Keep WTO on track

The WTO Ministerial Conference is in danger of its attention being diverted to "new issues" when it should be focusing on a review of the deficiencies and imbalances of the Uruguay Round and on the serious problems of implementation. This paper, which was distributed as a TWN Briefing at the WTO Conference, explains why the WTO Agreements are unequal, what remedial measures can be taken, and why "new issues" will tilt the WTO against the interests of developing countries.

by Bhagirath Lal Das

This is the first Ministerial Conference of the WTO after it came into existence on 1 January 1995; and it is likely to set the tone for such future meetings which will be routinely held every two years. These Ministerial Conferences in the WTO will be different in nature from the Ministerial Meetings earlier held in GATT in ad hoc manner at very long intervals, when some important and basic subjects came up for consideration. Now ministers have decided to meet regularly, at least once in two years, to "carry out the functions of the WTO". It is therefore not necessary that they must have before them some important new subjects in each meeting. Of course, they can take up new subjects at their discretion any time, when these are considered necessary and desirable in relation to the functioning of the WTO. This paper points to the dangers of shifting attention to new subjects when the existing subjects are full of problems and in need of immediate attention. It attempts to delineate some of these problems, particularly the serious imbalances and deficiencies in the current Agreements, and suggests action by the Ministerial Conference in some priority areas.

1. Risks at the Singapore Ministerial Conference

There is a risk that this Ministerial Conference in Singapore may spend most of its time on the current new issues, viz, Social Clause, Investment and Environment, and very little time on the review of the operation of the WTO Agreements. Even in Geneva, during the preparation process, there has been more heat on these new issues than light, on the problems of the existing Agreements. This "crowding out" of the normal and important work by the new subjects may jeopardize the smooth functioning of the WTO. The tendency in GATT in the last two decades has been to jump to new issues from time to time without pausing to deliberate on the problems relating to the current and past issues. Immediately when the Tokyo Round ended in 1979, new issues, like Services, Investment and High Technology were brought up in 1981. These were further pursued and followed up in the Uruguay Round. The subject of High Technology was replaced by the Intellectual Property Rights (IPR) Protection in the Uruguay Round. Immediately, when the Uruguay Round results came into effect, further new issues started to be pursued, viz, Investment, Social Clause and Environment. And these subjects have been mostly brought forth by the major developed countries. On all these occasions, these new subjects have been brought forth by major developed countries. At the end of the Tokyo Round, no exclusive attention was given to the continuing and well recognized problems in the fields of safeguard, grey area measures, tariff and non-tariff barriers on tropical products, tariff escalation and so on. Again at the end of the Uruguay Round, no special attention is being paid to the problems in the existing areas. Most of these neglected subjects are of interest to developing countries. It is important to halt in our tracks and give priority and exclusive consideration to the implementation of the WTO Agreements and to examine the innate problems in these Agreements, because they suffer from major deficiencies and imbalances which require corrections.

2. Overall imbalance in the results of the Uruguay Round


The existence of imbalance in the Uruguay Round results comes as no surprise, howsoever concerned one may feel about it. There are three reasons for it, as mentioned below: (i) One of the main objectives of the major developed countries in launching the new Round was to extract concessions and commitments from developing countries in the then existing areas. (ii) Another main objective of developed countries was to obtain concessions and commitments from developing countries in new areas. (iii) And then there is the basic inherent problem in the GATT/WTO system that the balance of rights and obligations is worked out on the basis of the principle of reciprocity. A system based on this principle is appropriate among countries at almost similar levels of economic development; but it does not work well when there are wide economic disparities among the participants. The principle of reciprocity implies that you get more, if you give more. If you are not capable of giving, you do not get anything. In this process, disparities have grown over time between the rich countries that can give and the poor countries that do not have the capacity to give.

The principle of reciprocity

There have been two corrective processes for the last problem in the past. In the early 60's, Part IV was added to GATT, but it is now totally forgotten. Then in the late 70's, Differential and More Favourable treatment for developing countries was introduced, but it has been severely diluted in the Uruguay Round. In a system which is based on the principle of reciprocity and where the members cover a wide range of economic levels, it is important and necessary to have such corrective and balancing provisions in order to have an overall balance. As these imperatives of balance were not kept in view and as the major developed countries pursued their agenda in the Uruguay Round aggressively, the results have been very much unbalanced. This is a unique example of international negotiation where one group, viz, the developing countries, have made most of the concessions and commitments, and the other group, that is, the developed countries, have made very little concessions and commitments. This imbalance appears particularly abnormal when we take into account the fact that the former are nearly 100 in number in the GATT/WTO, while the latter are just about 25. Besides, it is very much inequitous, as the developing countries need help and support in their path of development, and the developed countries, which are in a position to provide such help and are themselves not in so much need, are not fully willing to provide support. Indeed, they are pushing ahead with their agenda to extract more and more concessions from developing countries.

