Trade Policy Development and Negotiations at the Doha Round: Documentation of Major Issues and Propo

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Trade Policy Development and Negotiations at the
Doha RoundDocumentation of Major Issues and
Proposals on Africas Position

• Economic Policy Analysis and Management (EPANET),
  African Capacity Building Foundation

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Paper presented at the Second Annual Meetings of
the TAPNETS

• African Capacity Building Foundation, Harare
  Zimbabwe,
• 14-15 April, 2005

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Africa and Doha

• Africa has never before depended so much on the
  global economy for its prosperity
• In particular, trade has become increasingly
  important to the Continent, especially given the
  reform strategies of its constituent economies

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Africa and Doha

• Hence, the stakes for Africa at the current Doha
  Development Round are extremely high.
• In this paper, we consider
• 1. The background to negotations at Doha in the
  GATT/WTO tradition.

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Africa and Doha

• 2. Given the key importance of OECD markets to
  Africa, we consider issues related to Policy
  Coherence and what both developed and developing
  countries can do to create a more cohesive
  development plan.

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Africa and Doha

• 3. Give an overview of the key areas of
  importance for Africa, particularly with respect
  to agriculture and
• 4. A Summary of the priority issues that African
  countries need to advance aggressively at Doha.

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Conclusion

• Our basic conclusion is that Doha can be
  potentially extremely important to Africa.
• While many obstacles will continue to pose key
  challenges, they are surmountable, and Africa
  should work diligently with other developingand
  developed countries to make the Doha Round a
  success.

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SECTION I PRE-DOHA BACKGROUND

• Until the Uruguay Round (1986-1994), African
  countries essentially tried to free-ride off of
  trade rounds, benefitting from MFN treatment
  without giving much in return.
• Soon, it became obvious that without active
  participation in these Rounds, the negotiations,
  led by developed countries, would keep off the
  table the most important African exports.

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• Hence, beginning with the Uruguay Round, Africa
  began to see the need to participate actively.
  The Doha Round has seen an unprecendented
  involvement of African member-states (and
  developing countries more generally).

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• With current membership numbering 148 and with
  many more countries including China waiting for
  or already engaged in accession negotiations,
  there is hardly any country including developing
  African countries which can ill-afford to
  continue to maintain an attitude of aloofness
  towards the goings on in the WTO.

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• The WTO saw the need to address the neglect of
  developmental concerns in previous rounds such
  that the Doha Round was ostensibly tagged, the
  Development Round.
• The Doha Round was meant to redress the
  imbalances which stemmed from the Uruguay Round
  of trade negotiations, and whose benefits
  according to Stiglitz is split 7030 in favour of
  developed countries, (DFID, 2004).

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• Thus the Doha Round was intended to represent a
  vital component of global efforts at addressing
  the problems of underdevelopment, by seeking to
  boost economic growth in the developing world.
• The perceived imbalances were to be addressed
  through the pursuit of specific growth and
  development targeted objectives.

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• These include
• the opening up of rich countries markets to
  developing countries exports
• providing effective special treatment for
  different countries to meet their development
  needs
• and tackling trade distorting domestic support in
  agricultural trade.

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• However, three years after Doha and just before
  the WTO Ministerial in Cancun in 2003, it had
  become sufficiently obvious that these laudable
  goals had not gone beyond stating of intentions.
• In fact the word development had gradually
  receded to the background such that the Doha
  Development Round gradually became just the
  Doha Round, (McKinnon, 2005).

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• The outcome of the Ministerial in Cancun in
  September 2003 did not therefore come entirely as
  a surprise.
• The negotiators were unable to agree on the
  modalities for agricultural negotiations
• The developing countries responded to cloudy
  signals on farm reform by withholding support for
  starting negotiations on the Singapore issues
  (investment, competition policy, trade
  facilitation, and transparency in government
  procurement).

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• Following from the outcome of Cancun one major
  question that arises is what options are open to
  the developing countries as a group, sub-regional
  groupings or as individual countries?
• Should developing Africa go back to the old
  free-rider strategy under GATT, or should the
  strategy of involvement shift to a more
  convenient bilateralism that is less complex?

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• The Doha Round still merits the active
  involvement of developing African countries for
  at least three major reasons.
• First, in the absence of rules, developed
  countries stand more to gain from the ensuing
  disorder given their vantage position as stronger
  and more competitive economies.

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• Secondly results from major studies weighing the
  various options (Roland Holst et.al, 2002) have
  shown that developing countries stand to make
  significant gains from commitment to the
  negotiations to achieve reduction in agricultural
  support in OECD countries.  
• For example it is shown that reducing
  agricultural support in high-income countries has
  the potential of inducing substantial changes in
  world food prices and domestic agricultural rates
  of return and output .

