The Challenge before Pascal Lamy

Substantive liberalization under the Doha Round is possible but not without developing countries making reciprocal concessions.

ECONOMIC TIMES: SEPTEMBER 21, 2005

Pascal Lamy, the new director-general of the World Trade Organisation (WTO), has begun to set the agenda for the Doha Round negotiations at the Hong Kong ministerial meeting during December 13-18, 2005. Recognising the vast differences that remain among participants, he has publicly stated what has been known for some time: contrary to the original deadline, the round will not be concluded by December 31, 2005.

Instead, Lamy has urged the member countries to forge an agreement at Hong Kong that would bring them two-thirds way to the final agreement. He has proposed the members complete the remaining one-third of the task by the end
of 2006. That would still close the round two years faster than the predecessor Uruguay Round and is therefore an ambitious undertaking.

Lamy faces a truly uphill task. A relatively recent development that adds to the challenge he faces is the sophistication, organisation and coherence that developing countries have achieved in articulating their demands in the negotiations. In the Uruguay Round negotiations, only agricultural exporting developing countries were successful in effectively voicing their demands through the so-called Cairns Group.

And even then, they had to align themselves with a subset of agricultural exporting developed countries whose interests outside of agriculture were in conflict with theirs. The remaining developing countries were at best loosely organised and eventually became the victims of the "divide and rule"  strategy of developed countries.

In contrast, virtually all of the major developing countries from Asia, Africa and Latin America - Brazil, China, Egypt, India, Indonesia, Pakistan, Mexico, South Africa and Tanzania - are today members of the developing country grouping known as G-20. At the same time, when compared with the total number of developing countries, G-20 is small and therefore less unwieldy than the past developing country groups such as G-77.

 The benefit of these two key attributes was illustrated soon after the group's inception during the preparations for the Cancun ministerial meeting two years ago: it successfully led the effort to persuade the European Union to drop three out of four Singapore issues from the Doha negotiating agenda.

Another factor strengthening the negotiating power of developing countries is their increased share in world trade. They now account for more than 30% of the world merchandise trade. Add to this fact the vast population in these countries and you know that the Quad countries - the US, EU, Canada and Japan - can no longer determine the outcome of the round by themselves as they did in the past.

The task faced by Lamy is further complicated by the fact that liberalising agenda itself is politically more changed in the developed countries than in the past. The Uruguay Round liberalisation focused principally on industrial goods and services and essentially sidestepped agriculture. Neither the liberalisation of industrial goods nor services posed serious political hurdles. The main controversial proposal concerned the removal of the quotas on textiles and clothing but it was handsomely compensated by the introduction of very high standards of intellectual property worldwide.

In contrast, the key sector the Doha Round aims to liberalise is agriculture. Farm lobbies are powerful and interventions include subsidies on output and exports whose removal is highly contentious. Even in industrial goods, developed countries must now deal with peak tariffs that apply virtually exclusively to labour-intensive products that employ
unskilled or low-skilled workers.

Developed countries also see the already large developing country market turn even larger over the course of the implementation period of the Doha Round if it is successfully completed. Therefore, they are reluctant to proceed with liberalisation unless the major developing countries such as Brazil, China, India and other developing countries in Asia and Latin America reciprocate. Because China has gone a long way towards opening its markets as a result of its WTO entry conditions, the burden is greatest on Brazil and India. It is here that Lamy faces his greatest challenge.

 Encouraged by the heads of multilateral institutions such as the World Bank and IMF, influential NGOs such as the Oxfam and the vast majority of well-intentioned but ill-informed press, developing countries have come to believe that protection is principally a developed country problem and it is these countries that must undertake the liberalisation they have been preaching for the last five decades.

Unsurprisingly, in the "Bhurban Declaration" issued by G-20 following the September 9-10, 2005 summit in Bhurban, Pakistan, the member countries demand many concessions including the elimination of export subsidies within five years from developed countries but offer few concessions of their own.

Lamy himself accords a high priority to ending export subsidies in agriculture by a certain date and to substantial reductions in domestic support measures. Nonetheless, his success in moving the Doha Round forward at Hong Kong will very much depend on his ability to persuade developing countries to undertake liberalisation commitments commensurate with those they seek from developed countries.

The pressure on India to undertake liberalisation commitments at Hong Kong will be immense. The massive liberalisation undertaken during the last 15 years notwithstanding, India remains among the most-protected markets.
Moreover, even though it currently accounts for less than 1% of the world imports, it promises to be a vast market in the forthcoming decades. Therefore, developed countries see liberalisation by India as perhaps the most important key to the successful completion of the Doha Round.

India's own experience, and that of all its neighbours, shows that liberalisation brings benefits. These benefits are multiplied if the country's trading partners liberalise along with it. Therefore, while India must drive a hard bargain at Hong Kong, it will be tragic if it allowed the negotiations to fall on its unwillingness to liberalise.