By Dipak Basu /New Delhi

The proposal of the recently revived World Trade Organisation’s Doha round of negotiations suggests that developing countries will have to cut their agricultural targets by 36%. Even the most important products of poor farmers would face around 19% cuts.

The proposal does not imply real cuts in huge farm subsidies in the US and EU. Both pretend to effect 70% and 80% cuts in subsidies. Actually, however, there are no real reductions.

The current US subsidy is around $7bn, while a 70% cut would cap its subsidies at $14.5bn. Similarly, according to estimates, EU subsidies would be around 12bn euros by 2014 while the 80% cut would cap its subsidies at 22bn euros.

At the WTO’s Cancun conference in 2003, it was expected that developing countries would be forced to accept a deal, whereby in return for minor reductions in import tariffs and subsidies in the developed countries, they would be forced to accept a regime of the free flow of investments.

The Cancun conference failed mainly because of the combined efforts of India, Brazil and South Africa to stand up against the protectionist developed countries.

The WTO has promised that trade liberalisation will bring benefits to all countries. In reality, the rich countries took full advantage of the opening of markets in the developing ones. Yet they failed to open their own markets. This is particularly clear in agriculture, where subsidies to farmers in the US, Europe and Japan have risen to almost $1bn a day.

Together with other measures such as tariffs and quotas, these subsidies make it difficult for developing countries to compete in the markets of the rich. Even more damaging, they allow agricultural exports from rich countries to drive small farmers out of business even in their home countries. This threatens domestic food security and undermines the export potential.

Developing countries had wanted this failure to be addressed before agreeing to another round of negotiations. However, their appeals were ignored.

Patent rights, by granting temporary monopolies to drug manufacturers, keep drug prices and company profits up.

In 1994, the WHO agreement on “trade-related aspects of intellectual property rights” (TRIPS) mandated that member countries must bring their laws in accord with restrictive standards that maximise the rights of patent holders. Developing countries have proposed a clear declaration from the WHO meeting that “nothing in the TRIPS agreement shall prevent members from taking measures to protect public health”. America, Switzerland and other rich countries have opposed this statement. They are not in favour of any significant change.

In the US, the average tariff rate for imports of industrial goods is 4.9% but the range of variation is between 0 and 350%. In Japan, the average rate is 4.3% (1998), but the range of variation is 0 to 60%. In the EU, the tariff rate is 4.8% with the range of variation being 0 to 89%.

The range of variations is due to specific tariffs on a range of products, which can hide the real degree of protection in the rich countries. Commodities subjected to high tariffs in the developed countries are those products in which the poor countries have a comparative advantage.

The high tariff against the exports of industrial goods from the poor countries cover 63% of all export items. High tariff rates against the export of agricultural products from the poor countries constitute 97.7% of all agricultural export items. That is not all. Tariff rates escalate along with the processing of a natural product. Thus, the idea that the developed countries have already reduced their tariff rates is a myth.

Developed countries have started a strong campaign to include free flow of investments as a condition for members of the World Trade Organisation. It demands that all countries must allow complete freedom to the multinational companies to withdraw investment and to remit profits across the border.

The member countries cannot have any form of exchange control and any control over money or capital flows. Foreign companies would be treated at par with the domestic companies. Subsidies for socially useful industries or sectors in the home economy will not be allowed as these subsidies are against competition.

The host governments will not be allowed to discriminate against foreign companies in the matter of government purchase or contracts. The implication is that foreign investors can in this situation control eventually all natural resources including agricultural land.

It will not allow the home government to direct investments to the socially desirable sectors or to the economically backward regions.

The WTO cannot satisfy all countries all the time; the economic interests of different countries are different. A multinational trade negotiation is bound to fail because of the divergence of interests of the participating nations. Thus, for the developing countries, it is better to have a trade management system whereby each country, not only the developed ones, can pay for its imports in terms of its own currency.

In that case, a developed exporter country would have the obligation to buy from the country to which it is exporting. This will not result in a massive surplus for one country or deficit for another. It will help bring about a balanced trade regime, which will benefit everyone.

The WTO, instead of being an arbitrator and promoter of “free trade”, should be an advisory council to plan the foreign trade system so as to protect the interests of all. — ANN

**** The writer is a professor in International Economics, Nagasaki University, Japan.