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• Total trade is found to expand, wages and incomes
  in developing countries especially among the
  rural poor are found to increase quite
  substantially. Rural incomes in low-income
  countries as in Sub-Saharan African countries are
  found to increase by 60 billion over the period
  of analysis, far exceeding the figure for the
  most ambitious increases in development
  assistance grants to these group of countries.

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• Furthermore, some recent estimates show that an
  increase in Africas share in world exports of
  just 1 percent would be worth five times as much
  as the continents share of aid and debt relief,
  (DFID, 2005). The World Bank has estimated that
  300 million people could be lifted out of poverty
  by 2015 if the Doha Round negotiations result in
  a comprehensive deal and especially if it also
  leads to significant liberalization of
  South-South trade, (Marian Boel, 2005).  

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• The third major reason arises from the fact that
  there is strong evidence that the OECD countries
  particularly the EU and U.S may now be willing to
  come to the negotiating table with more
  substantive reforms in agriculture that would
  satisfy the yearnings of developing countries.
• Furthermore in the WTO framework agreement
  adopted in the summer of 2004, the EU committed
  itself to phasing out all agricultural export
  subsidies,

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• The foregoing is however not to suggest that a
  resumption of the negotiations would necessarily
  be easy going and that the G.20 countries would
  easily have their way once they commit to the
  negotiations.
• Rather it is to say that the developed countries
  appear to be willing to consider major
  concessions that would break the Cancun
  stalemate.

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• Judging by a whittled down agenda, that is more
  focused on issues that are germane to the
  developmental concerns of developing countries
  (UNCTAD, 2004) the prospects are brighter than at
  pre-Cancun, that much progress may be achieved at
  the forthcoming December 2005 Ministerial in Hong
  Kong.

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SECTION II NEED FOR POLICY COHERENCE

• To begin with, one of the biggest problems with
  the WTO is what has emerged out of it in terms of
  exceptions and contradictions.
• In particular, Article XXIV, which allows for the
  creation of free-trade areas (FTAs) and customs
  unions (CUs) under certain conditions,
  contradicts the very backbone of the WTO itself
  most-favored-nation (MFN) treatment, enshrined in
  Article I.

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• Article XXIV, in fact, was created as an
  exception to the MFN rule. However, with over
  300 FTAs, CUs and other preferential trading
  arrangements having been recorded to datewell
  over half in just the past 10 yearsand with
  every OECD country now embracing regionalism, the
  trend poses an important challenge to Africa.

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• This is especially true since the new accords
  essentially all include developing countries that
  compete with Africa in its richest and largest
  markets, thereby either leading to a
  deterioration in its competitive edge (e.g., in
  Europe) or outright discrimination (e.g., in the
  United States).

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• OECD countries have never really been shy in
  giving policy recommendations as to how
  developing countries might escape the Poverty
  Trap and move up the development ladder.
• While policy prescriptions differand sometimes
  considerablyall emphasize at least the medium-
  and long-term importance of integration with the
  international marketplace as a means of promoting
  development.

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• For example, in terms of prima facie evidence,
  developing countries in Asia have experienced
  highand, in some cases, spectaculareconomic
  growth, and much of this has been based on an
  outward-oriented approach to development (see,
  for example, EPANET 2004).

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• Policy recommendations emphasize that developing
  countries should embrace economic reform and
  exploit global markets and development
  assistance. They are even offered support in
  capacity building toward this goal.
• Yet the major markets remain closed to the
  sectors in which developing countries have
  comparative advantage, This is the essence of
  policy incoherence.

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• From limitations on market access to
  agricultural subsidies, this lack of policy
  coherence has been hindering development in the
  region. Even selected liberalization under
  ostensibly pro-development programs such as the
  GSP have had limited effects, as the sensitive
  areas are excluded.

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• The Doha Development Agenda is supposed to be
  designed to inject more coherence into OECD
  policies by including sensitive areas such as
  agriculture and labor-intensive industries.
• However, as referred to above, the offer that was
  forthcoming at the Cancun Ministerial Meeting was
  sufficiently disappointing so as to convince
  certain developing countries that no deal would
  be better than such a limited and unbalanced one.
  

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• In July 2004, the July Package reflected a
  compromise and succeeded in producing a framework
  for negotiations.
• But much remains to be done in terms of
  liberalization of sectors of prime importance to
  Africa and a successful Doha is by no means a
  foregone conclusion. It will take a great deal
  of political will to push it through, both in
  developed and developing countries.

