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The result of the Hong Kong Ministerial is not as important as the message it sends for the developing countries. After having flexed their muscles in the multilateral trade arena, they need to develop an alternative to the markets of the North. This is possible only through greater South-South cooperation on trade and economic issues, say Pradeep S. Mehta and Pranav Kumar.

UNDOUBTEDLY the outcome of the Sixth Ministerial Conference of the World Trade Organisation (WTO), that concluded in Hong Kong on December 25, was modest. The biggest achievement is that the Ministerial did not flop. A second collapse after Cancun would have been really disastrous for the multilateral trading system. While a failed Ministerial puts the agenda in a reverse gear, a successful one at least sends a positive signal. The second important result is, for the second time in a row, countries of the South not only remained united, but reinforced their unity, telling the North that enough is enough.

If one recalls, the Cancun Ministerial had ended on a bitter note. Soon after, the WTO members indulged in a blame game. The then US Trade Representative, Mr Robert Zoellick, in his post-Ministerial press conference said, "Whether developed or developing, there were `can do' and `won't do' countries here. The rhetoric of the `won't do' overwhelmed the concerted efforts of the `can do'. `Won't do' led to impasse." The WTO Director-General, Mr Pascal Lamy, who was the chief negotiator of the EU at Cancun, termed the WTO a `medieval' organisation. The then Commerce Minister, Mr Arun Jaitley, had summed up the outcome of Cancun in a one liner: "No deal is better than a bad deal".

Cancun to Hong Kong
After the Cancun fiasco, it took three-four months for the negotiators to come to the negotiating table and resume the dialogue. This resulted in the "July Package", which once again raised the expectations of the developing countries. Alas, the euphoria created by the July Framework Agreement proved short-lived. Back home, WTO members succumbed to the realpolitik and started singing in different tunes. Theresult: The Doha Round once again plunged into serious crisis. This is evident from the fact that in the run up to the Hong Kong Ministerial, the draft declaration was supposed to be released after the General Council (GC) meeting of July 2005, in what was called "July Approximations". But the GC meeting failed to evolve a consensus. The next GC meeting, in October, ended similarly. Finally, when the November 2005 GC meeting also could not break ice, Mr Lamy came out with his own draft declaration, which was modest in terms of substance. He put the Chair's reports in the annexure, urging members to build upon that.

What happened at Hong Kong?
The Hong Kong Ministerial Meeting began on a pessimistic note. A day before the inaugural, the attendance was poor. Delegates of some of the WTO member-countries were not present, giving the general impression that nothing much was going to happen. However, soon it turned into a four-corner contest, with the G-20 and the G-33 on one side, and the EU, the US and the least developed countries (LDCs) on the other.

As usual, developed countries started shedding crocodile tears for LDCs. A plethora of hollow promises in the form "aid for trade", duty- and quota-free market access and many more were served to the LDCs. The main objective was to shift the focus from the core agenda of trade liberalisation, as was evident from the EU Trade Commissioner,

Mr Peter Mandelson's statement that he was at the outer limit of his mandate and had nothing much to offer. At the same time, Mr Mandelson repeatedly skirted the negotiations citing reasons that there was nothing much to negotiate about. On the other hand, the US too was non-committal on the LDCs' demand of duty- and quota-free market access for all their products and, particularly, on the issue of eliminating domestic cotton subsidies.

The G-20 and the G-33, on their part, tried to be practical. They realised that it would be foolish to expect any ambitious result from Hong Kong, given the prevailing divergence of opinions on agriculture. They demanded that on export subsidies, as per the "July Framework" Agreement, the WTO members had to agree only on the end date of their elimination, which would have been the easiest thing to implement.

Unfortunately, instead of discussing this, the two major trading giants — the EU and the US — got entangled in a dog and cat fight over giving food aid to poor countries. The EU argued that cash was the best way to provide food aid, alleging that the US' food-aid-programme was causing commercial displacement. Finally, on December 16, the first-ever joint G-20 and G-90 Ministerial-level meeting took place. The Commerce Minister, Mr Kamal Nath, and his Brazilian counterpart, Mr Celso Amorin, were both instrumental in building this grand alliance of 110 countries covering four-fifth of the humanity. This thwarted and called the bluff of the rich countries to lure the LDCs and divide the unity of the South.

The G-110 meeting also proved that their unity at Cancun was not a fluke and would sustain. Only after this was the focus of the negotiations brought back to the main agenda, resulting in the release of a revised text on December 17 and the adoption of the final Declaration on December 18.

End result of Hong Kong
The outcome of Hong Kong was modest, which was not unexpected. The main demand of the G-20 to eliminate export subsidies by 2010 was not accepted by the EU; instead, a compromise date of 2013 was agreed with some frontloading. This also culminates with the EU Common Agricultural Policy' reform. What is most unfortunate is that the language on export subsidies has been made more complex. The G-20 can no more say that this will be easy to implement.

On providing duty and quota-free market access to LDCs, the demand of including all products has not been accepted unequivocally. In fact, some of the LDCs might be completely denied this preferential market access. The language of the text on cotton is disappointing in contrast to the pressure mounted by the cotton-producing LDCs in West Africa. There is no clear and firm commitment from the US on reduction of domestic subsidies on cotton. The EU is a very minor cotton producer. Also, with regard to the demand of creating a "special development fund" for the transition period, the US remained non-committal.

However, the text on non-agricultural market access (NAMA) gives a sense of comfort to some extent as tariff peaks and escalation would be reduced or appropriately eliminated by using the Swiss Formula with multiple coefficients. Preference erosion, which is one of the major fears of LDCs, has been recognised in the text.

Lessons from Hong Kong
The result of the Hong Kong Ministerial is not as important as the message it sends for the developing countries. The latter's major demand was to seek greater market access in the North, particularly in the products of export interest to them. The Hong Kong Declaration does not promise much on this front as the ticklish issues of modalities are yet to be sorted out.

After flexing their muscles in the multilateral trade arena, developing countries need to develop an alternative to Northern markets. This is only possible through greater South-South cooperation on trade and economic issues. This should also cover the larger issues of technical assistance and capacity-building. Greater South-South trade will further strengthen different South alliances in the WTO which, at present, are more political in nature.

Over the last decade (1990-2001), developing economies have grown much faster than developed ones and transition countries and are expected to continue to do so in the coming years. This positive growth performance in the 1990s did result in increased share of South-South trade in world trade. The South-South trade almost doubled, reaching 10.7 per cent in 2001 from 6.5 per cent of world trade in 1990. But this is definitely not enough to reduce their dependence on North and to diversify exports of many LDCs beyond primary products.

What is required is greater facilitation of South-South trade, which is facing hurdles from its own barriers and from the distortions caused by the protectionist trade policy of the North. Despite significant reductions in the obstacles to trade, the developing countries among themselves still maintain higher tariff and non-tariff barriers. The cost of doing trade is also high among Southern countries. It is, therefore, important for them to not only reduce these barriers but also undertake the exercise of trade facilitation measures at the regional level.

This article can also be viewed at:
URL: http://www.thehindubusinessline.com/2005/12/29/stories/2005122900611000.htm

The Cancun Ministerial Conference had ended on a bitter note. Soon afterwards, the members of the World Trade Organization (WTO) indulged in a blame game. The then US Trade Representative Robert Zoellick in his post-ministerial press conference said, "Whether developed or developing, there were 'can do' and 'won't do' countries here. The rhetoric of the 'won't do' overwhelmed the concerted efforts of the 'can do'. 'Won't do' led to impasse."

