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Why ‘Beyond Hong Kong'?
The 2005 Hong Kong Ministerial ended without any consensus on vital trade negotiations in the Doha Agenda, which will be completed in 2006. As we approach the deadline, a public national consultation involving various stakeholders, policymakers and trade negotiators becomes inevitable to decide and strengthen India's future negotiating strategy.
The national consultation, organised jointly by Centad and Federation of Indian Chambers of Commerce and Industry (FICCI) on March 20, 2006, in New Delhi, provided a public forum for economists, academicians, industry representatives and government officials to come together and have an effective say in shaping the national agenda. It also served as a valuable occasion for informing and orienting India's own work and priorities.
As a joint initiative between Centad, a leading trade research organisation whose priority is the ‘development' angle of the WTO regime, and an industrial association like FICCI, which represents the interests of the industrial sector, the national consultation was an amalgamation of both the development and trade liberalising dimensions of the WTO.
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| The Centad-FICCI national consultation provided participants an opportunity to interact with top government officials and experts. |
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Hong Kong, a failed promise
Though there were very high expectations from the Hong Kong Ministerial, it could not deliver the much-awaited results. Director General of the WTO, Pascal Lamy, himself admitted that only 60% of the Doha Agenda had been accomplished, and the remaining 40% was a hard nut to crack.
Hong Kong also highlighted the tendency of the developed world to disregard the ‘development' agenda of the Doha round, thus blatantly forfeiting the legitimate concerns of the South. The ministerial did, however, reach a consensus on the elimination of export subsidies. It also saw unprecedented unity among developing countries to collectively bargain for a better deal.
Pillars of the Hong Kong negotiations
The Hong Kong Ministerial centred on three main issues: agriculture, Non-Agricultural Market Access (NAMA) and services. In agriculture, the ministerial agreed on 2013 as the deadline for the elimination of export subsidies, and permitted developing countries to self-designate Special Products (SPs) and adopt Special Safeguard Mechanisms (SSM).
A Swiss formula with multiple coefficients on tariff reduction and stand-alone provision for flexibilities were significant developments in the NAMA negotiations.
In services, a plurilateral approach with specific timelines was adopted.
Discussions at the national consultation attempted to arrive at a position on the following:
- In agriculture: reduction of domestic subsidies and tariff cuts.
- In NAMA: decide on the specific formula and tackle non-tariff barriers.
- In services: implementation of timelines.
Significant outcomes of the consultation
The opening session of the consultation laid the groundwork for intense and thought-provoking discussions by spelling out India's present stance in the WTO negotiations and acknowledging the great work done by Indian negotiators in protecting the national interest. One of the speakers expressed his apprehension that the April 30, 2006, deadline for agriculture and NAMA negotiations may not be met, as developed countries are taking a pre-Hong Kong stand, especially with regard to the stand-alone nature of Paragraph 8 flexibilities. Though the developed countries' stand on flexibilities in NAMA may not affect India, the stand-alone flexibilities that the developed world seeks in agriculture were regarded as unacceptable to India.
Pointing out the relevance of Paragraph 24 of the Hong Kong Declaration, and supporting the Government of India's stand on this, the negotiators were urged to ensure that a balance was maintained between market access in agriculture and NAMA.
While affirming the shift in the services sector from a bilateral to a plurilateral approach, it is necessary to be wary as developing countries are also expected to make similar trade liberalisation commitments. India's competitive advantage in filing a plurilateral approach in services other than computer services was also put forward.
Agriculture
The first session on agriculture highlighted the different role the agricultural sector plays in developed and developing countries. It was pointed out that the main concern of the agriculture negotiations is to achieve a best compromise, considering the divergent interests of the countries involved. India's stagnancy in global agricultural trade was attributed to the defensive approach it has embraced so far. The need to pursue a more aggressive policy was stressed. It is necessary to look at the national and international context in which trade negotiations on agriculture are held; Indian policymakers seem to lag behind when it comes to understanding changing international policies.
The two defensive mechanisms of concern to developing countries are special products and special safeguard mechanisms. If developing countries persist in negotiating for special products, they may have to concede to unfair demands from developed countries. Second, the inherent inequitable nature of special products would result in regional and political tensions in India.
The need to consider various aspects of non-tariff barriers in agriculture, as evidenced in the instance of basmati rice, and the capacity of India to compete internationally were illustrated and acknowledged. It was, however, stressed many times that industry associations must provide sufficient research, data and analysis to the respective government agencies prior to the upcoming negotiations.
Issues for future negotiation in agriculture
- The framework for agriculture negotiations must be grounded in removing imbalances in the Agreement on Agriculture (AoA). As the Aggregate Measure of Support (AMS) in India is negative, India does not have to reduce its domestic subsidies; it can, in fact, increase its subsidies to farmers. Moreover, in the case of market access, India has the option of giving either minimum or no access, since India has a comfortable margin between bound and applied tariffs. The target of developing countries to attain a level playing field in agricultural trade should continue unabated.
- While negotiating for special products and special safeguard mechanisms, the emphasis should be on the crucial details rather than on strategies. Developing countries must ensure that developed countries do not use these concessions to lower the level of ambition of agricultural negotiations.
- The linkage and trade-off between sensitive products, special products, SSM provisions and flexibilities and tariff reductions across products are still to be ascertained.
- The linkage and balance between the three pillars of the Agreement on Agriculture and between agriculture, NAMA and services are yet to be negotiated.
- The negotiators need to consider the domestic agrarian crisis, changing international conditions and their effects on the ongoing WTO negotiations.
- Industry associations should do their homework in providing adequate data and analysis to the negotiators.
