CHAPTER I

INDIA AND WTO: PLIGHT OF BLENHEIM

The World Trade Organisation machinery seems to be slowing down - for trade superpowers it is no longer a viable instrument of coercion and for developing countries it does not offer protection from powerful economies. WHEN the chair of the World Trade Organisation's (WTO) Fifth Ministerial, Mexican Foreign Minister Luis Derbez, declared that there was no consensus and abruptly ended the meeting in mid-afternoon on September 14, his act had momentous consequences. First, the collapse of the WTO meeting represented a victory for people throughout the world, not a "missed opportunity" for a global deal between North and South. The so-called Doha Round initiated in Qatar during the Fourth Ministerial in November 2001 was never a "development round". And what little promise it offered for the poor countries had been betrayed long before Cancun. Emblematic of this state of affairs was Washington's refusal to live up to the Doha Declaration's placing public health concerns over the patent rights of its pharmaceutical corporations until the eve of the Ministerial and its agreeing only after it got the developing countries to agree to a cumbersome procedure that would make cheap imports of lifesaving drugs for people suffering from diseases like Acquired Immune Deficiency Syndrome (AIDS) extremely difficult. Not even the most optimistic developing country came to Cancun expecting some concessions from the big rich countries in the interest of

28

development. Most developing country governments came with a defensive stance. The big challenge was not that of forging a historic "New Deal", but one of preventing the United States (U.S.) and the European Union (E.U.) from imposing new demands on the developing countries while escaping any multilateral disciplines on their trade regimes. In this regard, it was not the developing countries that brought about the collapse, as U.S. Trade Representative Robert Zoellick implied in his final press conference. That responsibility lies squarely with the U.S. and E.U. When the second revision of the draft of the Ministerial text appeared early on September 13, it was clear that the U.S. and the E.U. were not willing to make any significant cuts in their high levels of agricultural subsidies even as they continued to demand intransigently that developing countries bring down their tariffs. It was also clear that the E.U. and U.S. were determined to disregard the Doha Declaration's stipulation that the explicit consensus of all member-states was required to begin negotiations on the so-called "new issues" of investment, competition policy, government procurement and trade facilitation. "Negotiate on our terms or not at all" - that was the meaning of the second revision. Not surprisingly, developing countries could not lend their consensus to a framework of negotiations so detrimental to their interests. Second, the WTO has been severely damaged. Two collapsed Ministerials (Seattle and Cancun) and one that barely made it (Doha) recommends the institution to no one. For trade superpowers, it is no longer a viable instrument for imposing their will on others. For the developing countries,

28

membership has not brought protection from abuses by the powerful economies, much less serve as a mechanism of development. This is not to say that the WTO is dead. There will be efforts to bring the WTO back from the brink, as the U.S. and the E.U. did at Doha. But the likelihood is that, with the lack of momentum from a successful Ministerial, the machinery will slow down significantly. Zoellick was correct in doubting that the Doha Round will be finished by its deadline of January 2005 and E.U. Trade Commissioner Pascal Lamy was simply trying to put a bright face to a bad situation when he said that the WTO had completed 30 per cent of the Doha agenda. Aside from the loss of momentum and the impairment of the basic functioning of the organisation's machinery, growing protectionism in the rich countries, a global economy plagued by long-term stagnation, and the unravelling of the Atlantic Alliance owing to political differences on issues such as Iraq, do not provide a favourable climate for the WTO's serving as the main mechanism for trade liberalisation and globalisation. The WTO may eventually suffer the fate it helped inflict on the UNCTAD (United Nations Conference on Trade and Development) surviving, but

increasingly ineffective and irrelevant. This raises the question: Even as one approves of the failure of a Ministerial that was loaded against the interests of developing countries, should one welcome the institutional weakening of the WTO? After all, some have argued, the WTO is a set of rules and machinery that, with the appropriate balance of forces, can be invoked to protect the interests of the developing

28

countries. Partisans of this view say that one is better off with the WTO than with the bilateral trade deals that Zoellick said at his final press conference would now receive Washington's priority after the failure of Cancun. The truth is that this is a false choice. The WTO is not a neutral set of rules, procedures, and institutions that can be used defensively to protect the interests of weaker players. The rules themselves - the main ones being the supremacy of the principle of free trade, "most favoured nation" principle (that countries must provide to all partners the privileges they provide their most favoured partner) and the principle of "national treatment" (that foreign service providers must have the same rights and privileges as domestic providers) - institutionalise the current system of global economic inequality. The weak countries have only a few weapons. The principle of special and differential treatment for developing countries (that they must have a different set of rules from developed countries owing to historical and structural differences), which was institutionalised in the predecessor of the WTO, the General Agreement on Tariffs and Trade (GATT), has a very weak status in the WTO. In fact, in Cancun the U.S. and the E.U. completely banished from negotiations the special and differential treatment agenda that had been mandated by the Doha Declaration. The arrogant attitude toward such demands was exemplified in one U.S. trade spokesman's dismissive statement that the WTO was "not a welfare organisation but a trade organisation". The WTO is not a truly multilateral organisation. It is a

28

mechanism to perpetuate the U.S.-E.U. condominium in the global economy. THIRD, global civil society was a major player in Cancun. Since Seattle, the interaction between civil society and governments on trade issues has intensified. Non-governmental organisations (NGOs) have assisted

developing country governments in the political and technical aspects of negotiations. They have mobilised international public opinion against the retrograde stands of rich country governments, as in the drug patents and public health issue. They have emerged as strong domestic coalitions that put their governments' feet to the fire to stiffen them against any further concessions to the rich countries. If several developing country

governments resisted pressure from the U.S. and the E.U. in Cancun, it was because they feared political retribution from civil society groups back home. With people's movements marching in the city centre and NGOs demonstrating inside and outside the convention hall from the opening session on, Cancun became a microcosm of the power of global dynamics of states and civil society. The suicide of Korean farmer Lee Kyung Hae at the police barricades warned everyone at the convention centre that they could no longer take the plight of the world's small farmers for granted, and this was acknowledged by the governments with the one-minute silence they observed in his memory. Truly, the collapse of the Cancun Ministerial was another confirmation of The New York Times' observation that global civil society was the world's second superpower.

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Fourth, the Group of 21 is a significant new development that could contribute to altering the global balance of forces. Led by Brazil, India, China, and South Africa, the new grouping stalemated the E.U. and U.S. drive to make Cancun one more sad episode in the history of underdevelopment. The potential of this group was indicated by Celso Amorin, the Brazilian Trade Minister who has emerged as its spokesman, when he said that it represented over half the world's population and over 63 per cent of its farmers. Amorin reflected the stance and potential of the new formation in his address to the Ministerial when he said: "We stand united, we will remain united. We sincerely hope that others will hear our message and, instead of confronting us or trying to divide us, will join forces in our endeavour to inject new life into the multilateral trading system. To bring it closer to the needs and aspirations of those who have been at its margins - indeed the vast majority - those who have not had the chance to reap the fruit of their toils. It is high time to change this reality. This should be the spirit of Cancun." Not surprisingly, U.S. trade negotiators saw the Group of 21 as representing a resumption of the South's push for a "new international economic order" in the 1970s. However, much lies in the realm of possibility, and the potential of this new formation must not be overestimated. It is now mainly an alliance focussed on radically reducing the subsidies of agriculture in the North. And it still has to meaningfully address the desire for comprehensive protection of small farmers in the small countries that are mainly focussed on production for the domestic production population. The reservations of some of the