Pascal Lamy, WTO's Director General, who was the chief European negotiator at Cancun, termed WTO as a 'medieval' organisation. Arun Jaitley, former Indian commerce minister, summed up the outcome of Cancun in a one liner now taken up by the civil society rejectionists. "No deal is better than a bad deal," said Jaitley.

From Cancun to Hong Kong
After the Cancun fiasco, it took almost three to four months for the negotiators to sit across the negotiating table again and resume the dialogue. This resulted in the 'July Package', a set of broad principles agreed to in August 2004 to keep the negotiations going, which once again raised the expectations of the developing countries. Alas, the euphoria created by the July Package proved to be short-lived. When back home, WTO members succumbed to realpolitik and started singing in different tunes.

As a result, Doha round of global trade talks once again plunged into a serious crisis. This is evident from the fact that in the run up to the Hong Kong Ministerial Conference, the draft declaration was supposed to be released after the General Council (GC) meeting in July 2005, in what was called 'July Approximations' but the GC meeting failed to evolve a consensus. The next GC meeting in October met with a similar fate. Finally, when the GC meeting for the third time in November could not break ice, the WTO Director General Pascal Lamy came out with his own draft declaration for the upcoming ministerial conference. This draft was very modest in terms of substance.

What happened at Hong Kong?
The ministerial meeting in Hong Kong began on a very pessimistic note. A day before the inaugural, the attendance was very poor. Delegates of some of the WTO member countries had not even reached Hong Kong. The general impression was that nothing much was going to happen at Hong Kong. It was in this backdrop that the various stakeholders started getting ready for the battles ahead. Soon the Hong Kong meeting turned into a four-sided contest -- with G-20 and G-33 on one side, and the European Union, the United States and the least developed countries (LDCs) making up the other three actors.

As usual, the developed countries started shedding crocodile tears for the LDCs. A plethora of hollow promises in the form 'aid for trade' and duty free and quota free market access was offered to the LDCs. The main objective was to shift the focus away from the core agenda of trade liberalisation. This was evident from the EU Trade Commissioner Peter Mandelson's statement that he was at the outer limit of his mandate and has nothing much to offer. At the same time, Mandelson repeatedly skirted the negotiations citing that there was nothing much on the table to negotiate. The US too was non-committal on the LDCs' demand for duty free and quota free market access for all their products and particularly on the issue of eliminating domestic subsidies on cotton production.

The G-20 and G-33 on their part tried to be practical. They realised that it would be foolish to expect any ambitious result from Hong Kong meeting given the prevailing divergence of opinions on agriculture. They demanded that, as per the 'July Package', the WTO members have to agree only on the end date for their elimination of export subsidies, the easiest thing to implement. Unfortunately, instead of discussing the end date of elimination, the two major trading giants -- the EU and the US -- got entangled into a dog and cat fight over the form of giving food aid to poor countries. The EU argued that cash is the best way to provide food aid alleging that the US's food aid programme was causing commercial displacement of the people in the recipient countries.

Finally, on December 16, the first ever G-20 and G-90 ministerial level meeting took place. Both the Indian Commerce Minister Kamal Nath and his Brazilian counterpart Celso Amorim were instrumental in building this grand alliance of 110 countries, covering 4/5th of the humanity. This alliance called the bluff of the rich countries to lure the LDCs and divide the Southern unity. The meeting also proved that the Southern unity at Cancun was not a fluke and it will sustain. Only after this meeting, the focus of the negotiations was brought back to the main agenda.

End result at Hong Kong
As already mentioned, the outcome of the Hong Kong meeting is modest, though it was not unexpected. The main demand by G-20 to eliminate the export subsidies by 2010 was not accepted by the EU. Instead a compromise date of 2013 was agreed with some frontloading. What is most unfortunate in this European infatuation with a distant date is that the language on export subsidies has been made more complex. The G-20 can no more say that this will be easy to implement.

Lessons from Hong Kong
The result of the Hong Kong ministerial meeting is not important but the message it sends is of immense significance for the developing countries. Developing countries' major demand was to seek greater market access in the Northern markets, particularly in the products of export interest to them. The Hong Kong declaration does not promise much on this front as the ticklish issues of modalities and formulas are yet to be sorted out.

So, after having flexed their muscles in the multilateral trade arena and failing, the developing countries need to develop an alternative to the Northern markets. This is only possible through greater South-South cooperation on trade and economic issues. This should also cover the larger issues of technical assistance and capacity building. Greater South-South trade will further strengthen different Southern alliances in the WTO, which at present are more political in nature.

Over the last decade (1990-2001), developing country economies have grown much faster than those of the developed and transition countries and are expected to continue to do so in the coming years. This positive growth performance in the 1990s did result in increased share of South-South trade in world trade. The South-South trade almost doubled, reaching 10.7 per cent in 2001 from 6.5 percent of world trade in 1990. But this is definitely not enough to reduce their dependence on the North and also to diversify exports of many LDCs beyond primary products.

What is required is greater facilitation of the South-South trade. At present the South-South trade is facing impediments from barriers within the South and also from the distortions caused by the protectionist trade policy of the North. Despite significant reductions in the obstacles to trade, the developing countries among themselves still maintain higher tariff and non-tariff barriers. The cost of doing trade is also very high among the Southern countries. It is, therefore, important for the Southern countries to not only reduce tariffs and non-tariff barriers but also seriously undertake the exercise of trade facilitation measures at the regional level.

This article can also be viewed at:
URL: http://www.jang.com.pk/thenews/dec2005-weekly/nos-25-12-2005/pol1.htm#4

Laddoos and jalebis for Kamal Nath

Published:The Economic Times, December 22, 2005
By Pradeep S. Mehta

Developing countries have extracted the maximum they could at Hong Kong, and India played a key role in the coalition-building and negotiations that accomplished this.

In spite of what Prakash Karat and A B Bardhan have to say, commerce minister Kamal Nath does deserve laddoos, and also jalebis and barfis, for what he achieved at Hong Kong. The deal at the sixth ministerial conference of the WTO was the best under the circumstances. Before the ministerial commenced, there was general scpeticism as to whether we could have achieved anything at all.

On December 20, Karat’s comrade and state secretary of the West Bengal unit of CPI(M) Anil Biswas was quoted by the Ananda Bazar Patrika, “At Hong Kong, India’s role was positive. It is true that all our demands were not met. But, given the present situation (of the trade talks), it would not have been possible for the government of India to do much better than what it did at Hong Kong...Kamal Nath’s performance was good....”.

Biswas was echoing what many in the media in Hong Kong had to say about Kamal Nath’s negotiating skills. The media, described him as the ‘star negotiator’ who managed to clinch the deal in favour of developing countries. I can heartily endorse this. Having been at all the WTO ministerials since Marrakesh, I can assert that Kamal Nath’s performance was one of the best.

The 1994 Marrakesh was the meeting to sign in the new WTO, where Pranab Mukherji was our leader. There was some murmur on trade and labour standards, which Mukherji retorted against, suggesting that we should also speak about a multilateral competition agreement.

That sealed the matter, but only temporarily. Following this, we had an incompetent commerce minister, Dr B B Ramiah at Singapore in 1996. That ministerial created a new work programme, including the much opposed Singapore issues (investment, competition, government procurement and trade facilitation). There was a hint on labour standards as well.

