Discussion Paper Undersecretary Thomas G Aquino Department Of Trade

discussion paper undersecretary thomas g. aquino department of trade and industry philippines doha development agenda and beyond

Discussion Paper
Undersecretary Thomas G. Aquino
Department of Trade and Industry
Philippines
Doha Development Agenda and Beyond
==================================
29 April – 01 May 2002
Geneva
________________________________________________________________________
Work Session I – Development Opportunities from Doha
29 April 2002/2:30 – 4:30 pm
This paper will present a general assessment, from the perspective of
a developing country, of the potential contribution of the Doha
Development Agenda to the furtherance of world trade.
I. Primacy of Domestic Constituents
The work of trade negotiations invariably involve issues related to
domestic political process and the dynamics of international
negotiations. These jointly determine how each country participates in
the global trading system. In the Philippines, as may perhaps be true
for other developing countries, domestic concerns and international
negotiations seem, at least for the time being, to be unconnected
realities. An increasing number of our domestic constituents are quite
vocal in demanding that, at the very least, the Philippines does not
deepen its commitments to trade liberalization.
Negotiators have the front-line task, among others, of enabling the
World Trade Organization (WTO) to become a reliable instrument for
achieving the economic aspirations of their constituents. A robust
global trading environment should be pursued and thereby serve as an
effective climate for enhancing the well-being of peoples, instead of
a constraint that unduly becomes a source of frustration in the quest
for economic progress.
In 1994, when the Senate ratified Philippine membership in the WTO,
the most convincing arguments revolved not only on potential positive
gains but also considered the consequences of staying outside the
global market. In fact, not a few Filipinos were doubtful that the
country is better-off with the new trade system. Most believed,
however, that they would be worse-off without it.
Unfortunately, ensuing global developments highlighted the negative
rather than the positive impact of highly globalized trade. The Asian
financial crisis, the present global economic slowdown as further
deepened by the September 11 terrorist attacks in the United States,
among others, limited the growth of global trade and further
intensified competition among economic players.
The domestic constituents’ fear of potential losses from not being
part of the WTO has rapidly been buttressed by specific, tangible
instances of formidable challenges associated with trade
liberalization. The viability of arguments offered by the negative
incentive to WTO non-membership has reached its limits. From here on
onwards, any argument for continued trade liberalization can only be
anchored on clear, tangible economic gains from trade. Negotiators
find themselves under a compelling need to present to their
constituents specific examples of real economic sectors that have
benefited and will benefit from trade.
II. Lessons from WTO Membership
Future examples of successful trading sectors do not seem forthcoming
such that any lessons for future policy guidance can only come from
recent past experience of Philippine foreign trade. From a developing
country standpoint, two important lessons can be learned from the
seven years of being a member of the WTO.
*
Link between Trade and Poverty-reduction
Like most developing countries, poverty is at the core of the
Philippines’ problems. Some studies have shown the important link
between a country’s openness and poverty-reduction: poor countries
that opened their economies experienced higher income growth that
allowed them to reduce poverty.1 Admittedly, however, implementation
experiences need to be shared throughout a wide spectrum of countries
if only to fully-appreciate and come to grips with the non-automatic
positive link between trade and poverty-reduction.
Trade involves an exchange: countries need to import, as well as
export. Imports are treated in national income accounting as a leakage
from the income stream; conversely, exports are considered as valuable
infusions. Higher levels of exports, and not openness per se, raise
incomes and consequently reduce poverty.
Thus, while it may be agreed that trade can reduce poverty, this can
only be realized in a conducive trading environment that allows poor
countries to increase their levels of exports and a trading system
where developed countries allow at least fair access to their markets.
An authentic poverty-reducing global trade system must acknowledge
that agriculture, labor-intensive manufacturing industries and certain
services provide employment to most people, especially the poor,
living in developing countries. For various reasons, however,
competition and market access in the agricultural markets of developed
countries have not been fair. Moreover, with developing country
markets for industrial products largely liberalized, they face
intensified competition especially from other developing countries.
The present global trade situation can thus be characterized by:
*
Agricultural markets that have remained protected and subsidized,
especially in developed countries; and,
*
Markets for labor-intensive manufactured products that have
gradually been liberalized, resulting in (1) intense competition
among developing countries, usually as proxies for large
transnational corporations2 and (2) displacement of workers in
adversely affected industries.
