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A common argument for the proposition that free trade benefits least developed and developing countries alike is that lower trade barriers enable the countries to penetrate the world market, in particular those countries with high purchasing power such as OECD countries. While this might be true for some non-agricultural products, it is not completely correct for agricultural products, notably those that are related closely to food security and the livelihood of the rural farmers. Data indicates that since the 1995 Uruguay Round many agricultural products have experienced a steady decline in production and cultivated area, depressed prices, declining exports as well as rising imports. Some were originally net export crops but have now become net import crops. This beckons the question: What went wrong?
Each good traded in the world is assigned a Harmonious System code (HS code). Maize for example is HS number 1005, which means that one commodity with this number is considered the same wherever it is produced and marketed. However, this boils down to saying that subsistence maize farmers in developing countries are the same as farmers in developed countries. This implies that the state-of-the-art technology used to produce maize in developed countries is considered the same as traditional farming in developing countries. Production management is considered the same in both types of country, more specifically; agribusiness operations vs. a peasant approach. However, this is far from reality, especially if we consider that some of these commodities produced by developing countries are not tradable or at the most are sold to adjoining districts. Notwithstanding, world trade is more of a political economy than pure economics, as it frequently the case in the WTO. Logically, what is traded are not the goods themselves but the complete process of making the goods and the services. Therefore, what solution is available given that different HS numbering for the same commodity with different process of production, hence different treatment and modalities, is not possible?
G-33, a group of forty-five developing countries (originally thirty-three) of the WTO member countries proposed provision of the so called Special Products (SP) and Special Safeguard Mechanism (SSM) during the ongoing Doha Development Agenda (DDA) round of negotiation. SP and SSM are operational translations of the DDA results during the 2001 Ministerial meeting in Doha, notably the suggestion that Special and Differential Treatment (S&DT) should be an integral part of all modalities. SP and SSM have become WTO modalities as they are explicitly stated in para 41 (for SP) and para 42 (for SSM) of the 2004 July framework and this was further reiterated in the 2005 Hongkong Ministerial meeting.
SP, according to the July framework, consists of a number of products or tariff lines that can be flexibly designated by developing countries guided by food security, livelihood security and rural development indicators. G-33 proposes that SP products: (1) should be excluded from tariff reduction formulae (stand alone provision); (2) should not be subjected to expansion of minimum market access (Tariff Rate Quota [TRQ]) or new TRQ; and (3) should have automatic access to SSM.
Under the Agreement on Agriculture (AoA) and the general agreement, member countries are allowed to invoke Safe Guard (SG) provision to protect countries against import surges triggered both by price and volume. However, many developing countries do not have the luxury to invoke the instrument due to a lack of data and resources, as the mechanism and procedures are complex and consume substantial resources and time. Often the impact of the surges has been spread and devastating before measures can be imposed.
What G-33 is proposing is the provision of SSM for developing countries, special compared to SG, since SSM can be invoked automatically in the case of import surges triggered by both volume and price hikes without resorting to complicated procedures requiring resources that developing countries often lack the luxury of processing. In other words, the mechanism should be simple and effective. Secondly, it is proposed that all agricultural products should be eligible for SSM with two stipulations, namely, additional duty and quantitative restriction.
At the outset, SP and SSM provision might be seemingly against Heckscher-Ohlin Theorem of comparative advantage. However, in a far from perfect world, and in fact as several Nobel laureate economists have said, because many of the SP products are non-tradable, some proper measures are required by developing countries until, some day, such products can be placed on a level playing field with the same products produced by developed countries.
To conclude, if any country or any product requires support, through protection measures, subsidies or any other trade support, it is the developing countries or developing countries' products, not the developed countries. Hence, I argue, SP and SSM are pro-poor WTO modalities that should be supported by developing countries and developed countries alike.
Written by Togar A. Napitupulu, Senior Economist at UNESCAP-CAPSA, Bogor, Indonesia. |