The ghost of labour standards reappeared at the next ministerial at Seattle in 1999, when then commerce minister Murasoli Maran opposed it tooth and nail. It was not the demonstrating crowds outside the ministerial conference which led to the breakdown, but labour standards and the rift between the US and European Union over farm goods. And the inept handling by Charlene Barshefsky, the US Trade Representative, in her role as the chair of the conference.

Maran as the Indian commerce minister, in his second innings, had to battle with the Singapore issues at Doha in 2001. There was a deal at Doha, when ‘development’ was used as the label to bring in the poor countries on board. The west was pretty alarmed at the 9/11 disaster and did not wish to walk away from the ministerial without any deal.

Maran had dug in his heels on Singapore issues, got the conference extended by a day, and came away as the hero. However, he had to literally fight the battle single handed, because many of the developing countries deserted us after getting an assurance on the ACP waiver. This is a system of preferences for developing countries of Africa, Caribbean and Pacific, all former colonies of European powers.

However, the Doha meeting was successful in getting concessions on TRIPs and public health and another declaration on addressing implementation problems. Importantly, it is at Doha where the rich agreed to eliminate farm export subsidies, with the end dates to be negotiated in the future.

The Singapore issues once again played the spoilsport at the fifth ministerial at Cancun in 2003, when Arun Jaitley led the Indian delegation. The ACP and other African countries walked out of the meeting on this contentious matter. This was the fig leaf behind other bigger issues such as in agriculture and particularly the US reaction on cotton subsidies and its deleterious effects on poor west African countries.

Most importantly Cancun did not fail, but did collapse, due to the adroit coalition building on farm subsidies, lead by Brazil and India. It saw the birth of the G-20 alliance of developing countries. In spite of doomsayers, the alliance went on to play a splendid role at Hong Kong.

Farm issues continued to dominate the talks in Geneva following the Cancun debacle. These could not be resolved right until the first day of the Hong Kong meeting (see Neglecting the costs of failure: ET, Dec 8).

Cancun was a big turning point in the history of multilateral trade negotiations. For the first time developing countries could flex their muscles in trade negotiations. Unlike Doha where India was left all alone in the end, at Cancun developing members showed exemplary unity and countered the pressure of the North. While Jaitley deserves accolades for being one of the main architects of G-20 alliance, at Hong Kong a wider poor country alliance was cemented by convening the first ever ministerial-level meeting of G-20 and G-90 (G-110).

It is only after this joint meeting of G-110, the EU and the US realised that LDCs will not cave in or be lured by ‘bribes’.

Formation of this grand alliance was a masterstroke and helped in bringing back focus of the negotiations on the core agenda of trade liberalisation and development. Otherwise during the first three days, developed countries spent their time in discussing peripheral issues of aid for trade, and duty and quota-free market access for LDCs. Since none could have afforded a failure, good sense prevailed over key players.

The EU softened its stance on at least agreeing to an end date for elimination of export subsidies. At the start, this was opposed vehemently by Mandelson who stated that he has no mandate to do so. G-20 too inched closer, by agreeing to an end date of 2013 instead of 2010.

This too was done grudgingly, because Brazil was in no mood, but later realised the cost of failure and agreed on the extended date, with some frontloading.

Export subsidies are but the beginning of the end of the whole bundle of farm subsidies; domestic support too is on the anvil — to be negotiated by April, 2006.

It is an arduous path, but we need to encourage Kamal Nath and his team of bureaucrats, rather than run them down. They are fully conscious of the bigger goal of protecting our farmers and achieving the goal of development not only for India, but the whole South.

This article can also be viewed at:
URL: http://economictimes.indiatimes.com/articleshow/1341119.cms

IN the run-up to the World Trade Organisation (WTO) Ministerial meeting in Hong Kong next week, hectic parleys have continued among key ministers to try and get a deal on the Hong Kong declaration, which will be better than what has been put out on Nov 26.

The efforts being made by governments to do this are unprecedented in WTO's history, with ministers flying in and out of capitals in western countries almost on a weekly basis, while negotiators in Geneva meet day-in and day-out.

These efforts are to mainly push the Doha Development Agenda forward, but there are too many differences. Hence the Nov 26 declaration is a draft with the hope that the ministers will address the gaps and possibly arrive at some better text at Hong Kong. Alas, what is not being discussed upfront are the costs of failure - and these can be huge, particularly for the developing world because the Doha Round has an overwhelming mandate to deliver on development. Therefore, the G-20 alliance of developing countries has a huge burden.

One clear direction which is emerging is that it will not be possible for ministers to sort out their differences at Hong Kong, thus they may agree to call for another special ministerial session within three to six months so that a consensus can finally emerge and the round is wrapped up by end-2006, or at the latest early 2007. The reason for this is the expiry of the US President's fast-track authority in July, 2007. There is a diminishing appetite in the US for trade liberalisation, thus the end date is certainly a big incentive for WTO members to make a deal.

Negotiations at the WTO are mainly guided by trade-offs, and are quite complex as well. It is fairly easy for armchair commentators to suggest what should be done and what should not be done. But, when it comes to the crunch, negotiators have to look at what they would gain against what they will lose. As most negotiations take the final shape at the eleventh hour, the wits of negotiators are tested. And they need to look behind their backs for promises made to their polity and people before they go out to sign up these deals.

The Doha declarations were themselves full of trade-offs, and the language on Singapore issues (investment, competition, transparency in government procurement and trade facilitation) was changed to agree to discuss modalities rather than actually launch negotiations. The EU also agreed to end all export subsidies but the end date was left for further negotiations. The Singapore issues were the pound of flesh for the European Union (EU) to agree to reduce its farm subsidies. Due to latent realisation and strenuous opposition from developing countries, particularly the Africa group, on Singapore issues, the Cancun meeting collapsed. Nevertheless, the meeting succeeded in launching the G-20, a powerful coalition of developing countries, which decided to tackle the dodgy offers of liberalisation in farm goods by both the US and the EU.

Now that the Singapore issues are no longer on the table, the EU is insisting on a fresh pound of flesh to surrender for farm goods. It has linked further commitments to getting better deals on industrial goods and services. That is certainly the main cause of dissent on the draft ministerial text. But that is not all. The US wants better market access on farm goods in the EU and other countries. On the other hand, the poor countries feel that by making such demands, the rich countries want a 'round for free'.

One problem which clearly emerges in current demands is on reducing tariffs of industrial goods, as that will accelerate de-industrialisation in many developing countries. Thus, there is a demand for exemptions on account of 'policy space' which will enable them to be selective rather than offer concessions on a broad basis. The term 'policy space' is a controversial one. Even at the UNCTAD XI meeting in Sao Paulo in June 2004, the draft declaration was held up due to strong opposition to inclusion of these words; but in the end the developing world succeeded.

This is what is required at Hong Kong also. The Round must fulfil its development promises, which is a bigger issue than just salvaging the Doha Round at any cost. It is because of developmental elements of the Doha Agenda, the expectations of the developing countries have increased manifold. They also know that justice was not done to them in the Uruguay Round. Hence, it would not be fair on the part of developed countries if they ask for greater market access from their poor counterparts in the ongoing trade talks.

Looking back, the Uruguay Round too plunged into a similar crisis in the early 1990s, after two consecutive failures of ministerial meetings: Montreal and Brussels. What did the then director-general of GATT, Arthur Dunkel, do? He stepped in and proposed his own text, popularly called the 'Dunkel Draft'. In spite of all the hue and cry, it ultimately broke the deadlock. WTO director-general Pascal Lamy needs to replicate this. Given his past background, Mr Lamy is in a difficult position, but he will have to do it if he wants to deliver. After all, he was one of the chief architects of the Doha Development Agenda. Therefore, it is his moral duty to make all possible efforts to bring it to its logical conclusion - without losing sight of the bigger goal.

