As some of you may know, the Doha Round is said to be destined to fail. This was the revolving theme during my International Trade Policy class last semester and I just thought I'd share with you guys a paper I wrote about the Doha Round and policy space. This may be useful to some of you who need to do research in regards to the DDR but it may seem like a whole lot of unfamiliar and complicated jargon to some. You may want to skip this post if it's irrelevant to you :) Also, I am no expert but this was one of the my most researched piece and it got me good marks so it shouldn't be that bad....
INTRODUCTION
The
first multilateral negotiation since WTO’s formation was the Doha Development
Round (DDR), which was launched during the 4th WTO Ministerial Conference in
Doha, Qatar in November 2001 (Senona, 2009) . Days where developing nations took a back
seat and allow bigger powers like United States (US) and European Union (EU)
drive negotiations and set the agenda were long over (Steger, 2007) . As the majority of
WTO members are developing nations, an ambitious and comprehensive work
programme titled the Doha Development Agenda was established during the DDR,
with development being the centre of the round more than trade liberalization (Huang, 2008;
Senona, 2009). The DDR stresses on special interests and needs of developing
countries which revolve around agriculture, market access for non-agriculture
products, trade in services, WTO rules such as dispute settlement, intellectual
property rights and issues regarding implementation (Huang, 2008). The DDR was
scheduled to conclude in January 2005 but unfortunately, deadlines were missed
with negotiations still underway and results were considered elusive (Deb & Al Amin, 2011;
Senona, 2009). The main problem in DDR is the inability to meet all
expectations according to everyone’s satisfaction and because it covers a wide
development agenda in a single undertaking, its failure will generally damage
the global economy (Das, 2008; Senona, 2009). The purpose of this
paper analyses certain issues in the DDR in regards to Ha-Joon Chang’s
arguments of policy space while looking into agriculture and non-agriculture
market access negotiations. In addition, this paper also examines issues in the
DDR like the Trade Related Intellectual Property Rights (TRIPs) agreement and
their impact on social welfare in developing nations.
The Doha Development
Round in light of policy space arguments
Although WTO promotes trade
liberalisation and greater market access through removal of barriers to trade,
it is not entirely beneficial for developing countries. Opening trade will automatically improve
welfare through producing goods and services according to comparative advantage
inside the free market economy but at the expense of developing nations
(Senona, 2009). This form of opening up
trade is what Friedman (2000) describes as “The Golden Straightjacket Rule”,
where a country must adopt golden rules of eliminating tariffs, removing
restrictions on foreign investments, increasing exports, shrinking state
bureaucracy, opening banking and telecommunications sector among many. The
“golden” rules however, work to grow economies but narrows their economic
policies and political power with almost no room for tailoring (Friedman, 2000) . Since WTO came into play, there are apparent
benefits from trade liberalisation, such as globalisation of supply chains,
increase in intra-firm and intra-industry trade volumes and rise in foreign
direct investments (Hoekman & Nicita, 2010) .
However,
Chang (2007)
argues that “the golden straightjacket” theory is a fallacy because trade
liberalisation encouraged by developed countries, does not benefit developing
countries. Shafaeddin (2010) agrees that while developed countries would gain
considerable market access to goods from developing countries, particularly
manufactured goods, developing countries would lose its opportunity to
diversify the export structure of its economies and develop their industries.
He adds that developing countries do gain some market access to products they
have no comparative advantage in, but this is at the expense of their long run
development. Therefore, necessary policy space should be allowed to protect certain
industries and gradually allow liberalization once the industry reaches
maturity (Shafaeddin, 2010) . The DDR calls for
the development of policy space that allows developing countries to apply policy
measures, such as protection of SMEs and infant industries, diversifying
products without international competition and addressing infrastructure
deficiencies and supply constraints to take advantage of market access
opportunities (Senona, 2009). In addition, Chang (2007) points out the
hypocrisy from developed countries because history shows that developed their
country from practicing protectionism.
Senona (2009) agrees this is a well-documented fact where advance
countries have used protectionism to industrialize. Thus, WTO rules should
allow for developing countries to follow suit. The following looks into policy
space issues in agriculture and non-agriculture negotiations in the DDR.
Agriculture
policies and the Doha Round
Agriculture is one of the most
highly protected areas of international trade, and should remain that way, at
least for developing nations. Unlike other parts of international trade,
agriculture is still defined by tariffs, quotas, subsidies and other types of
government protection and only account for 8% of world trade (Beierle, 2002;
Das, 2008; Bawuah-Edusei, 2006). Trade liberalisation not only affects
major farm exporting countries like Brazil, Argentina and Thailand but also the
poorer ones like Mauritius and Caribbean states which are dependent on limited
commodities like sugar, rice or cotton and mainly protected by OECD countries
through quotas (Messerlin, 2005) . In the DDR,
developed nations are seeking to achieve agricultural liberalisation for
greater market access while rising developing powers are looking for agriculture
trade policies that promote economic development and food security (Beierle,
2002). Specifically, the DDR is pushing for certain levels of tariff reduction
in agriculture but ultimately, the effects will be determined on the extent of
exemptions invoked by members (Hoekman & Nicita, 2010). For instance,
during negotiations in July 2006, Emerging Market Economies (EMEs) like Brazil,
China and India sought exemptions for farm tariff cuts but was criticised by US
that they were trying to dodge legitimate trade liberalisation (Das, 2008).
