CIAO DATE: 2/00

The WTO and Beyond

The South Asia Monitor
Number 16
November 19, 1999

The Center for Strategic and International Studies

 

In the trade negotiations that should follow this month’s World Trade Organization (WTO) ministerial meeting, the United States hopes to complete the Uruguay Round’s drive to unify international trade rules and to extend trade liberalization to new service and high-tech sectors. India’s formal position is exactly the opposite: to reinvigorate special protections for developing countries. The Indian position, however, overlaps with the U.S. view in at least two sensitive areas—eliminating agricultural export subsidies and liberalizing information technology (IT) trade. Given India’s increasing economic dependence on a range of cutting-edge sectors, a pragmatic approach will probably win out, although there may be an extended period of fairly sterile debate before this happens. Other countries of the South Asian Association for Regional Cooperation (SAARC) are paying much less attention to the upcoming WTO meeting, with the exception of Bangladesh, which is looking for support for preserving beyond 2005 the textile quota regime from which its industry has benefited.

 

Multiple agendas:

The outlines of the WTO ministerial meeting to be held later this month in Seattle are unusually fluid. While attention is now focused on the Seattle meeting, the real action will take place afterwards, in negotiations whose broad outlines should begin to be set in Seattle.

The United States wants to complete and extend the work of the Uruguay Round:

• to bring agriculture and services more fully under international free trade rules, relying on sectoral agreements for much of the heavy negotiating;
• to use a sectoral framework for negotiating agreements on certain services and industrial goods;
• to reduce barriers to trade in emerging areas such as e-commerce and biotechnology;
• to integrate labor and environmental standards more fully into trade rules; and
• to continue unifying the trade regime that applies to all countries.

American initiatives aimed at developing countries focus on special regions, such as the Caribbean Basin and Africa, and on the least developed economies. The European Union, recognizing that its agricultural export subsidies will be targeted by many WTO members, wants an integrated final agreement, to ensure adequate compensation outside of agriculture for any agricultural concessions it makes. India’s proposals, aimed at reviving special treatment for all developing countries, were scaled back during and after the Uruguay Round. It opposes bringing labor standards and environmental issues into the WTO and will once again be pushing a labor mobility initiative. Many Indian positions will have resonance with other developing countries, but, as during the Uruguay Round, the developing countries are likely to focus on their specific concerns rather than to act as a bloc.

 

India’s major proposals:

Trade Related Intellectual Property Rights (TRIPS): India does not dispute the need for strengthening some aspects of intellectual property rights protection across borders, but it also wants to strengthen developing countries’ access to technology. It proposes the following:

• new tools to measure developed countries’ record of sharing intellectual property with the developing world (e.g. licensing);
• greater recognition of the rights of member states, as opposed to private patent-holders, in biotechnology. The TRIPS agreement recognizes intellectual property rights to be private rights and incorporates specific member obligations relating to the issue of patenting life forms, micro-organisms, and nonbiological and microbiological processes. India proposes to bring property rights for biological discovery more closely in line with the United Nations Convention on Biodiversity (CBD), which places the authority to determine access to genetic resources with the member states; and
• extending protection for geographical identification of additional products besides wines and spirits, notably Basmati rice.

Trade-Related Investment Measures (TRIMS): The original TRIMS agreement set a timetable for the automatic removal of trade-related requirements placed on investors by the host country. India wants to restore developing countries’ freedom to use some of these tools to align investment with their developmental and financial needs. Its chief proposals are:

• to exempt developing countries from the ban on local content requirements; and
• to renegotiate the transition period for retaining existing TRIMS measures.

Anti-dumping: Anti-dumping measures are intended to neutralize the price advantage of goods exported at below their home market cost. India argues that anti-dumping measures are abused by developed countries to deny access to their markets. Four major ideas appear in a long list of proposed adjustments:

• banning new investigations for 365 days from the date of a finding of non-violation, unless such action has the support of 75 percent of the domestic industry;
• raising the dumping margin below which no anti-dumping duty can be imposed from 2 percent to 5 percent for developing countries; and
• applying equally the general standard of review laid down in the WTO Dispute Settlement Mechanism to disputes in the anti-dumping area (this implies a change in U.S. anti-dumping laws).

Sanitary and Phytosanitary Measures (SPS): In the Uruguay Round, developed members agreed to take into account the special needs of developing countries when designing standards that are too complex or expensive for developing countries to implement. India argues that this special consideration was never taken seriously, and it proposes measures that would engage developing countries in more standard-setting and would give them more time for compliance.

Technical Barriers to Trade (TBT): TBTs differentiate between similar products based on such wide-ranging criteria as production methods, labor standards, animal welfare, environmental effect, and ethical and cultural requirements. India and other developing countries reject the linkage of labor and environmental standards to international trade. India has proposed measures similar to its SPS proposals to deal with the alleged bias built into the TBT agreement.

Services: The General Agreement on Trade in Services (GATS) extended WTO-style free trade obligations to a range of services, many of them in the financial area. Excluded from the agreement is the movement of people. India argues that the opening up of capital-intensive services must be matched by greater access to developed markets by professionals in services of export interest to developing countries, i.e. IT, engineering, and construction. Specific proposals include:

• eliminating quantitative limits on the temporary movement of people;
• waiving the “economic needs” test for sectors of interest to developing countries, and making it more transparent and objective in other cases; and
• listing sectors where visas would be issued automatically for temporary movement.

Agriculture: India is pushing to open up trade in the developed world, while keeping special and differential treatment for developing countries. It proposes:

• a timetable for eliminating all export subsidies by developed countries;
• allowing developing countries to restrict imports and subsidize domestic subsistence and small-scale farming;
• capping the total domestic agricultural support provided by developed countries at an agreed proportion of their total agricultural production;
• phasing out tariff-rate quotas; and
• giving agrarian-dominated developing countries flexibility to protect the livelihood of the rural poor in any new tariff negotiations.

Textiles: The Agreement on Textiles and Clothing (ATC) of the Uruguay Round provided for the phasing out by 2005 of the 40 year-old quota regime for textile trade. India’s proposal would accelerate the phase-out by three years and would restrict importers from using other devices (e.g., anti-dumping actions and rules of origin) to keep out textile imports. This part of India’s agenda is controversial in the developing world. Fellow SAARC member Bangladesh and some other small suppliers are pushing to delay the implementation of the quota phase-out, which they fear might hand over world textile markets to the largest producers, such as China.

 

Pragmatism below the surface?

Despite the clash on the general thrust of trade policy, there are some signs of greater pragmatism at work. India and the United States have made considerable efforts to talk about their respective goals. At least two high priority issues for the United States—information services and removal of agricultural export subsidies—have resonance in India. Rapidly growing Indian IT firms are likely to push the government hard to avoid creating roadblocks to their spectacular export growth. The intellectual property dispute, resolved in principle some years ago, is unlikely to prove a major trouble spot. The Indian government commissioned a year ago a major analysis of its own interests in trade in services, and this is likely to soften its position on some services areas. Passage of the insurance bill, which although not as comprehensive as the United States had hoped it would be, signals the government’s intent to continue with new liberalization measures.

But the real test will come in whatever negotiations follow Seattle. The most successful negotiators in the Uruguay Round were countries that set priorities and came to the table ready to deal. India’s “sunrise industries,” especially in IT, favor this approach. Its business conglomerates and many of its trade negotiators, on the other hand, are more accustomed to doling out concessions in small dollops. If India’s post-Seattle discussions remain primarily a defensive effort to move back to the trade rules of an earlier generation, with their familiar principled defenses of “special and differential treatment”, they are likely to fail while missing the chance to move the world economy forward.