28

smaller countries is understandable since the Group of 21's most vocal members are large agro-exporters, though most have significant domestic market-oriented, peasant-based production as well. Nevertheless, there is no reason that a positive agenda of small farmeroriented sustainable agriculture cannot be placed at the centre of the group's advocacy. There is also no reason why the group cannot extend its mandate to forging a common programme on industry and services as well. Even more exciting is the possibility that the Group of 21 can serve as the engine of South-South cooperation that goes beyond trade to coordination of policies on investment, capital flows, industrial policy, social policy and environmental policy. Such forms of South-South cooperation centred on the priority of development over trade and markets provide the alternative to both the WTO and the bilateral free trade agreements now being pursued by the U.S. and the E.U. In articulating its agenda, the Group of 21 will find a natural ally in global civil society. With the U.S. and the E.U. determined to defend the status quo and with both seeking to sow divisions among governments in the group, this alliance with civil society must be moved from potential to reality as soon as possible. Of course, it will not be easy. Progressive civil society groupings may be comfortable dealing with the Brazilian

government headed by the Workers' Party, but they will be ill at ease with the Bharatiya Janata Party-led Indian government, which is fundamentalist and neo-liberal or free-market oriented, and with the Chinese government, which has taken some neo-liberal measures. Nevertheless, alliances are

28

forged in practice and no government must be automatically categorised as impossible to win over to the side of people-oriented sustainable development. To conclude, shortly after the Doha Ministerial, a number of civil society organisations said that the interests of the developing world would be best served by derailing the coming Ministerial in Cancun instead of trying to convert it into a forum for reforming the WTO. As Cancun approached, the intransigence of the powerful countries stalemated discussions with the South on almost all fronts. By the time Cancun came around, there was no more talk of reform. Things had become crystal clear. With the E.U. and U.S. determined to get their way, no agreement was better than a bad agreement, a failed Ministerial was better than a successful one that merely served as one more nail in the coffin of underdevelopment. After Cancun, the challenge for global civil society is to redouble its efforts to dismantle the structures of inequality and to push for alternative arrangements of global economic cooperation that would truly advance the interests of the poor, the marginalised, and the disempowered.

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CHAPTER II

DOHA ROUND AND AGRICULTURAL SUBSIDIES

Rich and poor countries alike are locked in battle over farm subsidy spending in negotiations at the World Trade Organisation (WTO) in Geneva, where a July 17 draft text by the chair of the agriculture negotiations has sparked renewed controversy between delegates. Trade-distorting farm subsidies in developed countries tend to depress world prices, thereby undercutting both small farmers and exporters in developing countries who cannot compete with European or US treasuries. Although the scale of the problem is hard to ascertain, developed countries are estimated to have spent US$378 billion in total farm support in 2004. 1 WTO statistics indicate that from 1995-2001 three subsidisers were far ahead of the pack: the EU (US$96bn), the US (US$66bn) and Japan ($42bn), with no other country spending more than $8bn.2 Payments tend to be heavily concentrated on a handful of crops, and represent a large share of farmers overall income (see figure 1): in the US, wheat, rice, corn, soybean and cotton accounted for 93 percent of total commodity programme payments from 2002-053. Despite public perceptions to the contrary, they also disproportionately favour large farms, which receive the lions share of subsidies in both the US and EU.

OECD Total Support Estimate for agriculture for 2004. WTO, World Trade Report 2006. US Department of Agriculture (USDA).

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Agriculture at the WTO: sixty years of trade distortions

Sixty years of trade negotiations - under the WTO and its forerunner the GATT - have bequeathed only minimal controls on agricultural subsidies. While successive negotiating rounds established rules for other subsidy types and slashed industrial tariffs to all-time lows, exceptional treatment for agriculture meant that farm subsidies were not disciplined until the Uruguay Round of negotiations ended in 1994. Developing countries now complain that the trade-offs being asked of them in the current Doha Round are disproportionate. Their tariffs on industrial and agricultural goods must be subject to substantial cuts, say rich countries, if agricultural subsidies and tariffs in the developed world are to be reduced. Unlike in past trade negotiations, developing countries have organised themselves into powerful coalitions aimed at reforming existing trade distortions. In particular, the G-20 bringing together Brazil, India, China

28

and 17 other developing countries has insisted on reform of developed country subsidies as a condition for any deal.

The Chairs text: attempting to find a compromise

The July 17 text from the chair of the farm trade talks reiterates provisional agreements on eliminating export subsidies by 2013, and details new disciplines on export credits and some of the more perverse effects of food aid. Although relatively small in size, these subsidy types are widely believed to distort trade the most. More controversial have been the cuts in the maximum permitted levels of overall trade-distorting support (OTDS): for the US, the text proposes either a 66 or 73 percent reduction, bringing the cap down to $16.4bn or $13bn respectively. Although lower than the $22.5bn ceiling which the US has proposed formally, and the $17bn figure it has broached unofficially, both levels remain higher than the roughly $12 billion cap sought by the G-20. They also exceed the $11 billion that the US is estimated to have effectively spent on trade-distorting support last year. For the EU, the text foresees either a 75 or 85 percent cut - higher than the 70 percent cut proposed by Brussels. EU subsidies, although higher than those in the US, have been seen as less controversial by trade delegates, mainly as the former are already being reduced through an ongoing reform process. While the larger cut would eat into actual EU spending levels, the smaller one would again enable existing spending to be maintained or even increased (see figure 2).

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Figure 2: The chairs text: cuts envisaged in EU and US trade distorting support

*EU: OTDS actual spending levels for 2008 are estimated to be 26 billion for EU-25, based on the Fischler CAP reform.

** US: OTDS actual spending levels for 2006 are estimated to be US$10.8 billion, based on trading partners estimates.4

How can change occur?

For real reform to take place, agricultural trade policy needs to be influenced by domestic constituencies that favour change. The EU has undertaken a series of major reforms to its Common Agricultural Policy since 1994, moving from a price support system towards direct payments to farmers which it claims are not more than minimally trade distorting. No
4

US Department of Agriculture (USDA).

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comparable process is underway in the US. Indeed, the House of Representatives, the lower chamber of Congress, recently voted largely to continue and expand lavish agriculture subsidies over the next five years. The farm bill approved by the House now faces revision in the Senate and a veto threat from the White House, which has called for modest reductions in order to insulate farm spending from WTO challenges. So what hope can the poor have for any change in the current rules? The mushrooming number of bilateral and regional deals offers no opportunity to ease subsidy spending, which can only be negotiated effectively in a multilateral setting. At the same time, WTO negotiations have shown themselves to be more successful at consolidating domestic reforms than at initiating them. In the absence of real subsidy cuts, a Doha deal would therefore only preclude future backsliding, preventing a return to the bloated farm support budgets of the past. If this is the case, litigation under the organisations Dispute Settlement Process might become the most promising avenue to prompt subsidy reforms: in particular, some now expect the Brazilian and Canadian challenges to US cotton and other subsidies to succeed in spurring change.

