Next WTO round must correct imbalances against South

by Martin Khor

Marrakech 15 Sept -- The next stage of negotiations and activities in the World Trade Organization must focus on correcting the accumulated imbalances and injustices suffered by developing countries in the multilateral trading system, in order to bring about more equity and credibility to the WTO.

This was one of the major themes that emerged from a Roundtable on the "Multilateral Trading System and Development" at the G77 Ministerial Meeting here today.

The discussions were marked by frankness, punctuated with expressions of frustration, at the lack of influence of, and benefits to developing countries, in the WTO, and indignation over the double standards between how issues of interest to the North and South have been treated. While most participants were cool, if not hostile, to a new round with new issues promoted by industrialized countries, Singapore argued that if developing countries were convinced they were better off after the Tokyo Round and WTO, they must support a new round, and send a positive message to the markets. But several others, UNCTAD Secretary- General Rubens Ricupero among them said that while trade could promote development, "we can't expect all 150 countries to replicate Singapore, and there must different roads to development, and hence flexibility."

It was quite a remarkable demonstration of the disillusionment of some of the South's most senior trade officials and experts with the present state of affairs in the multilateral trading system.

The Roundtable chairperson, Thai deputy premier Supachai Panitchpakdi (who is scheduled to be WTO Director-General in 2002), started the ball rolling by enumerating ten points of interest to developing countries where solutions and actions were needed.

"When we discuss the multilateral trade system (MTS), we are usually asked to serve the system," he said. "It is high time we make the system serve our development goals. I recommend that the system undergo some fundamental changes."

He listed the following as issues that required action:

* Built into the MTS are traces of unilateral elements. We must ask if we can seriously tackle unilateral action by Members as we cannot close our eyes to this.

* In past Rounds, their usefulness is measured by growth in overall trade volume. What is missing is the allocation of that increase in trade volume, i.e. the gains to different countries. This was not fully analyzed.

* An assessment of the nature of implementation of the Uruguay Round commitments must be made. This need not be done with an eye on the review process. But we must know the results and consequences, the shortcomings and benefits of the Round, so that we can address future negotiations better.

* The special and differential treatment of developing countries has been endorsed but implementation leaves much to be desired. How can S and D treatment be enforced so that developing countries can phase themselves gradually into the system?

* How to deal with non-tariff barriers such as technical barriers to trade, antidumping and safeguards. More such barriers are being put against Third World products.

* If we are to discuss an "early harvest" in Seattle, it should be emphasised that this should be valid for areas of interest to developing countries, such as market access for our commodities, mobility of natural persons, agriculture, expansion of tariff quotas, extension of transition periods for TRIPS, TRIMS etc.

* There is a fear of the development of a litigation culture through the dispute settlement understanding (DSU). The DSU might open the road for countries to impose their laws on others. The DSU should be reviewed as soon as possible to prevent over- litigation.

* The accession process should not shift goalposts by exploiting new countries through squeezing them. Flexibility should be allowed.

* Trade and finance policies should go hand in hand. The Asian crisis shows that a sudden drop in finance backup can damage trade. There needs to be better coordination between international organisations on these issues.

* Developing countries should prioritise their social development goals and developed countries can help by providing enabling mechanisms of empowerment. Attempting to use the trade sanctions mechanism instead can only lead to a rejection of social issues.

UNCTAD Secretary-General Rubens Ricupero said he agreed with Supachai's elements. He said there was only a little time before the Seattle Meeting and developing countries should now focus on the drafting of the Seattle Declaration as this was not a general statement of intent but would set the framework for negotiations. More than 30% of the success of the negotiations would depend on what would be put into the declaration. Thus countries should prepare different alternatives on the paragraphs of different subjects.

Ricupero said many had agreed this is the time for a Development Round.

"If we are sincere in this, to attain balance means we have to give development more than 50 percent. Balance is not 50-50 because previous Rounds addressed little of the development concerns and most imbalances in the system are due to those previous Rounds.

"For example, there are now pressures to get rid of the transition periods for developing countries. After the Uruguay Round, many developing countries were pressured to give up transition periods due to bilateral pressure."

Demonstrating the unfairness of this, Ricupero contrasted the transition periods for developing countries under the WTO agreements (generally five years), with the long transition periods provided for products from developed countries.

"The longest transition periods are in agriculture and textiles," he said. In agriculture a waiver was given to the US in the 1950s, in a peace clause expiring in 2003, amounting to a 50 year transition period.