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• While a successful Doha would mitigate the trade
  diversion aspects of the global trend towards
  regionalism, there are many potentially
  discriminatory aspects of regionalism that go
  well beyond what could be possibly included in a
  Doha accord.
• This leads us to questions regarding the relative
  benefits of regionalism to the global trading
  system, and its inherent coherence in terms of
  the OECD development goals.

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• Hence, a first question would be the following
  does regionalism support unilateral/multilateral
  reform goals, or does the discrimination inherent
  in a trade bloc lead to a "second best" outcome
  at best, or an inward-looking one at worst? If
  it is the latter, the trend could be highly
  detrimental to African development prospects.

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• In short, while it may very well be that the
  regionalism trend could be a building bloc
  rather than a stumbling bloc to global free
  trade, there are some possible adverse scenarios.
  
• Preferential trading arrangements that harm third
  countries in the developing world pose an
  important challenge for policy coherence.

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• In fact, to some degree it is forcing developing
  countries to the negotiating table to score FTAs
  of their own, as a means of preserving MFN
  treatment. Hence the irony of regionalism.

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• However, as noted above, a vibrant WTO and a
  successful conclusion to the Doha Development
  Agenda would mitigate many of the potentially
  negative aspects of regionalism.
• Hence, it is certainly in the interests of Africa
  to make sure that the current negotiations
  succeed. But it is equally important to note
  that by success we mean an accord that truly
  works in favor of development.

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• Thus, it should not be the goal of African
  integration to cut off the region from these
  traditional markets. No doubt, such an
  inward-looking approach would work to the
  determent of the region's development prospects.

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• In sum, the development goals of Africa and the
  OECD are essentially the same poverty
  alleviation/eradication and the promulgation of a
  set of policies that will lead to long-run
  progress not only in terms of per capita GDP
  growth but also other social development
  indicators, particularly in the areas of health
  and welfare.
• However, much more improvement can be made in
  terms of the coherence of OECD policies in order
  to help Africa reach these goals.

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• What happens in Doha will be important and Africa
  should work hard to make sure that it is an
  effective agreement that works for the region.
• Africa should also work to cement closer economic
  relations at the sub regional and regional levels
  as a means to becoming more competitive in the
  international marketplace.

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• It should also continue and expand its
  cooperation with key OECD markets such as the
  United States and the EU as a means of creating a
  competitive edge, preserving existing advantages,
  or at least not suffer due to the other
  arrangements that these major markets are
  creating.

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SECTION III OUTSTANDING ISSUES

• In the aftermath of Cancun September 2003, and
  going by the July 2004 Framework prepared by the
  WTO Secretariat for getting the negotiations back
  on track, the long list of issues originally
  intended for coverage in the Doha round has been
  whittled down to four main issues.

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• These are (1) agriculture, (2) industrial market
  access,(3) development issues, (4) and the now
  highly contentious so-called Singapore issues
  which embrace trade facilitation, investment
  competition and transparency in government
  procurement (Bridges, 2004), as discussed above.

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• As might be expected the weight of importance
  attached to the outstanding issues do not enjoy
  universal acceptance. They vary between different
  regions, between developed and developing
  countries and sometimes between individual member
  countries.

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• From the perspective of developing African
  countries the issues of agriculture and
  development have become paramount and their
  willingness to get involved in other areas of the
  negotiations appears to be tied to how much
  progress is made in these two critical areas.

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• At the inception of the Doha Round in November
  2001, what emerged as the most contentious issues
  that have since dominated every development in
  the negotiations thereafter, have been the issue
  of direct and indirect producer support for
  agricultural exports, particularly in the North,
  and the forgone production, employment and
  trading opportunities for farmers in the South
  (Beghin et.al. 2002).

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Instruments of trade protection

• There are three types of instruments used to
  protect
• agriculture in OECD countries.
• The first involves trade protection measures and
  market price support schemes that ensure domestic
  producer prices exceed international prices.
• Secondly there are direct production related
  subsidies, and
• Thirdly there are indirect support through,
  research support and support for training,
  marketing and infrastructure among others.

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Magnitude of subsidies

• The experience of West African countries in
  respect of trade in cotton, exemplifies the
  nature of the current imbalances in the
  international trading system and why it has come
  to occupy such a place of importance in the
  negotiations, particularly from the standpoint of
  developing countries.

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• In the Benin Republic, for example, the cotton
  industry accounts for nearly 85 percent of total
  exports and 20 percent of total GDP. Benin and
  three other West African cotton producers,
  Burkina Faso, Chad, and Mali are believed to be
  potentially competitive cotton producers.
• They have in trying to comply with the outcomes
  of the Uruguay Round, liberalized into highly
  distorted markets for cotton in the U.S. and the
  EU.