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CHAPTER III

SUBSIDIES AND WTO PROVISIONS: THE TWISTING PROBLEM

The

Agreement

on

Subsidies

and

Countervailing

Measures

(SCM

Agreement) addresses two separate but closely related topics: multilateral disciplines regulating the provision of subsidies, and the use of

countervailing measures to offset injury caused by subsidized imports. Multilateral disciplines are the rules regarding whether or not a subsidy may be provided by a Member. They are enforced through invocation of the WTO dispute settlement mechanism. Countervailing duties are a unilateral instrument, which may be applied by a Member after an investigation by that Member and a determination that the criteria set forth in the SCM Agreement are satisfied. Structure of the Agreement:

Part I provides that the SCM Agreement applies only to subsidies that are specifically provided to an enterprise or industry or group of enterprises or industries, and defines both the term subsidy and the concept of specificity. Parts II and III divide all specific subsidies into one of two categories: prohibited and actionable, and establish certain rules and procedures with respect to each category. Part V establishes the substantive and procedural requirements that must be fulfilled before a Member may apply a countervailing measure against subsidized imports.

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Parts

VI

and

VII

establish modalities

the for

institutional implementation

structure of the

and SCM

notification/surveillance

Agreement. Part VIII contains special and differential treatment rules for various categories of developing country Members. Part IX contains transition rules for developed country and former centrally-planned economy Members. Parts X and XI contain dispute settlement and final provisions. Coverage of the Agreement

Part I of the Agreement defines the coverage of the Agreement. Specifically, it establishes a definition of the term subsidy and an explanation of the concept of specificity. Only a measure which is a specific subsidy within the meaning of Part I is subject to multilateral disciplines and can be subject to countervailing measures. Definition of subsidy Unlike the Tokyo Round Subsidies Code, the WTO SCM Agreement contains a definition of the term subsidy. The definition contains three basic elements: (i) a financial contribution (ii) by a government or any public body within the territory of a Member (iii) which confers a benefit. All three of these elements must be satisfied in order for a subsidy to exist. The concept of financial contribution was included in the SCM Agreement only after a protracted negotiation. Some Members argued that there could be no subsidy unless there was a charge on the public account. Other Members considered that forms of government intervention that did not

28

involve an expense to the government nevertheless distorted competition and should thus be considered to be subsidies. The SCM Agreement basically adopted the former approach. The Agreement requires a financial contribution and contains a list of the types of measures that represent a financial contribution, e.g., grants, loans, equity infusions, loan guarantees, fiscal incentives, the provision of goods or services, the purchase of goods. In order for a financial contribution to be a subsidy, it must be made by or at the direction of a government or any public body within the territory of a Member. Thus, the SCM Agreement applies not only to measures of national governments, but also to measures of sub-national governments and of such public bodies as state-owned companies. A financial contribution by a government is not a subsidy unless it confers a benefit. In many cases, as in the case of a cash grant, the existence of a benefit and its valuation will be clear. In some cases, however, the issue of benefit will be more complex. For example, when does a loan, an equity infusion or the purchase by a government of a good confer a benefit? Although the SCM Agreement does not provide complete guidance on these issues, the Appellate Body has ruled (Canada Aircraft) that the existence of a benefit is to be determined by comparison with the marketplace (i.e., on the basis of what the recipient could have received in the market). In the context of countervailing duties, Article 14 of the SCM Agreement provides some guidance with respect to determining whether certain types of measures confer a benefit. the context of multilateral

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disciplines, however, the issue of the meaning of benefit is not fully resolved.

Specificity. Assuming that a measure is a subsidy within the meaning of the SCM Agreement, it nevertheless is not subject to the SCM Agreement unless it has been specifically provided to an enterprise or industry or group of enterprises or industries. The basic principle is that a subsidy that distorts the allocation of resources within an economy should be subject to discipline. Where a subsidy is widely available within an economy, such a distortion in the allocation of resources is presumed not to occur. Thus, only specific subsidies are subject to the SCM Agreement disciplines. There are four types of specificity within the meaning of the SCM Agreement: Enterprise-specificity. A government targets a particular company or companies for subsidization; Industry-specificity. A government targets a particular sector or sectors for subsidization. Regional specificity. A government targets producers in specified parts of its territory for subsidization. Prohibited subsidies. A government targets export goods or goods using domestic inputs for subsidization. Categories of Subsidies:

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The SCM Agreement creates two basic categories of subsidies: those that are prohibited, those that are actionable (i.e., subject to challenge in the WTO or to countervailing measures). All specific subsidies fall into one of these categories. Prohibited subsidies two categories of subsidies are prohibited by Article 3 of the SCM Agreement. The first category consists of subsidies contingent, in law or in fact, whether wholly or as one of several conditions, on export performance (export subsidies). A detailed list of export subsidies is annexed to the SCM Agreement. The second category consists of subsidies contingent, whether solely or as one of several other conditions, upon the use of domestic over imported goods (local content subsidies). These two categories of subsidies are prohibited because they are designed to directly affect trade and thus are most likely to have adverse effects on the interests of other Members. The scope of these prohibitions is relatively narrow. Developed countries had already accepted the prohibition on export subsidies under the Tokyo Round SCM Agreement, and local content subsidies of the type prohibited by the SCM Agreement were already inconsistent with Article III of the GATT 1947. What is most significant about the new Agreement in this area is the extension of the obligations to developing country Members subject to specified transition rules (see section below on special and differential treatment), as well as the creation in Article 4 of the SCM Agreement of a rapid (three-month) dispute settlement mechanism for complaints

regarding prohibited subsidies.

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Actionable subsidies Most subsidies, such as production subsidies, fall in the actionable category. Actionable subsidies are not prohibited. However, they are subject to challenge, either through multilateral dispute settlement or through countervailing action, in the event that they cause adverse effects to the interests of another Member. There are three types of adverse effects. First, there is injury to a domestic industry caused by subsidized imports in the territory of the complaining Member. This is the sole basis for countervailing action. Second, there is serious prejudice. Serious prejudice usually arises as a result of adverse effects (e.g., export displacement) in the market of the subsidizing Member or in a third country market. Thus, unlike injury, it can serve as the basis for a complaint related to harm to a Member's export interests. Finally, there is nullification or impairment of benefits accruing under the GATT 1994. Nullification or impairment arises most typically where the improved market access presumed to subsidization. The creation of a system of multilateral remedies that allows Members to challenge subsidies which give rise to adverse effects represents a major advance over the pre-WTO regime. The difficulty, however, will remain the need in most cases for a complaining Member to demonstrate the adverse trade effects arising from subsidization, a fact-intensive analysis that panels may find difficult in some cases. Agricultural subsidies Article 13 of the Agreement on Agriculture flow from a bound tariff reduction is undercut by

establishes, during the implementation period specified in that Agreement

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(until 1 January 2003), special rules regarding subsidies for agricultural products. Export subsidies which are in full conformity with the Agriculture Agreement are not prohibited by the SCM Agreement, although they remain countervailable. Domestic supports which are in full conformity with the Agriculture Agreement are not actionable multilaterally, although they also may be subject to countervailing duties. Finally, domestic supports within the green box of the Agriculture Agreement are not actionable multilaterally nor are they subject to countervailing measures. After the implementation period, the SCM Agreement shall apply to subsidies for agricultural products subject to the provisions of the Agreement on Agriculture, as set forth in its Article 21. Countervailing Measures: Part V of the SCM Agreement sets forth certain substantive requirements that must be fulfilled in order to impose a countervailing measure, as well as in-depth procedural requirements regarding the conduct of a

countervailing investigation and the imposition and maintenance in place of countervailing measures. A failure to respect either the substantive or procedural requirements of Part V can be taken to dispute settlement and may be the basis for invalidation of the measure. Substantive rules A Member may not impose a countervailing measure unless it determines that there are subsidized imports, injury to a domestic industry, and a causal link between the subsidized imports and the injury. As previously noted, the existence of a specific subsidy must be determined in accordance with the criteria in Part I of the Agreement.