Broad comparison of concessions and commitments

Several quantitative studies have come out with the assessment of gains and losses in market access for various countries and groups of countries. One need not get much guidance from them as they depend a good deal on presumptions, parameters and coefficients which are highly uncertain. In fact, it is no surprise that the forecasts made by different persons and institutions have differed a good deal, and some times, even those made by the same institution on different occasions have given widely differing results. Thus these quantitative assessments may not be a good guide to consider the balance of concessions. One relevant yardstick in this regard may be the comparison between the rights and obligations before the start of the Uruguay Round and those at the end of the Round.

Concessions and commitments of the North

Following this criterion, the main concessions and commitments of the developed countries may be listed as follows:

(i) Reduction in tariff of developed countries on industrial products has been described as a major concession, as they have committed to reduce their tariff by nearly 40%. But, in actual terms, the average tariff will be reduced from about 6.3% to about 3.9%. It is no doubt a reduction of nearly 40%; but what it really means is that a product which was having a price of $100 and was earlier selling in developed countries at $106.3, will now sell at $103.9. This will certainly not enhance much, the export prospects of other countries. Besides, the tariffs on the traditional products of interest to developing countries are still very high in developed countries compared to the tariffs on the products of basic interest to developed countries themselves. Over and above, tariff escalation still continues in developed countries against all their promises in the past to reduce and eliminate it.

(ii) In the field of agriculture, there has been some commitments by developed countries on the reduction of import restraint, domestic support and export subsidy. It will help some developing countries which are interested in the export of agricultural products.

(iii) In the textiles sector, there is a promise of liberalization and bringing this sector within the normal discipline of the WTO.

(iv) Grey area measures will be eliminated and there is a prohibition on such new measures.

Concessions and commitments of the South

The main concessions and commitments of the developing countries may be listed as follows:

(i) Those developing countries which had high unbound tariffs, have reduced the tariffs significantly. For example, India's trade weighted average tariff on industrial products has been reduced from 71.4% to 32.4%, Brazil's from 40.7% to 27%, Chile's from 34.9% to 24.9%, Mexico's from 46.1% to 33.7%, Venezuela's from 50% to 31.1%. These had been earlier held at high levels, fully in consonance with GATT provisions, hence it cannot be argued that these countries had very high tariffs, and they should have reduced them anyway. Reduction of these tariff levels is, in fact, in the nature of concessions.

(ii) In agriculture, most of the developing countries have in effect given up their flexibility to use import restraint, domestic support and export subsidy. And those of them that were having the protection of balance of payment measures, will be left with comparatively low tariffs, once the balance of payment cover is no more available. Many developed countries, on the other hand, have covered themselves very well with high tariff equivalents of non- tariff measures. Besides, developed countries, most of which have been using domestic support and export subsidy, will be able to retain them up to nearly 65 to 80% till the year 2000. And developing countries which are not using them at present are prohibited to use them ever in future.

(iii) In the field of subsidies in the industrial sector, developing countries will no more have the flexibility to subsidize their industry and exports as an instrument of development. In the Tokyo Round, it was recognized that developing countries use subsidy as an instrument of development; but in the Uruguay Round, there is no such recognition. Though there is some transitional concession, developing countries in general have given up their flexibility in this regard, which was with them earlier.

(iv) In the area of Balance of Payment (BOP) provisions, developing countries had the flexibility to use either tariff increase or direct quantitative restraint on imports. During 1979, it was laid down that priority will be given to measures which have less trade-distortive effects. There was considerable vagueness as to what would or would not be more trade-distortive. In the Uruguay Round, it has been clearly prescribed that before using direct quantitative import restraint, a country has to prove that tariff-type measures will not be effective in solving the BOP situation. This is clearly in the nature of a new obligation for the developing countries.

(v) In the process of dispute settlement, the anti- dumping cases have been excluded from the normal procedure, and panels do not have the authority to pronounce whether a measure is or is not in conformity with the provisions of the Agreement on Anti-dumping. Considering that in most of the anti-dumping cases, developing countries have been the victims, the exclusion of this area from the normal dispute settlement process of WTO is a major concession made by the developing countries.

(vi) In the textiles sector, there is an agreement to maintain a sectoral balance of rights and obligations, which is a completely alien concept in GATT/WTO that works on the principle of overall balance and not sectoral balance. And specific punishments have been prescribed which, by their nature, will only harm the developing countries, without any parallel type of punishment for developed countries if they disturb the balance of rights and obligations.

