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 If this is success, what will be failure?

ARVIND PANAGARIYA

The outcome of the Cancun ministerial has been the one that India’s former commerce minister Murasoli Maran had sought for the Doha ministerial. The current commerce minister Arun Jaitley did not seek to bring the Cancun ministerial down but such has been the case.

Thankfully, Cancun is not Doha: whereas a collapse at Doha would have cost the member nations the new round itself, with some luck, the damage from the collapse at Cancun will be limited to a delay in the conclusion of the ongoing round. In view of the fact that the current date of January 1, 2005 for the conclusion is overly ambitious — each of the two previous rounds took substantially longer than the three-year target set for this one — the delay is not entirely surprising either.

Virtually all WTO members including India bear responsibility for the failure.  That said, Jaitley must be given his due: he demonstrated more flexibility than his predecessors. He offered to undertake modest liberalisation in industrial products. He also agreed to negotiate on two of the four so-called Singapore issues: transparency in government procurement and trade facilitation. But this was far short of what was needed to move the round forward.

Jaitley also abandoned the past practice of declaring India the leader of a disparate group of small developing countries with whom we have little in common in terms of negotiating interests except wholesale opposition to the negotiations. Instead, he joined a group of more influential, larger developing countries — the so-called G-21 — that included Brazil and China. Whether or not this alliance will survive in the future remains to be seen, however.

Indeed, two factors make the alliance fragile. First, neither China nor Brazil shares our intense opposition to negotiations on investment. Only Malaysia stood with us in opposing negotiations in this area at Cancun. As such, if a compromise is reached in other areas on a future date, G-21 is unlikely to support us in this area. Second, the basis of the alliance between India and China on the one hand and agricultural-exporting countries, especially developing country members of the Cairns Group, on the other is rather fragile. With some exceptions, these latter have already substantially liberalised their markets and have at most limited concessions to offer. Therefore, in seeking agricultural liberalisation from the United States and EU, they needed support from large developing countries such as India and China, which have substantial concessions to offer. But if India and China are unwilling to offer substantial concessions, the alliance cannot produce the desired liberalisation in the US and EU.

While virtually all parties concerned share the responsibility for the collapse in Cancun, the first finger must be pointed at the misguided leadership at some of the international institutions. Joined by many western NGOs, these leaders have recently bombarded the media airwaves with the assertions that the current trading system is unfair to the poor countries, that rich country protection now exceeds poor country protection and that it is unfair to ask poor countries to liberalise when rich countries remain protected.

Not only is the factual basis of these feel-good assertions fragile, their constant repetition has duped many developing country leaders into thinking that “fairness” can be brought to bear heavily on the outcome of negotiations. But as distinguished economist Robert Baldwin of the University of Wisconsin explains, fairness can play at most a tiny role in negotiations. “When it comes to hard bargaining,” says Baldwin, “notions of fairness do not get you very far.” “There is clearly a role for notions of fairness in any negotiations but, when they begin to dominate, the outcome is usually failure, since countries differ so much on what is ‘fair’.”

Many self-declared well wishers of developing countries among the western NGOs and international institutions have gone on to celebrate the collapse of the talks, announcing that concerns of developing countries have at last been heard. It seems not to concern them that none of the objectives they had sought to advance — agricultural liberalisation and end to tariff peaks against labour intensive imports in the rich countries — have made any progress. They are content that fairness has been preserved by temporarily freeing developing countries of the pressure to liberalise their own markets.

Of course, developed countries cannot escape from the responsibility for the collapse. The US approach to negotiations in agriculture is especially puzzling. At Doha, the US had forged alliance with the Cairns Group, consisting of 17 agriculture-exporting countries, to push EU into agreeing to the language in the Doha Declaration that aimed to eliminate agricultural export subsidies. Just prior to Cancun, it abandoned that alliance, however, joining hands with EU thereby essentially embracing and blessing its cautious approach in this sector. Had the US stayed with the Cairns Group and kept pressure on EU in this important area, a different dynamics, more conducive to success, could have been unleashed.

Likewise, EU must share the blame for pushing an overly ambitious agenda. There is little pressure from domestic corporations for a multilateral agreement on investment or competition. Yet, pushed by the Brussels bureaucracy, EU Commissioner Pascal Lamay has pushed these contentious issues on the agenda alienating many developing countries.

From India’s perspective, the bottom line is that it has most to gain from a successful completion of the Doha round. Its goods already suffer hugely from the discrimination resulting from trade preferences to most of its competitors in the EU and North American markets. In the aftermath of the Cancun failure, this is likely to get worse with further acceleration of bilateral arrangements. May be that is what it will take to convince our commerce ministry officials that liberalising our own markets in return for liberalisation by our partners, thus, putting an end to the preferences is not such a bad idea after all.

Economic Times, September 24, 2004

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