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However, the criteria regarding injury and causation are found in Part V. One significant development of the new SCM Agreement in this area is the explicit authorization of cumulation of the effects of subsidized imports from more than one Member where specified criteria are fulfilled. In addition, Part V contains rules regarding the determination of the existence and amount of a benefit. Procedural rules Part V of the SCM Agreement contains detailed rules regarding the initiation and conduct of countervailing investigations, the imposition of preliminary and final measures, the use of undertakings, and the duration of measures. A key objective of these rules is to ensure that investigations are conducted in a transparent manner, that all interested parties have a full opportunity to defend their interests, and that investigating authorities adequately explain the bases for their

determinations. A few of the more important innovations in the WTO SCM Agreement are identified below: Standing. The Agreement defines in numeric terms the

circumstances under which there is sufficient support from a domestic industry to justify initiation of an investigation. Preliminary investigation. The Agreement ensures the conduct of a preliminary investigation before a preliminary measure can be imposed. Undertakings. The Agreement places limitations on the use of undertakings to settle CVD investigations, in order to avoid

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Voluntary

Restraint

Agreements

or

similar

measures

masquerading as undertakings Sunset. The Agreement requires that a countervailing measure be terminated continuation after of five the years measure unless is it is determined to avoid that the

necessary

continuation or recurrence of subsidization and injury. Judicial review. The Agreement requires that Members create an independent tribunal to review the consistency of determinations of the investigating authority with domestic law. Transition Rules and Special and Differential Treatment: Developed countries Members not otherwise eligible for special and differential treatment are allowed three years from the date on which for them the SCM Agreement enters into force to phase out prohibited subsidies. Such subsidies must be notified within 90 days of the entry into force of the WTO Agreement for the notifying Member. Developing countries The SCM Agreement recognizes three categories of developing country Members: least-developed Members (LDCs),

Members with a GNP per capita of less than $1000 per year which are listed in Annex VII to the SCM Agreement, and other developing countries. The lower a Member's level of development, the more favourable the treatment it receives with respect to subsidies disciplines. Thus, for example, LDCs and Members with a GNP per capita of less than $1000 per year listed in Annex VII are exempted from the prohibition on export

28

subsidies. Other developing country Members have an eight-year period to phase out their export subsidies (they cannot increase the level of their export subsidies during this period). With respect to import-substitution subsidies, LDCs have eight years and other developing country Members five years, to phase out such subsidies. There is also more favourable treatment with respect to actionable subsidies. For example, certain subsidies related are to not developing actionable country Members' With privatization respect to

programmes

multilaterally..

countervailing measures, developing country Members' exporters are entitled to more favourable treatment with respect to the termination of investigations where the level of subsidization or volume of imports is small. Members in transformation to a market economy Members in

transformation to a market economy are given a seven-year period to phase out prohibited subsidies. These subsidies must, however, have been notified within two years of the date of entry into force of the WTO Agreement (i.e., by 31 December 1996) in order to benefit from the special treatment. Members in transformation also receive preferential treatment with respect to actionable subsidies. Notifications: Subsidies Article 25 of the SCM Agreement requires that Members notify all specific subsidies (at all levels of government and covering all goods sectors, including agriculture) to the SCM Committee. New and full notifications are due every three years with update notifications in

28

intervening years. The notifications are the subject of extensive review and discussion by the SCM Committee. Countervailing legislation and measures All Members are required to notify their countervailing duty laws and regulations to the SCM Committee pursuant to Article 32.6 of the SCM Agreement. Members are also required to notify all countervailing actions taken on a semi-annual basis, and preliminary and final countervailing actions at the time they are taken. Members also are required to notify which of their authorities are competent to initiate and conduct countervailing investigations. Dispute Settlement: The SCM Agreement generally relies on the dispute settlement rules of the DSU. However the Agreement contains extensive special or additional dispute settlement rules and procedures providing, inter alia, for expedited procedures, particularly in the case of prohibited subsidy allegations. It also provides special mechanisms for the gathering of information necessary to assess the existence of serious prejudice in actionable subsidy cases. Recent Developments :- The WTOs 2006 World Trade Report on Subsidies: WTO economists have carefully scrutinized the use and the impact of government support in a variety of sectors. While some subsidies can benefit society and can offset the negative externalities of economic activity, other types of government support are clearly more controversial and can be damaging. One significant part of our Doha round negotiations

28

involves

reducing to

subsidies use other

which forms

distort of

trade

while

encouraging can facilitate

governments

support

which

development and environmental protection. Shifting support in this way is politically difficult and requires determination and courage, but the evidence is clear that such reforms can level the playing field and provide real rewards across the board, said Director-General Pascal Lamy. The incidence and the impact of subsidies remain seriously underresearched. Many governments maintain extensive subsidy programmes at the national and sub-national levels, and invoke a multiplicity of objectives to justify the programmes. Because subsidies can be trade distorting, WTO Member governments must notify the organization of any such support. Yet few governments fully meet their notification obligations under the WTO, contributing to a serious lack of information and transparency on the use and effect of subsidies. The absence of systematic information is aggravated by the lack of common definitions of subsidy practices. The Report begins with a review of attempts to define subsidies. It goes on to consider what economic theory tells us about the effects of subsidies, providing a guide for assessing the desirability of different kinds of subsidy programmes. The authors of the Report examine the reasons governments give for using subsidies, and assess the incidence of subsidies in various industries and sectors. Finally, the Report undertakes an analysis of the WTO rules on subsidies. Some of the salient findings of the Report are summarized below:

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Governments extend subsidies to build infrastructure, help struggling industries or foster new ones, promote research and develop new knowledge, protect the environment, redistribute income and help poor consumers.

Economic theory tells us that some but not all of these objectives are most effectively addressed by subsidies. Theory also tells us that subsidies can distort trade by giving an artificial competitive advantage to exporters or import-competing industries, and this can be a source of tension among trading partners.

Concern among trading partners about subsidies rises in direct proportion to the extent to which subsidy practices have direct trade effects within a narrow segment of economic activity. If the effects of subsidies are perceived as severe enough in the marketplace, they may trigger a reaction nullifying any advantage from the subsidy.

The Report estimates that 21 developed countries spent almost $250 billion on subsidies, while all countries spent over $300 billion. The arithmetic average ratio of subsidies to GDP is lower in developing than developed countries, but large variations of the ratio can be found in both country groups. For a sample of 31 developing countries the average ratio of subsidies to GDP was 0.6 per cent, while the comparable figure for a sample of 22 developed countries was 1.4 per cent.

28

Agricultural subsidies in OECD countries both domestic and export subsidies show a downward trend. The available evidence suggests industrial subsidies are most pervasive in mining, coal, steel, forestry, fishing, shipbuilding and automotive industries. Comparable data on the incidence of subsidies in services sectors do not exist. Incomplete evidence suggests support measures are concentrated in the transport, tourism, banking, telecommunications and audiovisual sectors.

