Doha
Round To Remain in Cold Storage: T N Srinivasan
July 29, 2006, New Delhi, Press Release
“At present the Doha round has boiled
down to mere sloganeering, without addressing the fundamental
issues of negotiations,” said Prof. T N Srinivasan, a noted
trade economist of the Yale University, USA. While the Indian
Commerce Minister at Geneva last week said that India is ready
to negotiate commerce but not subsistence, developed countries
argue that “Indias, Brazils and Chinas” of this world
should open up their market. Given the prevailing imbroglio, in
all likelihood the Doha round is to remain in cold storage for
several years.
He was delivering a lecture on “The Future
of the Global Trading System: Doha Round and Beyond”. This
was organized by CUTS International to celebrate the 10th anniversary
of the CUTS Centre for International Trade, Economics & Environment
(CUTS-CITEE). The meeting was chaired by Dr. Kirit Parikh, an
eminent economist and member of the Planning Commission.
Prof. Srinivasan was critical of India’s
stance on Special Products in agriculture negotiations. Simply
mouthing out demand for a large number without looking at its
welfare implications is not going to serve any purpose. The identification
of Special Products must be based and backed up by sound credible
research. Responding to this Indian Commerce Secretary Shri S
N Menon said that India has identified products and tariff lines
after doing extensive research and consultations with the stakeholders.
The Planning Commission of India is extensively involved in this
exercise besides other major think tanks.
On the issue of bilateral trade agreements,
it is very important to identify our partners, speakers said.
One must understand that going with large number of negative lists
will not lead us anywhere. However, Prof. Srinivasan warned India
of going for bilateral with USA. With USA it is very difficult
to get a good deal because of its tendencies to press for inclusion
of TRIPs plus commitments, labour and other non-trade issues in
the negotiating agenda.
Taking forward the discussion, the Commerce
Secretary Shri Menon said that India has shown flexibility in
the negotiations given the fact that it was not a demandeur of
the Doha round. In manufacturing, India has brought down its average
tariffs substantially to 12.5% and will continue to reduce them.
On services India has tried to work closely with the USA and co-sponsored
some submissions.
CUTS Secretary General Pradeep Mehta highlighted
the important role that the organisation has been playing over
a decade. When CUTS started its work on trade issues in early
1990s, any possible role by a consumer organization in trade policy
research and policymaking was looked at with scepticism. However,
CUTS beat all such scepticism by not only raising awareness level
of different stakeholders’ groups but also doing credible
research and analysis, which provided significant inputs in the
policy-making process in India and other countries.
For further details please contact:
Vijay Singh, 9818250102
Bipul Chatterjee, 09829285921
Trade,
Development and Poverty: The Sri Lankan Experience
July, 2006
By Ms,Ranmini Vithanagama
Economic growth and development is one of the
primary macro economic aims of any government. Development in
a country is a wide phenomenon that covers not only the enhancements
in Gross Domestic Product (GDP) and other economic indicators,
but also in the quality of life that the community within that
economy enjoys.
Trade is one vital source through which a country
may achieve this macro economic goal of development. How trade
contributes to development and poverty reduction is rather straightforward.
Trade promotes economic growth and development, and this in turn
leads to a reduction in poverty of a country. Having established
a clear-cut connection thus, it is now sensible to take a closer
look at the Sri Lankan experience on this interlink.
While the greatest part of the post independent
era was marked by an inward looking agriculture-focused economy
in Sri Lanka, a major turn around of this policy was brought about
towards the latter part of the 1970s. In 1978, structural adjustments
were introduced to bring vigour to an economy that had come to
a point of stand still owing mostly to its inward orientation
and protectionist stratagem employed.
A key area of focus of the adjustments was trade
liberalization. However, it is important to note that trade liberalization
was only part of the overall adjustment process which also included
external payments liberalization, de control of prices and interest
rates, promotion of the private sector in the development process
and encouragement of foreign investment. The reforms introduced
thus mainly consisted of tariff reforms, payment reforms, institutional
reforms and other macro policy changes.
The pre reforms period was largely concentrated
on import substitution and heavy qualitative restrictions were
placed on imports. Under the adjustments made in this regard,
almost all non-tariff barriers on imports that existed during
the 1960s were lifted and were instead replaced with tariffs.
The six-band tariff system initially introduced was gradually
developed in to a simpler two-band system by year 2000. Restrictions
placed on many of the consumer goods, and quite a number of intermediate
and capital goods were removed, while the government monopoly
in the importation and distribution of goods were also withdrawn
except in the cases of certain food items, grain and petroleum
products.
The balance of payment reforms that were also
undertaken had complementary effects on trade liberalization.
The immediate pre reforms era was marked by a dual exchange rate
system under Foreign Exchange Entitlement Certificate scheme that
was intended to encourage non-traditional exports and deter non-essential
imports by the application of a premium over the nominal exchange
rate. The unification of this discriminatory exchange rate system
and bringing it under a managed float coupled with the depreciation
of the rupee against the US dollar by more than 45 per cent had
positive impacts on our export sector.