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• Consequently their cotton industry has been
  engulfed in crisis with terrible micro and macro
  level consequences on their monocultural
  economies. This is because they have to compete
  with heavily subsidized EU and U.S producers.
• In 2001 alone it is estimated that cotton growers
  in the U.S. received nearly U.S.4 billion in
  assistance, an amount that is more than the
  entire GDP of Benin (DFID, 2005).

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• The EU (Greece and Spain) provided 0.7 billion
  subsidy to European growers. These subsidies
  account for a significant share of the value of
  global cotton production, which stood at 20
  billion in 2001,(Beghin Aksoy 2003).
• It may be useful to note that the U.S having
  recently lost in a WTO panel may be left with no
  choice but to reduce its cotton subsidies
  substantially.

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Potential gains from trade liberalization

• Commodity studies using global models show that
  trade liberalization in agriculture will induce
  significant world price increases, for example,
  10-20 percent in respect of cotton and 15-20
  percent in groundnut markets, both of which are
  major export cash crops in Africa.
• Similar studies show a potential rise of 20-40
  percent in the price of sugar and dairy products,
  and up to 90 percent in the grain rice market.

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• Such increases in prices would greatly improve
  the incomes of producers of these commodities in
  developing countries.
• It is estimated for example that cotton producers
  in Africa could increase their gross revenue from
  production by as much as 19 percent, and would
  increase their revenue by as much as 250
  million, if all current cotton subsidies in the
  US and EU were to be removed.

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• This compares to total ODA of 1.9 billion
  received by the entire region, over a given year
  and of which 15-20 percent typically goes to
  agricultural assistance.
• In respect of groundnuts, it is shown that
  groundnut producers in Senegal, Gambia, Nigeria,
  South Africa and Malawi would gain about 124
  million in producer profits, if China, India and
  other countries liberalized their groundnut
  products markets (Ibid).

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• Thus these studies amply demonstrate that
  significant trade liberalization is capable of
  reducing rural poverty in developing economies,
  especially in countries that have comparative
  advantage in the production of affected
  commodities and where agriculture accounts for a
  high percentage of income and employment, as it
  is the case in most sub-Saharan African
  countries.

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IV. AFRICAS POSITION

• Developing African countries should not be
  perceived as being against trade liberalization.
  Rather the emphasis of the negotiating stance
  should be on how to preserve their existing
  comparative advantage in certain products while
  they aspire to gaining comparative advantage in
  new areas especially in manufacturing.

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• Secondly every effort should be made to ensure
  that development issues that had hitherto
  suffered relative neglect become front burner
  issues once again.
• In pursuing these primary objectives at the
  negotiations, the following areas would appear to
  stand out as deserving of particular focus and
  emphasis.

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•  
•         Substantial cuts in domestic subsidies
  for each major product in which African producers
  are competitive such as cotton and groundnuts.
•         Elimination of agricultural export
  subsidies, including the subsidized component of
  official export credits, for products of export
  interest to developing countries.

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•         Sharp reductions in high farm tariffs
  and major expansion of tariff-rate quotas, which
  has remained one of the most contentious aspects
  in the negotiations.
• The foregoing would enhance increased market
  access for products from the LDCs.

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•         On nonagricultural market access,
  getting rid of protection in these areas as early
  as possible should be a priority, with some
  flexibility in implementation being allowed for
  developing countries, and technical assistance
  being provided for African countries that
  currently are heavily dependent on trade taxes
  for government revenue.

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•         The exclusion of the highly contentious
  Singapore issues, and moving forward exclusively
  on the topic of trade facilitation may not
  necessarily be in the regions best interest in
  the longer term. Rather than insisting on total
  exclusion, what may be desirable is a gradual
  approach that ensures implementation capacity
  does not lag behind.

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•         There is the need to continue to work
  hard on winning major concessions in the areas of
  providing special and differential treatment
  (SD) for developing countries.

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• Finally, it would also be in Africas best
  interest to work on anti-dumping and
  countervailing-duty constraints. This would be
  aimed at preventing the introduction of new trade
  barriers through the back door once OECD export
  subsidies are reduced.

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• The overall emphasis of Africas position at the
  negotiations should be on how to ensure that
  development goals are supported by flexible
  implementation schedules, and narrowly focused
  exceptions from WTO reforms, plus generous
  technical and developmental aid from national and
  international financial institutions

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• THE END.
• THANK YOU