Information is not solid enough to conclude that there is any systematic downward trend in subsidies to industry and services. In some cases, however, evidence exists of a tendency to redirect subsidies towards horizontal objectives. This will generally make subsidies less distorting.

The GATT/WTO rules on subsidies have evolved considerably over the years, becoming more precise and detailed. Competing views exist as to whether the rules are tight enough to limit trade distorting subsidies, or accommodating enough to allow governments to pursue their legitimate objectives, including development.

The Report also examines 2005 trade developments and includes four essays; on textiles and clothing trade trends, flows of international receipts, trade trends of least-developed countries and the trade impact of natural disasters and terrorist acts.

The Report notes that while trade growth was lower in 2005 (6.5 percent) than the preceding year (9 per cent), it was still above

28

the average for the last decade. A particular feature of the trade scene in 2005 was higher commodity prices, especially oil. While higher commodity prices have affected countries in very different ways, they nevertheless contributed to the largest share of developing countries in world trade for over five decades.

While the elimination of textiles and clothing quotas at the beginning of 2005 had a limited impact on demand and market conditions in the major importing countries during the year, there were significant shifts in trade shares among exporting countries.

Developed

countries

still

dominate

international

receipts

and

payments of royalties and licence fees, although the share of a number of Asian developing countries is on the increase. These transactions may be seen as a somewhat imperfect indicator of hightechnology investment and production.

The least-developed countries (LDCs) have increased their share in world trade, driven in large measure by commodity price increases. The trade performance of individual LDCs has been very mixed and some 35 per cent of total LDC trade is accounted for by only two countries, while thirteen LDCs account for less than one per cent of the total.

Natural disasters and acts of terrorism can take a terrible toll on human life, but the trade effects of such events tend to be small and often short-lived. Impacts are frequently concentrated on particular

28

industries, although the cost implications of additional security measures aimed at preventing terrorist acts are more broad-based.

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CHAPTER IV INDIA

DOHA ROUND AND STAND OF

The success of the Doha round of trade talks would depend on emerging economies like India, China and Brazil, a top Obama administration official said today. "The success of the Doha Round will depend on every nation engaging and contributing - in particular, emerging markets such as China, Brazil, and India," US Trade Representative (USTR) Ron Kirk said in his address to the 2010 Agricultural Economic Outlook Forum. "In addition to the multilateral negotiating efforts in Geneva, the US is seeking sustained bilateral engagement between key developed and developing countries to provide the market access necessary to achieve a successful outcome in agriculture as well as in non-agricultural market access and services," Kirk said. He said USTR remains committed to a balanced and ambitious Doha Round outcome that provides a meaningful market access package that lifts the economic prospects of the poorest countries even as it supports US new economic opportunities for American farmers, ranchers, manufacturers, and service providers. Over the next fifty years, it is estimated that the world's food needs will be greater than the cumulative food needs of every person throughout human history, he said.

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"To meet this demand for food it is imperative that we use our land, water and other resources wisely and efficiently. And it is equally important that we continue to embrace innovation and adopt new technologies that boost agricultural productivity," Kirk said. The US Trade Representative said some of the most difficult trade issues are regulatory barriers that interfere with trade in the products of new production technologies such as plant biotechnology, cloning and

nanotechnology. "So at USTR we are working hard to develop an effective dialogue with our counterparts in other countries to develop policies that support trade in products that are the result of new technologies and innovation. Because if we are going to meet the world's food needs over the next fifty years, we have to make sure that every ounce of what is grown on a farm or raised on a ranch can be transported, marketed, and sold efficiently around the world, Kirk said. Indias stance against the new round of WTO talks is seen by some as the righteous action of an independent nation. But the risk is that in defending its principles, India could end up sacrificing its interests. And if the new round is launched at Doha, many will say that we buckled under US pressure, as they did when we invited the Pakistani dictator, General Pervez Musharraf, to India. The multilateral trading system under the GATT and WTO has been shaped by rich countries, but these countries have failed to deliver on their

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commitments and the promised benefits to developing countries have not materialised. Furthermore, India is one of the few developing countries with the size and influence to attract the attention of the world when it raises the flag. The prospect of new markets in the growing Indian middle-class is making the US and the EU much more sensitive to Indias trade concerns.

But, with a slightly more than half a per cent share of world trade, India is not so powerful that it can put trade liberalisation on hold single-handedly. Even if we manage to stall the launch of a new round, the rich countries will pour their energies into bilateral and regional agreements. Regionalism will almost certainly be more damaging for India than multilateralism it diverts trade.

More importantly, these deals are being used as templates to widen the scope for the inclusion on non-trade issues like labour and environmental clauses. The recent agreement between Jordan and the US, whose trade is less than a decimal of a per cent, is testament to this. In international trade negotiations, other countries are driven by the single-minded pursuit of selfish interests. India may want to highlight the fundamental injustice in the system, but the risks of taking this path are very real. In the realpolitik of international economic relations, Indias views are much more likely to get heard if we are on the negotiating table as deals are hammered out.

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The

EU,

US

and

Japan

are

seasoned

participants

in

multilateral

negotiations. They have committed to an ambitious new round and have already been trading rewards and concessions for the last few months. Other developing countries are very unlikely to stand with India when targeted offers are put before them. Looking at past experience, we can see that with the right incentives, even the most vociferous objectors can succumb. At the 1996 Singapore Ministerial, to take just one example, Malaysia agreed to discuss investment in exchange for an Information Technology Agreement (because of a big and growing IT industry). Similar deals are bound to be struck in the run up to Doha. Progress on Indias key interest - the implementation of existing agreements - may also require negotiations, i.e., trade offs. In these circumstances, India has to be realistic rather than idealistic. If we are to see any progress in the areas that really matter to India, we must acknowledge the need for some reciprocity. On the contrary, we would only be agreeing to start talking. These talks can be dragged out virtually indefinitely. Witness the performance of the WTO study groups on investment and competition, set up in 1997, which are yet to come up with any concrete proposals. Arguments for India to participate in a new round are appreciated by many of Indias influential figures. Like me, they are not saying that India has to agree to anything at the WTO, just that she should be prepared to start talking.

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This view has been expressed by T N Srinivasan, B K Zutshi, Anwarul Hoda, Jairam Ramesh, T N Ninan, Sanjaya Baru and other experts in a joint statement, with other noted economists like Arvind Panagariya and Jagdish Bhagwati writing on the same lines in newspapers. Recently in the USA, the leader of the opposition, Sonia Gandhi, has supported such an approach, while even the finance minister Yashwant Sinha has advocated the same. At a recent conference in New Delhi, our prime minister has showed maturity by not ruling out a new round, but stating that we are open to discussions. Nobody can doubt that these people have Indias interests in their hearts when they call for engagement at the WTO. The ongoing debate on the position India should take in the context of the forthcoming WTO Ministerial Conference to be held in Doha has now assumed a familiar picture. Various interest groups are working overtime to force the negotiators on to the table which is likely to contain issues that India should not be discussing at this point in time. Interestingly, the argument that is being put forth in defence of such pressures have been made in such a manner as to project India as a country that is averse to negotiations in the WTO. India has been among the few countries which has believed in constant engagement. The real issue is whether or not India should agree to an enlargement of the WTO mandate and include new issues like investment, competition policy and government procurement, in the post-Doha negotiations. Further enlargement of the WTO mandate now may not be in India's best

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interests. A comprehensive round should be launched only when the key commitments made at the Uruguay Round have been fulfilled.