Under the institutional reforms taken on in the
adjustment process, the Greater Colombo Economic Commission (GCEC)
was established in 1978 (which was later changed into Board of
Investment) with a view to promote foreign investment locally.
Additionally Free Trade Zones were set up to encourage the inflow
of Foreign Direct Investment into the country with attractive
incentive schemes consisting of tax holidays, export credit insurance
and financing at concessionary rates. In 1979, the Export Development
Board was established to support and guide export-undertakings.
The extensive government intervention during
the pre-reforms era largely prevented the free movement of market
forces to ensure an efficient resource allocation. The lifting
of controls placed on prices and interest rate along with the
curtailment of subsidies that had been a key burden on the national
budget since the days of independence gradually encouraged the
market mechanism to operate more freely. While the monetary policy
tools were used in a way that promoted domestic savings, deterred
demand for credit particularly on non essential motives, and encouraged
foreign investments, fiscal policy measures were aimed at cutting
down on government expenditure through lifting of subsidies and
introducing a food stamps scheme in its place for the low income
earners. The focus shifted from a welfare orientation towards
improving infrastructural facilities such as power stations, reservoirs
and housing for the needy.
All these reforms together, as per the expectations,
led initially to a rapid economic growth. The GDP, which registered
a growth rate of 4.2 per cent in 1977, soared to 8.2 per cent
by 1978. Afterwards the GDP growth rate has remained close to
6 per cent in the early 80s which then fell to 5 per cent towards
the latter half of the 80s (Central Bank Annual Report: 2004)
possibly due to the deceleration in the initial spirit of the
adjustment period.
The end of 1980s was characterized by civil insurgencies
in the South, which caused considerable slow down in the economic
activity, heavy damage to infrastructure facilities, and much
disruption in the lives of many people.
Partly in response to this uprising and partly to bring life to
the economy that had lost vitality in the aftermath of that unrest,
the second wave of trade reforms was introduced in 1989/1990 with
a view to further relax the remaining restrictions upon the market
mechanism; further relaxation of exchange rate restrictions, further
incentives for foreign investment, further simplification of tariffs,
further removal of import controls except on the ones deemed essential.
The privatization of public ventures was also carried out with
renewed enthusiasm. The Janasaviya programme was aimed at alleviating
poverty too was undertaken during this phase of reforms.
The GDP growth rate in 1990 rose to 6.3 per cent,
however to be followed by another high growth rate of nearly 7
per cent in 1993. The average growth rate over the period 1994-1999
has been 5 per cent, which cannot be considered too low for a
country that was for the most part on the 1990s was also involved
in a civil war which ate up a lot of finances that could have
been used for development purposes.
Having analyzed how the policy reforms have been
absorbed into the economy in the form of improved economic indicators,
it is now important to focus on how the benefits of trade are
channeled towards the poor. The main channel through which trade
reaches out to the poor is through employment generation. How
much the poor will gain will depend on the type of labour they
possess and the type that is required by the trade reforms. A
classic example is the garment factory sector that boomed after
the opening up of the economy. The industry largely required semi
skilled labour from young females and this created a large number
of employment opportunities for the school leaving females, thus
obviously improving their economic well being. In the late 1970s,
this provided some 95000 employment opportunities for the semi
skilled local youth. Apart from direct generation of jobs through
the setting up of garment factories, many other employment opportunities
arose indirectly in the setting up of such factories and developing
the required the infrastructure. The construction activities,
one classic example being the Accelerated Mahaweli Development
Programme) ambitiously carried out by the government to complement
the structural changes also generated numerous employment opportunities
in the construction sector. Consequently the unemployment rate,
which was as high as 24 per cent in 1973, reduced to nearly 15
per cent by 1979. (Central Bank Annual Report: Different issues)
However, employment statistics need to be interpreted with some
reservation since the differences in the definitions of unemployment
used during different surveys. Although the unemployment rate
again shot up to nearly 16 per cent by 1990 owing to a slow down
of the growth momentum, the rate has been on the decline afterwards
after the economy regained its pace.
However, it is not advisable to hail trade reforms
as the singular driving force behind improved employment rates.
There have been other factors that have contributed in bringing
down the rates of unemployment. The opening up of the economy
paved a new way of employment for the country through labour outflow
to oil producing Middle-East countries where semi skilled and
unskilled labour was in demand. On the other hand, the Sirima-Shasthri
pact entered into in 1964 saw around 330,000 Indian Tamils who
were originally brought here to work in the plantation sector
being deported to India. Plus, the ethnic conflict that began
to plague the country since 1983 provided employment for the youth
particularly males in the armed forces. These issues cannot be
ignored when appreciating the reduction of unemployment in a holistic
view.
Paradoxically, the very trade reforms that boomed
some industries, was a bane on another set of industries, particularly
the domestic-oriented ones, a typical example being the traditional
handloom industry. Many handloom factories were closed down unable
to withstand the fierce competition posed by imported textiles.
Consequently, many rural workers where such factories are largely
located, lost their jobs, and due to the structural mismatch between
the handloom technique and the garment technique, common sense
suggests that it must have been difficult for the displaced workers
to be absorbed in to the new employment opportunities created
by the emergent garment factories.
