CUTS Centre for International Trade, Economics & Environment

India Inc and civil society groups welcomed the new impetus given to the WTO negotiations at Davos, but said India should be cautious about the reported 'offers' made by the EU and the US on agriculture.

Ficci said this renewed activity would lift growth in merchandise and services trade.

FICCI president Habil F Khorakiwala said, “What we need is the real cuts in trade-distorting farm subsidies in the US, which will mean a budget cut of around $10 billion from the current ceiling of $23 billion.”

The chamber said even if the US agreed to bring down its agriculture support level to around $12 billion, developing countries must also ask for disciplines in subsidy reduction on product-specific basis to avoid any concentration of subsidy in two or three products.

Similarly, the offer made by the EU to cut its average level of tariffs by over 50% need to be supplemented by commitments on tariff cuts on product on tariff line basis.

The issue of “less than full reciprocity” and significant cut in tariff peaks and tariff escalation in developed countries are key to the Nama negotiations.

Pradeep S Mehta, secretary- general of CUTS International, said “If the deal could be clinched, with the US agreeing to freeze its domestic support at $15 billion, then it is a matter of $4 billion (from what the US is insisting as a cap in its domestic subsidies) only, which benefits mostly big agri-businesses of the US. Should global welfare of billions of dollars, which is likely to result from successful conclusion of the Doha round be mortgaged to the US resistance to reduce domestic subsidies by another $4bn”?

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Troubled talks threaten WTO's credibility
Financial Times, London, January 24, 2007

By Alan Beattie

To blame the World Trade Organisation for the stalling of trade liberalisation andthe troubled Doha round of talks is like blaming a World Cup final referee for the quality of football.

The WTO secretariat, with a couple of hundred professional-level staff, advises, facilitates, informs and sometimes mediates trade negotiations, but in general does not direct them.The WTO refers to itself as a "member-driven organisation". In the institutional trade-off between agility and democratic accountability it leans heavily towards the latter. It reaches decisions by consensus, which in theory gives each of the 150 member countries a veto.

In his previous incarnation as European Union trade commissioner, Pascal Lamy, WTO director-general, labelled this procedure "medieval".

Consensus takes time. The last successful round of trade talks took seven years; Doha has been going for more than five and, though showing signs of life, is still in deep trouble. But few trade observers and officials doubt that WTO credibility is worth preserving.

A growing part of the WTO's role is to rule on disputes under existing agreements. Panels of arbiters convened by the WTO have declared subsidies on US cotton and European sugar illegal, and spurred Congress to rewrite its tax law twice in response to a ruling that it was illegally supporting exporters. One concern among officials is that, if the Doha round fails, the US in particular will regard the WTO as redundant and ignore its judicial decisions.

Ngaire Woods, director of the global economic governance programme at Oxford University, says that concern about the Doha round and the WTO are overstated. "I don't think it has ever meant much to refer to the WTO as one-member-one-vote," she says. "Is a country like Mali ever really going to use its veto?" In effect, Ms Wood says, while countries in the International Monetary Fund and the World Bank have formal voting weights based on a formula, the WTO has an informal system based on the size of each country's market.

And as all international institutions struggle to cope with the global shift of economic heft towards Asia, this medieval structure may in fact help it modernise. Allowing the emergence of giant economies automatically to be reflected in de facto power around the negotiating table may be easier than having to revise formal voting weights.

In the Doha round, for example, the Group of 20 developing countries, led by Brazil, formed in 2003 and rapidly became a serious force in the talks. Although technically only negotiating on agriculture, the G20 has shown how powerful a substantial number of big emerging markets can be across the whole area of international trade policy.

Mr Lamy recently told the FT: "The G20 has encouraged a wider coalition of developing countries to act together within the trading system. The WTO is one of the few places where the geographical and economic changes of the recent past are reflected in changes in the representation around the table."

Ms Woods says Mr Lamy and Supachai Panitchpakdi, his predecessor, have tried to adapt existing procedures.

The informal "green room" process, for example, which seeks consensus privately among a few countries before involving the wider membership, was much criticised when it was dominated by the US, EU and Japan. Instead of abolishing it, Mr Supachai and Mr Lamy have legitimised it by widening the range of countries invited to include representatives.