Neglecting the costs of failure

Published:The Economic Times, December 08, 2005
By Pradeep S. Mehta

Justice was not done to the developing countries in the Uruguay Round. Hence, it would be unfair for the developed countries to ask for greater market access from their poor counterparts at Hong Kong

Hectic parleys among key ministers to try and get a deal on the Hong Kong declaration of the WTO have ended, and the rest will be seen at Hong Kong. The movement is about 20 yards on the text which has been put out on November 26.

The efforts being made by governments to do this were unprecedented in WTO’s history, with ministers flying in and out of capitals in western countries almost on a weekly basis, while negotiators in Geneva meeting day in and day out.

These efforts are to mainly push the Doha development agenda forward, but there are too many differences. Therefore let’s pray that the ministers will address the gaps and possibly arrive at some better text at Hong Kong.

Alas, what has never been discussed upfront are the costs of failure? And these can be huge, particularly for the developing world because the Doha Round has an overwhelming mandate to deliver on development. It is therefore that India, as a fast-growing economy and a leader of the developing world, has to bear a huge burden.

One clear direction which is emerging, is that it will not be possible for ministers to sort out the differences at Hong Kong, thus they may agree to call for another special ministerial session within three to six months, so that a consensus can finally emerge and the round is wrapped up by end-2006 or at the latest early 2007.

The reasons to do so is the expiry of the US President’s fast track authority in July, 2007. There is a diminishing appetite in the US for trade liberalisation, thus the end date is certainly a big incentive for WTO members to do a deal.

Negotiations at the WTO are mainly guided by trade-offs, and are quite complex as well. It is fairly easy for armchair commentators to suggest what should be done and what should not be done. But, when it comes to the crunch, negotiators have to look for what they would gain as against what they will lose.

As most negotiations take the final shape at the eleventh hour, the wits of negotiators are tested. And they need to look behind their backs for promises made to their polity and people before they went out to sign up these deals. For example, the Doha meeting was extended by one day due to India’s rightful insistence, and finally a compromise text was arrived at. At that meeting the ghost of 9/11 was looming behind the international community, which spurred the effort of restoring confidence of people in the international economy.

The Doha declarations were themselves full of trade-offs, and the language on Singapore issues (investment, competition, transparency in government procurement and trade facilitation) was changed to agree to discuss modalities rather than actually launch negotiations. The EU also agreed to end all export subsidies but the end date was left for further negotiations, which is currently under debate. The Singapore issues were the pound of flesh for EU to agree to reduce its farm subsidies.

Due to latent realisation and strenuous opposition of developing countries, particularly the Africa group, on Singapore issues, the Cancun meeting collapsed. Nevertheless, the meeting succeeded in launching the G-20 a powerful coalition of developing countries which decided to tackle the dodgy offers of liberalisation in farm goods by both the US and the EU.

Now that the Singapore issues are no longer on the table, the EU is insisting on a fresh pound of flesh to surrender on farm goods (Making the Doha deal work, Peter Mandelson, ET Dec 5). It has linked further commitments to getting better deals on industrial goods and services. That is certainly the main cause of dissent on the draft ministerial text being. But that is not all, the US wants better market access on farm goods in the EU and other countries.On the other hand, the poor countries feel that by such demands, the rich countries want a ‘round for free’.

India and many others have also reminded the rich countries that this is a development round and not a market access round. One problem which clearly emerges in current demands on reducing tariffs of industrial goods, as that it will accelerate de-industrialisation in many developing countries.

Thus, there is a demand for exemptions on account of ‘policy space’ which will enable them to be selective rather than offer concessions on a broad basis. The term ‘policy space’ is a controversial one in international trade lexicon. Even at the Unctad XI meeting in Sao Paulo, June, 2004 the draft declaration was held up due to strong opposition to inclusion of these words, but in the end the developing world succeeded.

This is what is required at Hong Kong also. The Round must fulfill its development promises, which is a bigger issue than just salvaging the Doha Round at any cost. It is because of the developmental elements of the Doha agenda, the expectations of the developing countries have increased manifold. They also know that justice was not done to them in the Uruguay Round. Hence, it would not be fair on the part of developed countries if they ask for greater market access from their poor counterparts in the ongoing trade talks.

Looking back, the Uruguay Round too plunged into a similar crisis in early 1990s, after the two consecutive failures of ministerial meetings: Montreal and Brussels. What did the then director-general of GATT, Arthur Dunkel do? He stepped in and proposed his own text, popularly called ‘Dunkel draft’, which in spite of the hue and cry, ultimately broke the deadlock. Lamy needs to replicate him. Given his past background, Lamy is in a difficult position but he will have to do it if he wants to deliver.

After all Lamy was one of the chief architects of Doha development agenda. Therefore, it is his moral duty to make all possible efforts for its logical conclusion — without losing the sight of the bigger goal.

This article can also be viewed at:
URL: http://economictimes.indiatimes.com/articleshow/msid-1323422,curpg-1.cms

THE much-awaited Draft Ministerial Text (DMT) has been released. It was expected to be out after the General Council meeting of the World Trade Organisation (WTO) in July, but due to serious differences between developed and developing countries over liberalisation of agriculture, that did not happen.

However, the release of the text does not mean that the deadlock over agriculture and other issues has been resolved. Members are still at loggerheads over several issues pertaining to market access, and special and differential treatments to developing countries.

Only a fortnight ago the WTO Chief, Mr Pascal Lamy, in his report to the heads of delegations indicated that members have to settle for a less ambitious outcome from the Hong Kong Ministerial. He, however, warned, in his report, that by recalibrating there was a possibility that the immediate pressure on members to move forward might be lessened.

But he probably was left with no option, as he waited, perhaps too long for forward movement and convergence on contentious issues. Since a DMT is required for deliberations by members, the WTO Director-General and the Chairman of the General Council released the text for consideration by members.

Going by the elements of the text, there is hardly any substantial movement since July 2004 and expectations from the Hong Kong Ministerial are few. Two things are to be resolved: Dates for establishing modalities and based on them submission of a comprehensive draft schedule.

One wonders why Mr Lamy did not propose something on his own by considering the concerns of different groups/alliances? Not very long ago, when he was chief trade negotiator of the European Union, he had strongly defended the current regime of high support-based EU agriculture, which the Southern countries, led by G-20, are hoping to dismantle.

If he chose to do a balancing act between the South and the North, he might have been accused of takingsides with the developed countries. He, therefore, preferred to include the report by the Chairman of the Special Session of the Committee on Agriculture as an annexure, urging members to take further action. In this, Mr Lamy played the role of an honest umpire, thus belying speculation that he would be partisan.

The Chair's report on agriculture makes it clear that full modalities will not be achieved at Hong Kong, as members did not want even the suggestion of any implicit or explicit agreement where it did not exist. Nevertheless, the report has listed areas in which some degree of convergence has been achieved and has urged members to build upon them.

However, the bigger issue is who will make the first move, as most of the commitments by members are conditional. What is most disappointing about the Chair's report is the persisting disagreement between members on designating special products and access to the Special Safeguard Mechanism. These two issues are known to have major gains for developing countries, following the July Framework Agreement.

