Friday, December 08, 2006

Whither WTO negotiations!

Using all his experience that can come only from a keen watching of the developments taking place in the WTO arena, Manoj Pant today wrote a brilliant piece in ET. I strongly recommend reading it at least once to get a grip on WTO negotiations. Read it here. I excerpt some major points as notes below interspersed with my comments:

WTO negotiations are characterized by distinct patterns that were discernible in three phases during their course of history.

The first phase was from 1948 to 1967, almost lasting about two decades. This phase was characterized by the dominance and needs of US in breaking up the preferential trade agreement called the Commonwealth Preferences which gave the UK and Canada special trade deals with their colonies. It was also necessary for it (the US) to get Japan admitted into the multilateral trade negotiations. To achieve these two purposes, US has given a lot more that what it gained and the result is the conclusion of 6 rounds of trade negotiations during this phase.

The second phase which lasted for again another two decades is characterized by:

  1. Development of many new countries.
  2. Rapid changes in the structure of world production and emergence of major agricultural producing countries.
  3. Growing power of ‘oil politics’ made the developed countries take notice of the least developed countries seriously. Emergence of the developing countries block was effectively thwarted by granting the LDCs (least developed countries) preferential access without any reciprocity.

The third phase which is discernible from the 1980s is characterized by the following changes:

  1. Economic structure of the developed countries was shifting away from primary goods and manufactures to services.
  2. Agricultural producers felt that they gained nothing in GATT and formed Cairns group with the sole purpose of bringing in agriculture into trade negotiations.
  3. Emergence of international business interests as aid was replaced by FDI (Foreign Direct Investment).

Present and future:

Though we have framework agreement in place, as there is no consensus on the extent of tariff cuts and reduction in agricultural subsidies, there is no effective agreement. The talks are stalled.

The stalled talks have led to the development of various coalitions. It can perhaps be said that the stalled talks are a result of the developing countries realization that they were unable to understand the implications of the ‘single undertaking’ clause in the Uruguay round of 1994 and trying to rectify the situation by forming into an effective coalition. These coalitions are crucial to the success of future multilateral negotiations.

Negotiations among the 150 members can hardly succeed unless they combine into a limited number of coalitions. Tariff formulas will only work when multilateral negotiations succeed.

My own take is that the progress of the talks is a function of the abilities of various countries to indulge in a ‘give and take’. And these would depend on the tolerance levels displayed by the participating countries based on their perceptions of political sustainability. While continuing with the WTO negotiations, countries would also simultaneously be working on various alternatives, as can be witnessed in the efforts at hammering out various regional free trade agreements. This I feel will last till the the 2030’s by which time major changes would be seen in the constitution of the block of developed countries. Then new dynamics will come into play.