It is often forgotten that the developing countries had agreed to participate fully in the Uruguay Round negotiations when they were assured of substantial market access covering areas like textiles and agriculture. While both these sectors were to be fully integrated in the rules based multilateral trading system, in other areas where developing countries had significant export interests, the barriers to market access in the form of high tariffs and non-tariff barriers, were to be reduced according to an agreed schedule.

However, in the past six years, many of these commitments made by the developed countries have been left unfulfilled. The integration of textile products has failed to meet the targets set by such margins that the eventual elimination of quota trade in textiles by 2005 appears to be a mirage. Agriculture has also seen the continuation of the market distorting subsidies by the developed countries. As a result, the gains that the low cost producers of agricultural commodities in countries like India were promised during the Uruguay Round negotiations have not been realised. While its producers have been unable to get any advantage in the global markets, India now finds that its domestic market is being threatened by cheap imports. Besides textiles and clothing and agriculture, in other areas of India's export interest there are problems of tariff peaks and tariff escalations. This quite clearly represents a case of discriminatory trade policies

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practiced by the developed countries. These appear more galling in view of the fact that countries like India have largely fulfilled the commitments that they had taken at the end of the Uruguay Round. Industrial tariffs in most of the tariff lines for which India had made its offers have been below the bound levels for some time now. In other areas, including agriculture, where the government had decided to phase out the quantitative restrictions on imports over a longer period, the dispute raised by the United States forced their early removal. The legal structure has also been brought in line with the commitments made by the country and this includes the contentious area of intellectual property rights. What is less appreciated is that most of the domestic laws governing intellectual property rights were made compatible to the Agreement on Trade Related Aspects of Intellectual Property Rights by December 1999. It is in the context of the non-fulfilment of commitments by the developed countries that the move for an expansion of the WTO mandate needs to be understood. The larger trading countries seem to be keen to use the new issues like investment, competition policy and government procurement, for

extracting further concessions. A treaty that is already tipped against the interests of the developing countries could thus become even more unbalanced if such trade-offs are pushed through at this juncture.

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More than anyone else, it would be countries like India that stand to suffer from this outcome for it could erode the already depleting confidence in the multilateral trading system among the interest groups in these. Key issues in the ongoing Doha round of world trade talks have still not been settled and it is too early to say whether the pact will be signed by the stated target of 2010, Indias chief negotiator in the round said on Monday. Members of the World Trade Organisation (WTO) will have to agree on a formula for the deal by June 2010 at the latest in order to be in a position to sign an agreement by the end of the year, D. K. Mittal told Reuters. They are due to assess the progress of the talks again in March.

The Doha talks have been stalled numerous times since their inception in 2001, although India and other nations have touted a successful conclusion as a significant boost to the global economy after the downturn, and a way to stave off protectionism. There has been progress on certain issues, thats undeniable. But the core issues still remain unresolved, Mittal said. In the next two months, what happens one cant predict. But if all the sides are in a negotiating mood... then I think we can have a good stocktaking. One stumbling block to a deal is a demand from the United States for developing countries such as India and China to abolish tariffs entirely in some industrial sectors. Such cuts are voluntary in the Doha negotiations. The US has said that it cannot agree to a Doha deal unless large emerging economies do more to open their markets.

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The demand for sectorals coming from the US, thats an issue. No country is willing to accept that, including India, he said, adding that nobody is willing to give more to any country at this stage. Various estimates of the value of a Doha deal, which would be phased over several years, have been given. Washingtons Peterson Institute for International Economics says it could raise world gross domestic product (GDP) by between US$300 and US$700 billion a year.

According to Mittal, countries are also gearing up for a heart-to-heart discussion on the technicalities of a safeguard mechanism to protect farmers in developing countries from a surge in imports a key issue over which the talks faltered in 2008. There is already a framework there, its just a question of fine-tuning it, he said. Different kinds of protection are being suggested by the developed countries, by those who want market access. Now its a question of assessing them, whether they are really genuine. Many WTO members have blamed the slow pace of the talks, which leaders aim to complete in 2010, on a lack of interest from Washington at a time when the Obama administration is grappling with issues such as the financial crisis. Mittal, however, said that while Washington still needs to appoint key negotiators, the US has been very active in engagement in terms of talking, in terms of sending the delegations and all that.5 The Doha Development Round (DDR) is a negotiation between members of the World Trade Organization (WTO) that aims to lower international

http://www.tralac.org/cgi-bin/giga.cgi?cmd=cause_dir_news_item&news_id=80218&cause_id=1694

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barriers and encourage global trade. Through cooperation and negotiation the WTO believes that open trade will provide worldwide economic growth. Although the negotiations began in 2001 and were supposed to conclude in 2005, the talks have stalled many times, most recently in 2008. While most developing countries like India, Brazil, China and South America tout the benefits of open trade there have been many contentious battles between these developing countries and the major economic forces like the United States and Japan. In recent months, Brazilian President Luis Inacio Lula da Silva has asked United States President Barack Obama to make completing the world trade talks a priority. In 2008, talks stalled over agricultural import rules. A disagreement erupted between the United States and India regarding the special safeguard mechanism and a special tariff on certain agricultural goods. The special mechanism was designed to protect small farmers by allowing countries to impose a special tariff during an import surge. The United States (U.S.) and the European Union (EU) felt that the procedure for invoking the mechanism was too lax. India and China refused to budge proclaiming that they needed to protect the livelihood of their citizens. The U.S. and EU proclaimed that China and India had adopted an uncompromising position. Sadly, both sides refused to compromise and India claimed that their position was supported by more than one hundred countries. Surprisingly, Brazil, one of the most vocal developing countries, diverged from India on this point.

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The situation was exasperated by finger pointing and name calling with India publicly accusing the U.S. of harming the poor. For its part, the U.S. openly accused India and China of causing the standoff. In its defense, prior to the stalemate, the U.S. did agree to capping its subsidies and increasing the amount of work visas it would issue every year. After the negotiations crumbled, Jose Augusto de Castro, vice president of Brazils Foreign Trade Association announced that protectionism had triumphed. Brazil claimed that because it had abandoned many bilateral deals in favor of the multilateral Doha, it was now adversely affected by the demise of the treaties. However, some Brazilian leaders promised that Brazil would forge its way into other open markets with or without the Doha agreement. Other Brazilian leaders threatened litigation against the U.S., saying that the U.S. abused its subsidies to the detriment of Brazil. After the July 30th impasse, Brazilians Foreign Minister Celso Amorim joined forces with Susan Schwab, a U.S. trade representative, to bring the parties back to the negotiating table. President George W. Bush agreed that the talks were important and expressed the desire to have the DDR negotiations completed before the end of his term. At the end of 2008, the U.S., China, and India again sat down to try and hammer out their differences. Although all of the parties agreed this meeting was necessary to establish the standards of compromise for the DDR, the negotiations proved fruitless. Since the stalemate, Brazilian President Lula has personally called several countries leaders in an effort to

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restart the negotiations. In January of this year, President Silva became very outspoken about the United States role in the breakdown of the negotiations. Criticizing the political will of the U.S. Congress, Lula claimed a deal on the Doha could have been reached but the U.S. had no desire to reach a consensus. Lula further emphasized how important the agreement is to poor developing nations whose main source of income is agriculture. However, President Obama has not been very enthusiastic about certain provisions of Doha and what he feels amounts to the undervaluation of US workers. Meanwhile, President Lula has responded by saying that an agreement on the Doha is needed to provide stability to the current world economy. In fact, Lula ominously predicts that failure to enact the global trade agreement will result in chaos and confusion. The actual benefits of the DDR have been hotly debated and purely speculative. Clearly most of the developing countries believe that the trade facilitation will grow their struggling economies and better the lives of their citizens.

