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By
Prabhash Ranjan and Robin Koshy
(This article was first published
in Business Standard, July 23, 2005. The authors are with Centad)
When the heads of the earth's most powerful countries met at the Group of Eight
(G8) summit in Gleneagles, Scotland, in early July 2005, there was no shortage
of prose to underscore the importance of trade for development. Less than
a week later, when trade ministers from 30 World Trade Organisation (WTO) member
countries, including those from the G8, met at Dalian, China, to accelerate the
pace of negotiations under the Doha Round, progress was agonisingly slow. If
trade is to help make poverty history, then agriculture is the area where progress
needs to be made urgently, as more than two-thirds of the people living below
the poverty line work on farms in the developing world. The meeting disappointed,
although a fresh proposal from the Group of 20 (G20) countries to provide “the
basis for further talks on methodology to cut tariffs in agriculture,” provides
a ray of hope. The G20 has proposed that the tariff rates of developed
countries be divided into five bands and that of developing countries into four
bands, and then tariffs within each band be subjected to linear cuts. (More bands
for developed countries, simply because they have a higher variance between maximum
and minimum tariff rates for different products.) Higher tariff bands will
then be subject to greater linear cuts in order to meet the target of high tariff
reduction, as warranted by the Doha mandate and the July package. Further, the
proposal states that the tariff reduction by developing countries would be less
than two-third of the reduction undertaken by developed countries. This
proposal of the G20 is significant, as it is the first attempt to operationalise
the tiered approach for reducing agricultural tariffs. Initial reports emanating
from Dalian suggested that the European Community (EC) and the US favour this
proposal although the Cairns Group countries such as Australia and Switzerland
are against it. In protecting the interests of the developing countries
that the G20 represents, two premises are important. First, developing countries
have a defensive interest in protecting their vulnerable farm economies. Second,
the tariff-cutting exercise should lead to substantial improvement in market access
for developing countries by steeply cutting tariff rates in developed countries.
The G20 proposal meets the defensive interests of developing countries
well. By proposing a linear approach for developing countries, the proposal ensures
that the tariff-cutting exercise will be soft on developing countries. For
instance, for a country such as India that has an average bound tariff rate of
116% in agriculture and maintains a bound tariff rate of 100% or more on 536 products
out of 671 products (HS six-digit level), a linear approach for tariff reduction
is an appropriate way forward in the tariff-cutting exercise. However,
the G20 proposal falters on the latter issue of substantially improving market
access for developing countries. Developing countries face formidable tariff barriers
in developed countries in the form of tariff escalation. For instance,
in Japan, the bound tariff rate on raw sugar is 224%; this climbs to as high as
328% for refined sugar. Canada levies 9% on raw sugar and 107% on refined sugar.
The respective bound tariff rates for raw and refined sugar in the European Union
are 135% and 161% respectively. The story is the same if one looks at the
tariff rates on cocoa beans vis-à-vis chocolate, or fresh orange vis-à-vis
orange juice. The net effect of these differential tariffs on raw and processed
commodities is that it is difficult for developing countries to move up the chain
of value addition. The G20 proposal that advocates a linear approach would
lead to less reduction in tariffs as compared to the non-linear Swiss formula.
It should instead have called for developed countries to undertake a steep reduction
in their tariff structures by adopting a non-linear approach embodied in the Swiss
formula within the five bands. The G20 submission also proposes the maximum
tariff limit to be capped at 100% for any individual product in developed countries.
This high tariff cap is rather generous of the G20, considering the fact that
developed countries such as Japan, the EU and the US have 579, 85 and 45 products
respectively, that have bound tariff rates equal to or more than 100%. One
must not ignore the importance of the G20 proposal in breaking the impasse on
the tariff-reduction formula. Nevertheless, it is pertinent to ponder the cost
that such an agreement imposes on developing countries. In the negotiations
ahead, the US, EU and other developed nations will no doubt demand, and perhaps
secure, milder cuts and higher tariff caps. It could be interpreted that the G20
proposal is closer to the “fallback position” rather than the “negotiating position”
for developing countries. No doubt, the present round of negotiations is
an opportunity for developing countries to negotiate and bargain for greater and
deeper cuts in tariff rates in developed countries. Missing this opportunity will
only postpone reforms in agricultural trade much to the detriment of farmers in
the South. As Celine Charveriat of Oxfam candidly puts it, at the current
rate countries would not even have agreed on the seating plan, let alone a framework
for agricultural reform by the time the WTO Ministerial Meeting happens in December
2005! However, the G20 should not press for an agreement at any cost, as
having no agreement is always better than a bad agreement. At Cancun in 2003,
the G20 demonstrated its resolve in wrecking the talks rather than accepting a
negative agreement. Developing countries have to be vigilant to ensure
that, unlike the Uruguay Round, the Doha Round leads to a balanced outcome. Better
an agreement about the seating plan on the deck of a sinking ship than on a ship
sailing into the past.
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