Since the link is that trade ultimately leads
to reduction of poverty, an analysis of poverty statistics would
prove constructive in seeing how far the Sri Lankan experience
relates to the link between trade development and poverty. The
poverty headcount from 1990-91 to 2002 had only witnessed a moderately
fall from 26 per cent to about 23 per cent. The poverty head count
in the urban sector had almost halved over the same period while
the rural sector has also slightly declined. But the estate sector
poverty had risen from 20 to 30 per cent over the said decade.
(World Bank: 2004). On the other hand the Gini co efficient (Income
Receivers), which stood at 0.5 in 1953, was by 1978/79 still 0.5
and by 2003/04 it still remained at 0.5. (Central Bank Annual
Report: 2004). Thus, it is plain that there has not been much
reduction in the inequality in income distribution patterns over
the years even after the trade reforms. While the per capita income
has risen above 1000 US dollars by 2004 the fact that Gini coefficient
has not undergone any significant decline suggests that though
the absolute poverty level may have fallen over the years, the
relative poverty levels may not have experienced such reductions.
On the other hand, inflation has been a key figure
following both phases of trade reforms. After the 1977 structural
adjustments the rate of inflation rose to an astronomical 26.1
in 1980. Ironically, again after the trade reforms introduced
during 1989/1990, inflation registered a double-digit rate as
high as 21.5 per cent. While a modest rate of inflation is acceptable
in an economy, such gigantic levels of inflation is definitely
detrimental to fixed income earners, which represent about 60
per cent of the employed, particularly those in the low and lower
middle income percentiles.
The civil unrest in the South and the ethnic
violence in the North also played their part in deteriorating
local and foreign investor confidence in Sri Lanka as a lucrative
site of investment. Additionally, the tourism industry, which
proved to be a source of employment for unskilled youth in tourism-centered
areas, tended to suffer major setbacks caused by insecurity and
resultant instability, which prevailed during that point in time.
Thus, some benefits of trade reforms, to some
extent, may have been offset, and some other benefits not fully
captured, by the economy, owing to the repercussion-effects of
high inflation and unstable economic and political conditions.
The bottom line is that Sri Lanka lacks a proper
set of statistics on employment and poverty level to make a meaningful
analysis, either because of the variations in definitions or because
the true situation has not been captured in the figures. Therefore,
to gallantly conclude that trade policy has led to economic development
in Sri Lanka and in turn, a reduction of poverty is difficult.
Then again, it is not also fair to conclude that trade, development
and poverty reduction in Sri Lanka do not share a justifiable
interlink. While it may be a futile attempt to establish a clear
cut channel of causation where trade reforms enhanced economic
indicators and those enhancements manifested themselves in reduced
poverty levels, we cannot rule out the fact that trade reforms
have definitely helped at least some of the people out of poverty
through the economic development it has brought about.
It’s
time for Lamy to Wear Dunkel’s Hat
July 26, 2006, New Delhi, Press Release
“History repeats itself is a cliché, but
we should learn from the Uruguay Round negotiations and continue
our strive towards liberalising the multilateral trading system,”
said Pradeep Mehta, the head of CUTS International while releasing
a statement on the recent collapse of WTO talks. Incidentally,
in 1990 the Uruguay Round talks were collapsed because of differences
between EU and US over farm liberalisation. The then head of GATT,
Arthur Dunkel then came forward and produced a forward-looking
text, which was known as the Dunkel Draft. It is time that the
present head of the WTO, Pascal Lamy take a similar step, Mehta
said.
However, Lamy’s job will be much more difficult
than Dunkel’s. A greater number of players are now involved with
negotiations, as stakes are much higher than in early 90s. Issues
are more complex. In the words of Lamy: “The United States must
offer deeper cuts in its farm subsidies, the European Union must
further drop barriers to farm goods’ imports and the big developing
countries must agree to open up their markets for industrial goods.”
On the last point, India is insisting that distortions in farm
trade should be removed first before any move on other fronts.
India has blamed the US for the current round of impasse and predicted
that it will take months and years to put the Doha Round of negotiations
back on track.
“A no-deal is certainly better than a bad-deal,
but we should keep in mind pitfalls of a failure of Doha negotiations
and act on several fronts,” Mehta argued. A likely pitfall could
be that trade disputes (on account of trade remedial measures
and otherwise) will increase and developing countries may be at
a receiving end. Secondly, there may be increasing use of non-tariff
measures with significant negative implications on the livelihoods
of the poor.
Indian trade minister, Kamal Nath has rightly
hinted that the focus of trade liberalisation will now shift to
bilateral and regional agreements. Such preferential trading arrangements
can be used as building blocs for trade liberalisation, but unless
appropriate safeguards are taken they may not be as beneficial
as one would like to think. India is about to start discussions
with the European Union for a comprehensive economic cooperation
agreement. On the other hand, the Association of South East Asian
Nations (ASEAN) has unilaterally suspended its negotiations with
India on a free trade agreement, citing that India is refusing
to open up its market for those products, which are important
for ASEAN countries.
For further details please contact:
Bipul Chatterjee: 09829285921
Mani Lamba: 9910445526
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