From
the US perspective however, as a major exporter of agriculture products, US
farm groups realised that global reform of farm policies and reduced barriers for
agriculture products could bring substantial benefits to the agriculture sector (Jabara, 2005) . On that, US have
raised concerns in the DDR about the July 2004 Framework because developing
countries will be eligible for flexibility in regards to food security and
other concerns (Jabara, 2005). This led US to propose different bands of tariff
cuts for developing and developed countries to meet expectations of their
agriculture producers for greater market access (Jabara, 2005). Messerlin (2005) supports by saying
negotiations should not revolve around food security, effects of higher priced products
and special safeguard for agriculture issues as liberalisation have huge
benefits for both developed and developing nations. Diaz-Bonilla, Robinson, Thomas, &
Yanoma (2002) state that developing countries could also benefit
from agriculture liberalization as it plays to their comparative advantage,
with benefits for exports, economy and rural employment. For instance,
countries like China and India which comparative advantage is in
labour-intensive products could export these products and import land-intensive
agriculture products from countries like US that are equipped with modern
technology which lowers cost (Lin, 2000; The Economist, 2010).
While
both parties have made relevant justifications, there is still an obvious
mismatch in objectives with the developed seeking market access and the
developing wanting more policy space and this led to many years of unresolved
negotiations in the DDR. However, when
we look into history, big powers like US and EU has shown a long history of
domestic agriculture and textiles protection (Beierle, 2002; Das, 2008). Hence,
it seems unreasonable for developed nations to pressure developing nations into
liberalizing their agriculture sector as they themselves have been practising
protectionism in agriculture. For instance, EU provides export subsidies under
their agriculture support policies and although they have reduced support in
2008 from rising agriculture products globally, these subsidies re-emerged
again in 2009 and are expected to be on the rise (Hoekman & Nicita, 2010).
Meanwhile,
US have also been protecting their agriculture industry through domestic
reforms like the 1996 Federal Agriculture Improvement and Reform Act and the
2002 Farm
Security and Rural Investment Act
which provides subsidies for farmers (Messerlin, 2005). For
example, their cotton industry was protected through subsidies which led to
high paid farmers that eventually contribute to overproduction and low cost
exports thus driving down world cotton prices (Bawuah-Edusei, 2006) . As a result, other
cotton producing countries like Africa were unsatisfied, as this made cotton
prices drop in their country due to competition. This led to these issues being
raised during DDR negotiations. Unfortunately, US were reported to deliberately
engineer the collapse of the cotton issue during the July 2008 Mini-Ministerial
meetings (South Centre, 2008). Every time African and non-African cotton
producing countries brought up the cotton issue; they were told that
discussions were running in parallel in an attempt to limit negotiations (South
Centre, 2008). Having
said that, since bigger powers like US and EU were also using domestic
protectionism in agriculture; it seems fair that smaller ones should do the
same. However, trade liberalisation should not be ignored completely, as what
Chang (2007) suggested, the playing field should be tilted and there should be
a combination of domestic policies amidst open trade.
Non-agriculture
“Infant Industry” policies and the Doha Round
As more developing countries starts
to manufacture their own products and establish new industries ranging from
textiles to automotive to even airlines, non-agriculture issues became
prevalent in the DDR. This is related to Chang’s (2007), “infant industry”
argument where he says it is critical for developing countries to protect its
new industries before being able to compete with foreign rivals. He pointed out
that developed countries like Japan, United Kingdom, EU and US adopted this
approach in their early stages of development through subsidies, tariffs,
patents, and so on. This preservation of policy space is what developing
countries are trying to fight for in the DDR through infant industry protection
and maintaining duties in sensitive sectors (Das, 2008).
In
the DDR, there were evident irregularities between proposals made by the
developing countries during Non-agriculture Market Access negotiations and the
Doha Text contents, which disadvantage industrialization of developing
countries, especially those in initial industrialization stages (Das, 2008; Shafaeddin,
2010). For example, the DDR tries to implement the Swiss formula tariff cut
which does not take into account the differences between developed and
developing nations (Akyüz, Milberg, & Wade,
2006) .
Such irregularities give an impression
that there was never an intention for a development-oriented round and in fact,
developed nations turned it into a ‘market access’ round (Shafaeddin, 2010).