As regards non-agricultural market access (NAMA), the situation is no different and the language is similar to the one proposed by the WTO Director-General on agriculture: Members are to decide dates for establishing modalities and, based on them, submission of a comprehensive draft schedule. According to the report by the Chairman of the Negotiating Group on Market Access to the Trade Negotiating Committee (TNC), members, on the issue of the tariff reduction formula, have broadly agreed on a non-linear Swiss-type formula. This is the only forward movement since the adoption of the NAMA framework in July 2004.

The NAMA text of the Doha Development agenda very clearly states that for developing countries it would be "less than full reciprocity in reduction commitments". Unfortunately, developed countries have their own interpretation of measuring it.

While, some developing country members believe that this means less than average percentage cuts (as translated through a higher coefficient in the formula, than those undertaken by developed country members), thedeveloped country members have indicated that there are other measurements of less than full reciprocity in reduction commitments, including the final rates after the formula cut which, in their markets, would be less than in developing country markets. In addition, developed country members are also trying to include least developed countries' (LDCs) exemption from tariff cuts in measuring "less than full reciprocity in reduction commitments". All these make the simple arithmetic unnecessarily more complex and dilute the very purpose of this clause.

The services text also does not give any clear direction. The situation of services negotiation is different from the other two subjects of trade liberalisation, namely, agriculture and non-agricultural products. In services, there are no negotiations for any formula to dismantle existing barriers in trade. The DMT on services suggested some additional approaches to realise the goal set out in the Doha Development Agenda vis-à-vis services trade liberalisation.

Besides, the request-offer approach members have been urged to pursue negotiations on a plurilateral basis in accordance with the principles of the General Agreement on Trade in Services (GATS) and the Guidelines and Procedures for the Negotiations on Trade in Services. But it is doubtful that this new additional approach will speed up negotiations or improve members' commitments in their offers.

What is lacking in the post-Doha negotiations is that no concrete measures have been taken to operationalise the clause: "Particular attention will be given to sectors and modes of supply of export interest to developing countries", which is the Mode 4 and labour-intensive services.

Some of the developing countries have asked for temporary "GATS Visa" in view of the concerns of both developed and developing country members, but that has found no mention. The issue of "GATS Visa" is more relevant today in the context of rising security concerns of developed country members.

The DMT delves into other issues such as trade facilitation, special and differential treatment, implementation, trade and environment, trade related aspects of intellectual property rights (TRIPS) and public health, LDCs, technical cooperation, and so on. However, the progress on all these issues is highly dependent upon substantial movement on the core issues of trade liberalisation, particularly agriculture, an issue that took the Doha round hostage.

Interestingly, Mr Lamy has included four new issues, which are not in the main Doha Development Agenda. They are commodities, coherence, aid for trade and accession.

These are welcome, provided they come in addition to development promises of Doha Agenda. Aid for trade, in particular, could be helpful for LDCs in building their supply-side capacity and also to overcome some of the potential negative impacts as a result of future tariff reductions under NAMA and reduction in farm subsidies by the North. The tariff reduction under NAMA negotiation may erode their margin of preferences and reduction in farm subsidies may result in a rise in their farm import bill.

This article can also be viewed at:
URL: http://www.thehindubusinessline.com/2005/12/07/stories/2005120701321000.htm

Hectic parleys continue among key ministers to try and get a deal on the Hong Kong declaration of the WTO, which will be better than what has been put out on 26th November. The efforts being made by governments to do this are unprecedented in WTO's history, with ministers flying in and out of capitals in western countries almost on a weekly basis, while negotiators in Geneva meeting day in and day out. These efforts are to mainly push the Doha Development Agenda forward, but there are too many differences. Hence the 26th November declaration is a draft with the hope that the ministers will address the gaps and possibly arrive at some better text at Hong Kong.

Alas, what is not being discussed upfront are the costs of failure. And these can be huge, particularly for the developing world because the Doha Round has an overwhelming mandate to deliver on development. Therefore the G-20 alliance of developing countries has a huge burden.

One clear direction which is emerging, is that it will not be possible for ministers to sort out the differences at Hong Kong, thus they may agree to call for another special ministerial session within three to six months, so that a consensus can finally emerge and the round is wrapped up by the end 2006 or at the latest early 2007. The reason to do so is the expiry of the US President's fast track authority in July, 2007. There is a diminishing appetite in the US for trade liberalization, thus the end date is certainly a big incentive for WTO members to do a deal.

Negotiations at the WTO are mainly guided by trade-offs, and are quite complex as well. It is fairly easy for armchair commentators to suggest what should be done and what should not be done. But, when it comes to the crunch, negotiators have to look for what they would gain as against what they will lose. As most negotiations take the final shape at the eleventh hour, the wits of negotiators are tested. And they need to look behind their backs for promises made to their polity and people before they went out to sign up these deals. For example, the Doha meeting was extended by one day due to India's rightful insistence, and finally a compromise text was arrived at. At that meeting the ghost of 9/11 was looming behind the international community, which spurred the effort of restoring confidence of people in the international economy.

The Doha declarations were themselves full of trade-offs, and the language on Singapore issues (investment, competition, transparency in government procurement and trade facilitation) was changed to agree to discuss modalities rather than actually launch negotiations. The EU also agreed to end all export subsidies but the end date was left for further negotiations. The Singapore issues were the pound of flesh for EU to agree to reduce its farm subsidies. Due to latent realization and strenuous opposition of developing countries, particularly the Africa group, on Singapore issues, the Cancun meeting collapsed. Nevertheless, the meeting succeeded in launching the G-20 a powerful coalition of developing countries which decided to tackle the dodgy offers of liberalization in farm goods by both the US and the EU.

Now that the Singapore issues are no longer on the table, the EU is insisting on a fresh pound of flesh to surrender on farm goods. It has linked further commitments to getting better deals on industrial goods and services. That is certainly the main cause of dissent on the draft ministerial text being. But that is not all, the US wants better market access on farm goods in the EU and other countries.

On the other hand, the poor countries feel that by such demands, the rich countries want a 'round for free'. India and many others have also reminded the rich countries that this is a development round and not a market access round.

One problem which clearly emerges in current demands on reducing tariffs of industrial goods, as that it will accelerate de-industrialisation in many developing countries. Thus there is a demand for exemptions on account of 'policy space' which will enable them to be selective rather than offer concessions on a broad basis. The term 'policy space' is a controversial one. Even at the UNCTAD XI meeting in Sao Paulo, June, 2004 the draft declaration was held up due to strong opposition to inclusion of these words, but in the end the developing world succeeded.

This is what is required at Hong Kong also. The Round must fulfill its development promises, which is a bigger issue than just salvaging the Doha Round at any cost. It is because of developmental elements of the Doha Agenda, the expectations of the developing countries have increased manifold. They also know that justice was not done to them in the Uruguay Round. Hence, it would not be fair on the part of developed countries if they ask for greater market access from their poor counterparts in the ongoing trade talks.

Looking back, the Uruguay Round too plunged into a similar crisis in early 1990s, after the two consecutive failures of Ministerial meetings: Montreal and Brussels. What did the then Director General of GATT, Arthur Dunkel do? He stepped in and proposed his own text, popularly called "Dunkel Draft". In spite of all the hue and cry, it ultimately broke the deadlock. Lamy needs to replicate him. Given his past background, Lamy is in a difficult position but he will have to do it if he wants to deliver. After all, he was one of the chief architects of Doha Development Agenda. Therefore, it is his moral duty to make all possible efforts for its logical conclusion-without losing the sight of the bigger goal.