If the Doha round does not revive, the WTO will still exist but its role as a forum for governance of the global economy will be diminished. Pradeep Mehta, of the Centre for International Trade, Economics and Environment, a research institute, notes with irony the WTO's attention is occupied by a tussle between its two richest members in the Doha talks. "The WTO is trying to accommodate the developing countries. But at the moment progress is being held up by the dispute between the EU and the US," he says.

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World Bank differs with Pakistan over poverty reduction figures
Business Recorder, January 22, 2007

By Arif Rana

In a draft on "Pakistan promoting rural growth and poverty reduction" the World Bank has sharply differed with the government of Pakistan over estimates of poverty reduction. It said the poverty reduction in Pakistan between 2001-02, and 2004-05, have been 5.2 percentage point bringing it down from 34.4 percent to 29.2 percent at national level and 39.1 to 34 (5.1 percentage point) for rural households.

The government estimates for the same period showed a decline of 10.6 percent and 11.2 percent for the national and rural poverty respectively.

The official figures show that between 2001-02 and 2004-05, rural and national poverty reduced from 39.3 percent to 28.1 percent and 34.5 percent to 23.9 percent respectively.

The draft noted that the government of Pakistan's estimates for poverty reduction was different from the World Bank due to variation in inflation rates used to determine poverty line.

Business Recorder managed to get the copy of the draft, which was circulated by the World Bank to the concerned divisions/ ministries last week. The draft said the estimates of poverty in Pakistan are particularly sensitive to differences in methodology because a high percentage of rural households have per capita expenditures close to the official poverty line. 10.9 percent of rural households in 2001-02 had per capita expenditures within (+/-)5 percent of the official poverty line; in 2004-05, 8.95 percent of rural households were within (+/-) 5 percent of the Planning Commission official poverty line (Rs878.6). It said small changes in calculated real income (expenditures), whether do to actual changes in expenditures, price deflators or other methodological issues related to updating a poverty line, can lead to misleadingly large changes in poverty estimates.

To minimise this effect and to avoid debates on the definition of the poverty line, the analysis in this chapter focuses on the bottom 40 percent of the per capita household expenditure distribution.

The grouping nonetheless is similar to the definitions of the poor using various food consumption needs-based poverty lines in Pakistan. The rural poverty in Pakistan, which declined sharply in the 1980s, remained stubbornly high in the 1990s. In the 1980s rapid growth in agricultural GDP of 3.9 percent contributed to a steady decline in rural poverty from 49.3 percent in 1984-85 to 36.9 percent in 1990-91.

In spite of substantial growth in agricultural, real GDP in the 1990s (4.6 percent), however, rural poverty did not decline. Instead, the percentage of poor was essentially unchanged between 1990-91 (36.9 percent) and 1998-99 (35.9 percent). Several factors help explain the stagnation in the rural poverty in the 1990s.

Despite substantial agricultural growth, including over estimates of livestock income growth, rise in the real consumer price of major staples, and the skewed distribution of returns to land coupled with a declining share of the crop sector in the overall GDP.

The draft said since 1998-99, real household incomes, income-based poverty indicators and agricultural output have fluctuated sharply, with only slow improvement over the medium term. Recent household survey results indicate sharp reductions in rural poverty in Pakistan over the 2001-02 to 2004-05 period. Long-term trends are less encouraging, though, suggesting no major changes in real expenditures of the poorest 40 percent of households between 1998-99 and 2004-05. The changes in agricultural output due in large part to weather, mirror the changes in rural real incomes, over these periods but like real expenditures of the poor, agricultural output and incomes have increased only modestly over the period. Other factors outside agriculture, especially increases in workers remittances have also contributed to increased incomes since 2001-02.