In 2002, the University of Michigan completed a study in international economics. According to the findings of the study, if the DDR agreement passed and succeeded in reducing trade barriers by thirty-three percent, global welfare would experience a several billion dollar increase. World Economist Kym Anderson completed a 2008 study where she theorized the success of DDR would result in a three thousand billion dollar increase in

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global income. Other economists shun these astronomical numbers and concede that success of the DDR would increase the global income, but they warn that it is too early to postulate exact figures. As the debate about its strengths and weaknesses continues to rage, the future of the DDR remains tenuous. Even if a compromise was made that pleased the current U.S. President, the Doha cannot become law until it has been ratified by the U.S. Congress. Critics maintain that the DDR may not be the best plan for the American economy but Congress will face international political pressure from developing nations like Brazil to pass the trade pact.

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CHAPTER V

DEVELOPING DEVELOPED

COUNTRIES COUNTRIES

AND IN

SUBSIDY MARKET: CASE STUDY OF U.S. POLICY ON SUGAR

SUBSIDIES The policy of supporting high-cost producers and limiting imports through quotas deprives low-cost producers in developing countries of important export markets and potential export earnings. The three largest importers (the US, the EU, and Japan) have become net exporters over the last 30 years. The US used to import over 5 million tons a year in the 1970s; it has imported only about 1 million tons in recent years. Oxfam estimates protectionist policies in developed countries have cost Brazil, the world.s biggest sugar exporter, $494 million of potential earnings in 2002. In Ethiopia, Mozambique, and Malawi the cost was $238 million since 2001. Mozambique lost the equivalent of a third of its development aid from the EU and its government spending on agriculture and rural development. Malawi lost more than its budget for primary healthcare. Sugar substitutes such as high-fructose corn syrup, produced as an alternative to high-priced sugar in the US, have shrunk world exports of sugar by a third (by 10 million tons). High prices also encourage the continued high-cost and inefficient production of sugar (beet sugar). The production of substitutes and beet sugar in the US, the EU, and Japan has kept the world price of sugar below the cost of even the most efficient producers. Many producers depend on preferential access to high-price

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markets to keep exporting. As a result, 80% of world production is sold in these markets. The US sugar policy is anti-development: Investors in developing countries trying to add value to export products are penalized by a system of escalating tariffs in the US: 2% for raw sugar imports, 5.5% for intermediate (semi-processed) sugar, 20.1% for final (fully processed or refined) sugar. Diversification into higher-end products is discouraged. Like other policies that distort global trade in agricultural products, the US sugar policy keeps poor farmers in developing countries poor. Poverty in developing countries is disproportionately affected by growth or nongrowth in the agriculture sector; particularly agricultural exports. Sixtythree percent of the population and 73% of the poor live in the rural areas. In least-developed countries, the poverty rate in rural areas is about 82%. Likely Effects of Reform on Developing Countries More jobs. With reform, net imports of sugar to the most protected countries would increase by 15 million tons a year, creating jobs for about 1.2 million workers in developing countries. The Bank estimates that multilateral reform of sugar policy would produce the greatest global gains (greater than bilateral or regional FTAs).worth $4.7 billion a year. Liberalized trade in agriculture in general. Reform in the sugar policies of the US and the EU could potentially provide the much-needed impetus for trade liberalization in agriculture in general. The Bank estimates that developing countries could gain about $350 billion by 2015 from a substantial reduction in agricultural protectionism. This would lift 140 million people out of poverty and the

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benefits would greatly exceed those that could be gained from present development assistance. Higher world sugar prices, lower prices in formerly protected markets: World prices of sugar would rise by 40 percent and prices in formerly protected markets would drop. by 25% in the US. Efficient exporters as well as consumers in the formerly protected markets would benefit. Among the .gainers. would be Brazil (net gain of $1.6 billion a year), Australia, Thailand, Sudan, South Africa, and other low-cost producers with small EU or US quotas relative to their total exports or with no quotas. Other developing-country gainers would be Gambia (91% of export earnings derived from sugar), Reunion (63%), Cuba (41%), Saint Kitts and Nevis (37%), Guadeloupe (12%), and Barbados (11%). Among the losers would be Guyana, Fiji, Belize, Mauritius, Swaziland, Dominican Republic, Guatemala, Malawi, and other high-cost producers in countries with preferential access to EU or US sugar markets and with large quotas relative to their total exports (total net loss of $0.45 billion a year). These countries could be compensated with broad-based economic support. The Right Environment for Change Increasing internal pressure to reform sugar programs in protected markets: This pressure stems from the high cost of government support to producers: $6.4 billion a year in OECD countries (US $1.3 billion, EU $2.7 billion, Japan $0.4 billion, other OECD countries $1.4 billion). The protectionist programs also hurt other industries (such as the candy manufacturing industry in Chicago), benefit relatively few (mostly rich sugar producers), and make US consumers pay $2 billion a year more for sugar than they would at world prices.

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External pressure: American and trading-partner businesses with limited trade-expansion opportunities or shut out of bilateral and regional trade agreements by the sugar industry lobby have been critical. Developmentoriented institutions and organizations have also called for greater leadership by OECD countries in pro-poor initiatives.including eliminating trade distorting policies that hurt developing countries. Key future events in political and trade policy: The environment for the reform of trade distorting policies like the US sugar policy therefore favors change. In addition, the following key events in political and trade policy tabled for the next few years enhance this unique opportunity to move meaningful reform forward. POINTS TO BE NOTED IN THIS REGARD: US Farm Bill to expire in 2007. EU sugar policy to expire in June 2006. Negotiations stalled along rich-poor country lines on tariff reduction formulas. Further discussions in June and July with the hope of reopening formal negotiations in July. WTO.s preliminary ruling on April 27 on complaint filed by Brazil against U.S. cotton subsidies favored Brazil. (Cotton is one of the crops important to developing countries and, like sugar, is heavily protected in developed countries led by the U.S.) EU and US FTAs with Mercosur countries. The EU-Mercosur FTA seems close to being concluded; includes an increase in sugar quotas for these countries, among other agricultural quota increases. US-

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Mercosur FTA talks have stalled on agriculture issues, but Zoellick has said that he still aims to conclude talks by next year.s deadline. EU to expand on May 1, 2004. The 10 new members have large agriculture sectors. Pressure to reform the common agriculture policy would increase. WTO dispute settlement panel on the European Communities. Export subsidies for sugar, formed at the request of Australia, Brazil, and Thailand, to submit its final report to the concerned parties by June 2004. US elections in November. If Bush is reelected, the CAFTA and bilateral trade agreements with Australia, Morocco, the Dominican Republic, and, possibly, Thailand (a big sugar producer; talks start in June 2004) will be presented to Congress for approval. Mexico to be allowed unlimited duty-free access to the US in 2009, under NAFTA. 48 least-developed countries to be allowed duty-free access to EU sugar market by 2009 under the EU.s Everything But Arms initiative signed in 2001. Support for countries or producers will be needed during an adjustment period. The US support program for peanut producers, for example, halved the loan rate for edible peanuts, ended production quotas, and paid producers cash when prices fell below the lower loan rate, or below target (countercyclical payments). Other

industries dependent on high sugar prices and protected markets will also need assistance. In developing countries, development

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assistance can help with policies to increase productivity and shift resources to more competitive activities.