This article can also be viewed at:
URL: http://www.kantipuronline.com/kolnews.php?&nid=59285

WTO Hong Kong Ministerial
Ministers not addressing the costs of failure

Published:The Financial Express, Bangladesh, December 04, 2005
By Pradeep S. Mehta

Key Ministers are continuing their parleys in a bid to try and getting a deal on the Hong Kong declaration of the World Trade Organisation (WTO), which will be better than what has been put out on November 26 last. The efforts being made by governments to do this are unprecedented in WTO's history. Ministers are flying in and out of capitals in western countries almost on a weekly basis, while negotiators in Geneva holding meetings day in and day out.

These efforts are to mainly push the Doha Development Agenda forward, but there are too many differences. Hence the 26th November declaration is a draft prepared with the hope that the ministers will address the gaps and come out with a better text at Hong Kong.

Unfortunately, what is not being discussed upfront is the cost of failure? And this can be huge, particularly for the developing world because the Doha Round has an overwhelming mandate to deliver on development. Therefore, the G-20 alliance of developing countries in particular has a huge burden.

One clear direction which is emerging, is that it will not be possible for ministers to sort out the differences at Hong Kong. Thus they may agree to call for another special ministerial session within three to six months, so that a consensus can finally emerge and the round is wrapped up by the end of 2006 or early 2007 at the latest. The reason to do so is the expiry of the US President's fast track authority in July, 2007. There is a diminishing appetite in the US for trade liberalisation; thus, the end date is certainly a big incentive for the WTO members to strike a deal.

Negotiations at the WTO are quite complex in nature and are mainly guided by trade-offs. It is fairly easy for armchair commentators to suggest what should be done and what should not be done. But, when it comes to the crunch, negotiators have to look for what they would gain as against what they will lose. As most negotiations take the final shape at the eleventh hour, the wits of negotiators are tested. And they need to look behind their backs for promises made to their peoples before they decide to sign up these deals. For example, the Doha meeting was extended by one day due to India's rightful insistence, and finally a compromise text was arrived at. At that meeting the ghost of 9/11 was looming over the international community, which spurred the effort for restoring confidence of the people in the international economy.

The Doha declarations were themselves full of trade-offs, and the language on Singapore issues (investment, competition, transparency in government procurement and trade facilitation) was changed to agree to discuss modalities rather than actually launch negotiations. The European Union (EU) also agreed to end all export subsidies but the end date was left for further negotiations. The Singapore issues were the pound of flesh for the EU to agree to reduce its farm subsidies. Due to the latent realisation and strenuous opposition of developing countries, particularly the Africa group, on Singapore issues, the Cancun meeting collapsed. Nevertheless, the meeting succeeded in launching the G-20 -- a powerful coalition of developing countries which decided to tackle the dodgy offers of liberalisation in farm goods by both the US and the EU.

Now that the Singapore issues are no longer on the table, the EU is insisting on a fresh pound of flesh to surrender on farm goods. It has linked further commitments to getting better deals on industrial goods and services. That is certainly the main cause of dissent on the draft ministerial text. But that is not all. The US wants better market access on farm goods to the EU and other countries.

On the other hand, the poor countries feel that by such demands, the rich countries want a 'round for free'. India and many others have also reminded the rich countries that this is a development round and not a market access round. One problem which clearly emerges in current demands on reducing tariffs of industrial goods, as that it will accelerate de-industrialisation in many developing countries. Thus, there is a demand for exemptions on account of 'policy space' which will enable them to be selective rather than offer concessions on a broad basis. The term 'policy space' is a controversial one. Even at the UNCTAD XI meeting in Sao Paulo, June, 2004 the draft declaration was held up due to strong opposition to the inclusion of these words, but in the end the developing world succeeded

This is what is required at Hong Kong, also. The Round must fulfill its development promises, which is a bigger issue than just salvaging the Doha Round at any cost.

This article can also be viewed at:
URL: http://www.financialexpress-bd.com/index3.asp?cnd=12/4/2005&section_id=1&newsid=8888&spcl=no

Published:The NEWS, Pakistan, November 20, 2005
By Bipul Chatterjee

At the 13th Summit of South Asian Association for Regional Cooperation (Saarc), held in Bangladesh's capital Dhaka in the second week of November 2005, the participants came up with a usual statement of enhancing regional cooperation, etc. That sums up the progress that this regional (South Asian) entity has made over two decades.

The debatable question is when Saarc was formed in mid-1980s, was there any demand for such a body? Indeed it was a brainchild of the then Indian Prime Minister Indira Gandhi, who unfortunately could not live to see its formation. After her tragic assassination, her son Rajiv Gandhi took this initiative forward and Saarc was formed in 1985. The basis for its formation was regional cooperation and it was decided that only regional/multilateral (not bilateral) issues were to be raised/discussed at this forum.

If one analyses successive ministerial summits since its formation, one can see how little progress has been made so far. Except a secretariat at Kathmandu and Saarc Chambers of Commerce & Industry in Islamabad, no institutional development has taken place. There are various reasons for this.

First, there is little political will among the leaders of South Asian countries to take concrete steps to make this forum effectively operational. This may have something to with the fact that the nature of political environment and functioning of political governance are different in different countries.

Secondly, successful examples of regional cooperation from various parts of the world show that economic cooperation is the basis on which broader cooperation is achieved. For this to happen, many such forums started in a limited manner (such as European Union started with cooperation, that is, cross-border trade, in two commodities: coal and steel). South Asian countries have so far made no such attempts.

Thirdly, civil society (that is, entities dealing with public at large and non-state actors) plays a major role for successful cooperation among the nations in a regional bloc. There are examples (such as South African Development Community) which show the role that the civil society plays for successful political buy-in of such initiatives, especially at the local level. It has also been found how cross-border projects aimed at improving people's livelihood can help in bringing people together and thus, reduce tensions. There are no such initiatives in pan-South Asian sense.

Fourthly, South Asian countries often take conflicting positions at international forums. There is little or no attempt to politically sell 'South Asia' at the international level. For example, we hardly see a common Saarc position on WTO (World Trade Organization) issues, whereas examples galore from other parts of the world.

Fifthly, of late political leaders and many others appear to believe that enhanced trade can bring necessary push for taking the Saarc forward. There are merits in this argument and Safta (South Asian Free Trade Agreement) is expected to be operational from January 1, 2006. However, there is no policy paper, collectively and/or from individual countries outlining the benefits and costs of such an agreement. The result is suspicion on the part of those who are expected to lose if and when Safta is implemented.

What could be the way out of the quagmire in which Saarc finds itself today? The region comprises of over one billion people, about one-fifth of the world population. In next five years, the region's population will surpass that of China. But around 40 per cent of those living in South Asia live in poverty. The resource base is equally poor, as the region has only about three per cent of the world's land surface and accounts for two per cent of the global output. Agriculture still accounts for 25 to 50 per cent of the national economic output of the region. Naturally, poverty is endemic and structural. The real challenge, therefore, is how to increase people's income through productive employment. Saarc has to be seen in the light of this challenge. If something is successfully done on this issue, all the above-stated shortcomings can be overcome by transforming resolve into action.

The region can progress as a whole if there is well-functioning democracy in all the countries. In this context, democracy cannot be judged in terms of popular participation in elections alone. It is a much bigger issue. More efforts are required to show to the people the positive linkages between democracy and development.

