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Kenyan exporters win key WTO concession
Business Daily Africa, July 18, 2007
By Allan Odhiambo
Kenya has won a major concession from the
World Trade Organisation establishing a degree of stability in
the increasingly competitive export market.
The deal, which allows the country to continue offering export
subsidies in the next eight years, came amid fears that the
country would be struck out of the list of eligible member
states based on the economic recent upturn.
A statement from WTO headquarters
in Geneva said the committee on subsidies and countervailing
measures (SCM) had granted Kenya and three other developing
nations, including Sri Lanka, Bolivia and Honduras the right to
benefit from the extension despite the possibility of being
graduated from the list of qualifiers before 2015.
Provision of subsidies is granted to WTO
member states with per capita Gross National Product (GNP) of
less than $1,000 per year.
There had been fears the subsidies committee would strike out
countries such as Kenya from the list of qualifiers based on a
recent surge in the rate of growth in their economies.
Kenya’s economy grew by a margin of 6.1 per cent in 2006 and is
expected to perform better this year.
“We negotiated for this exemption because we felt we had not
evolved enough to phase out the
subsidies which are a key tool of development,” Mr Elijah
Manyara, a senior deputy director of External Trade at the
Ministry of Trade and Industry said. “At the current rate of
growth we may surpass the limit in about five years,” he said.
Analysts however warned that there is little for Kenya to gain
from the extension since the country lacks the capacity to offer
any subsidies.
“We have very little subsidies on export trade because the
economy cannot afford to sustain them. Even the small areas such
as research remain largely donor funded with little coming from
government,” Dr John Omiti, a researcher with the Kenya
Institute of Public Policy and Research (Kippra) said.
The WTO defines a subsidy as a financial contribution by a
government or any public body that confers a benefit to
productive sectors of the economy.
Rich and developed nations such as the US have for decades
supported their industries with huge subsidies triggering
protests from poor nations. The subsides come in the form of
prohibited, actionable and agricultural subsidies.
Prohibited subsidies are those that directly affect trade and
most likely to affect other WTO members adversely, while
actionable ones are those that support the production chain and
may not be prohibited by law but can be challenged through
multilateral dispute settlement or countervailing action in the
event that they cause adverse effects on the interest of another
member.
There are also agricultural subsidies that cover agricultural
products in terms of both domestic support and those issued in
this category are not prohibited by law although they remain
counteravailable.
In Kenya, firms within the Export
Processing Zones (EPZ) enjoy export subsides in the form of
exemption from duty charges even though most players within the
zones maintained the gestures are insufficient and had resulted
in unfair competition in the international markets.
“What we have in Kenya in terms of exports subsidies is so
little compared to others such as the EU. For instance the EU
gives subsides of up €300 million which is even more than the
total aid to Sub-Saharan countries,” Mr Victor Ogalo, of the
Centre for International Trade Economics and Environment (CUTS)
said.
The Agreement on Subsidies and Countervailing Measures provides
for an eight-year transition period (until end 2002) for most
developing countries to eliminate export subsidies.
Under procedures adopted in November 2001 at the Doha
Ministerial Conference, the SCM Committee may grant annual
extensions of the period to these countries until end 2007,
subject to annual review of transparency and standstill
obligations.
Consultations on another extension began in April 2006 in
response to a proposal from Barbados and other developing
countries that have received extensions of the transition
period.
Barbados said they needed the policy space to maintain these
programmes, which are important components of their development
programmes.
A draft decision reached by the committee in May and June this
year states that the continuation of extensions shall be subject
to annual reviews by it (the committee) based on updating
notifications from the members in question.
These members shall provide an action plan for eliminating
export subsidies for the annual review to be conducted in 2010.
This news item can also be viewed at: http://www.bdafrica.com/
Does failure of WTO talks matter?
The Economic Times, July 05, 2007
By Pradeep S Mehta
Since developing countries like India,
China and Brazil do not stand to gain anything significant from
the Doha Development round, it doesn't matter whether the WTO
talks are concluded now or later, says Pradeep S Mehta.
The failure of talks on the WIO Doha Round
at Potsdam in the third week of June made front page news in many
newspapers. But it did not send the markets spinning, and thus was
not an earth-shaking event.
A friend, in the engineering business asked
me as to what it means for India and how will it affect him. His
business has been doing well in a buoyant Indian economy, which
includes exports to other developing countries. Being a complex
situation, one could only tell him that if the talks do not
succeed, then it would hurt the global economy, and may affect his
business to some extent. The impasse can create some bumps on the
road. It would certainly affect many of our exports to the rich
world, where newer barriers will be erected to hinder them.