In the medium-term, however, econometric evidence suggests that investments in human capital and physical infrastructure have been among the most important determinants of increased real incomes in rural Pakistan. It added that preliminary analysis of 2004-05, Pakistan Social Living Standards and Measurement Survey (PSLM) data indicates that both rural and urban poverty have declined since 2001-02. The Planning Commission's estimates based on poverty line in 2001-02 suggests that poverty fell by 10.6 percentage point, from 34.5 to 23.9 percent between 2001-02 and 2004-05. Their estimates of rural poverty show a decline of 11.2 percentage point, from 39.3 percent in 2001-02 to 28.1 percent in 2004-05.

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Freedom from past
Jang, Pakistan, January 14, 2007

Pakistan and India need to go beyond formal exchanges to resolve their differences. The world abounds in examples that the two countries can follow to foster peace and prosperity in South Asia

By Pradeep S Mehta & Abid Suleri

Only a few weeks ago, Pakistan and India exchanged the lists of their nuclear installations. The purpose of the exercise is that these installations will not be attacked by the two countries in the event of any conflict. But exchanging lists is not a sufficient cover for an unwarranted action by either country. Only a relationship that is based on trust and willingness to resolve all issues and is backed by economic and commercial links as well as strong support from the international community can guarantee that Pakistan and India don't go to war against each other.

Can we, therefore, now start thinking of a forward looking strategy which does not stop at the mere exchange of nuclear installations and thus ensure that the threat of any nuclear or conventional attack is extinguished for ever? The fact that other countries have successfully done that only serves to highlight the inadequacy of the current approach India and Pakistan are employing to resolve their differences.

Even if we confine resolving the problem of nuclearisation of India and Pakistan, a successful model to emulate exists in the form of the Argentine-Brazilian nuclear rapprochement.

During the colonial era, two European powers (Spain in Argentina and Portugal in Brazil) expanded their own rivalry through territorial conquests in South America. Even after their independence (Argentina in 1816 and Brazil in 1822), the rivalry between the independent states continued to reflect their colonial past. Competition for the leadership of South America -- with elements of antagonism, rivalry, and mistrust -- was always present in the bilateral relationships between Argentina and Brazil.

Though the South American experience can be valuable for India and Pakistan , one important difference must be kept in mind. While Argentine and Brazil were competitors and rivals for the leadership of South America, they were not enemies. The only war between them took place in 1825, more than a century-and-a-half ago, giving birth to a new (buffer) state, the Uruguay, through the peace treaty of 1828. Since then, their relations have alternated between cooperation and competition, but not a single shot has ever been fired. Even a bitter border dispute between them was resolved by arbitration, not war. In 1985, the time came when it was decided to put an end once and for all to the rivalry and mistrust that had pervaded bilateral relations for too long, especially by focusing on social and economic relations.

Beginning with the 1980s, Argentina and Brazil initiated efforts towards a nuclear rapprochement and by 1985 this process developed in earnest. The period from 1985 to date can be divided into two stages: During the first period, (1985-1988) purely bilateral approach to the issue was undertaken while the second period between 1989 and the present had dual objectives: first, to give a legally-binding character to the agreements already signed by the two countries, and second, to take these obligations to the international field, making the two nations part of the regional and global non-proliferation regimes.

It is in this endeavor that these two countries along with Paraguay and Uruguay formed the South American Common Market (the MERCUSOR) in 1991 which was later joined by Chile in 1996 and Bolivia in 1997. The aim of the formation of the common market was to enhance trade and investment opportunities because these Latin American countries had realised that closer and deeper economic relations facilitated by free trade would further strengthen understanding, faith, confidence and mutual cooperation among themselves.

But if we want to go beyond the nuclear sphere and bring in all the various aspects of bilateral relationship between India and Pakistan, the world is not devoid of lessons that can be easily learnt. There are several examples offered in the history where belligerent neighbouring countries have moved from hatred, antagonism, rivalry and mistrust to understanding, trust, faith and cooperation thereby enhancing peace and prosperity between themselves and in the region.

It took several decades after the World War II to mend relations between the people of Germany and those of France. The formation of the European Union, giving rise to higher levels of economic well being resulting from enhanced economic cooperation, has been instrumental in reducing the enmities -- not only between France and Germany but across the Western Europe -- and receding the memories of the atrocities of the World War II from the minds of most people, especially of the next generation which came of age by the 1970s. Given that bitter memories of the Nazi atrocities remained vivid among people in Europe even many decades after the World War II, especially among those living in Poland, Holland and Russia, this should be deemed no minor achievement.

