 |
 |
|
|
|
|
Swiss Institute for International Economics and Applied Economic Research
Bodanstrasse 8
CH-9000 St.Gallen
Phone +41 71 224 23 50
Fax +41 71 224 22 98
http://www.siaw.unisg.ch |
 |
|
|
|
|
from the Swiss Institute for International Economics
and Applied Economic Research (SIAW)
No. 13 - September 2005
* This issue of WTO-News may also be downloaded in the following file formats: *
- Commentary: From "Trade versus Aid" to "Aid for Trade"? (Simon Evenett)
- Dispute Settlement: WTO Arbitrator Rules against proposed EC Tariff Rate for Bananas (Heinz Hauser)
- From the Book Shelf: Sacha Wunsch-Vincent: The WTO, the Internet and Trade in Digital Products (Martin Gedult v. Jungenfeld)
- Details of Publication
FROM "TRADE VERSUS AID" TO "AID FOR TRADE"?
Over the last twelve months there have been important developments in thinking about the relationship between aid and trade reforms. Trade and aid have often been viewed as substitutes for one another, and there has been a long debate about their respective merits. For example, after last Christmas' tsunami, Sri Lanka pointedly called for greater trade preferences from western countries and not for more aid. However, another view – which emphasises the complementarities between aid and trade – has gained prominence. The latter view, which proponents have branded "aid for trade", could have significant implications for the Doha Round of multilateral trade negotiations. This short article sketches out what those implications might be.
Proponents of "aid for trade" argue that the capacity of developing countries to take advantage of any market access gains in the Doha Round is currently hampered by a plethora of supply-side bottlenecks and costs, administrative constraints, and poor institutions. All of these hamper export competitiveness. Moreover, adjusting to tariff cuts could result in developing countries losing tariff revenues and in labour dislocation, so increasing the demands for state help while reducing the means to fund it. Proponents worry that, unless these constraints are recognised and properly addressed, developing countries are likely to oppose the conclusion of an ambitious Doha Round.
Less dramatically, there is a risk that the level of ambition in the round may be scaled back as developing countries feel that their ability to realise new export opportunities is limited, and so offer commensurately small improvements in access to their own markets. A downward spiral could ensue. Avoiding this dreadful outcome is possible, it is argued, so long as additional aid is devoted to tackling the trade-related constraints and adjustment costs in developing countries. The proponents claim that the total amount of extra aid needed pales in comparison to the gains for industrialised countries of an ambitious Doha Round.
It is envisaged that this aid would be in addition to that currently dispersed by bilateral donors, the multilateral development banks, and the regional development banks. Moreover, the associated technical assistance would come on top of that provided by the WTO and other organisations. The proponents recognise that there is a risk of duplication of activities by development agencies, and have argued that some consultative mechanism, which brings together the donors and aid recipients, is needed.
Implementation of "Aid for Trade": Open Questions
The proponents are savvy enough to recognise the following important features of the aid and trade landscape. First, the severity of trade-related constraints varies markedly across developing countries, so tools will be needed to assess needs accurately and to promote effective implementation. Having said that, the proponents have yet to fully cost out their proposals.
Second, no bilateral aid donor or multilateral lending institution (such as the World Bank) seems willing to bind aid commitments in an enforceable WTO agreement. For this reason the proponents have called for a new mechanism, outside of the WTO rulemaking and enforcement machinery, but related to the nature and extent of newly-agreed commitments, to be created.
Third, the proponents are well aware that proposals for enhanced aid are seen cynically by some as a means to "buy off" certain developing country opposition to the conclusion of the Doha Round. Even though the proposals are motivated by tangible and noble concerns, there is still the risk that the momentum behind this proposal is hijacked for other purposes. The proponents rightly emphasise not just the case for more aid but the pro-development uses to which it could be put.
Proposals for Hong Kong
The "aid for trade" proposals raise a number of deeper questions. As we move towards the Hong Kong meeting of WTO ministers in December, and the scramble for something positive to say and do at that event intensifies, whether "aid for trade" proposals are developed further is likely to depend on the following matters: First, to what extent are the constraints to export competitiveness and the adjustment costs to trade reforms solely remediable by finance? It may be the case that financial resources can be mustered faster than other assistance, but the question still remains. The long-term case for "aid for trade" will be harmed if overly optimistic expectations are made concerning its developmental impact.
