Africa in the Doha Round: Dealing with Preference Erosion and Beyond: 5
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Indeed, as illustrated in Figure 2 in the case of rice or wheat in India, if the fixed reference price had been adjusted for inflation, then the administered price guaranteed by the government would have been systematically below the reference price for the previous six years Hoda and Gulati, To capture better the effective distortions resulting from price support, this reference price could either be based on a more recent period or alternatively be calculated as a three-year rolling average of world prices as suggested by the G It starts from the realisation that in the case of rice in India, while the administered price has been well above the external reference price, it has been consistently below the world market price.
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This means that in pure economic terms there has been no trade distortion created by the administered price even if — from a WTO legal perspective — the administered price is considered a trade-distorting subsidy. Diaz-Bonilla therefore suggests that if the administered price is at or below the market price, it should not be considered as providing price support and therefore could be considered green box compatible.
Figure 2 also tests the idea of replacing the fixed external reference price with a three-year rolling average of world prices. Overall, in any of these scenarios, the Indian administered price remains below the world price or the three-year rolling average. While relatively uncontroversial from a purely economic perspective, in practice they would result in the enhancing policy space available to developing countries, something that is likely to be resisted by a number of trading partners.
The package essentially consists of a series of political statements, non-binding commitments, and procedural decisions with very few tangible and immediate benefits for developing countries. In other areas, such as cotton, proposals were submitted so late in the game that they had virtually no chance of being taken on board ahead of the ministerial. But it will not function as a negotiating forum. In cases in which the review identifies a problem, the mechanism may make recommendations — including, if necessary, that negotiations be launched — to the relevant WTO body.
These confer an economic nationality to products traded internationally. In the context of trade preference granted to LDCs — such as duty-free, quota-free schemes — RoO define how much processing must take place locally before goods are considered to be of an LDC origin and therefore benefit from preferential treatment. In practice, preferential RoO are often considered too restrictive and inflexible, making it difficult for LDCs to effectively take advantage of the intended preferences. Furthermore, these are designed on a unilateral basis by preference-granting countries, without any harmonised standard.
A long-standing demand of LDCs has therefore been to promote enhanced harmonisation and simplification of RoO.
The State of play of Agriculture Negotiations in the Doha round of WTO
The Bali decision contains, for the first time, a set of multilaterally agreed guidelines, which should make it easier for LDC exports to qualify for preferential market access WTO, g. It reiterates that RoO should be as transparent, simple, and objective as possible but also recognizes that each country granting trade preferences to LDCs has its own method of determining such rules.
The decision then provides some illustrations of how RoO can be made easier to comply with. The decision is however in the form of non-binding guidelines, implying that developed member countries are free to choose to follow these guidelines or not. Several studies have however pointed to the large potential for LDC growth in this sector.
While representing a significant win for LDCs, the waiver itself does not confer any direct economic benefit. It first needs to be operationalised through the establishment of new unilateral trade preference schemes that cover services. The CTS will also convene a high-level meeting six months after the submission by LDCs of a collective request identifying the sectors and modes of supply in which they would like to receive preferences. At that meeting, developed and developing members, in a position to do so, shall indicate where they intend to provide preferential treatment to LDC services and service suppliers.
As with the monitoring mechanism, this decision essentially set up a process through which LDCs might advance their concerns but does not result in any immediate economic gains at this stage. Since then, several developed countries and some emerging economies have put in place DFQF schemes of various kinds. For example, whereas Canada, Japan, and the EU provide duty-free coverage to over 98 per cent of tariff lines and feature few exclusions, the US trade preference schemes admit on average only At the other extreme, it appears that Lesotho would be negatively affected.
Even so, its loss would be a mere 1 per cent of exports, or about USD 5 million — an amount largely offset by Aid-for-Trade flows in recent years. This was largely reflected in the lack of significant progress at MC9. At that time, the C4 countries accused the EU and the US of providing trade-distorting subsides to their farmers, depressing world prices and affecting poor producers in Africa unable to compete with Brussels and Washington treasuries. Prices have increased significantly, reducing pressure in the EU and US to provide farm payments. As a result, subsidies in the US have declined from historical highs and are projected to be lower as a result of the new US farm bill.
Higher prices for alternative crops, such as corn and wheat, together with declining yields and rising production costs of cotton have also provided incentives to US farmers to move away from cotton production. At the global level, patterns of trade have shifted and new players have emerged. India has moved from a net importer to the second largest exporter of cotton.
China is now the largest producer, importer, and consumer of cotton worldwide. Granted, all these factors have contributed to reducing the pressure of subsidies on African cotton producing countries, but at the same time they have also eased the political challenge of reforming trade-distorting payments. Along with budgetary pressures in the US and elsewhere, they suggest that the time for cotton reform has never been better.
Members will meet twice a year to study the latest information and to discuss the latest developments on market access, and domestic support and export subsidies for cotton, particularly from LDCs. As highlighted above, part of the reason for such a limited outcome relates to the fact that the C4 proposal to address this issue at MC9 came exceedingly late in the game, at a time when members were not ready to contemplate ambitious commitments in the light of other pending issues that needed to be resolved, not least regarding trade facilitation. In a world increasingly dominated by global value chains, the gains occurring from simplified customs procedures and lower transaction costs are well established.
