Debunking myths around the WTO

Thursday, December 08, 2005 3:58 PM by Dirk Willem te Velde

With the 6th WTO ministerial at Hong-Kong less than a week away, there are a surprising number of trade-related ‘myths’ still in circulation. Journalists and researchers got together at a media roundtable held at ODI yesterday (7th December) to talk about the issues and to look at topics that deserve more attention. For more on the WTO: Towards Hong Kong visit the ODI portal.

Commonly held myths on the WTO

1. Common Agricultural Policy (CAP) reform and agriculture liberalisation under the WTO will be the solution to poverty in the poorest countries
2. The WTO forces liberalisation of the manufacturing sector in the poorest countries which will cause deindustrialisation
3. the WTO forces privatisation of essential services
4. the WTO is dominated by the interests of the US and EU alone.

Myth-busting

A closer examination of these arguments, however, shows that these myths are, generally speaking, incorrect.

MYTH ONE – agricultural liberalisation as panacea: But reduction of OECD agriculture subsidies and a cut in agriculture tariffs have mixed impacts. It is likely that only a few major developing countries (Brazil, Thailand among them) and several developed countries will gain from agriculture liberalisation. Least Developed Countries (LDCs) on the other hand stand to lose, perhaps with some exceptions such as the cotton producing countries in West Africa. The LDCs may lose because of preference erosion and expected price rises of imported food products. They also tend not to have the right capacity to engineer a quick supply response. The overall income effects of agriculture liberalisation are likely to be small, though significant for some countries.

MYTH TWO – manufacturing liberalisation = deindustrialisation: But Negotiations on Non-Agriculture Market Access (NAMA) do not require any tariff cuts from LDCs, and while they could require cuts in bound tariffs in other developing countries, they do not always amount to real cuts in applied tariffs. Regardless of the actual cuts, phased liberalisation is good for processors and consumers. But the debate on this, while important, misses the point on what the effects that matter are. Many preference-dependent countries are expected to lose, not because they themselves have to reduce tariffs, but because other countries reduce most favoured nation (MFN) tariffs, which may cause difficulties for the industrial sector in preference-dependent countries (e.g. sub-Saharan Africa). Further, trade policies form only one element in building up industrial capabilities, alongside appropriate human resource and technology policies.

MYTH THREE – enforced privatisation of essential services: But the existing negotiations approaches (involving request/offer procedures) of the General Agreement of Trade in Services (GATS) are flexible and do not require countries to commit or liberalise sectors if they do not want to. This is particularly true for LDCs. Of course, there are real issues related to private sector participation in such sectors as water, but they are not due to GATS. And actually, some countries do want to schedule services sectors, including education, and like to attract investment in such sectors.

MYTH FOUR – US and EU domination: Gone are the days when the EU and the US could table a paper on agriculture and seek support for it without any problem. There are now discussions within the Five Interested Parties (which include Brazil and India) which may have already led to changes in the developed country positions. Moreover, developing countries have put new issues on the table (e.g. cotton), have won disputes (cotton, sugar, online gambling) and are active participants in the negotiations. There are also divisions amongst developing country groups.

What should be discussed in relation to the WTO: towards Hong Kong?

Rather than discussing the myths about the WTO, there are several issues that would need to be discussed relating to the current phase of the Doha Round.

For instance, it is not clear why France is trying to block progress on agriculture as it is expected to gain from agriculture negotiations. Movement on the EU’s offer (matched by progress by other countries) in the area of agriculture (and the argument for Aid for Trade should not be seen as a substitute for substantial liberalisation) is likely to be a catalyst for further negotiations.

There are discussions on an early harvest at Hong Kong in relation to development-oriented measures. This could include special and different treatment measures to LDCs, including right for waivers, exemptions on abolishing Trade-Related Investment Measures and duty-free quota-free access (DFQF), and potentially other measures. While this may be useful to the LDCs to some extent, it does not seem to be sufficient to make the Round particularly beneficial to the LDCs or other developing countries overall.

With current discussions skewed towards agriculture negotiations, it is easy to forget about the potentially useful role that other types of negotiations can play for developing countries. In particular, services liberalisation might be helpful for certain developing countries, when the circumstances are right, including the provision of support for regulatory capacities. Developing countries may also have an offensive interest in certain parts of the negotiations (e.g. liberalisation in the temporary movement of natural persons). Technical assistance may help to revitalise WTO services negotiations.

Finally, further discussions are needed on Aid for Trade. Preference-dependent countries will see their preferences eroded due to overall (MFN) tariff liberalisation in countries providing preferences; the removal of subsidies will lead to an increase in prices of agriculture products which may hit food-importing countries; it can be expensive for countries to implement WTO provisions; and finally, many developing (particularly the smaller and poorer) countries face supply-side constraints to export. The WTO negotiations may want to include discussions on Aid for Trade to deal with these issues. Negotiators may also want to try to find agreement on problems and definitions, discuss estimates of likely costs of Aid for Trade and send appropriate messages about implementation and financing.