TWN Info Service on WTO and Trade Issues (Nov07/24)

28 Nov 2007

World Bank President Zoellick offers $2 billion Aid for Trade, to move Doha forward

Below is an article by C. Raghavan on the efforts of the World Bank President at the recent Aid For Trade global review meeting at the WTO, to get the stalled Doha negotiations moving, including through a $2 billion package.

The article was published in the SUNS on 21 November 2007.  It is reproduced here with the permission of the SUNS.  Any reproduction requires permission of the SUNS (sunstwn@bluewin.ch).

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Martin Khor
TWN

World Bank President Zoellick offers $2 billion Aid For Trade, to move Doha forward
Geneva, 20 Nov 2007:  By  Chakravarthi Raghavan*

World Bank President Robert Zoellick came to the World Trade Organization Tuesday, as he put it, "to lend his further support to move Doha agenda forward", and announced a $2 billion seven-point Bank programme of "Aid-for-trade".

However, at a media briefing, Mr. Zoellick, avoided answering a specific question whether the $2 billion would be "new money", and said that it would be for one of the elements dealing with trade finance through the International Finance Corporation (IFC), the private sector arm of the bank, and referred to the increased amount of trade finance that the IFC could provide.

In his statement at the WTO (according to a World Bank News Release), Zoellick announced a seven point programme of expanded efforts on trade to help developing countries to take advantage of the global market to accelerate economic growth.

He highlighted the seven-point programme among others as including: increased country programmes on trade and competitiveness through policy analysis, programmatic and investment lending and technical assistance including advice on incentives to private investors by lowering tariffs; more Bank resources for infrastructure; expand trade finance services; expand assistance to trade facilitation and logistics; and investing in developing knowledge on how to harness globalization for growth and overcoming poverty.

It was difficult to make out from his speech, and the World Bank press release, what is new and old in the Bank programmes or the new and additional assistance the Bank would be able to arise and provide - particularly when Zoellick himself pointed to the problems of IDA financing.

But there was little doubt that it will all be conditional on "reforms" - a code word used in the past to open up developing country markets and reduce their tariffs and that has resulted in the de-industrialization of much of Africa and with no capacity to produce and export value-added manufactures.

"The development assistance," Zoellick said, "should be made available to countries undertaking reforms to lower their costs of trading and use exports for growth."

Civil society groups have been critical of the so-called "Aid-for-Trade" programme and the "aid" to be provided under this heading - for being no more than reallocation of existing aid funds, and not new or additional. Also, they have complained that it comes laced with conditionalities (see SUNS #6366 and #6370).

Zoellick's speech at the WTO, and his responses later at a press conference, perhaps add strength to these criticisms.

In his speech at the WTO meeting, Zoellick spoke of the "critical moment" in the Doha talks, and the "competing pulls" negotiators faced, and said: "having helped with the launch (of the round) in Doha, "endured" the sad breakdown in Cancun, and having assisted in its recovery at Geneva in 2004, Zoellick claimed that considerable progress has since been made, and there were "excellent results on the table, ready to be reaped."

"You have the elements of an excellent deal" on the table, he claimed.

At his media briefing, Zoellick spoke of his conversations with world leaders interested in reaching an agreement - mentioning the South African leader, Indian Prime Minister Manmohan Singh and Commerce Minister Kamal Nath, German Chancellor Angela Merkel and US President George W Bush.

The Falconer package (on agriculture modalities) on the table, he said, had narrowed the range for people to focus on, and underscored the importance of the Non-Agricultural Market Access (NAMA), with two key variables to be resolved - the formula and the exceptions to it.

Zoellick, an original neo-con, as the US Trade Representative in 2001 within days of the terrorist attacks on New York (twin towers of the World Trade Centre) and Washington (Pentagon), had joined hands with the then EC Trade Commissioner and now WTO head, Pascal Lamy, to push for a new trade round as a response to the "terrorist attacks".

Soon after he took office as USTR, Zoellick tried to persuade Congress to give the administration "fast track authority", but did not make any headway (even with a then Republican controlled Congress), but with Lamy's help used the 9/11 attacks to get the Doha talks launched.

While Zoellick pushed for a "market access" round - in the run-up to and at Doha - and Lamy as EC Commissioned pushed the "Singapore" issues that critics said had been brought up to divert attention from the demands of developing countries for the US, EC and other rich countries to continuing their agriculture reform programme and dismantle their barriers (domestic subsidies, high tariffs in key imports to protect domestic markets, and export subsidies to offload their surpluses on third markets).