The resulting pattern of trade has substantially limited developing
countries’ income-generating potential and, at the same time,
highlighted the economic dislocations associated with trade
liberalization. The positive impact of trade on poverty-reduction in
developing countries remains doubtful for as long as developed
countries continue protecting and subsidizing their productive
sectors, like agriculture.
*
Non-transferability of Gains and Losses from Free Trade
Philippine experience has shown that trade liberalization cannot be
argued on the basis of net aggregate gains. In a developing country
context, gains and losses from free trade are not transferable. The
total benefit gained by consumers due to a decrease in the price of a
commodity cannot compensate for the loss of income by even just a few
workers.
The dynamics of trade reform has often been described by political
economists as irrational, providing opportunities for rent-seeking.
The incremental benefit from free trade that accrues to ordinary
citizens, though perhaps significant when aggregated, may be too
negligible to be translated to political support. On the other hand,
though the total loss from free trade may be less than the gain, its
impact on displaced workers will be quite significant for any
government to ignore.
However, this seemingly irrational process can be quite easily
understood. The cost of protection serves as the social insurance for
the poor sectors of the economy. It allows the costs of protection to
be shared by many individuals, in return for much-needed benefits to
the poor. The trade protection in developing countries has as
functional equivalent the subsidies that developed countries provide
to their marginalized sectors, e.g., farmers. In the case of
developing countries, governments do not have the resources to provide
subsidies.
III. Future Perspective on the Doha Development Agenda
The WTO workplan specified in Doha has the singular opportunity to
enhance the global trading system and thereby provide benefits to
countries, especially those who need it most. It has the potential to
address the lessons learned thus far and strengthen the framework for
a more development-responsive global trading system.
*
Equal Trade Opportunity
The Doha Development Agenda is a call to Member countries to fully
maximize the poverty-reducing potential of trade. Critical to the
success of this effort is the continuing push for greater access of
agriculture products to developed country markets.
The decision on agriculture is a focal element in the Doha
Declaration. While the Philippines and a major number of WTO Members
would have wanted a stronger and more ambitious commitment in the
reduction of domestic support and export subsidies, there were
positive manifestations in the text of the Declaration that will seem
to address the fundamental concerns of reform-oriented Members,
including and specially among developing country Members.
Ministers supported further Special and Differential (S&D) treatment
by agreeing that S&D treatment for developing countries shall be an
integral part of all elements of the negotiations. Likewise, S&D shall
be embodied in the schedules of concessions and commitments; and, as
appropriate in the rules and disciplines to be negotiated, so as to be
operationally effective and to enable developing countries to
effectively take account of their development needs, including food
security and rural development.
Among the more welcome provisions of the Ministerial Declaration is
the commitment to phase out export subsidies. The decision also
encompasses all forms of export subsidies, especially in agriculture.
Developing countries, whose comparative advantage in the world market
has been eroded by subsidized exports from developed countries, will
find this useful.
The decision also specifies more concretely the negotiating timeframes
including those on the elaboration of S&D treatment not later than 31
March 2003, and comprehensive draft schedules of commitments no later
than the date of the next Ministerial Conference.
Notwithstanding, there are also some elements in the Declaration that
the Philippines would look into more closely.
First, the reference to non-trade concerns in the agriculture text
fails to qualify what will be addressed in WTO-consistent,
transparent, targeted and non-trade/production distorting ways. This
simply opens the negotiations to non-trade concerns like
“multifunctionality” and food safety, which are better left to be
addressed in other relevant fora, considering that these are
susceptible to abuse as they can be disguised restrictions to trade.
Second, the text mandates negotiations on the relationship between
existing WTO rules and specific trade obligations set out in
Multilateral Environment Agreements (MEAs), and trade in environmental
goods and services. By way of giving proponents the benefit of the
doubt, the Philippines continues to search for convincing arguments on
the real basis for establishing the link between these two areas.
Third and most important, there seems to be a downgrading of the
objectives in so far as the three pillars of agriculture are concerned3
with the introduction of the phrase, “without prejudging the outcome
of the negotiations…”. The Philippines shares the view of other
countries in asserting that the level of ambition should be kept high
particularly on the reduction of domestic support and the elimination
of export subsidies.