CHAPTER VI

CRITICAL ANALYSIS

The issue in this matter of research may be summarised as follows: Do the WTO Provisions tend to protect the Third World Countries? Can the relevant provisions of WTO be said to be such that they can protect the developing countries from the discrepancies at the hands of the Developed countries? With hardly any positive statement from such major players as the US, not many are willing to bet that the World Trade Organisation's Doha Development Round talks towards a global trade deal will be concluded this year. The Reserve Bank of India today published its Staff Study entitled Doha Round of Multilateral Trade Negotiations: Critical Issues in Trade Development pertaining to India (PublicationReportDetails.aspx?UrlPage=&ID=589) . The Staff Study, authored by Ms. Monika Kathuria, examines the major issues that are delaying the conclusion of Doha Round and the dissenting views of WTO member countries, in particular of India, on those issues. Each member country of the World Trade Organisation (WTO) has to ensure that its domestic policies are framed in conformity with the agreements it has signed and the commitments it has made in the WTO. It is, therefore, necessary to understand the implications and complexities of the agenda issues before signing the agreements. The present study provides general

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understanding of the functioning of the WTO and the critical issues involved in Doha Round of negotiations. In this context, the study is relevant for policy makers, researchers, academicians and general public. The study presents a theoretical rationale behind the establishment of a rule-based multilateral trading system that aims at creating an environment where international trade can be carried out as freely and fairly as possible. This is followed by a snapshot of the evolution and structure of the WTO along with a brief description of its functions and various rounds of trade negotiations held under GATT and WTO. The primary focus of the study is on Doha Round, which signalled a significant policy shift in WTO, drawing attention to the special needs and interests of developing member countries, particularly the least developed ones. This round was expected to play a developmental role for these member countries. However, it has already taken more than eight years and has faced stiff resistance from developing member countries. The study analyses the reasons for this and states that weaknesses, such as, unbalanced bargaining power, lack of technical expertise in developing countries, frequent changes in representator, hamper the negotiations at WTO. Arguing that efforts should be aimed to conclude the Doha Round as early as possible and that it should not be at the expense of the development aspect, the study recommends the following policy stance:

In case of agricultural subsidies, the developed countries should be made to undertake the commitment of reduction in their bound per capita overall trade-distorting domestic support(OTDS) instead of total OTDS as per capita OTDS can be used as a measure to converge subsidy provisions prevailing in developed and developing countries. Convergence of the two implies effective reduction in subsidies provisions.

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So far as food security and livelihood of poor farmers is concerned, India should not compromise on special safeguard measures (SSM), at least, so long as the provision of special safeguard for agriculture remains available to developed countries.

For industrial sector, developed countries should be asked to reduce their maximum allowable level of tariff rates to negligible levels, at least for the tariff lines covering 98 per cent of potential exports of developing countries in order to provide effective market access for developing countries exports. Developing countries should be provided concession in this respect given their lower levels of development.

For services, developed and developing countries both should make commitments to open up their markets for cross border supplies, for consumption abroad, for commercial presence abroad and for movement of natural persons. India has to maintain its demand for greater and effective market access for movement of natural persons.

Developing countries should be given policy space for growth enhancing investment projects and plans as investment policy can help in achieving long term development goals.

The technology transfers from developed to developing countries should be encouraged at the WTO level. Developing countries should be given access to inventions and innovations of developed countries in different areas. A provision could be made at the WTO level for promoting research and development in areas characterised by low productivity in developing countries.

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CONCLUSION It should be evident that the CAP subsidy regime needs to be radically reformed to take into account the interests of farmers in the developing world. One way to generate the necessary political will would be to shame undeserving recipients of CAP subsidies. But what of deserving recipients? If CAP subsidies were intended primarily to support declining farming incomes, particularly on small family-run farms, this does not seem to be happening. The moment one considers the factors that render farmer debt virtually unpayable, the culpability of globalization and structural adjustment in this human tragedy become evident The largest 2.5 per cent of cereal-growing holdings account for 20 per cent of total CAP cereal payments while the smallest 30 per cent receive less than 6 per cent of the total.8 As for CAP sugar payments, the bulk of the support goes to large processors such as British Sugar and Tate & Lyle. Some of this is passed on to beet growers, who tend to be concentrated in prosperous agricultural regions such as East Anglia and Lincolnshire, on holdings that are almost four times the average EU size, generating incomes that are double the average farm income. The story of CAP milk payments is not very different. Large dairy companies such as Philpot Dairy Products, Nestl and Milk Supplies figure prominently on the list of major subsidy recipients, even as net dairy farm incomes decline and small farmers leave the dairy sector in droves.

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It is clear that the CAP does not primarily benefit marginal farmers in Britain the people who work gruelling 58-hour weeks for annual incomes of 7,482 ($13,700) in places like Derbyshire. If there is any justification for subsidies in the developed world it is surely the protection of these farmers (in addition to the promotion of environmental and other public interest objectives). The key ethical question that must be asked is whether the interests of marginal farmers in the developed world can be protected without harming the livelihoods of subsistence farmers in developing countries. Are the interests of these two groups necessarily zero-sum? On closer consideration, they appear to be allied. To be sure, the plight of marginal farmers in a wealthy, welfare state like Britain is not comparable to the desperation of subsistence farmers in a poor, bourgeois-democracy such as India. However, both groups of farmers are similar in that they have been failed by their respective social contracts small farmers in Britain, as a result of improper targeting of CAP subsidies; subsistence farmers in India, because of the increasing bias in agricultural policy towards corporate agribusiness and the food processing industry. Under these circumstances, it seems advisable for both groups of farmers to advance their interests jointly. This would deny hypocritical European governments the opportunity to continue using their marginal farmers as moral cover for the continuation of CAP payments in their current form. At the same time, focusing on the plight of subsistence farmers in the developing world would ensure that the benefits of agricultural trade liberalization did not accrue solely to large farming interests in those

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countries. It is important not only to back demands for agricultural liberalization made by developing country governments in coalitions like the G20, but also to ensure that the fruits of liberalization reach the poorest farmers in those countries. Those poor farmers are, after all, often used as a moral figleaf by their own governments in international negotiations, only to be disregarded in the domestic division of the spoils. In this context, the convergence of marginal farmers from North and South in international networks such as Via Campesina is an encouraging development. Rather more disappointing is the attitude of developed country

governments, who seemed most reluctant at the recently concluded G8 summit in Gleneagles, Scotland to commit themselves to ending agricultural subsidies. Yet of the three issues that comprised the Africa agenda of the summit aid, debt and trade African countries prioritize trade, arguing that it is a more sustainable and less patronizing way of making poverty history. Trade justice also turns the debt question on its head: it is Blenheim, after all, which seems deeply in the red.

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14. http://www.indiatogether.org/2003/sep/dsh-robbery.htm 15. http://www.indiatogether.org/2004/aug/dsh-newwtofw.htm 16. fpc.org.uk/fsblob/419.pdf 17. www.christianaid.org.uk/Images/damage_done.pdf

18. http://www.pdrdf.org.uk/hillfarmingreport.htm

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