Second, who will conduct the needs-assessments necessary to implement effectively an "aid for trade" initiative? Experience has shown that the assistance and capacity-building trade negotiators demand for their countries can be at odds with what sectoral experts in those same countries think is necessary. A way will have to be found to ensure that an essentially technocratic exercise in needs-assessment is not swamped by the peculiarities of the negotiating dynamics in Geneva.
Third, since new aid commitments are not to be bound in WTO agreements, how can developing countries be assured that donors do not reallocate "aid for trade" funds to some other priorities that emerge at a later date? Conversely, what mechanisms are in place to ensure that Western taxpayers' money is used as effectively as possible and not misappropriated? In short, new institutional modalities will be needed to facilitate participation, honour promises, foster accountability, and ensure effectiveness and value-for-money.
Given the opposition to expanding the WTO into "new" subject areas, and the growing demands for trade-related technical assistance and capacity-building, these matters are becoming of greater concern as the Doha Round unfolds. Opponents to expanding the remit of the WTO never told us how to manage the interface between trade-related functions within and outside the WTO. The success of the proposals for "aid for trade" will depend on finding such an interface mechanism.
Perhaps a prototype scheme linked to the new commitments on trade facilitation would be a good place to start implementing "aid for trade". It is said that such negotiations on the speedy movement and clearance of goods through customs are further ahead of other elements in the Doha Round and, in principle, nothing prevents an agreement on the former being concluded before the end of this round. An "aid for trade" channel could be set up to help developing countries meet their new commitments. Doing so would enable WTO members to burnish their pro-development credentials and build faith in the multilateral negotiating process, while providing opportunities to iron out difficulties associated with implementing "aid for trade" and to assess whether it makes sense to "scale up" this initiative for commitments agreed later in the Doha Round. Could this help salvage the Hong Kong Ministerial? Simon Evenett
WTO ARBITRATOR RULES AGAINST PROPOSED EC TARIFF RATE FOR BANANAS
On 1 August 2005, a WTO Arbitrator ruled against the proposed EC MFN-tariff on bananas of 230 Euro per metric ton (WTO document WT/L/616). This tariff had been intended to replace the existing EC import regime by 1 January 2006.
What is the background of this decision? During the Doha-Ministerial, WTO members agreed that the EC most-favoured-nation obligation would be waived until 31 December 2007 with regard to its ACP-EC Partnership Agreement – which covers 79 countries from Africa, the Caribbean, and the Pacific. After this transition period, a new system of regional free trade agreements with these countries should replace the existing system of discriminatory preferences. The waiver also incorporates the results of two understandings between the EU and the US and Ecuador, respectively, relating to the resolution of the WTO EC-Bananas III dispute. According to these understandings, the EC is required to replace by 1 January 2006 its existing tiered system of tariff-rate quotas (TRQs) with a "tariff-only system" (uniform MFN-tariff plus tariff preferences for ACP countries). The decision equally stipulates that the new MFN-tariff should at least retain total market access for non-ACP suppliers. Moreover, afflicted parties may request arbitration, if they consider the rebinding of tariffs to violate their market access opportunities.
Nine Latin American banana-producing countries have done so. These countries applauded, naturally, the verdict of the Arbitrator to reject the proposed tariff of 230 Euro per metric ton. Not surprisingly, ACP countries, especially Caribbean and Pacific banana producers, have voiced strong disappointment with the ruling. The EC must now initiate new negotiations with the interested parties. In the absence of a mutually satisfactory solution, the same Arbitrator will be asked to determine in a second proceeding whether the EC has rectified the matter. If he finds to the contrary, the MFN-waiver shall cease to apply to bananas.