(vii) In the Agreement on Textiles, an elaborate annex has been included, which enables developed countries to fulfil their obligations of liberalization technically, without actually bringing about any real liberalization of the products under import restraint.

(viii) Developing countries have agreed to bring Services and the Intellectual Property Rights in the WTO system which is a major move, as this is the first time that a subject which is not actually related to the trade of goods, has been included in the GATT/WTO system. It has opened the window for such external subjects, now we have a flood of other new subjects being pushed for inclusion.

(ix) The Agreement on Services has an obvious imbalance between the treatment of the movement of capital and that of labour, which is very much a concession from the developing countries.

(x) The Agreement on TRIPS prescribes minimum standards of protection for the Intellectual Property Rights, totally ignoring the need of a balance between the rights of the IPR holder and those of the users of the intellectual property.

(xi) In the Dispute Settlement Understanding, there is a provision for cross-sector retaliation, which is likely to be adverse, particularly to the developing countries, as the pre-conditions for its use against the interest of developed countries may be difficult to be proved. This brief description shows that the results of the Uruguay Round suffer from a high degree of overall imbalance between the concessions made by the developing countries and those made by the developed countries.

3. Attempts to enhance the imbalance

In the light of what has been said above, a normal course for the WTO should be to correct these imbalances and restore the system to a more balanced shape. Instead, the efforts which are being made for the last one year or so in introducing new subjects will further shift the balance against the interest of developing countries. Developing countries, which have already made huge concessions in the Uruguay Round, are being asked to make further concessions. Inadequate attention to the problems of the implementation of the existing Agreements, and indeed, even to the imbalances and deficiencies in the contents of the Agreements, is bound to bring serious strains into the system. And it is important to guard against it.

4. Priority areas for consideration

Instead of rocking the system with attempts to introduce new subjects within just about a year or two of the completion of a very ambitious multilateral trade negotiation, it is proper to give priority to improve the existing system so as to enable it to serve the Member countries better. Some of the subjects which should be taken up for urgent consideration on a priority basis are given below as illustration:

(i) The Agreement on Agriculture is based on the principle of commercial operations in this sector. However, a very large section of the people of developing countries comprising of small and house-hold farmers are engaged in non- commercial farming, and their interest has not been taken into account. Special Safeguard Provisions of the Agreement on Agriculture and the general safeguard provisions of the Agreement on Safeguard are not adequate and relevant to give them protection. It is necessary to work out ways to provide protection to them.

(ii) Need of development of indigenous food production in developing countries should be fully accomodated, as they cannot depend on the import of food, even if it is cheap in the international market, since almost all of these countries are chronically short of foreign exchange and the import of essential food items can never brook any delay.

(iii) In the field of subsidies in the industrial sector, the subsidy practices generally prevalent in developed countries have been permitted, for example, the subsidies for research, regional development and environment protection; but the subsidies used by developing countries for improving their production and export in their development process have been made actionable or have been prohibited. It needs correction.

(iv) In considering the balance of payment situation in a developing country, the nature of the reserve and the flow of the foreign exchange must be taken into account. For example, the stock and the inflow which are susceptible to short term shifts must be ignored while examining whether the particular developing country has a balance of payment problem.

(v) In the Services sector, the provisions relating to increasing participation of developing countries and those relating to flexibility for developing countries in further sectoral negotiations need being given a concrete shape, so that these provisions are fully respected and implemented.

(vi) In the area of TRIPS, the provisions of objectives and principles should be similarly given a more concrete shape to encourage and facilitate the technological development of developing countries. Further, some effective provisions relating to the rights of the users of the IPR need being specifically included.

(vii) Besides, the points mentioned earlier in the section on imbalance should be considered and corrective features included in various Agreements.

(viii) In all the areas mentioned above, the needs of the least developed countries have to be taken specially into account and special provisions for them have to be included.

To keep WTO on track

It is perhaps too late for the Singapore Ministerial Meeting to consider these subjects in detail and to take decisions on these issues. But at least, the Meeting can take note of these problems and work out a programme for their consideration in the relevant WTO bodies with the directive that specific recommendations should be placed before the next Ministerial Conference. It is important to keep the WTO on its proper track, so that it grows into a well recognized multilateral organization where all the Members have complete confidence that their interests are fully looked after.

(The sections on imbalance in this paper have drawn heavily on a study done by Ms Shipra Das. Her contribution is gratefully acknowledged.)

(Mr. B.L. Das is a former director of UNCTAD's International Trade Programmes and formerly India's Ambassador to the GATT.)