Given the high level of economic and other cooperation among different member countries of Asean (Association of Southeast Asian Nations) , it is hard to believe that Thailand was on the American side in the Vietnam war, that Vietnam invaded Cambodia in 1975, that Vietnam and China fought in 1979 and that Thailand had a border skirmish with Laos as recently as 1988. Regional co-operation has come a long way since then.

There are several lessons that can be derived from the friendship, cooperation and peace-making process across the globe. First and foremost, to be successful, an exercise of this kind must be based on a sincere purpose of reaching agreements to end nuclear race and/or cross border terrorism and establish a climate of mutual confidence. No moves in this field can have the slightest chance of success if they are taken with the ulterior motive of destabilising the other party or lulling it into a false sense of security. As a first step, a country should open itself to the other party, on the understanding that this policy will be reciprocated. Information should flow fully and freely from one country to the other. Of course, the climate of mutual trust thus attained will not last if flanking and additional measures do not follow to give it a permanent character.

Such additional measures include to keep talking: it's never over until it's over. Secondly, constructive engagement works better than pressure: Renewed efforts for willingness to support bilateral confidence-building measures would lead to more progress than diplomacy-based political criticism accusing each other for cross-border terrorism (which of course needs strong action by both the sides).

Thirdly, regional cooperation infrastructure projects have a potential for the improvement of the well being of all parties involved. The East-West Economic Corridor, a 1500 Km long highway project crossing 6 GMS (Greater Mekong Sub-region) countries in the Southeastern Asia connecting South China Sea to Indian Ocean and the Middle East regional cooperation projects are some good examples in this regard. In the same vein the mega-economic projects like the Turkmenistan-Afghanistan-Pakistan and the Iran-Pakistan-India gas pipeline projects would help in promoting trust and regional economic cooperation between India and Pakistan.

Lastly, it may be beneficial to look for opportunities where the United States (and European Union) foreign policy can support bilateral initiatives that can have positive proliferation. For example, river diplomacy in Argentina accelerated bilateral cooperation in the nuclear area. The current initiative to expand upon 'bus diplomacy' in India and Pakistan should receive strong US and EU support. Similarly, India and Pakistan can benefit if the US offers them Qualifying Industrial Zones (like the ones in which exports from Jordan and Egypt containing inputs from Israel enter duty-free into the US market) under the Generalized System of Preferences of international trade.

Skeptics would argue that in the case of India and Pakistan, the Kashmir dispute is sui generis and thus the improvement of relations is dependent upon its resolution. In this case, one can draw lessons from North Ireland, which has been a bone of contention between the United Kingdom and Ireland as well as a huge number of people living in Norhern Ireland. The Irish Republican Army has agreed to lay down its arms, and has also stopped any terrorist activity either in Ireland or in the UK, after thirty years of conflict. Can the same not be attempted in Kashmir, which has become a similarly intractable problem between India and Pakistan as well among the people living in various parts of Jammu and Kashmir.

Fortunately, due to various internal as well as external reasons, a window of opportunity is opening wide for improving relations between India and Pakistan. Both the Pakistani President General Pervez Musharraf and Indian Prime Minister Dr Manmohan Singh (apparently due to their own reasons) have suggested ways forward to craft peace among the two nuclear countries. Similarly, people in both the countries and in Kashmir have a strong yearning for peace. They are dreaming of a South Asia free of hunger, poverty and under-development. Like past 59 years, they have been wishing for a new year during which their governments would shift the huge resources being spent on defence expenditures to developmental expenditures. On New Year's eve, which incidentally was the Eid-eve in India and Pakistan too, many expressed their desire to celebrate festival across the border on various private TV channels. Should we not imagine a South Asia full of peace and harmony? Should we not let peace work for prosperity? Should cross border tourism not take over cross border terrorism? There seem to be a little ray of hope from the top. It is about time that we create the pressure from the bottom and facilitate the peace process between two nuclear nations through enhanced economic relations.

