Mid-Year Economic Review 2002

TRADE

Now the hard part begins

Woranuj Maneerungsee and Somporn Thapanachai

When World Trade organisation members agreed last November to launch a new round of global trade talks, all sides hailed the decision by major economies to put aside their differences for the greater good.

TRADE

Euphoria over an agreement to start a new round of world trade talks has given way to scepticism in the wake of a return to protectionism in the United States

But just months after the landmark agreement in Doha, Qatar, many countries are complaining that the big players are up to their old tricks. And they question the sincerity of big powers such as the United States and the European Union about helping developing countries achieve the gains that the previous Uruguay Round of WTO talks failed to deliver.

Another major change occurred a month after the Doha agreement, when China, the world's most populous country, joined the WTO, thus agreeing to live up to the vast obligations associated with the multilateral trading system.

A fairer and more open world trade environment is of special interest to Thailand, as the man expected to move the WTO toward the goal is Supachai Panitchpakdi. The former Thai deputy prime minister will take over as director-general of the WTO in September from New Zealand's Mike Moore.

He prepares to assume the position at a time of considerable discontent over what many see as backsliding by the world's most powerful economy.

The United States has been condemned for two measures taken this year. The first was the Bush administration's imposition of a 30% import tariff on steel across the board in March. The second was the 2002 Farm Bill, under which almost US$180 billion will be earmarked over the next 10 years to subsidise farm products. The sum is $73 billion more than the amount committed under the 1986 version of the bill.

Chinese models pose beside a Toyota T-1 car at the Beijing International Auto Show on June 7. Since China joined the World Trade Organisation (WTO) last December, foreign car frims have rushed to strike new deals with domestic companies in hopes of boosting their presence in one of the world's fastests growing auto markets.

The steel issue has sparked another transatlantic trade feud between the United States and the European Union. The EU filed a complaint with the WTO's Dispute Settlement Body (DSB) in early June. Countries in the 144-member body approved the creation of a three-person expert panel to rule on the issue.

The farm bill, meanwhile, has prompted agricultural exporting countries including Thailand to form alliances to attack Washington's decision.

The Doha agreement set the agenda for a new round of comprehensive trade negotiations. These talks, now under way in Geneva, are due to finish by Jan 1, 2005.

The ambitious goals are to accommodate poorer countries facing the challenges of globalisation through trade liberalisation. Key elements will be further reductions of import tariffs on goods, widening markets for agriculture and services, as well as eradicating the distortions in farm prices.

Anti-dumping rules, a legitimate tool for protecting domestic businesses against unfair competition, will also be revised as developing countries say the rules are often abused. Implementation of current agreements on intellectual property rights also needs further negotiations.

Supachai: US steel tariffs hurt everyone.

Another issue of interest to Thailand involves the textile trade. A deadline of 2004 has been set to phase out the much-abused quota system under the Multi Fibre Arrangement. Developing nations are concerned that a new system of non-tariff barriers could emerge unless clear rules are adopted.

The Doha agenda is based on the gamble that poor countries, who felt they were given a raw deal by the Uruguay Round that ended in 1994, can be convinced that rich countries are prepared to open their markets. If poor countries are not convinced, the Doha Round is likely to fail.

US DOMESTIC POLITICS

Why, for example, did President George W. Bush decide on such radical protectionist measures despite his apparently strong support for trade liberalisation?

The simple answer was domestic politics, said Prof Charles Irish, director of the East Asian Legal Studies Centre at the University of Wisconsin in Madison, during a recent visit to Bangkok. The 30% tariff on steel was imposed to improve the chances of Republican candidates in steel-producing states, including Ohio, Pennsylvania and West Virginia.

The November congressional elections were also behind the expansion of farm subsidies, he said. Several of closest Senate and House races are in states such as Iowa, South Dakota and Missouri that have large and powerful farm lobbies.

The US farm bill might create a safety net for its local farmers and bring a victory to Republicans, but it might damage the whole world economy.

Chinese workers destroy counterfeit CDs by passing them through a wood chipper during a major anti-piracy event organised by the authorities in Zhuhai, southern China. The country is grappling with a torrent of domestically produced fake goods

Heads of the world's three main multilateral economic institutions joined forces to condemn rising US protectionism, saying it harmed global growth and trade liberalisation.