A waiver was also given to the US on cotton textiles in the late 1950s which later became the MFA. "By the time the MFA is dismantled (and I have serious doubts it will happen) it would already have lasted 45 years" said Ricupero.

He added that "there can be no denying that the multilateral trading system is highly imbalanced and biased against developing countries. It is a matter of concrete evidence."

For example, why is it that developing countries cannot use subsidies for industrial goods whilst developed countries reserve for themselves the right to abuse agricultural subsidies?

"If the system is imbalanced, and has been unable to address development requirements in past Rounds, now is the time to do it, not on a 50-50 basis." He agreed with Supachai that an "early harvest" should be on matters that developing countries have been waiting for 50 years. "It is a late harvest for us and not an early harvest!" he said.

On the concept of a single undertaking, Ricupero said it had been newly introduced in the Uruguay Round, and it had also appeared in the draft outline of the Seattle Declaration (released last week in Geneva).

He said whilst he did not oppose the concept, developing countries had to be careful before accepting an unqualified concept of single undertaking as "we could end up again where one side has 90 percent and the other side has 10 percent." If a single undertaking is accepted, then it must include the idea of reasonable balance. One example would be in consistency of transition periods: why is it that in TRIPS the transition period is shorter than in textiles or agriculture?

On S and D treatment, Ricupero challenged the view of some that it should be a thing of the past. "We should not be ashamed to reaffirm with great vigour the need for S and D more than ever." Knowledge and technology were now more important than labour and access to technology and knowledge is now more and more difficult. S and D is about learning the process of development. Competition depends on that.

"In the old GATT there was a mistaken view that competition only requires clear rules and an impartial arbiter. But competition requires preparation, education, training. S and D is about how to learn to compete. No one imagines a lightweight should fight a heavyweight in boxing. We must learn by stages, with technical support."

Supachai then remarked that he agreed with Ricupero that balance does not mean equal treatment alone but must include compensation for the past imbalance of benefits. He also agreed that developing countries should reaffirm their need for S and D treatment all the time.

Another panellist, Singapore's Minister of State for Foreign Affairs, Ow Chim Hock, said an open trade regime had many benefits -- expanding markets for developing countries, increasing FDI and improving productivity of local producers. Trade is also an engine for growth. Seattle was an opportune time to send a positive message to the market to keep the momentum for trade. If Seattle failed to provide for more liberalisation, protectionism would set in, there would be a loss of faith and a breakdown of the MTS, he argued.

Supachai remarked that it may be true the bicycle should move ahead to keep from falling, but he also noted that trade openness had not helped some countries in reality as contrasted with in theory.

South African deputy trade minister Ms LB Hendricks said the next Round must be a Development Round and must focus on development and narrowing income disparities.

"It is crucial that rules not power govern trade relations. Having rules in WTO is a good start. But rules must be designed to achieve equitable objectives. Otherwise there is a danger the MTS is run by power but under the thin guise of rules. We must not allow this."

She added it is important the pace of liberalisation and rule making be commensurate with each governments' capacity to meet obligations. "Failure to realise this will hamstring the objectives of poverty eradication."

She said there would be confidence in the trading system only if the next Round has a balanced agenda to ensure Members' interests are accommodated. "It must be recognised there will be differential burdens that new negotiations will place on different delegations and all must derive benefits."

Amb Munir Akram of Pakistan said there were some parts of the draft outline of the Seattle Declaration that he was "very unhappy" about and there would need to be considerable negotiations to agree even on the outline.

From developing countries' viewpoint, he said, "we start with the premise that what is to go in further negotiation must follow from what goes before, and this refers to existing agreements and assessment of implementation.

He added once we know how implementation has proceeded, we can recommend solutions to problems. Early harvest in Seattle must be the solutions to implementation problems, such as the LDC issue, market access, textiles, agriculture implementation, TRIPS and TRIMS extension. Those important problems not solved at Seattle should be solved in one year as the next early harvest.

He added new negotiations are restricted to agriculture and services, according to the inbuilt agenda. Also, there were the reviews of DSU, of TRIMS and TRIPS which indicate difficulties that must be resolved.

On Singapore issues, Akram said transparency in government procurement and trade facilitation were issues of less difficulty compared to investment and competition where the study in working groups must continue. Some issues even if proposed must remain outside WTO. The environment must remain outside any package whilst labour should not get in at all.

