Monday, July 14, 2008

Doha Round: the last mile?

By Humayun Akhtar Khan

After having missed many artificial deadlines, it seems that the Doha Round is probably inching towards closure. It has been almost seven years since Ministers agreed on the Agenda and decided at Doha to launch this Round. This was to be an ambitious development round covering traditional issues, such as cutting tariffs to reforming agricultural policies that distort international trade, further opening up services and improving rules on trade facilitations, anti-dumping, subsidies on fisheries, intellectual property rights and a host of other issues. To achieve international agreement on all these issues, a rather ambitious time frame of three years was set.

However, this round turned out to be no different from the previous GATT rounds where negotiators tried to shelter their own sensitive sectors while ambitiously trying to get access to other countries’ markets. Since every previous round has been longer than its predecessor, it soon became clear that the Doha Round would take at least seven years which was the time taken by the Uruguay Round. Efforts at Cancun (Mexico) in September 2003 to prematurely bring it to a conclusion failed miserably and the negotiations had to be started afresh with a reduced mandate under which three out of four Singapore issues, namely investment, competition policy and transparency in government procurement had to be dropped. Only the issue relating to trade facilitation remained on the table.

Agriculture continued to drive the Round although other market access issues such as industrial goods and services also crept along. Although all 20 or so agenda items have to be negotiated and finalised as a single undertaking, the general view is that once negotiations on agriculture and industrial goods have been completed, other issues would not be problematic.

Recent signals by Pascal Lamy, Director General of WTO, that these issues are in the final stages of cooking up and that a ministerial level meeting is needed to be held at the end of July, means that the time has come to make a deal on these issues. Yet, the history of the Round allows us only guarded optimism. With 153 members, some with divergent views and so many issues still outstanding, it would be no less than a miracle if a final deal could be put together in the next few weeks.

What would be the implications if the ministerial gathering again fails to deliver?

A failure to conclude a deal on agriculture and non-agricultural market access (NAMA) by next month will probably mean the end of the Round. With the United States presidential elections getting so close, it would not be possible for them to engage. Without the active participation by the world’s biggest economy, no one else is likely to make any serious efforts. If the deal is postponed till the new US administration takes office, it is likely that the new administration might seek a re-negotiation of the Agenda. It has already happened in the case of bilateral trade agreements such as the one with Columbia. Unravelling the Agenda would effectively mean the end of the Doha Round.

With the world already going through unparalleled financial crises, with fuel and food prices breaking all records, breaking down of the Round can be catastrophic. We may see countries going back to protectionism. Just as in the past when the Roaring Twenties gave way to the Dirty Thirties because of the United States moving back to protectionism, we may see the growth cycle of 90’s turning in the opposite direction. Such an eventuality would mean sharp fall in business and manufacturing activity and hardship all around.

Why is the Doha Round so important for Pakistan? There is a general perception that Pakistan did not gain much from the previous rounds and the same would happen in this round. It may be true that our gains from the previous rounds were limited. However, our lack of engagement in those rounds was to blame, not the liberalisation achieved therein.

We were interested only in our defensive interests. It was at the end of the Uruguay Round that we undertook some commitments. But here again in the market access areas, we remained very defensive. We agreed to bind our agricultural tariffs at an average of 100 per cent. In industrial goods, we only agreed to bind a little over a third of our tariff rates and even then we only bound those tariff lines where there was hardly any trade. Unlike the rest of the world, we stayed out of Information Technology Agreement which now covers over 97 per cent of world trade in those goods.

The only effective commitment we undertook in 1997 related to telecommunications and financial services.Compliance with the WTO commitments in the telecom sector ended the exclusive right of the majority state-owned Pakistan Telecommunication Company Limited (PTCL). Under the WTO Financial Services Agreement, Pakistan committed to grant the right to establish new foreign banks and bring in more competition. As a result, both these sectors have undergone a dramatic transformation, and have contributed to the high GDP growth since we implemented those commitments in 2003.

It is commonly believed that our textiles and clothing industry has been a loser because of abolition of quotas at the end of 2004 under the terms of the Uruguay Round Agreements. Here again, statistics clearly show that while Pakistan may not have gained as much as China or Bangladesh or some other countries, it has been nevertheless increasing its exports at a steady rate. In 2004, prior to quota abolition, its exports of textiles and clothing to the EU and US markets were $5.432 billion which rose to $6.499 billion in 2007 or by about 6.2 per cent annually. This should certainly have been more if the political stability had been maintained and foreign buyers were at liberty to visit and place orders here.

Even if our gains in the previous rounds were limited, it should not be so for the Doha Round. There are various estimates what the total gains may be. World Bank studies show estimated gains of $287 billion over time whereas Carnegie Endowment for Peace estimates about $168 billion. Whatever the estimates of gains, there is no doubt that the world will be better off if the round is successfully completed. Of course, countries which are better integrated will benefit more than those which remain protected.

For Pakistan, this Round is of special significance. Despite Pakistan being a GSP preference receiving country in its major markets, the average tariffs that our exporters pay are more than 10 per cent as against one per cent being paid by the exporters of developed countries. Its other competitors, such as the least developed countries and other smaller economies, enjoy duty free access under various schemes such as the Everything but Arms (EBA) scheme of the EU or Africa Growth and Opportunity Act (AGOA) and Caribbean Basin Initiative (CBI) schemes of United States.

Therefore, the only way for Pakistan seems to be a successful Doha Round. With a successful round, tariffs in our major markets should come down substantially. All developed countries would have to reduce their tariffs to less than six per cent. In agriculture, our farmers would have a better chance to compete if trade distorting subsidies of rich countries are reduced substantially and brought under more discipline.

In services, Pakistan’s offensive interests lie in getting predictable market access for our Mod-4 temporary service providers globally. Our interests also lie in Mode-1 in the area of Business Process Outsourcing (BPO). Other areas of key interest are the existing rules. We are often unfairly targeted by the EU and even at present anti-dumping duties are being collected from our bed linen exporters. We should seek more balanced rules in this area.

There is almost nothing required of us in terms of market opening. But we have to do unilateral liberalisation so that our industry has access to cheaper raw materials and is also competitive.

The writer, a former federal minister for commerce, was Pakistan’s chief negotiator at the WTO from 2002-07.