After the collapse of the Doha negotiations at Cancun, in July 2004, the talks were sought to be put back on the rails through the July 2004 framework accord - which Zoellick commended for its emphasis, though without an end-date, for ending export subsidies.

Since then, with Lamy taking over as WTO head, the Doha talks have reached an impasse.

Several of the questions at Zoellick's briefing at the WTO, and most of his responses were more on the substance of the Doha negotiations, and promoting the "welfare theory" of trade liberalization by countries and need for countries to reduce their tariffs on manufactured imports.

When most economists assess benefits of trade agreements, Zoellick said, "they just don't focus on exports", but that "the real benefits for a country's economic welfare comes from lowering the barriers."

This kind of assessment about economic welfare to a country by lowering its own trade barriers have been advanced by so-called mainstream economists, on the basis of "free trade theories" which most of them support as a policy.

However, in a recent paper, "Deconstructing the arguments for free trade" (a first draft was favourably noted and hyperlinked by Prof. Dani Rodrik at his website blog, in September), Prof. Robert Driskill of the Vanderbilt University, has brought out that "free trade" is advanced by economists as an axiomatic truth (rather an empirical one to be based on factual evidence), and calls on economists to be more modest and provide a more nuanced view of trade offs.

Zoellick, at his press briefing, argued about the "progress" made in the negotiations, and said he thought it was possible now to conclude the negotiations.

He told the WTO members at the meeting: "You have the elements of an excellent deal on the table... The agricultural reforms - both in market access and subsidies - could be historic. The cuts in barriers in goods will offer benefits throughout the global economy for years to come, in ways you can only partially perceive today. Given the changing nature of global production and farming, developing countries could be major beneficiaries."

In media briefings before the AFT meet, the WTO officials had said the AFT is not linked to the Doha negotiations.

But Zoellick in his speech at the AFT devoted much of his attention to the advancement of the Doha negotiations. He explained at his press conference that the reason he had made the statements about Doha was having been a negotiator, "it is easy to focus on the differences at the moment and forget the benefits you can reap that are already locked into the accord. People should not under-estimate those because I think they are quite significant."

Asked whether the Doha round should die a natural death, since the US administration has been unable to secure any Trade Promotion Authority, Zoellick said that the potential global trade agreement would be a good substantive agreement for the US as well as others, and he believed the US should go for it and then present it to the Congress, and that would be the best way to mobilise business groups, agriculture groups and others that would benefit from the trade agreement. "So, I believe it is best to be on offense and to be bringing in agreements".

However, this response left unanswered, the issue posed last week by Brazilian Foreign Minister Celso Amorim and Indian Commerce Minister Kamal Nath (who both raised publicly for the first time the US administration lack of TPA). The question that trade negotiators from other countries have been raising has been how they could negotiate with the US administration when there is no assurance that the US Congress would not pull the accord apart, and they would be facing (from the US, pointing to its Congress) new or additional demands.

On the NAMA talks and issue of "Less-Than-Full-Reciprocity" (LTFR) principle in the July 2004 Framework agreement, Zoellick said the framework was up to the negotiators.

The World Bank President added: "If you start with many developed countries having lower tariffs and having the same as bound tariffs, the question is who is doing more if you are taking an amount down from a higher level, but you still end up higher or you are taking water out of a tariff and not going to a bound tariff. Is that more than when you are cutting the bound tariff?"

However, he was not asked, and did not say why the same logic would not apply to the US and the EC etc claiming to cut their agricultural subsidies - domestic support etc - when the cuts would still leave considerably water in the subsidy programmes or shift of support from blue and amber boxes to green box.

Zoellick however tried to advance the argument for developing countries cutting goods tariffs, and giving the US and EC (as they demand) real and new market access - with the theory of economics about welfare benefits to a country of lowering its own tariffs!

He also spoke in the years ahead of a "more open environment" for manufacturing tariffs would be of greatest benefit to many developing countries who are moving up the manufacturing value-added chain, mentioning the progress in this regard by Latin America, China, India and others.

But this seemed to fly in the face of evidence in several studies that China and India have progressed, not by following the standard IMF/World Bank prescriptions of liberalization first, but industrialising and then liberalizing when there is capacity to export.

In response to a question on financial markets, Zoellick said he thought "there are still more shake-outs to take place in financial markets, and therefore it is not clear how the financial market adjustment process will still affect the real economies."

* With inputs from Kanaga Raja, Chakravarthi Raghavan, editor emeritus of SUNS, contributed this comment and analysis to the SUNS.