| In troubled waters
Despite the much-publicized global trade liberalization achieved under the World Trade Organization (or its previous incarnation, the general agreement on tariffs and trade), protectionism in the West is once again showing its ugly face. At the same time, the countries in the West spare no efforts to preach the virtues of free trade to the rest of the world.
Consider a few recent developments. All these have taken place subsequent to the multilateral trade negotiations that started at Doha in November 2001. In this millennium round of talks, the rich countries promised to make efforts to meet the demands of the developing countries, particularly in the areas of agriculture and textiles. One major criticism by the developing world was that the developed countries have been dragging their feet in implementing what they had already agreed to do. In particular, to gradually reduce agricultural subsidies and move to quota-free trade in textiles by 2005. Further, the 20-year patent period for both product and process patents codified in the Uruguay agreement has been too restrictive for the developing world and they need some exceptions to take care of their public health and development needs. But, what happened then'
First, in March 2002, the American administration unilaterally raised import duties on a variety of steel products to protect American steel companies from bankruptcy. Europeans threatened retaliatory action, but the United States of America has not yet relented. Indian producers of steel were not directly affected since they were not big sellers of the specified categories of steel products in the US market. But they are apprehensive that producers in other countries, once they lose their markets in the US, will try to dump their products in other markets, including India’s. So, Indian producers will be hit indirectly.
Next came the farm subsidy hike in the US. Until recently, the US was the main fighter in the developed world for freer trade in agriculture and was often at loggerheads with the European Union members over this. In 1996, the US reduced some farm subsidies and partially delinked subsidies from production and prices, thereby making them less trade-distorting. For example, when an income subsidy is given to a farmer for not growing crops, it provides higher income to the farmer but, unlike the support price, it does not directly give the domestic farmer a price advantage over foreign producers or an encouragement to produce more. In this sense, it is less trade-distorting.
All these were reversed when this year’s US farm bill promised to increase federal subsidies to farmers by more than 80 per cent over a 10-year period. Moreover, for some important crops like soybeans, wheat and corn, the new payments would be linked more to production and prices — a clear reversal of the earlier trend. This goes against the spirit of the Doha round of talks where liberalization of trade in agriculture and textiles were the two major concerns of the developing countries.
The US argument is that EU and Japan are bigger protectionists in agriculture and hence, the US has the right to raise its subsidies. The US argues that its trade-distorting farm subsidies are well within the Uruguay round ceiling of $19.1 billion. The corresponding figures for EU and Japan are $62 billion and $31 billion respectively. Along with the hike in farm subsidies, the US has floated a proposal before WTO negotiators to eliminate all export subsidies and reduce world-wide tariffs and trade-distorting domestic support for agriculture over a five-year period. Some think that the US is raising its subsidies now so that it can reduce them later at the global negotiating table, without hurting their farmers. Whatever may be the motive, the magnitude and impact of agricultural subsidies in the Western world on the poor farmers of Africa and Asia are indeed staggering.
The domestic price support measures are keeping agricultural prices artificially high at home and creating a glut in the market. Import duties and quotas are keeping out competition from cheaper imports. Finally, export subsidies are enabling the less efficient farmers of developed countries to penetrate the markets of other countries. According to one estimate, $350 billion in subsidies (not all of which are trade-distorting) is being paid annually by the US, the EU and Japan, the combined value of which is seven times the global aid to poor countries. This is causing a loss of $50 billion of potential agricultural exports from poor countries each year which is equal to the annual global aid to such countries. The benefits of the subsidies accrue mainly to the richer farmers. Sixty per cent of American farmers get no subsidy at all, and 75 per cent of subsidy goes to the richest 10 per cent of the farmers.
How about the EU' A WTO study says that in clothing and textiles, the EU has lifted restrictions on only 20 per cent of the goods placed on the restricted list in 1990. Restrictions on the remaining 80 per cent of products would be eliminated only by the end of 2004. This has created strong resentment in countries like India who feel that the spirit (if not the letter, since fine prints in the agreement are often subject to interpretations) of the Uruguay round is being violated. While the EU’s simple average tariff on most products was at 4 per cent, the tariff on agricultural products remained four times high at 16 per cent.
According to the estimates of the Organization of Economic Developing and Cooperation, farmers’ subsidy as a percentage of gross farm revenue stands at 35 per cent for the EU, 59 per cent for Japan and 21 per cent for the US. Very recently, the EU has put up a proposal for reforming its common agricultural policy. Its main thrust is to cut off the link between subsidy and production and direct agricultural subsidies to environmental and rural development projects. It also plans to gradually divert subsidies away from the largest firms by first putting a cap on payments to the biggest farmers and then gradually reducing it. It remains to be seen how far these reforms can be carried through in the face of vehement opposition from influential farmers’ lobbies, especially in France.
The basic motivation behind the reform proposal came from the planned enlargement of the EU to include some east European countries like Poland, Hungary and the Czech Republic. If the CAP is extended in its present form to the big farm sectors in the new member countries, the EU budget may go bankrupt. Already nearly 50 per cent of EU money is being used up to maintain the CAP. Moreover, both EU and the US are trying to convince the developing countries — at least through their proposals — that they are trying to accommodate some of their concerns in return for their acceptance of investment and intellectual property rules which would primarily benefit the big corporations in the rich countries.
Apart from governments, big companies also use various devices to keep out cheaper products from the developing countries. For instance, under present US laws, a maker of a brand-name drug can secure a 30-month delay in federal approval of generic drugs by alleging infringement of its patents. The generic drugs, mostly manufactured in countries like India, are cheaper and are usually equally safe and effective. But this provision is often abused by the big companies by filing new patents for brand-name drugs already in the market which gives them a further 30-month reprieve from cheaper generic competition. Only very recently, some US congressmen have woken up because these practices are artificially hiking up costs of medical treatment to their voters.
What are the lessons, if any, from all these' Only this, that the developed countries will accommodate the concerns of third world only to the extent that it coincides with the interests of their domestic constituencies. But is this surprising any more'