Similarly, economic cooperation can be achieved by exploring specific sectors. Approximately 60 per cent people in the region are dependent on agriculture for their livelihoods. This sector is facing several challenges, including increasing industrialisation. Land for agricultural production, therefore, is being used for industrial purpose. At the same time, food security is becoming another major issue. The vulnerability of the region may increase if enough food is not produced. The challenges are many-fold and the key to overcome them is to increase agricultural productivity. There are successful examples of increasing agricultural productivity (including in difficult terrains such as flood-prone area, mountainous regions) in South Asian countries themselves. These examples can easily be replicated, provided concerted efforts are made with a clear vision and direction.

The development of the civil society is a mixed bag in South Asia. In some countries, it is well developed and entrenched and in some other it is at a nascent stage. Besides gathering popular opinion on diverse issues and enhancing accountability of the system of governance, in some South Asian countries (such as Bangladesh) the civil society is playing an effective role in empowering people to overcome challenges with respect to non-income aspects of poverty, such as low education level, health standards etc. Yet there are hardly any regional initiatives to overcome social barriers to poverty reduction.

It is true that there is diversity within South Asia and countries are at different levels of development. Four out of seven Saarc members are categorised as least developed by the United Nations, that is, they are economically most vulnerable. But at the same time, there are issues at the international level on which South Asian countries can take common positions. For example in WTO negotiations, there is no harm in taking a common position on agricultural subsidies being provided in the West, which are harming the poor countries (their consumers as well as farmers). Trade facilitation (with respect to simplification of customs procedures in particular) is another issue on which South Asian countries have largely common interest. But we are yet to see the emergence of ministerial forum of South Asian trade ministers, meeting before and after important events such as WTO ministerial conferences.

Safta is a step in the positive direction. Amit Mitra, Secretary-General of the Federation of Indian Chambers of Commerce and Industry says why: "If South Asia becomes an integrated market, it can draw much larger foreign direct investment (FDI). This will be another issue to be discussed. India has five billion dollars of FDI, the other countries have another billion, and some of the others have even less. If this region is integrated, it will have better economies of scale in the region."

This statement points to several issues, which are to be considered for successful economic integration in South Asia. One needs to understand why trade takes place between countries. Trade theory tells us that countries with different factors of productions (land, labour, capital) endowments will produce different commodities at differential prices and will trade them. Secondly, there has to be a minimum market in order for countries to trade. Do these conditions hold true for South Asian countries?

First, most South Asian countries have similar factor endowments. Secondly, given the high level of poverty and the nature of economic activities, the South Asian market is not only small but fragmented as well. Thus, there may not be much scope to enhance trade in goods within the region. However, there are enough opportunities to explore complementarities in production chain. Some countries are good in producing a particular part of a final commodity, whereas others are good in producing other parts. Production of readymade garments is an example: while India and Pakistan are good in textiles, Bangladesh and Sri Lanka are good in clothing. There should be South Asian products in international markets.

On the other hand, there is huge scope to enhance regional economic cooperation through trade in services. Sectors such as transport, telecommunications and power are developing in the region and their demands are far away from reaching a point of saturation. Huge resources will be required to develop these service-oriented sectors so that consumers can have better access to them. Herein lies the importance of foreign direct investment. Many of these sectors are employment-intensive and with right policies in place they can absorb people from agriculture (with resultant increase in agricultural productivity), that is, into productive employment in manufacturing and service sectors (provided there is right human development policy for skills formation). Thus, there could be a multi-prong attack on poverty.

Unfortunately, there is no discussion to open up trade in services in the region. Foreign (as well as regional) investors would like to see South Asia as a market, so that economies of scale can be better achieved. Similarly, steps are required for trade in goods outside the region, so that consumers can taste South Asian products.

In short, concrete and time-bound actions are required in order to make Saarc a reality. The Saarc secretariat should be empowered to implement these actions in association with relevant stakeholders, including the civil society actors. Necessary political will for these actions can be generated only if civil society creates an enabling environment for effective implementation.

This article can also be viewed at:
URL: http://www.jang.com.pk/thenews/nov2005-weekly/nos-20-11-2005/pol1.htm#4

Whither regulatory autonomy?

Published: The Hindu Business Line, November 11, 2005
By Pradeep S. Mehta & Vinayak R. Pandey

THOSE who complain about lack of uniformity in the approaches of various regulatory bodies no longer need to do so. For, in recent weeks, it has been realised that regulatory agencies in India do have one thing in common — all of them are equally vulnerable to their ministry concerned.

No matter how strong (or weak) a regulatory legislation is, when it comes to the regulator exercising its legitimate mandate independent of the ministry concerned, the provisions made in the law have proved to be of little significance.

The Electricity Regulatory Commissions have been considered fairly autonomous and empowered bodies, thanks to the provisions in the Electricity Act, 2003. But , the Ministry of Power appears to have been ensuring that the ERCs `act in conformity with' the tariff policy and the electricity policy to be prescribed by the Ministry, instead of just being `guided', as the Act provides. The Ministry had suggested an amendment to the Act. Finally, it fell to the PMO to ask the Ministry to refrain from curtailing the legitimate powers of the regulator.

This is not an isolated incident. In the brief history of independent regulation in India, on several occasions, the ministries concerned have tried to `clip the wings' of that little-known and least-understood creature — the `independent regulator'.

In 2000, the government repealed the TRAI Act. This Act was against the spirit of the recommendations that the Parliamentary Standing Committee on Telecom had made to confer independent status to the Telecom Regulatory Authority of India, through statutory provisions.

Subsequently, the TRAI (Amended) Act was introduced to convert the regulatory body to an advisory panel to the Department of Telecommunications. Yet, tariff determination has been one the few functions to remain with TRAI and the recent controversy stems from announcements made by the Minister on issues that fall in TRAI's domain — the `one-India' call rate and the Access Deficit Charge (ADC) payments to BSNL.

On the ADC — a major bone of contention since it was introduced — the Minister has gone on record assuring Rs 5,000 crore to the state-owned operator. On the other hand, TRAI has been contemplating reducing the ADC payouts to BSNL and adopting a revenue-share arrangement, so that it can ultimately be merged with the USO Fund. However, this is not acceptable to the DoT, which is considering issuing a policy directive to TRAI under Clause 25 of the TRAI Act that the government is supposed to exercise in exceptional situations, such as to protect the sovereignty of the state and/or in the larger interest of the people.

Even as the controversy brewed and both the Ministries were busy twisting arms of the respective regulatory bodies, at a three-session policy roundtable on `Regulatory Autonomy and Accountability' (organised by CUTS), most participants, who represented the policy community and stakeholders, were of the opinion that in India regulatory bodies have neither been accorded adequate autonomy to perform nor have they been made sufficiently accountable for their acts.

At the conceptual level, the regulatory agencies were created to achieve certain policy objectives consistent with those of the government, be it attracting private investment, enhancing consumer protection or ensuring orderly growth of the sector.

Once the policy framework and objectives are determined, a regulator should be allowed to take charge without interference either from the government or other stakeholders. Further, regulators need to be empowered to become financially self-sufficient and appoint staff with appropriate skills. These agencies should be provided with powers commensurate with their mandate and the objectives they are set. Autonomy goes hand-in-hand with accountability and the current provision of submitting an annual report to the legislature is not sufficient to hold regulatory agencies accountable. Notably, several of the regulatory bodies have been failing in this aspect. The Committee on Paper Laid on the Table of the Lok Sabha observed thus: "TRAI has been a habitual defaulter in the matter of timely laying of their Annual Reports and Audited Accounts." The issue can be addressed effectively by employing multiple approaches to ensure regulatory accountability on a continued basis. This can include empowering civil society organisations to work with the regulators or constituting a Committee of Eminent Persons to select regulators and to consult them on various issues.