Tariffication of the existing TRQ system
What does the existing system look like in practice? A quota of 750,000 metric tons is reserved exclusively for duty-free imports from ACP countries into the EC. A total of an additional 3.113 Million metric tons (of which 2.2 million are WTO bound and 0.913 million unbound, i.e. can be changed unilaterally) are open to all exporters, with ACP products at zero tariffs and non-ACP suppliers with a bound in-quota rate of 75 Euro per metric ton. The out-of-quota tariffs are 380 Euro (ACP products) and 680 Euro (non-ACP products). These high rates basically exclude additional imports above the existing quota limits. This complicated system of tiered TRQs should be replaced by a single MFN-tariff of 230 Euro per metric ton without quantity restrictions combined with the possibility for ACP-suppliers to import duty-free (based on the waiver until the end of 2007 and on the new free trade agreements which are envisaged afterwards).
The EC has used the so-called price gap method for calculating the equivalent MFN tariff rate. According to this methodology, the difference between the world market price and an internal reference price determines the protective effect of a quota system or of non-tariff barriers, and serves as a basis to calculate the equivalent tariff. Neither the claimants nor the Arbitrator have challenged in principle the use of the price gap method. However, they have judged its implementation as problematic, particularly the choice of reference period and reference prices. Most importantly, claimants and Arbitrator objected to the EC's neglect of the production effects of the strong increase in the preference margin for ACP countries from 75 Euro today to the proposed MFN rate of 230 Euro per metric ton. This increase is particularly relevant with regard to the ACP-producers Cameroon and Ivory Cost, which have similar cost structures to their Latin American competitors and have already more than doubled their production since the early 90s (albeit, so far, to the detriment of other ACP countries). The fear of the Latin American countries that the new system with a considerably increased preference margin for ACP countries would squeeze them out of the European market thus appears quite reasonable.
The Arbitrator has instructed the EC to enter into new negotiations with the interested parties. Yet, he has not given any hint as to the range of an acceptable MFN rate. The negotiations will undoubtedly prove to be very difficult. The Caribbean countries have asked for a tariff of 275 Euro in the run-up of the EC decision. Cameroon and Ivory Coast have issued a common statement indicating that any tariff below 75 Euro would have devastating effects on their production. Finally, the Latin American producers have publicly announced that a tariff as low as 33 Euro would be equivalent to the existing level of protection for ACP countries. The proposals of all parties are based on the price gap methodology and the estimates are the results of econometric studies. For lack of own empirical studies, I will refrain from proposing a specific adequate tariff. Simple observation, however, suggests that the two extremes are remote from a value which balances the interests of both groups of countries. Tripling the preference margin from 75 to 230 Euro must have supply effects and impact negatively on the ability of Latin American producers to export to the European market. On the other hand, a tariff rate below 75 Euro will certainly not be sufficient to protect ACP- (and particularly Caribbean) countries’ market access. This view is supported by the fact that these countries have not been able to take advantage of the existing preference margin of 75 Euro within the quota which is open to all suppliers.
Trade preferences as EC-development policy instruments
The dispute over the choice of an adequate EC-MFN tariff for bananas is economically very important – given the EC import volume of approximately 3.4 million metric tons. But the dispute also has ramifications which transcend the bananas market. First, one must note that the dispute does not run along the line of industrial versus developing countries – rather, it affects the – diverging – interests of different groups of developing countries. The dispute is therefore the heritage of an EC trade policy which, in order to achieve development objectives, used to discriminate between developing countries. Discrimination supports specific groups of developing countries – and the recipient countries find themselves trapped in preference erosion with the move to non-discriminatory approaches demanded by the WTO. The resulting distributional effects lead, moreover, to great conflicts. Due to these conflicts, it is questionable whether the EC will be able to transform its Agreement with the ACP countries into a WTO-compatible format by the end of 2007.