But the most significant gains are likely to arise from a possible boost in intra-regional trade where considerable growth potential remains untapped. Granted, some countries will have real difficulties in implementing certain elements of the agreement in the absence of technical assistance and capacity building. These concerns have largely crystallised around the need to balance sections I and II of the agreement. But the deal contains a set of landmark provisions allowing for flexibility in the scheduling and sequencing of implementation, and linking commitments to acquired capacity resulting from technical assistance.
Beyond technical assistance, political momentum and sufficient time will also be essential to overcoming resistance to change. Experience so far has shown that the introduction of formal trade facilitation reforms is not always followed by full implementation in the day-to-day operation of border agencies because of the difficulty of changing entrenched behaviours and the desire to preserve rents.
Specifically, reforms are only successful if there is a high degree of political acceptability and public support. In terms of sequencing, experience has shown that equipment and infrastructure should be viewed as implementation tools to be carefully combined with regulatory, institutional, or human-resource changes. In this respect some observers have suggested that the flow of aid should be conditionally tied to legislative reforms so that it is more difficult for it to be reversed by opposing forces.
Finally, there should be a willingness to continue reforms beyond the life of the aid initiative. The proposed decision on rules of origin, as important as it is, only constitutes a best endeavour agreement. Similarly, there is little to expect on cotton or on duty-free, quota-free market access where LDCs themselves have not managed to overcome their internal divisions. As net food importing countries, LDCs have been hit hard by recent price spikes further accentuated by policy responses such as export restrictions or biofuels policies. As a result, they have seen their food import bill growing to worrying levels while productivity growth has remained stagnant, putting large segments of their populations at risk.
These concerns, largely associated with the new price environment prevailing in agriculture, will require targeted responses from the system. While they have not been resolved in Bali, LDCs might consider addressing them as part of a post-Bali work programme on food security. But the Bali deal only addressed a subset of the Doha Round, and —even then — achieving consensus on this limited package of low-hanging fruit proved particularly challenging. Beyond the intrinsic value of the Bali package itself, the immediate question for the WTO is therefore how to build on Bali to deliver on the broader Doha Agenda.
But no clear process has been established to bring Doha to closure. Issues for which legally binding outcomes could not be achieved will be prioritised.
Finally, ministers recalled the need expressed at the ministerial to explore different negotiating approaches while respecting the principles of transparency and inclusiveness, and to look at ways of overcoming the most critical and fundamental stumbling blocks. However, as the MC9 dust settles certain elements seem to be slowly emerging. First, on substance, three sets of issues will have to be addressed.
In trade facilitation, for example, a preparatory committee will have to draft a protocol of amendments to include the agreement under the WTO framework. Members will have to ratify it and notify their commitments under Category A, B, or C. Developing countries and LDCs will also need to identify their respective needs for technical assistance and capacity building. In agriculture, countries wanting to use the peace clause will have to notify their respective programmes. Under the services waiver, LDCs will have to submit a joint request highlighting sectors in which they would benefit from trade preferences in services, etc.
These issues are not easy but the way forward is relatively clear. Here, the emerging feeling is that the Bali approach, consisting in identifying a small set of low-hanging fruit for early harvest, might not be replicable in the future.
Africa in the Doha Round; Dealing with Preference Erosion and Beyond
While most countries greatly appreciated the transparent and inclusive Bali process, the approach has probably been exhausted, not least because there are not many — if any — low-hanging fruit left around which to build a small package. This means that members will have to find a way of tackling some of the core issues that have been put on hold since , starting with the highly controversial agriculture talks. Kwa doubts that the conclusion of the round will benefit LDCs at all.
She points to studies showing that, apart from a handful of developing countries like Brazil, China and India that would suffer losses but also enjoy gains, the majority of developing countries are facing mainly losses. But through special and differential treatment LDCs can also benefit from the international trading system.
The Doha Round, with development at its core, came about to correct the imbalances of the previous rounds. These have to be complemented with aid for trade for capacity building and trade facilitation for LDCs to beneficially integrate into the multilateral trading system. Failure to conclude the round would affect LDCs the most. It is hoped that the just-concluded World Economic Forum in Davos, Switzerland, will give new impetus to the round. Some countries may even lose due to "preference erosion" on exports of products that attract high preferential margins, such as textiles, bananas and sugar.
There are also doubts about whether African countries even have the capacity to increase their exports. Part of the blame lies with poor infrastructure, weak institutions and the failure of African countries to liberalise trade themselves. There is also the continuing problem that Africa remains dependent on primary commodities and is vulnerable to depressed and volatile prices.
Several countries depend on just one commodity for more than half their foreign exchange earnings. This is particularly serious since over the past 30 years, commodity prices have been falling. A key question is whether significant liberalisation will happen.
The European Union, having just reformed the common agricultural policy, refused to liberalise agriculture any further. There was also limited commitment from the United States, as it dismissed the pleas from the five cotton-producing states in west and central Africa to eliminate cotton subsidies.