Meanwhile, till the time the Planning Commission comes out with the much-talked-about regulatory framework for infrastructure sectors, the government needs to take two steps immediately.

First, order the Ministries concerned not to tinker with the existing regulatory structures until a consensus is achieved. Second, and more important, start a process to educate bureaucrats and judges about the concept, purpose, and philosophy of independent regulation so that better working relations can be achieved between regulatory agencies and the ministries concerned, in years to come.

This article can also be viewed at:
URL: http://www.thehindubusinessline.com/2005/11/11/stories/2005111101281100.htm

Does competition law help the poor?

Published: The Economic Times, October 28, 2005
By Pradeep S. Mehta

Many think that competition policy and law are tools for the rich and urban society, while some believe that one doesn’t need any competition rules at all. They are naïve. Another question which is often raised is how competition law will help a society which is illiterate and poor. For example, our agricultural marketing system itself is so anti-competitive that farmers, even small, do not gain the full value of their produce, which is usually cornered by middle-men.

This is aided by archaic laws, which our state governments are unenthusiastic to modify, probably to satisfy some vested interests. In this article, let me recount the tale of a poor peasant widow, who used the law to get redressal against another scourge of our society, the moneylender, and the collusion which prevails in our society.

Rukmini Devi, a poor elderly illiterate widow, lives in a village near Chittorgarh in Rajasthan. She had to sow her unirrigated 5-bigha farm in time, but did not have the resources to buy the seeds, fertiliser, etc. Fortunately, soft loans were available at the local cooperative bank situated at Rashmi, the sub-divisional headquarters under the government’s integrated rural development scheme.

In view of the frauds which are ubiquitous, illiterates are required to affix two passport-size photographs to the loan documentation. Rukmini approached one of the two studios to get her photo taken. When she went to collect the pictures, she was given one reason or the other for non-delivery.

The other studio did not help, when approached. This meant that she could not obtain the soft loan. As a result she was forced to go back to the usurious money lender to get the money, because rain gods would not have waited for her loan. Both the studios acted in cahoots with the moneylender.

Through a local consumer activist she complained to the local district forum under the Consumer Protection Act against the restrictive trade practice and the cartelised activity that the two studios were engaged in. She won the case and collected damages from the studio and the cartel was broken.

This real life example shows how cartels can operate at all levels in the country and sap the people and the economy. It also shows that the poor do benefit from action against competition abuses, if they can access justice.

The same situation can be projected onto the larger national canvas. But new laws such as the new Competition Act, 2002, alone cannot break cartels; we need policies to be amended to ensure that competition prevails, and the people benefit. Policies include trade policy, regulatory policy, etc.

On another occasion, a poor villager complained that he can now get a good drycell for Rs 2 each, which he had been purchasing for Rs 6, and felt very indignant. These cells were of Chinese make, and these are now available in India because we have had to free imports of consumer goods.

That was due to a trade policy measure that enabled prices to come down. A counter argument often heard is that the small units making such consumer goods are closing down as they cannot compete against cheaper imports, thus workers are getting thrown out of jobs. If one looks at government data, in fact, the number of small scale units, and resultant employment and exports, has actually been on the rise.

Indeed, some units will shut down due to attrition, while many new ones will continue to be set up, perhaps in newer areas. If we just take a look at the ball-point pen industry, then we can see the change which has been brought about. True, many small and tiny units making shoddy and leaky ball-point pens have shut down, while big brands have now occupy the scene. But aren’t ball point pens purchased by the poor also?

Examples of tied sales have also been seen. For instance, some bright bureaucrat thought of expanding the line of goods sold by ration shop dealers by adding razor blades, tea, etc. The intent was good, but the prices of these non-short supply goods were higher than the market prices.

When the poor consumers did not buy them, the shops started tied-sales, i.e., one had to purchase a quantity of tea and razor blades if one had to pick up the required quota of wheat and/or kerosene. The practice was stopped when the consumer movement raised cain.

So much about the goods sector. Let us look at the services sector. Independent regulatory policies in the utility sector is a good example of a competition policy measure meant to protect the interest of poor consumers. It does several things for the benefit of the poor, such as universal supply obligation enabling firms to supply its services to the poor, even in far flung areas. Alternatively it provides for budgetary support for the poor.

It is required to oversee consistent supply at benchmarked quality and quantity and provide a window for public participation in policy formulation and tariff-setting. In turn it will reduce corruption and make available an easy redressal system for the poor to resolve their grievances.

In sum, it is required to increase overall efficiency, thus furthering welfare gains. Indeed much more needs to be done as far as the regulatory and supply situation of our utilities, but one cannot argue against the utility of the framework.

This article can also be viewed at:
URL: http://economictimes.indiatimes.com/articleshow/msid-1277758,curpg-1.cms

Competition vs regulation — The best way forward

Published:The Hindu Business Line, September 16, 2005
By Pradeep S. Mehta

In the current draft amendment Bill on the Competition Act, the government has proposed mandatory consultation for regulators with the competition authority, as against the earlier provision of `may' consult. A welcome move, but better would have been an unambiguous coverage of behavioural problems in the domain of the competition authority.

A DEBATE is on in the country over the conflict between the to-be-set-up competition agency and the sectoral regulators. India still does not have an active competition authority, other than the inadequate MRTP (Monopolies and Restrictive Trade Practices) Commission, but speculation abounds on the likely overlaps between the two types of agencies — the competition authority and the sectoral regulators.

The problem in India arises due to various factors.

First, the competition agency will be under the Ministry of Company Affairs, while the sectoral regulators are under different ministries, such as the electricity regulator is under the Ministry of Power and so on. This can lead to turf battles between the ministries and come in the way of applying competition principles.

For instance, if the Competition Commission of India (CCI) takes an action against BSNL for any anti-competitive practice, the Communications Minister will surely want TRAI, as the sector regulator, to sort it out.

Second, sectoral laws, in their objects clause, provide for promoting competition. In fact, both sectoral regulatory laws and that on competition law are part of the competition policy rubric, which seeks to promote orderly markets.

Third, the CCI is yet to be set up properly, so there is little clarity about how it will function. Often there is a difference between the legal mandate and the operating culture, which is also moulded by court pronouncements. There is further confusion when a law does not contain the non obstante clause, or the non-derogatory principle that allows the operation of the law in pursuance of its own objectives even if there is conflict with another law. Usually all laws contain a non obstante clause, as otherwise there will be chaos. On the other hand, such a clause can promote forum shopping, and thus clarity can only be achieved through conventions and praxis.

There is overlap between the two regulatory institutions in other countries as well. But some have found good solutions, and embedded them in the law. Others have developed maturity and adopted good practices as conventions.

For example, in the UK, there is a concurrence party, where all regulators and the two competition authorities sit and decide on the best agency to deal with a case. It has worked fairly well. In India, this approach may not be the best, because of rampant egotism and rigid hierarchical structures. Furthermore, we follow a pernicious system of sinecures, where retirees are appointed to regulatory institutions. In the event of any consultation, etc., each will first look at the seniority of a person rather than the propriety.

Additionally, the Competition Appellate Tribunal in the UK is the common appeals body for the competition authorities as well as all sectoral regulators. It thus conveys the political will of the government to have smooth operations in the market regulatory structure.

This also ensures convergence in application of competition and regulatory laws on issues where there is overlap, setting healthy conventions. The Union Law Ministry and the Planning Commission favour of suc