This is evident when US and EU pushed for an ‘anti-concentration’ clause during
the 2008 Mini-ministerial which discourages countries from using permitted
flexibilities to protect entire sectors (South Centre, 2008). Developing
countries led by Brazil, China, India, Argentina, South Africa, Venezuela and
others rejected this as protecting certain industries from imports is crucial
and an anti-concentration clause would severely limit the already constrained
flexibility they have now (South Centre, 2008). The EMEs have made it clear
that they are unwilling to abruptly lower their trade barriers as they fear
these barriers will wipe out their newly established industrial sectors (Das,
2008).
Furthermore, in a research done by Zahrnt (2009)
on WTO delegates and employees, it is confirmed that economic policy space
places a greater importance on developing countries as opposed to developed
countries. For instance, accepting WTO disciplines will limit a country’s
economic policy in areas such as fostering infant industries as it is not
allowed under the Trade Related Investment Measures (TRIMs) (Shafaeddin, 2010;
Zahrnt, 2009). Although infant industry protection is essential to ensure new
industries become competitive progressively, there are some criticisms about
it. Zahrnt (2009) mentions in terms of implementation, some governments lack ability
to identify suitable companies that could increase competition via low cost and
reap high profits. Zahrnt adds that governments are also unable to convincingly
commit to end the protection. This is in line with Chang’s (2007) comment that
some governments can safeguard infant industries too much, like overprotective
parents. However, as what Chang also brought up, having overprotective parents is
still better than having no parents at all. This is apparent when developing
countries were growing much faster back when they used allegedly “bad” trade
and industrial policies in the 1960-80s, as opposed to so-called “good”
neo-liberal policies in the following two decades (Chang, 2003).
Evidently,
when Brazil adopted the “Washington Consensus” in the 1980s and implemented
trade liberalisation, market access and privatisation of state-owned
enterprises, it did not achieve high rate of economical growth nor
substantially improve their inheritance of asset and income as well as poverty
levels which it was supposed to do (Amann & Baer, 2002) . However, this does
not suggest that developing nations should have high tariffs for every sector
indefinitely, but instead, have the option to use tariffs selectively when
required for industrial upgrading (Akyuz, Milberg & Wade, 2006). This is
consistent with Chang (2003) argument that
some space should be allowed alongside WTO rules to permit some form of infant
industry protections via tariffs, subsidies and more.
The Doha Development
Round in light of social welfare arguments
While negotiations in the DDR by
developing countries seem driven towards development of their economy, other crucial
issues are at hand such as the improving their peoples welfare with better
medical and food aids. Chang (2007) has argued that free trade policies are not
beneficial for the poorer countries. He says that besides allowing developing
countries to protect via subsidies and stricter regulations on foreign
investment, there should be less stringent Intellectual Property Rights (IPR) so
they can “borrow” technology from richer countries. These “borrowed” technology
could be used contribute to welfare of their society in areas of combating
life-threatening illnesses such as HIV/AIDS.
The following looks into the TRIPs agreement and poverty issues in
developing countries.
TRIPs
and The Doha Round
As mentioned earlier, TRIMs
agreement disallows developing countries to support infant industries but in
contrast, TRIPs agreement protects IPR which benefits developed countries by
protecting their infant industries with new technologies for over 20 years (Shafaeddin,
2010). This obvious double standard is apparent when a US representative said
IPR protection is important to drive technological change and incentives on
IPRs are important else it will delay or shrink their technological progress (Shafaeddin,
2010). As a result, developing countries were given 10 years to comply with the
TRIPs agreement which many were reluctant (Barbosa, 2007) . Fortunately, the
Doha Ministerial declaration 2005, attempted to rectify the imbalanced
“pro-rich” TRIPs agreement by offering a higher level of protection for
developing countries in obtaining vital medicine to protect public health
(Huang, 2008). This includes obtaining new rights, overriding medicine patents
for severe public health threats such as AIDS and protection of traditional
knowledge and medication (Beierle, 2002; Huang, 2008). For instance, TRIPs
Agreement will enable countries with zero or insufficient manufacturing
capabilities to import generic versions of patented pharmaceuticals (Yu, 2008) .
Although
this appears to be beneficial, this ‘special arrangement’ comes with a hidden
term. It only applies to affected countries and those part of a regional trade
agreement, which is practically limited to Sub-Saharan Africa countries (Yu,
2008). These African countries have been actively participating in negotiations
because the conclusion of TRIPs is particularly crucial as it will save
millions of lives suffering from AIDS, Malaria and other diseases in their
country (Bawuah-Edusei, 2006). However, they are not the only ones affected and
it seems unjust to other developing countries also affected by same life-threatening
diseases. For instance, Arab countries that were less active during
negotiations were not successful in receiving flexibilities and incorporating
them into their national policies (El-Said, 2010). Meanwhile, bigger voices
like Brazil led an alliance of South Africa, India, the World Health
Organization and several universal NGOs to confront multinational
pharmaceutical companies lobbies, and won support to interpret TRIPs as
prioritizing public health over economic interest (Barbosa, 2007).