Coming down to some expert speak, the talks
among the four members of the new quad: the US, Europe, Brazil and
India broke down mainly over farm subsidies. Alas, the blame is
being attributed to India to a large extent in this geopolitical
circus. Is it right? The simple answer is No. The demand on
reducing farm tariffs in our own tariff regime was not amenable to
our political managers. They have to get elected again.
The western media have parroted the views of
the US that their offer on farm subsidies was linked to our
reduction in industrial tariffs. For us to reduce our tariffs on
manufactured goods is not as much a problem as is being made out
in this mud slinging game. The issue of greater concern for us was
about reducing our protection to farm goods imports. "We cannot
bargain the livelihoods of 650 million farmers in India", said
Kamal Nath, the commerce and industry minister, when he walked out
of the Potsdam meeting.
Of course, every trade deal comprises a quid
pro quo, i.e., we have to give something to get something.
However, one has to travel in history to understand how trade-offs
have been an intrinsic aspect of negotiations. One vital example
is our acceptance of the agreement on trade-related intellectual
property rights (TRIPs) as a bargain to get textiles and clothing
on board in the Uruguay Round. Even in that we were cheated, as
most textile quotas expired at, the end of the 10 year period in
2005.
The Uruguay Round itself was a Herculean
task which took over seven grueling years. The demands of rich
countries have always been pretty one-sided, seeking greater
market access for their goods and services. Thus whatever could
not be sorted out then was added as an in-built agenda for future
resolution. Agriculture was pushed as a negotiating agenda in the
Uruguay Round by the net agricultural exporting countries,
comprising a heterogeneous group of developed and developing
countries, where farming is efficient without depending upon
artificial support.
Agriculture continued to remain on the front
burner, and was included in the Doha Round, which was launched in
2001. One great impetus for this was to send a signal to the world
that the 9/11 disaster in New York has not pushed the world into
some kind of depression. The intent was right, but how to get
developing countries on board, which had till now not been able to
digest the complex and unfair deal derived from the Uruguay Round.
This round had launched the WIO in 1995.
Thus the Doha Round was christened as the
Doha Development Agenda, while many are still puzzled about the
outcomes for development in the framework deal. One major issue to
achieve development in poor countries is to cut down protection to
farm goods in the west. In fact, agriculture has always been the
deal breaker in trade talks, and it was a sense of deja vu
when the Potsdam talks failed.
Frankly, it was difficult for the US to move
forward because firstly, the fast track authority to the President
to negotiate trade deals was expiring end-June. Besides that, the
Republican government led by George Bush now has a Democrat
dominated Congress, and the United Progressive Alliance (UPA)
government led by Manmohan Singh in India, has faced a series of
debacles in state elections. In the given situation; it is
unlikely to expect any creative thinking from the two nations
which may have greater economic logic but politically unviable.
There will be a new President in the US by November, 2008 and a
new government in India by 2009.
The government, which comes to power in
India in 2009, will have a similar approach to the Doha round. We
would want the rich to put money where their mouth is, i.e.,
deliver on development promises. This is our commitment to the
developing world, to whom we have a responsibility. As ever,
agriculture will be a key issue.
As far as domestic agriculture is concerned,
we have offensive interest in third country markets, and there is
a great potential. As it is, we are today a net agriculture
exporting country. But our exports to third countries are not
competitive due to subsidies in the west. Among the potential high
growth areas, rice (not basmati alone), dairy products,
fruits and vegetables are some of them. However, we need to
address some domestic issues to realise the full potential.
Other than expanding agriculture investment,
we need to improve infrastructure and establish a good supply
chain management system. Here, opening up our retailing sector to
large companies will be of great help, as they can create the
enabling environment, which will capture economies of scale to
improve the whole supply chain system. Consequently, farmers would
also benefit by getting higher farm gate prices and consumers
would benefit by getting quality products at lower prices.
Our manufacturing sector is progressing
pretty fast, and to support that we have been unilaterally
liberalising our tariff regime and promoting special economic
zones. On industrial products, the tariff is on an average 11.2%.
This helps both our small-scale and large-scale sectors by
enabling them to get intermediates and inputs from the best source
and at the lowest cost. In services too, we have been liberalizing
unilaterally, which is helping us to improve our competitiveness.
Pundits have analysed our gains of a completed Doha Round to be in
the range of $3.5 billion; for China, $1.3 billion and for Brazil,
$3.9 billion. Given these small gains, it will hardly matter much
whether the Doha Round is completed now or later.
The author is Secretary General, CUTS International, a leading
research, advocacy and networking group and can be reached at
psm@cuts.org
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