Moreover, the arbitration award is of great significance to the agricultural sector in general. There, we find a large number of TRQs. These resulted from the great difficulties encountered during the Uruguay Round to transform quota restrictions and non-tariff barriers into equivalent MFN-tariffs. To guarantee existing market access opportunities, the system of MFN-tariffs was complemented by TRQs. It is by now evident that the administration of TRQs introduces additional distortions, and that it would be advisable to gradually replace them by a tariff-only system. But, as clearly shown by the negotiations in the case discussed, special interests influence the choice of econometric models and parameters (relevant prices, reference period etc.) on which results are based. It is hence very difficult to come up with recommendations which are accepted by both sides as "objective" arbitration of conflicting interests. However, there would be a real-life test available: If a country starts to import at the out-of-quota MFN-rate, then there is good reason to assume that this tariff has an equivalent protective impact to the underlying TRQ. But this test is only available if MFN-tariffs are sufficiently reduced in the ongoing negotiations, and/or the quotas increased.
This strategy could possibly lead the way also in the bananas dispute. This would mean that the actual quota system with a bound in-quota tariff of 75 Euro per metric ton is maintained, but that today’s out-of-quota tariff of 680 Euro per metric ton is quickly and substantially reduced, up to the point where out-of-quota imports could be observed. Most probably, this rate would be above 75 Euro, but significantly below the proposed 230 Euro. At such a rate, the quota system could then be abolished, without further time-consuming and difficult arguments about econometric methodology and relevant prices. Heinz Hauser
SACHA WUNSCH-VINCENT: THE WTO, THE INTERNET AND TRADE IN DIGITAL PRODUCTS – EC-US PERSPECTIVES, OXFORD: HART PUBLISHING, 2005; 256 PAGES, EURO 60.00
Due to fast-paced technological changes – most notably the rapid development of the Internet – cross-border electronic trade in digital content products (movies, music, software, etc.) has become an increasingly important phenomenon. However, such trade is not explicitly recognised within the current WTO-framework.
In this brand-new book, SACHA WUNSCH-VINCENT – an economist at the OECD – provides the first detailed and comprehensive analysis of the steps WTO Members must undertake if they want to remedy this state of affairs – thereby reducing the serious risk of rising discriminatory barriers to digital trade. First the author elaborates on the WTO’s work relating to digitally-delivered content products and on the various measures required in the Doha Negotiations to guarantee market access for this category of products. Secondly, he discusses the factors that impede reaching a consensus between the principal players in the negotiations (i.e. the EC and the US) – which is a crucial condition for progress in this area. Thirdly, WUNSCH-VINCENT compares how the multilateral Doha Negotiations and the parallel (US-driven) bilateral and regional trade agreements have – to date – contributed to securing a liberal digital trade regime.
A central conclusion of the book is that only very few of the identified negotiation requirements have been satisfactorily met at the multilateral level. It is demonstrated that the coverage of digital content products by WTO rules remains at best uncertain and that free trade in digital content has not yet been secured. Moreover, although some modest progress could be achieved in the framework of US preferential free trade agreements, the latter are unlikely to be able to lock in free trade for digital content. Prompt and decisive efforts by the WTO in the current negotiation round are therefore imperative.
In conclusion, as new technologies are an increasingly prominent source of trade disputes (see the recent US-Antigua Internet Gambling case), this book is a pragmatic assessment of how WTO Members can maintain the relevance of the multilateral trade framework in a changing technological and economic environment. Given the lack of an in-depth treatment of these issues in the existing academic literature, it is clearly a highly important contribution and will become compulsory reading for anybody interested in this subject area – academics, policy practitioners and members of the business community alike. Martin Gedult v. Jungenfeld
WTO News
from the Swiss Institute for International Economics and Applied Economic Research
Editors: Prof. Dr. Heinz Hauser, Dr. Thomas A. Zimmermann
Editing, Production, Marketing: Martin Gedult v. Jungenfeld
Marketing assistance: Edith Memeti-Keller
Linguistic proofreading (English edition): Pamela Gasser
Mail address:
WTO News
Swiss Institute for International Economics and Applied Economic Research (SIAW-HSG)
University of St. Gallen
Bodanstrasse 8
CH-9000 St. Gallen
Switzerland
Phone: ++ 41 / (0)71 / 224 23 50
Fax: ++ 41 / (0)71 / 224 22 98
E-Mail: service@wto-news.ch
Internet: http://www.wto-news.ch
Published between two and four times per year.
ISSN: 1660-3311 (English Language Online Edition)
|
| Disclaimer - Privacy |
|
|
|
|