 BY NIRODE MASSON
IDN-InDepthNews Service
GENEVA (IDN) - A leading think-tank has called for a moratorium on preferential trade agreements between the industrialised and developing countries, arguing that such accords curtail the ability of developing countries to deploy effective policies for development.
"These deals exploit the asymmetric nature of bargaining power between developed and developing nations (and) divert trade away from nations with true comparative advantages," says the South Centre, an Intergovernmental Policy Think Tank of Developing Countries in Geneva.
A background paper cautions that rushing to a World Trade Organisation (WTO) deal could strip many developing countries of these tools, and leave them with little in return. In fact, many of the proposals being discussed in Geneva would end up giving private capital greater freedom from government regulation, which is precisely what is needed to weather the storm from the current crisis.
The paper released ahead of the 153-member WTO ministerial meeting Nov 30 to Dec 2 points out that development has yet to find its way back to the WTO agenda. It adds: "This is unfortunate. The organizing principle for revived global trade negotiations needs to be a recognition that the world economy consists of nations at widely differing levels of development."
Developing countries need the policy space to retain, adapt and evolve the kinds of government measures that have been proven to work for development in the developed world, and in other developing countries.
Any negotiation that claims to take development seriously must, therefore, recognize these fundamental asymmetries and address them. To restart negotiations on a pro-development foundation, policy space should be guaranteed in five areas:
First, the US and Europe should agree to honour WTO rulings that have found their subsidies for cotton and sugar to be in violation of existing trade rules that forbid exporting products at subsidized prices. This would give a tangible boost to farmers in West Africa and Latin America and send a strong signal to developing countries that developed nations are willing to honour existing WTO rules.
Second, the WTO should take seriously the concerns by many African nations about taming the highly concentrated and volatile global commodities markets, dominated by agribusinesses that suck most of the value out of these value chains.
Rich nations should also grant poorer countries extensive rights to exempt staples of their local economy such as corn, rice and wheat -- so-called “special products” -- from tariff cuts, and allow them to raise duties when imports surge, the “special safeguard mechanism” U.S. negotiators objected to in July 2008.
Third, for manufacturing, the longstanding WTO principle of “special and differentiated treatment” should be re-enshrined for developing nations. Rich countries should roll back patent laws that impede poorer nations from manufacturing cheaper generic drugs and other manufactured products, and allow selective industrial policy so governments can diversify their economies. What worked for the United States, China and South Korea must not be prohibited by the WTO.
The paper de-mystifies beliefs such as those manifested in a recent study by the Peterson Institute for International Economics suggests that the potential gains from a Doha deal could be as high as $300 to $700 billion annually.
"The more realistic and sobering estimates are still the World Bank 2005 projections of the gains from a 'likely' Doha deal, says the South Centre. The Bank estimated that the global gains in the year 2015 would be just $96 billion, with only $16 billion going to the developing world.
The fact is that the developing country benefits represent a one-time increase in income of just 0.16 percent of GDP (Gross Domestic Product). In per capita terms, that amounts to $3.13, or less than a penny per day per capita for those in developing countries. Not surprisingly, a very small number of people would be lifted out of poverty -- just 6.2 million people brought above the $2/day poverty threshold, 0.3 percent of those living in poverty worldwide.
Declining terms of trade -- the ratio of export to import prices -- is another concern for developing countries. This is a crucial estimate of the extent to which a developing country is moving up the value chain in the global economy, away from primary production and into manufacturing or knowledge-based economic activities. Under a likely deal world prices for agricultural products increase and manufacturing prices decrease slightly or remain unchanged.
According to the Carnegie Endowment for International Peace, these price changes negatively affect the terms of trade for developing countries. For many countries the rise in world prices for imported food and agricultural goods is countered with a decline in world prices for their light manufactured exports, such as apparel. This partly explains the projected welfare losses for Bangladesh, East Africa, and the rest of Sub-Saharan Africa.
In the long run, declining terms of trade undermine developing country efforts to diversify and develop. In the wake of the current crisis, they also can accentuate balance of payments problems in developing countries and deepen the impacts of crises. (IDN-InDepthNews/29.11.09)
Copyright © 2009 IDN-InDepthNews Service
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