Some political observers are defining a new South Asia as a region where various types of freedoms can be realised -- that is, freedom from want, freedom from fear, and freedom to live with dignity. This is premised on the axiom that every single individual on earth has both the potential and the right to live a decent life. Let us work for a new South Asia in 2007 and grab any opportunity for a long lasting peace following the examples in South America, Europe, and Southeast Asia.

Pradeep S Mehta is Secretary General of CUTS International, a research, advocacy and networking group board in Jaipur, India and Abid Suleri is Assistant Executive Director of the Islamabad-based Sustainable Development Policy Institute.

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Developed world’s agriculture sop offer key to Doha revival
Financial Express, India, January 14, 2007

By Ashok B Sharma

With the deadlock in WTO talks continuing, any positive indication by major trading partners is seen as a flicker of hope for breaking the impasse.

The meeting between EU trade commissioner Peter Mandelson and US trade representative Susan Schwab in Washington last week did generate some hope. The meeting was followed by a joint statement by Mandelson and Japanese Prime Minister Akira Amari calling for an early resumption of stalled talks. Mandelson flew to Paris last Thursday to brief French Prime Minister Dominique de Villipin and his Cabinet colleagues about discussions he had with Schwab and Amari. Schwab flew to Geneva to discuss with WTO director-general Pascal Lamy on last Friday. The these major negotiators, however, did not yield any significant result.

“India is closely watching the developments,” a senior official in the commerce ministry said adding “we are waiting for developed countries committing to make substantial cuts in their farm subsidies”.

According to some experts, these recent developments may prompt Lamy to take India’s help for breaking the deadlock when he visits the country this week for a CII partnership summit in Bangalore. Other experts expect some developments on the sidelines of the World Economic Forum in Davos. Moreover, there is likely to be a meeting in New Delhi in March which will be attended by several ministers from key nations.

Mandelson after meeting the French Prime Minister assured that EU would not take any unilateral decision. France is a strong defender of European farm interests and, with polls ahead in that country, it seems unlikely that the EU would be able to offer any substantial cuts in its farm subsidy.

Also, public gestures of the USTR, Susan Schwab has invited opposition from Democrats who are now in a majority in the Congress.

While all these developments are taking place, a Washington-based think tank, Carnegie Endowment for International Peace said that “a mutually beneficial solution to the problem is still not in sight.” Delhi-based CUTS-International is also of the view that talks can proceeds if the US offers to cut its farm subsidies.

In a study entitled B’reaking the Doha Deadlock : Congress Could Play a Pivotal Role’ the Carnegie Endowment said it was counterproductive for the US to insist on terms that could lower the income of poor farmers in developing countries, by displacing their production or causing prices to drop for the commodities they produce. The US should not insist developing countries to reduce their tariff. It should accept G-33 proposal on special products, with additional clarifications to ensure that flexibility is used to achieve agrarian development and poverty alleviation in the developing world.

The study also said the US could benefit through exports only if farm income levels continues to rise in the developing countries.

Carnegie Endowment study severely criticised the inequitable, distorted and very expensive set of US policies, serving the interests of the few against the majority in the country and urged the Congress for a sober revision of the US policy in the Farm Bill, 2007.

The EU has indicated that it is prepared to give market access to the developing world by effecting an average tariff cut by 50%. A revision in the US proposal in the farm sector would enable it to make new agreements at WTO that can open up its opportunities for its manufacturing and services sector, the study said.

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For more than mutual assurance
Indo-Pak lessons from the Argentine-Brazilian model of cooperation
Financial Express, India, January 12, 2007

Mutual trust achieved, additional measures would include a commitment to keep talking: it’s never over until it’s over

By Pradeep S Mehta & Abid Suleri

Pakistan and India have just exchanged lists of their nuclear installations, as part of a mutual assurance that these shall not be attacked by either party in the event of any conflict. However, exchanging lists is not sufficient cover for an unwarranted action by either country. Can we think of a strategy to ensure that there is no threat of any nuclear or conventional attack ever?