Brazil's deputy permanent representative, Amb. Adhemar Bahadian, asked what were the bargaining chips the South had in the next Round. For example, on implementation, was it enough for the South to say we realise what we agreed in the past is not worthwhile and we ask for a few more years (to implement)? In agriculture, how can we make the EU dismantle subsidies detrimental to the South? Are we asking this only in the name of development or do we have a bargaining chip?

"What I worry is that we embark on a new Round in a weak position. How can we balance our position for a start?"

The Colombia representative said the central question was whether a new Round is truly convenient or advantageous for the South at this stage. It was not clear from the discussions here whether it is correct for developing countries to accept a new Round. In Colombia a national debate was taking place on this.

The Cuba representative said opening up of markets in our countries, if not accompanied by protecting certain sectors, is a matter of concern as this would pose a risk for certain industries. "Our economies have important industries that must be preserved and extreme openness will jeopardise our development."

The Peru representative asked how realistic was it to expect a new round to incorporate development concerns. "To date, we find there is no critical mass to enable us to feel the development variable would be a real factor in this Round." He said S and D treatment had been reduced merely to extension of transition periods and technical assistance.

He said the difference between North and South today is in their enterprises. Even if rules of the game are fair, the South cannot gain from that "if we do not have enterprises."

"Isn't it a risk to create great expectations that this Round will restore balance?"

Guyana Foreign Minister Clement Rohee said the popular perception of people on the ground (businessmen, farmers, workers) is that there are no big expectations from Seattle. The small Carribean economies were now facing great challenges due to the removal of preferences for bananas as their economies faced devastation. He urged the developing countries to have a platform.

"Time is running out not only for the negotiations but the future of our countries," he said.

Tanzania's Permanent Representative in Geneva (and chair of the WTO General Council), Amb Ali Mchumo said Supachai's ten points were very important and formed a synthesis of many proposals in Geneva. "I believe they will feature in the final Declaration."

On the draft outline of the Seattle Declaration, he said it must be polished up and improved on. Developing countries should put meat to the skeleton.

He also stressed that for LDCs the supply side was important. "Market access is important but you can't market what you don't produce." He noted there was no full implementation yet of the LDC programme.

Singapore's Ow Chim Hock, in his final comment, came back to support a new round, and said delegates should ask themselves if they are convinced of the benefits of an open trade system, and if they are convinced all counties are better or worse off than after the Tokyo Round and with the WTO and UNCTAD. If the answer was yes, we should start a new trade Round.

Taking up this question, the Trade Minister of Bangladesh Ahmad Tofail, quoted from the UN Secretary General's message to the meeting, that some developing countries had reaped benefits from globalisation but many have suffered the downside. Speaking as an LDC, he said "we are not interested in a new Round... Instead, we should assess how much has been fulfilled of the Uruguay Round, before thinking about another Round."

He added that liberalisation had benefitted the industrial countries greatly but not the LDCs. In Bangladesh, average tariffs had gone down significantly. "Our domestic industries have suffered as a result. Now the business people are worried as we prepare for Seattle that labour standards issue will be revived. And we are facing non-tariff barriers. We should move on assessment and we should be very cautious on a new Round."

Ricupero in his conclusion said "we need a rule based system and trade has a potential for development. But the system is far from perfect as there are many imbalances. This is partly due to unilateral actions or differences in power. In all international organisations, power counts and does matter. In trade negotiations, the expression of power is market power.

"But what is a reasonable level of imbalance?" he asked. "If we agree there is room for improvement then it is fair to focus on redressing imbalances in the next effort instead of going ahead with velocity in areas where industrial countries benefit. Since the Uruguay Round, the areas of progress were in telecoms, information technology and financial services. These are sectors of interest to developed countries. The time has come to give priority to the interests of developing countries, in market access and flexibility about norms.

"There must be progress in market access for the South, in textiles, clothing, agriculture, tariff peaks and escalation. We are very far from getting rid of trade barriers in industrial countries.

"In relation to norms, developing countries need more flexibility in the choice of their development policies. Many policies used by developed countries in the past for centuries are either out of reach to developing countries due to their being prohibited in the past Round or there is an attempt to outlaw these policies. We should not agree to decisions to further prohibit more policy choices.

"Development is a complex process. Countries like Singapore could benefit (from trade), others are still dependent on a few commodities. We can't expect all 150 countries to replicate Singapore. There must be different roads to development and therefore we need flexibility." (SUNS4510)

Martin Khor is the Director of  Third World Network. The above article first appeared in the South-North Development Monitor (SUNS).