in agriculture. According to aid agency CAFOD (Catholic Agency for Overseas Development), export subsidies fell from 50% of the EU agricultural spending in 1980 to 5% in 2004, and were set to drop still further. However, this talk of “little impact to global commerce” should not be a hindrance for doing what is required. It could well act as an incentive for prospective farmers from developing countries and that in turn should help the entire world to fight poverty and injustice.

 As one of the gains from recent talk, the world’s least developed countries gained promises of free access to rich countries’ markets for about 97% of their goods. The key new element gives them the right to sell their goods into developed countries without paying tariffs or being limited by quotas, though it constitutes less than 1% of all trade. One consolation for the poorest countries is that they could sell goods with added value without having to pay high tariff. This is expected to help them in developing food-processing industries, as they have to pay high tariffs to sell processed food. Nonetheless, America is expected to continue to put obstacles in the way of textile imports, while Japan will exempt rice, fish, sugar and maize from this deal. Even though, the deal has additional conditions imposed on them, at least it does something to generate business and employment in poor countries. 

At the moment, the EU is the biggest subsidiser of its exports (supporting export oriented industries), mainly of dairy products and sugar, to the tune of $3.4 billion a year. Reform of the EU’s Common Agricultural Policy (CAP), particularly of sugar supports, will reduce these subsidies destined to end by 2013. So far, Countries like France have consistently resisted proposals to give it up. In a recent EU budget, Tony Blair agreed to give up the rebate Britain was enjoying since 1984, earned to compensate Britain for farm funding ( EU’S redistribution of funds are heavily tilted in favour of farming, which constitutes only a small part of the British economy ). This gesture of helping newly joined EU nations at the expense of British tax payers didn’t win him any friends back home, though observers believed what he did what was inevitable. Mr. Blair faced intense criticism for giving up something dear to Britain and not securing anything in return. This money should help gear up Europe for the imminent competition in store from emerging economies like China and India. The world needs leaders like him who envisage the importance of common good than growing disparity.

At WTO, a deal to bolster the confidence amongst all the nations still looks anything other than attainable. The three big members of WTO - America, the EU and the emerging economies - Brazil, India and China, are trying desperately to get more from the other. Everyone including America and the big developing countries regard Europe’s proposed cuts in farm tariffs as insufficient. Brazil and India refuse to consider reducing their own industrial tariffs until there is more progress on agricultural trade. The EU would not offer anymore unless the emerging economies (Brazil, China and India) do more to open their markets for industrial goods and services.

 It is not unlikely that whatever proposals offered by America and the EU in recent meeting is an effort to buy the poor countries off so that they will not refuse a nasty deal later. India needs to be cautious about opening its markets for industrial goods and services. Manufacturing goods still remain the main export of developing countries and large section of the population in India work in unorganised sector, some even owning their business. Any street in a small-time city in India has restaurants, bakeries, electrical and auto parts shops, flower shops, travel agents, photo shops etc. That cannot be substituted entirely by jobs created by foreign supermarkets. Besides, Indian farmers can not be naïve to trust foreign supermarkets to buy their produce. So it is hard to predict how the world trade will shape in future years and how it might affect India. However, it is not a surprise then, as in every business; here too everyone likes a bargain and the strong muscle to test their strength.

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