"How can leaders in developing countries or in any capital argue for more open economies if leadership in this area is not forthcoming from wealthy nations?" declared a joint statement from James Wolfensohn of the World Bank, Horst Kohler of the IMF and Mike Moore of the WTO, after Mr Bush signed the farm bill.

Dr Supachai, meanwhile, says US steel tariffs will ultimately hurt everyone. "Nobody is going to gain by this."

A Thai Commerce Ministry official expressed concern that protectionist steps by Washington will stretch the timeframe of the Doha Round well beyond the scheduled three years. The Uruguay Round took seven years to complete, after all.

He said that in the area of American farm subsidies, Thailand might co-operate with allies such as China and the Cairns Group of farm-oriented exporting countries to raise a complaint at the WTO.

Ajva Taulananda, chairman of the Board of Trade of Thailand, said that China's status in the WTO as a developing country would give such nations more weight in negotiations in the Doha Round. As a result, there would be a balance of power with the so-called Quad Group of the United States, Canada, the European Union and Japan.

China is both a food exporter and importer so it has to strike a balance in deciding whether to continue subsidising its local industries or gradually liberalising to become more competitive in the world markets.

Dr Ajva said all developing countries wanted only some handicap allowances in negotiations, particularly when it came to the implementation of the WTO agreement.

The current agreement has already taken into account the difficulties of developing members so special and differential treatments have been provided for them, but Dr Ajva believes many developed countries have applied only lip service on this issue without actual implementation.

"A classic case is the US, which has always demanded reductions in farm subsidies, and now the Bush administration has raised subsidy amounts for the next 10 years," he said.

He urged the Thai government to take a strong stand on the issue in the Doha Round, requesting developed members to systematically extend technical assistance to strengthen the farm sectors in developing countries.

Dr Ajva said the multilateral trade system was also facing a crisis of faith, as many countries were now turning to bilateral free-trade agreements and strengthening regional co-operation.

One reason, he said, was that WTO members were afraid that the 2005 deadline for completing the Doha Round could be extended by years.

Bilateral agreements are seen as an alternative for reaching the goal of trade liberalisation but they must be handled carefully to ensure that no trade diversions would occur that would jeopardise mainstream trade liberalisation in the WTO.

ROLE OF THE NEW CHIEF

As the first chief of a multilateral trade body from a developing country, Dr Supachai has raised hope among smaller economies that their voices would be better heard in the Doha negotiations.

However, people have to realise that the director-general must be impartial, and that it is for WTO members to decide whether they want the DG to take a hands-on role in negotiations if they come to a deadlock.

Arthur Dunkel, the Swiss-born former chief of the General Agreement on Tariffs and Trade (Gatt) _ the predecessor of the WTO _ played an essential role in speeding the Uruguay Round to a conclusion. His so-called Dunkel Text balanced demands from powerful players such as the United States and the EU.

An official at the WTO Secretariat in Geneva said there was a sign that members would not let the new DG take over their negotiations the way Mr Dunkel had done in the previous decade. Many developing members such as India, Egypt and Brazil have learned from experience and prepared to fight aggressively for their benefits.

Going into the new round, Dr Supachai believes developing countries have a clear focus in four areas: agriculture, textiles, Trips (Trade-Related Aspects of Intellectual Property Rights) and anti-dumping. Meanwhile, talks will go forward only when developing nations see co-operation from developed countries to reach a balance of interests, because everyone needs to receive some benefits in multilateral negotiations.

He also wants to deal with thorny issues concerning the social dimension of globalisation. These involve the environmental and labour-related aspects of trade.

There is a consensus that the latter should remain under the International Labour Organisation with the emphasis on job creation rather than core labour rights.

Dr Supachai hopes that negotiations in the Doha Round should be 85% or 90% finished by the middle of 2004 to reach the 2005 target.

Having accepted the challenge, the WTO chief also knows that the achievement of this goal will depend on the way all 144 WTO members decide to exercise their varying degrees of power.