Therefore,
Yu (2008) suggests that BRICS countries (Brazil, Russia, India, China and South
Africa), should collaborate with other developing countries to promote access
to essential drugs in the less developed world due to their larger voice. Each one
would benefit in some way from a less stringent IP protection. For instance,
India would be able to produce generic drugs at a lower price without patent
fees thus making it affordable to their citizens. Brazil would benefit from
compulsory licensing of much needed HIV/AIDS medication and China can reduce
counterfeiting and piracy issues that tend to happen when goods become
expensive from high IP protection (Agarwal & Wu, 2004; Hoekman &
Kostecki, 2009; Yu, 2008). Nonetheless, there is much
difficulty for developing countries in obtaining some flexibility for complying
with IP protection. Ironically, US itself was an importer of technology back in
early 1800s but they seem to be going against their very own policies now, much
to their benefit (El-Said, 2008). There is no doubt that protection of IP
rights should be allowed for encouraging continuous technological growth and
innovation. However, some flexibility should be allowed especially for
developing countries to access these technologies and medications for the
benefit of their citizens welfare, at least till they are capable enough to afford
such patent fees.
Poverty
Issue and the Doha Round
Lastly, poverty is a critical widespread
issue among developing countries especially the least developed ones. Although it
seems there is no direct relation between poverty and international trade, the
truth is, trade liberalization may heighten inequality, poverty and long term
unemployment (Zahrnt, 2009). The results from increased demand for high-skilled
labour, which raise wages but concurrently increases unemployment of low-skilled
labour which also increases income gap between poor and rich. (Zahrnt, 2009). Ghana for example, whose
majority of employment comes from agricultural sectors, was observed that rise
in employment from trade liberalisation under their Economic Reform Program, was
not equally distributed across sectors causing high poverty incidence in the
agriculture sector (Bawuah-Edusei, 2006; Ocran & Adjasi, 2009. Though
there are domestic government policies to support the poor, most are funded
partly through tariffs (Zahrnt, 2009). Therefore by removing tariffs,
governments also lose part of their finances to help the poor. Lofgren & Richards (2003) emphasised
importance for these countries to maintain their domestic policies as the
capacity to provide sufficient food supply through imports or domestic
production is linked to government policies.
In
the DDR, developed nations have promised to support the developing economies,
especially low-income ones and was believed to help realize the Millennium
Development Goals, particularly on eradicating global poverty in half by 2015
(Das, 2008; Bawuah-Edusei, 2006). However, nobody can end hunger for others by
simply providing food aid as hunger ultimately results from economic and
political constitutions that traps people in poverty (Lappe et al. 1998). To
illustrate, during the Cold War, US provided aid to Soviet Union to alleviate
poverty and free them from “communist threat”. Instead, what eventually emerged
was promotion of free trade which created new markets for industrial exports
and agriculture goods, plus thousands of jobs for the Americans (Lappé, Collins, Rosset,
& Esparza, 2000) .
Therefore,
Bawuah-Edusei (2006) suggests that countries facing poverty, must actively
participate in the DDR to strengthen the required competitive capacities,
improve transportation infrastructure and include regulatory frameworks and
domestic policies to prevent being poorer off when other developing countries
start overtaking them from increased market access. This is essential in
addition to aid from developed countries, as some domestic policies are needed
for governments to ensure continuous improvement of society welfare from their
end.
CONCLUSION
Although Friedman’s “Golden
Straightjacket” should be donned to improve economies and gain greater market
access, there should be room for tailoring to suit the different “sizes” of
different nations. Like humans, every country come in different sizes, shape
and most importantly, different needs. The needs of developed nations revolve
around increased market access while the developing nations emphasizes on
growing economies and developing new industries. On that basis, the developed
and developing should not be wearing the same “outfit”. However, this does not propose
removing trade liberalisation entirely as countries do gain from trading based
on comparative advantage. The best solution here would be adopting the Bretton
Woods compromise or global governance approach instead of “the Golden
Straightjacket” as it allows more flexibility for policy space to be
introduced. The DDR is currently the best platform to fight for much needed
policy space. As examined here, some protection of agricultural products, certain
infant industries and less stringent IPRs could all play to the benefit of
developing countries as they slowly reach maturity. In addition, allowing some
policy space provides society welfare gains through easier access to patented
drugs and also aid for poverty. In a nutshell, having policy space within trade
liberalisation is essential for developing nations and the developed countries
should understand this since they became industrial using the same
protectionist methods. As what Chang (2007) has said, “The secret of success
lay in a mix of protection and open trade, government regulations and free-ish
market”.
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