*
Ensuring Fair Trade
A free trade system where majority of the members do not enjoy its
benefits will collapse on the weight of its inequity. Fair trade
should be inclusive, where each Member country, regardless of its
stage in the ladder of economic development, should benefit.
Developing countries should be allowed to prudently use equivalent
measures of protection that developed countries, because of their
resources, have been able to provide to the marginalized sectors of
their economies. The use of equivalent instruments of social
insurance, whether in the form of subsidies or protection, should
continue to be recognized as a legitimate function of government for
developing countries. Parallel to this, trade protection as a way of
undertaking structural adjustments of affected economic sectors should
also be recognized. If, however, social insurance and investments—in
whatever form—will have to be progressively limited, multilateral
financial institutions must be called upon to provide funding for the
adjustment process of developing countries.
Within the context of the Doha Development Agenda, the Philippines
remains committed to push for S&D measures as one of several ways to
ensure fairness in global trade.
In pursuing fair trade, developing countries face two challenges under
the Doha Development Agenda. The first challenge is to ensure that
existing S&D measures are maintained where these are crucial to the
success of economic development programs. The second is to be able to
adapt the S&D measures to the realities of globalization and
liberalization.
In practical terms, this means the ability to set trade policies
relative to reasonable access to domestic markets and to provide
governmental and multilateral support to domestic industries.
Likewise, it also means enhanced market access for products and
services of interest to developing countries particularly in the
markets of developed countries.
In this regard, the Philippines, together with other developing
countries, will continue to argue for:
a.
The right to benefit from multilateral trade agreements,
particularly on tariffs in accordance with the most-favored-nation
(MFN) principle, without being obliged to offer reciprocal
concessions;4
b.
The freedom to establish preferential regional and global trading
arrangements without conforming to the General Agreement on
Tariffs and Trade (GATT) requirements on free trade areas and
customs union under GATT Article XXIV;5 and,
c.
Preferential access under the Generalized System of Preferences
(GSP)6.
In the current debate at the Committee on Trade and Development,
Members argue on the approaches to concretize the S&D provisions. In
this regard six substantive categories of S&D provisions have been
identified, as follows:
a.
Provisions aimed at increasing the trade opportunities of the
developing country Members;
b.
Provisions under which WTO Members should safeguard the interests
of developing country Members;
c.
Flexibility of commitments, of actions, and use of policy
instruments;
d.
Transitional time periods;
e.
Technical assistance; and
f.
Provisions related to least-developed countries (LDCs).
The debates focus on WTO S&D provisions that shall be made “mandatory”
or “non-mandatory”. The distinction is being debated for WTO
provisions that fall under categories (a), (b), (c) and some
provisions in (d). The distinction on the other hand may not be
relevant to categories (e) and (f). Mandatory provisions are
distinguished from non-mandatory provisions by the use of the word “shall”
in the former and the word “should” in the latter.
The Philippines believes that the debate borders on purely legalism
and semantics, and fails to observe the genuine intention and spirit
of the drafters of the GATT and the WTO Agreement. If the aspirations
of developing countries under the WTO Agreement are to be realized,
the categories of S&D provisions must all be made mandatory.
Otherwise, developed Members may choose to argue the use of such
distinction as may be conveniently seen fit and as may provide them
with real advantages over developing WTO Members.
Furthermore, other provisions of the Doha Development Agenda that will
enhance the capability of developing countries to meaningfully compete
in a fair, rules-based system are useful.
Technical assistance and capacity-building. Having fair rules is a
necessary starting point. Equally-important is having players who can
effectively play and be governed by the same fair rules. This would
ensure that the outcomes of the negotiations will materially reflect
the merits of the positions brought up for agreement.
Technical assistance will, in broad terms, allow developing countries
to: (a) enhance their understanding of the WTO Agreements, (b)
undertake an assessment of their implementation of the Agreements and
the possible benefits which have accrued in their favor, as well as
the costs they’ve incurred consequent to such implementation, and (c)
evaluate the repercussions of undertaking new obligations either in
the form of further liberalization or new multilateral rules.
