The Telegraph
Since 1st March, 1999
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Developing an interest

Cancun is the name of a place in Mexico where the next ministerial meeting of the World Trade Organization is going to take place from September 10. The current round of WTO talks which started in Doha is still far from over. The process of negotiations among the 146 WTO member countries is a continuous one carried out by officials and experts at the Geneva headquarters. The ministers meet at periodic intervals to discuss and ratify, where possible, the draft proposals prepared through intense backroom negotiations and lobbying. The Cancun ministerial is of particular significance since a lot of doubt has arisen about the Doha round of talks. It is still not clear whether it will succeed in taking care of the development concerns of less developed countries.

The most important objective of the WTO is to gradually remove the restrictions on global trade in a non-discriminatory manner through successive rounds of talks among the member countries. The biggest advantage of being a member of the WTO is to enjoy the most favoured nation status. This implies that if, say, the United States of America reduces import duties on Italian shoes, then the same reduced duties will also apply to Indian shoes going into the US market. India will get this advantage as a matter of right. It is for this reason that China was desperately trying to be a member of the WTO and the US and its allies were keeping China out as long as possible. Before China became a full-fledged member of the WTO (which was only recently), the MFN status was given to China but it could be withdrawn by the US on any pretext such as human rights violation. That is no longer possible as China is a full member now.

If India comes out of the WTO, as some trade unions and social activists sometimes advocate, India will lose the MFN status and would have to negotiate bilateral trade agreements with all its trading partners. Strong and powerful nations like the US will enjoy a big advantage in one-on-one bargaining with an economically weaker country like India.

Another major gain from a WTO membership is that if a trade dispute with, say, the US cannot be amicably settled, then India can take the dispute to the WTO court, whose ruling will be binding. In recent years, the US has lost a number of such cases involving disputes with developing countries. In other words, the power of the US to take unilateral actions against its trading partners has been significantly curtailed after the formation of the WTO with enhanced statutory powers. So, countries like India have a lot to lose by coming out of the WTO.

This does not mean that all the provisions of WTO agreements are to the benefit of India. The biggest loss is in the area of intellectual property rights provisions which India had to accept as part of the earlier Uruguay Agreement. Now, from January 1, 2005, India will have to recognize product patents in addition to process patents. For example, a medicine can be produced by a number of alternative processes, each slightly different from others. So, even when a drug and some processes were patented by a US multinational company, an Indian company was able to manufacture the same drug in India by a slightly different process (which was virtually “copying”) and sell the drug at a substantially lower price, without violating patent rights. That would no longer be possible. As a result, the prices of patented drugs would go up. Further, the patent period has been increased from 7 to 20 years which would extend the monopoly right to the inventor company several folds. However, many Indian companies have already worked out strategic collaboration arrangements with multinational drug companies — such as producing bulk drugs at a low cost for them which are then being sold under MNC brand names all over the world. This way several major Indian drug companies like Ranbaxy, Dr Reddy’s Laboratories and so on are thriving. Nonetheless, the consumers of essential drugs in India may well suffer due to price hikes of new patented drugs.

What are some of the major issues at Cancun' Many developing countries raised the point at Doha that some exceptions will have to be made to the new patent regime so that people in such countries can have access to life-saving drugs at affordable prices. The developed countries, the US in particular, have so far agreed to make an exception in the case of epidemics like AIDS, malaria and tuberculosis but not for any other disease. The position is also not clear whether countries (like Botswana, which do not have drug manufacturing capabilities, can import cheaper generic drugs from countries like India in the case of nationally declared epidemics. US drug manufacturing companies want some safeguards to protect them against diversion of drugs meant for Botswana finding way into other markets. More negotiations and some give and take may take place on these issues at Cancun.

In agriculture, the major bone of contention continues to be the elimination of huge production and export subsidies given by the developed countries like the European Union, the US and Japan. These subsidies give their farmers an undue advantage and adversely affect the relative competitiveness and income of farmers in many poor developing countries. Though both the US and EU blame each other for unfair agricultural policies, so far no significant concessions have been made by either of them. India also wants to protect its farmers by not agreeing to any further reduction in agricultural import duties, now that all import quotas have been abolished.

Then there are the “Singapore issues”, so called because those were first brought into the agenda at the talks in Singapore. The most contentious issue here from the developing country perspective is the attempt (spearheaded by the EU) to negotiate a multilateral agreement on investment through the WTO. Countries like India argue that there cannot be a uniform set of rules governing foreign investment for all countries. Historically, countries at different stages of development have practised different kinds of restrictions on foreign investment to promote economic development. In future, too, they should have the freedom to decide what kinds of foreign investment are to be allowed or encouraged.

Moreover, the ambit of the WTO should not be extended to more new areas like foreign investment. In fact, even free trade economists feel that bringing issues like royalties from patents or foreign investment dilutes the original focus of the WTO, and makes it more difficult to negotiate further trade liberalization. The developing countries further argue that developed countries are only interested in liberalizing international capital movements. There is no corresponding interest in relaxation of work-related temporary labour movements from developing countries. On the contrary, in recent times getting work permits is becoming increasingly difficult in the US and EU.

In India, for many industrial products, our actual (or applied) import duties are less than the WTO-bound rates which are the maximum permissible rates. So, even if India has to accept some reduction in bound rates as part of the negotiations, most Indian industries will not feel the pinch. Thus, India has some bargaining leverage here, without adversely impacting its producers.

Finally, a word on the slippery concept of national gains. For example, if Indian farmers are able to export more foodgrains, the farmers gain but Indian consumers lose as a result of domestic prices catching up with higher international prices. This makes the calculation of national gains all the more difficult, never mind what the lobbyists say. Which means that it may be still some time before the impact of the likes of Doha and Cancun can be precisely gauged.

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