Non-Agricultural Market Access (NAMA)
In the second session on NAMA it was proposed that in pursuing real and substantial market access for non-agricultural or industrial goods, the development dimension of the Doha Declaration must be underlined. Tariff reduction in the NAMA negotiations should eliminate tariff peaks and tariff escalation in developed countries, especially for products of interest to developing countries. At the same time, it should give developing countries the policy space to use industrial tariffs for their development purposes. The core modality here is to have a Swiss formula with coefficients taking account of special and differential treatment through the principle of Less Than Full Reciprocity (LTFR).
The two formulations for tariff reduction on the table were a formula with two coefficients, one for developed and the other for developing countries, and a Swiss formula with multiple coefficients. The first formula does not effectively address the issue, as it results in deeper tariff cuts for developing countries like India in spite of the huge margin as envisaged between the two coefficients. The Aregentina-Brazil-India (ABI) approach, which takes note of factors reflecting the tariff structures of individual countries, is more suitable to fulfil the mandate of Paragraph 14 of the Hong Kong Declaration.
It was suggested that it is advisable to keep a certain proportion of tariff lines outside the tariff reduction procedure in the interests of developing countries. The Paragraph 8 flexibilities reiterated in Hong Kong are to be a stand-alone provision independent of the tariff reduction formula.
Non-mandatory participation in sectoral initiatives would give us the choice of whether or not to participate in tariff reduction negotiations for specific sectors. This is to be taken up only after the tariff reduction modalities are finalised. India should build a strategy on sectorals rendering it active in sectors where it has a competitive advantage. India would get significant market access if sectors like leather products, textiles, pharmaceuticals and footwear are negotiated.
In the treatment of unbound tariff lines, a mark-up approach to fix rates followed by a formula for tariff reduction should be negotiated. India has to press for a non-linear mark-up that binds the tariff at a higher rate. In negotiating for a reduction formula, either a different formula or the same formula with higher coefficients should be applied. Negotiation to leave certain tariff lines unbound should be a prime concern, to protect strategically important industries in India.
The issues of tariff reduction and Non-Tariff Barriers (NTBs) are to be linked and resolved simultaneously. India's policy should be guided by prioritising the fair trade principle in the free trade argument. Agriculture and industry linkages are also to be kept active. The different standards of flexibility in agriculture and NAMA indicate the duplicity of the developed world. Therefore, the urge for a balance between market access in agriculture and NAMA, as provided in Paragraph 24 of the Hong Kong Declaration, was also underlined.
As Liz Stuart of Oxfam remarked: “Any final deal needs to be judged on whether it promotes both poor countries' agriculture and their manufacturing sectors. Future negotiations should not attempt to trade off poor countries' farmers against their factory workers.”
Issues for future consideration in NAMA
• In identifying the coefficient for the Swiss formula, the following criteria need to be considered: reduction in tariff peaks and tariff escalation, and the principle of LTFR. The minimum definition of LTFR should mean lower rates of tariff cuts for developing countries and should be built into the formula through the value of the coefficient.
• India's position should be that the only way to interpret Paragraph 14 is by implementing the ABI formula that can fulfil the above criteria.
• There should be no linkage between the formula and special and differential treatment. Special and differential treatment must leave a few unbound tariff lines to protect strategic sectors.
• In sectoral elimination, India should be active in sectors in which it has a competitive advantage.
• For unbound tariff lines, the non-linear mark-up approach should seek to bind the tariff at a higher level, taking into account the sensitivity of some tariff lines.
• Reduction of tariff and non-tariff barriers should be linked and resolved simultaneously.
• The negotiators should endeavour to actively maintain agricultural and industrial linkages.
• The significance of feedback from the industry, which is the end user, to the government negotiators was reiterated in this session too.
Services
The last session on services threw up important issues like the impact of the shift from a bilateral approach to a plurilateral one, and the need for domestic regulators in the services sector. The paradigm shift in approach calls for judicious consideration since all countries making requests will have to make the same liberalisation commitments they seek from others. Presently, India has made a plurilateral request only in computer-related services. Future negotiations should aim at broadening the services brought into plurilateral requests.
India has a huge stake in services, with 54% of its GDP and larger national interests involved in this sector. Therefore, our attempt should be to chisel away at a number of barriers in different services sectors. To this end, the objective has to be one that will not sacrifice domestic policy space in services, whilst at the same time following an alternative approach. The new approach should generate employment opportunities and create a greater share for services in the GDP. Hence, we need aggressive strategies and finer capabilities for negotiation.
Issues for future negotiation in services
In the context of the plurilateral approach in services, apprehensions were voiced about losing linkages to agriculture and NAMA negotiations. • The comparative advantage in sectors like professional services, software services and business services must be furthered by aggressive strategies.
• The need for a conscious service policy in India on a par with agriculture and industrial policies has to be kept in mind.
• The disciplines in domestic regulation of the services market are to be completed, keeping in mind the conflict between market access and domestic regulation. • The question before the negotiators in domestic regulation of services is to strike a balance between extreme intrusions and extreme permissiveness. The different regulatory requirements of different sectors will also have to be considered.
• In services negotiations, a generic framework for the South Asian region was recommended. On the issue of movement of services across borders there has to be a coherent approach with new strategies including efforts to bring in a skilled transferee's visa that would add to macro-economic stability.
The way forward
For India, integration with the global economy was a collective decision that could not be waived. The need of the hour is to maximise the benefits of global market access without compromising the specific interests of the Indian economy, by continuing the special protection offered to sensitive agricultural and industrial sectors. Promoting India's strongholds, like the services sector, will enable us to better face competition and the global challenges of the future. If specificity in the negotiation and drafting of the legal text is given due importance, India will surely be heading in the right direction.
( Centad thanks Elsa Catherine George and Ticy V Thomas, research scholars at Jawaharlal Nehru University, for their substantial contribution in preparing this report)
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