Capacity building, some effort of which is underway, should
concentrate on enhancing the capabilities of trade negotiators and in
upgrading the structural support that they receive from their
governments.
Technical assistance efforts should be intensified considering the
extreme complexity of issues that developing Members need to be able
to comprehend between now and the next ministerial conference.
Under a rules-based system where negotiation is the main instrument
for reaching a consensus, the resources at the disposal of developed
countries, rather than the merits of their arguments, could
significantly affect the outcome of the process.
Trade and foreign debt. A significant portion of the Philippines’
foreign exchange earnings are actually set aside for repayment of
foreign debt. Payment for debt incurred by the national government get
to be automatically allocated to foreign creditors. This has
substantially reduced whatever positive impact trade and available
national budgetary expenditures may have had on poverty reduction.
A development-oriented trade system needs to address the impediments
to mainstreaming trade into poverty-reduction efforts. In 1986, our
country was divided by a great debate on whether or not to selectively
repudiate foreign debt. The country decided to honor all its debt to
foreign creditors.
Like in international trade policy, the emerging dominant view is for
the Philippines to re-examine the merits of its past decisions in the
context of how its own prosperity is promoted and whether such is in
harmony with present realities.
IV. Challenges of the Doha Development Agenda
Overall, the Philippines must necessarily view the Doha Development
Agenda in terms of actual trade gains as registered in its national
Balance of Payment accounts. This is imperative for convincing
domestic constituents and may be based on the convergence of two
considerations.
First, there is a growing realization that the poverty of developing
countries serves as a limit on our collective prosperity. The trade
needs of developing countries newly-growing out of a prolonged period
of poverty would be tremendous and have to be addressed. Likewise, the
political and social ramifications of such a failure to develop would
have negative spillover effects.
Second, there has been a fundamental switch in the agenda of developed
and developing countries. The present prevailing view is that the
Philippines has yet to experience, to the necessary degree, actual
benefits from WTO membership. It has to be shown that the rules-based
system has indeed significantly benefited developing countries despite
the unconvincing record of the last seven years.
The label of Development Agenda does not by any means guarantee that
the work program will indeed be one. Developing countries must be
given the opportunity to independently and intelligently identify and
articulate their choices and priorities in the context of fostering
their own growth and economic development; and, developed countries
must be expected to not only respect these, but furthermore, to work
with developing countries in attaining their objectives as reflected
in these choices.
In conclusion, it is clear that the challenges towards making the Doha
Development Agenda succeed largely rests on countries that have the
means with which to make a rules-based trading system work. The
acknowledged potential that developing countries have to offer under a
fair, rules-based trading system will therefore have to be addressed
in a developmental manner as called for in the latest WTO round of
negotiations.
1 See, for example, WTO Special Study No. 5: “Trade, Income Disparity
and Poverty,” Dan Ben-David (Tel Aviv University) and L. Alan Winters
(Sussex University). June 2000.
2 See, for example, World Investment Report (UNCTAD), various years.
3 These are market access, domestic support, and export subsidies.
4 GATT Article XXXVI, Paragraph 8, of Part IV (Trade and Development)
states that: “The developed contracting parties do not expect
reciprocity for commitments made by them in trade negotiations to
reduce or remove tariffs and other barriers to the trade of
less-developed contracting parties.”
The Ministerial Decision on “Differential and More Favourable
Treatment, Reciprocity and Fuller Participation of Developing
Countries” (Decision of 28 November 1979) or the so-called “Enabling
Clause” likewise states, under Paragraph 5, that: “The developed
countries do not expect reciprocity for commitments made by them in
trade negotiations to reduce or remove tariffs and other barriers to
the trade of developing countries . . .”
5
 Paragraph 1 of the “Enabling Clause” provides exceptions to GATT
Article I (General Most-Favoured-Nation Treatment) by allowing
contracting parties to “accord differential and more favourable
treatment to developing countries, without according such treatment to
other contracting parties.” Paragraph 2 lists specific applications of
Paragraph 1, including: “Regional or global arrangements entered into
amongst less-developed contracting parties . . . ”
6
 Paragraph 2 of the “Enabling Clause” also listed, as an exception to
GATT Article I, the “Preferential tariff treatment accorded by
developed contracting parties to products originating in developing
countries in accordance with the Generalized System of Preferences.”
9