Hailing Hong Kong, completing Doha
ARVIND PANAGARIYA

 Contrary to the doom and gloom scenarios advanced by many, the WTO ministerial conference at Hong Kong concluded successfully on December 18, 2005, making significant progress towards completing the Doha Round. True,
the conference did not produce dramatic results.

But that was just as some among us had predicted: with the final round of negotiations still a year away, few accomplished negotiators could be expected to put their best offers on the table.

Two key factors explain why the failure to achieve progress in agriculture at Cancun turned into success at Hong Kong. First, having learned from its mistake at Cancun, where it had made common cause with the European Union, the US chose to forge partnership with developing countries at Hong Kong.

Because the US has a strong comparative advantage in agriculture while the EU lacks it, developing countries with comparative advantage in agriculture were its natural allies. On one hand, the tactic helped persuade developing countries that the US was genuinely interested in agricultural liberalisation and on the other hand it intensified pressure on the EU to liberalise.

Second, the grouping of 20 larger developing countries known as G-20, initially formed at Cancun to counter the US-EU alliance, came of age at Hong Kong. While the G-20 naturally used its leverage to promote the interests of its membership, it also worked constructively to advance the negotiations.

Thus, early during the conference, led by ministers Kamal Nath of India and Celso Amorim of Brazil, the G-20 joined hands with the grouping of 90 smaller developing countries known as G-90 and successfully negotiated duty and quota-free access for the products of the 50 least developed countries (LDCs) into developed country markets.

 Later, in an important act of leadership, minister Nath broke ranks with Brazil and with China on his side, went on to support the reasonable EU demand that the date for the end to agricultural export subsidies be set at 2013 instead of 2010. That support provided the necessary balance to clinch the deal on exports subsidies.

The Hong Kong conference has moved WTO members significantly closer to a final Doha agreement. In addition to agreeing to end agricultural export subsidies by 2013, the member countries have made progress on tackling domestic agricultural subsidies.

They have agreed to create three tiers of countries whereby the EU, which is by far the biggest user of such subsidies, will be required to make the deepest cuts; the US and Japan, the next largest users of the subsidies, will be subject to the next deepest cuts; and the remaining countries will be subject to the smallest cuts. While the final agreement is to be reached on April 30, 2006, under the current proposals, the cuts for the EU are expected to be in the 70-80% range and for the US and Japan in the 53-75% range.

On market access in agriculture, the member countries have agreed to base tariff cuts on four bands defined according to the existing level of tariffs with deeper cuts applied to higher tariffs. Precise modalities meaning threshold levels of these bands and the extent of the cuts are to be negotiated by April 30, 2006.

On market access in non-agricultural products, the member countries have explicitly adopted the Swiss formula that would cut higher tariffs more and lower tariffs less. Again, the modalities meaning the precise levels of cuts are to be negotiated by April 30, 2006. There has been less progress in services but even here deadlines have been set for the submission of the offers.

 A key achievement of the conference has been to address several demands of the LDCs. For example, developed countries have agreed to open their markets for 97% or more products on a duty-free basis to them. The LDCs will also not be required to undertake reciprocal tariff cuts in any products. While trade economists question the advisability of both these measures as ways to assist the LDCs, they remain intensely popular with the latter. The conference also made significant progress towards "aid for trade" for the LDCs.

These achievements notwithstanding, hard bargaining at Hong Kong has left developed country leaders uniformly sceptical that the Doha Round can be brought to a successful conclusion. The risk is that this scepticism can become self-fulfilling. That will be sad for developing countries including India, which have fought hard to give the negotiations their current shape. 

Thus, at Doha, late commerce minister Murasoli Maran had valiantly fought against the inclusion of the Singapore issues - investment, competition policy, government procurement, and trade facilitation - into the negotiating agenda. With that objective achieved except for innocuous trade facilitation issue, the round is now squarely focused on trade liberalisation that produces win-win bargains.

Considerable progress has also been made on trade liberalisation front along the lines sought by India and other developing countries. A failure at this juncture will not only wipe out these gains, it will also strengthen the hands of the US and EU labour lobbies' that may then return with vengeance with their self-serving and damaging demand for the inclusion of labour standards into the WTO.

With LDC demands effectively addressed or on the way to being addressed, the larger developed and developing countries such as the US, EU, Japan, Brazil, China, India and South Africa must now focus efforts on completing the
modalities of negotiations. They must quickly get down to the business of putting precise numbers on the agreed upon bands and associated magnitude of liberalisation of domestic subsidies and market access.

Given the progress already made as summarised in the annexes of the Hong Kong declaration, this is a task well within reach. Minister Nath may even wish to take the lead and call a mini-ministerial conference in New Delhi to complete this crucial step in the negotiations.

Economic Times December 25 2005