A successful model exists in the Argentine-Brazilian nuclear rapprochement. In the era of colonialism, the two European powers, Spain and Portugal had expanded their own rivalry through territorial conquests in South America: the former in Argentina and the latter in Brazil. Even after their administrative independence (Argentina’s in 1816 and Brazil’s in 1822), the burden of colonised mindsets found continued expression in a South American rivalry between the two. They vied with each other for leadership of South America, with all the usual antagonism and mistrust.

Although the South American experience could be valuable, one important difference must be mentioned: while Argentina and Brazil were rivals, they were not enemies. The only war between them took place in 1825, more than a century-and-a-half ago, giving birth to a new (buffer) state, Uruguay, through the peace treaty of 1828. Their relations since have alternated between cooperation and competition, but no single shot was ever fired. A bitter border dispute was resolved by arbitration, not war. In 1985, they both grasped a moment of economic logic to put an end once and for all to the mistrust that had bedevilled bilateral relations for so long. Thus did social and economic relations come into focus. The subsequent period can be divided into two stages. In the first (1985-1988), the approach taken was bilateral. In the second (1989—), the process had a dual objective: first, to bind the signed agreements legally, and second, to integrate the agreements with international nonproliferation regimes.

It was as a part of this endeavour that these two countries, alongwith Paraguay and Uruguay, formed the South American Common Market (Mercosur) in 1991, which was later joined by Chile in 1996 and Bolivia in 1997. The aim of this common market was to enhance trade and investment opportunities, as these countries realised that closer economic relations facilitated by free trade would consolidate mutual understanding, confidence and cooperation.

There are several other examples in history of neighbourhood peace and prosperity taking the place of hostility and heartburn. Europe put aside the bitter Nazi experience for the formation of the European Union. Even in Asia, it is hard to believe that Thailand, Vietnam and Cambodia were ever at war.

There are several lessons that can be derived from all this. First and foremost, to be successful, an exercise of this kind must be motivated by sincerity of purpose. No such moves can have the slightest chance of success if they are taken with the ulterior motive of destabilising the other party. As a first step, a country should open itself to the other party, on the understanding that this policy will be reciprocated. Information should flow fully and freely from one country to the other. Of course, the sense of mutual trust thus attained will not last if flanking and additional measures do notfollow to give it permanence. Additional measures would include a commitment to keep talking: it’s never over until it’s over. Second, constructive engagement works better than pressure: renewed reinforcement of the will to support bilateral confidence-building measures would lead to more progress than diplomacy-based political criticism involving cross-accusations on issues like terror (which, it hardly takes a couple of minutes to reiterate, requires dedicated action on both sides).

Third, regional cooperation infrastructure projects could be proposed. The East-West Economic Corridor, a 1,500 km long highway project crossing six Greater Mekong Sub-region countries in the Southeast Asia, and the Middle East regional cooperation projects are some good examples. Likewise, mega-economic projects like the Turkmenistan-Afghanistan-Pakistan and the Iran-Pakistan-India gas pipeline projects would help promote regional economic cooperation between India and Pakistan.

Lastly, it may be beneficial to look for opportunities where the US (and EU) foreign policies can support bilateral initiatives. River diplomacy in Argentina, for example, accelerated bilateral cooperation in the nuclear arena. The initiative to expand Indo-Pak ‘bus diplomacy’ should receive US and EU support. The US could offer incentives by offering the benefits of its Qualifying Industrial Zones scheme (by which exports from Jordan and Egypt containing inputs from Israel enter the US duty free), under its Generalized System of Preferences.

Sceptics would argue that in the Indo-Pak case, the Kashmir dispute is sui generis, and thus any improvement of relations is dependent on its resolution. Even if this is so, one can draw lessons from North Ireland. After 30 years of conflict, the Irish Republican Army has agreed to lay down arms. Frankly, neither India nor Pakistan would like an independent Kashmir. Yet, fortunately, there is a window of opportunity at the moment. Pakistan President General Pervez Musharraf and Indian Prime Minister Dr Manmohan Singh have both suggested ways to craft a lasting peace between the two nuclear countries. The yearning for peace is evident among people on both sides, as also in Kashmir. Is it not time to grab it and move ahead?

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