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No Agreement Is Better Than a Bad Agreement

Tuesday, 12 July 2011 04:51 By Mehdi Shafaeddin, Triple Crisis | Op-Ed
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The Doha Development Round (DDR) negotiations at the WTO have reached a deadlock. Various views have been expressed on the issue in the media (including in CUTS-Trade Forum). Some believe that the DDR talks are ready for burial (eg Susan Schwab, former USA trade representative). Others, including Mr. Lamy (Director-General of WTO), proposed a plan "B" as an "early harvest" – agree on some LDCs issues by the end of the year and on continuing negotiation on other issues. Some others have argued that the lack of agreement on DDR will be at the cost of the credibility and legitimacy of the WTO. Yet others have been in favour of separating the credibility of the WTO from the DDR issues. Professor Jagdish Bhagwati, a guru of free trade, has proposed that the death of Bin Laden is an opportunity to close DDR, which started after September 11, successfully by the end of 2011! And life without the Doha could destroy the hope for fair trade.

Mr. JP Lehman correctly regarded Bhagwati's comment as pure "fantasy". So do I. And I do not intend to dwell on it. More importantly, to my knowledge, nobody has thoroughly analyzed the reasons for the deadlock in the negotiations. Following the collapse of the talks for the preparation of  the new Round in Seattle in 1999, Jeffrey Garten, a distinguished scholar, said that "What Seattle showed was that there is a lot more angst beneath the surface" ("International Herald Tribune", 9 December 1999). Despite the initiation of DDR, such angst, I believe, has continued because of the lack of credibility in the GATT/WTO rules and in the position of its main developed country members in the process of the negotiations during DDR.

First, the GATT/WTO rules suffer from asymmetries as well as contradictions between the agreed rules and their implementation by main developed countries. Second, as far as DDR is concerned wealthy nations have not "genuinely" pursued a development agenda despite the fact that it was supposed to be a Development Round. Regarding the latter point, I have already discussed the issues related to NAMA and outlined their negative implications for the industrialization of developing countries in an earlier blog. Here, I will provide a few examples of the contradictions in the GATT/WTO rules and exceptional clauses in favour of developed countries, which remind one of the "animal farm" story. Further I will outline contradictions between the agreed rules and their implementation by developed countries.

1. While the influence of the governments in the flow of international trade has to decline, the power and influence of transnational corporations (TNCs) in the flow of international trade is allowed to increase. And according to ActionAid International TNCs of developed countries, which account for 80 per cent of the world's biggest enterprises, have undue influence in the writing of global trade rules. The annual expenditures of their lobbyists in Brussels amount to 750 million to 1 billion dollars (Shafaeddin, 2010).

2. While trade in manufactured goods has been subject to some liberalization, agricultural exports have been exempt due to the insistence of developed countries. They justify support of their agricultural sector for social (support of the farmers) and strategic (food security) reasons. Yet it is not clear why social considerations are relevant to their farmers, some of whom have incomes of $1.5 million, but they are irrelevant to farmers of low-income countries with incomes of $1 a day.

3.  Even imports of manufactured products of developing countries (mainly labour intensive items such as textiles and clothing etc.) had been restricted until recently.

4.  According to the Uruguay Round Agreement (URA), support for infant industries are not allowed under TRIMs; yet, developed countries benefited, under TRIPs, from protection of their new (infant) technology for 20 years.  

Developed countries have not been implementing fully the rules to which they have agreed in the URA. Here are some examples: (1) The Textiles and Clothing Agreement was implemented only partially (Shafaeddin 2005). (2) Targeted export subsidies, tax holidays and industrial policies, which are restricted by URAs, have been used frequently by developed countries. In 1999, 821 different income tax credit schemes existed for promoting investment in the 50 states of the US (Reinert, 2000, 18-19).

5.  Some developed countries, particularly the USA, did not even comply with verdicts of the Dispute Settlement Body of WTO. The case against payments of cotton subsidies to farmers by the US government is an example Cotton is a major export of a few low-income African countries. Unjustified anti-dumping measures and zeroing practices (according to which negative dumping margins are set equal to zero) is another one (Shafaeddin,2010).

Not only should developing countries not worry about burying the DDR, but they should also aim to revise the GATT/WTO agreements to make them development-friendly.

Mehdi Shafaeddin

Mehdi Shafaeddin is a development economist. Mr. Shafaeddin is a international consultant affiliated with the Institute of Economic Research, University of Neuchatel, Switzerland.


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