The Hindu Business Line : Uninspiring progress

Neither on poor countries' access to cheap medicines nor on agricultural issues has the WTO reached any common ground. All eyes are on the the fifth ministerial at Cancun in September. But it is unlikely that anything substantial will emerge, says Alok Ray.

THE current round of WTO talks, which started in Doha in November 2001, has come to be known as the "Development Round". This is because it is supposed to take care of the special concerns of the developing countries. These concerns are mainly in the areas of agriculture, intellectual property rights and market access. The developing countries felt they got a raw deal in the Uruguay Round particularly in the area of patent rights, which largely benefited the developed countries. In agriculture, too, much of the reduction in subsidies promised by the developed countries in the Uruguay Round did not materialise. So, to win over the developing countries' reluctance for any new round of talks, at Doha they were assured that some special concessions would be given to them. In particular, they would have improved access at lower prices to patented medicines to tackle such diseases as AIDS, malaria and tuberculosis. Moreover, they would be a given a better deal in agriculture, which would enable them to increase farm exports to the developed countries.

The deadline for completion of the Doha round of talks is January 2005, less than two years from now. So what is the progress report?

In agriculture, little headway has been made in moving towards free trade by removing farm subsidies in the developed countries including the EU, the US and Japan. As a matter of fact, the recent US Farm Bill, by providing additional subsidies to farmers, has given the wrong kind of signal. The EU has also ruled out any reform of its Common Agricultural Policy (CAP) at least until 2006. Under the CAP massive subsidies are being given mostly to large European farmers.

All these subsidies keep local agricultural production artificially remunerative in those countries, keep out imports from more efficient producers abroad, while at the same time pushing exports to other countries with the help of export subsidies. For the record, the US has, however, come up with a new proposal. It plans to eventually abolish all agricultural export subsidies and limit production subsidies to 5 per cent of the value of domestic production. The EU and Japan have not responded positively.

One should not think, however, that the removal of agricultural subsidies would benefit all developing countries. No doubt, this would generally lead to higher prices for agricultural products. But all developing countries are not exporters of farm products. In fact, 33 of the 49 least developed countries (as classified by the UN) are net importers of farm products and would be hurt. This point is often lost sight of in the debate on global agricultural liberalisation.

At least three contentious issues have bogged down progress in providing relief to developing countries in the area of high-priced patented drugs. The Doha talks agreed that countries having an epidemic can access cheaper generic drugs even if it violates the patent rights of multinational drug companies.

The first problem is: Who is going to decide whether there is a national medical emergency? Should it be left to the country concerned which might use it as a pretext to bypass patent rights? Understandably, the big drug companies, which have the patent rights on such drugs, would like to restrict this right to declare emergency.

The next problem arises because some countries (such as Gabon in Africa) do not have their own drug-manufacturing capability. Should such countries be allowed to import these drugs from, say, India or Brazil that are able to supply generic drugs at prices lower than that charged by, say, American drug companies? Clearly, the Gabon government and Indian drug companies would be on the same side of the debating table while the patent-holding companies and their governments would be on the other.

Finally, what diseases are to be covered under these exemptions? The US Trade Representative has so far agreed to grant these exceptions to only AIDS, malaria and tuberculosis. The developing countries want to include the expensive medicines for other diseases (for instance, for cancer and diabetes), which affect a large number of poor people in developing countries. SARS is an example that one cannot presuppose where national medical emergencies may arise. The Japanese are opposed to including vaccines, though they can reduce the chances of outbreak of an epidemic and costly treatment thereafter.

There are several other issues. For example, should the agricultural trade liberalisation issue be linked to that of industrial protection? Supporters of linkage argue that no additional market access should be allowed to the developed countries unless they agree to reduce farm subsidies. This is the way to put pressure on the developed countries. Others think that this way the chances of making any rapid or big progress are rather slim. The political lobby for agricultural subsidies is entrenched. A better strategy would be to delink the two issues and try to make whatever progress is politically feasible in the respective spheres. According to this view, even the developing countries can benefit much by reducing industrial protection to match similar reduction in developed countries, irrespective of progress on agricultural subsidies.

The world is getting divided into a number of regional trading blocs. Besides such major ones as the EU, NAFTA and ASEAN, the US is trying to form the Free Trade area of the Americas (FTAA) encompassing almost the whole of North and South America. Opinions differ on the feasibility and the wisdom of such an initiative. More fundamentally, the question is: Is the world moving away from the vision of attaining global free trade through multilateral negotiations — as enshrined in the WTO and its previous incarnation GATT — as opposed to the regional fragmentation of the world?

There are two schools of thought. One sees in the recent developments a departure from the goal of global free trade towards protectionism against other regions. The other thinks that it may be easier to have free trade within a trading bloc first. Then a small number of such blocs can negotiate free trade among themselves. This way surer and quicker progress can be made towards global free trade than if negotiations on trade liberalisation were to be conducted among all the member countries of the WTO. It is easier to negotiate among three-four parties (major trading blocs) than 120-odd members of WTO.

Should India try to be a member of a trading bloc? The answer is: Yes. But not some thing like the SAFTA (South Asian Free Trade Area). India needs to be a member of some big trading bloc. Our gains from forming a free trade area with SAARC countries would be minimal since India's market constitutes about 70 per cent of the total regional market. Moreover, given our relatively high tariffs, a free trade area may imply trade diversion from more efficient non-member countries to the less efficient bloc partners. This possibility would be less if India can become a member of some big bloc such as ASEAN since such groupings include countries which are efficient producers of many goods.

Membership of a big trading bloc may also attract more direct foreign investment. Foreigners may then like to set up factories in India provided we are cost competitive and from where they would have unhindered access to a large regional market.

Two important deadlines have passed. A deal on poor countries' access to cheap medicines was supposed to have been concluded by December 31, 2002. The deadline on agricultural negotiations was March 31, 2003.

No deal on either area has been struck so far. At this moment we can only wait and see whether any major breakthrough takes place at the fifth ministerial at Cancun in September. But the chances for this do not look too bright.

(The author is Professor of Economics, IIM Calcutta.)

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