Death of a nation under global trade

Alexander C. Chandra, Jakarta

Indonesia will soon have to renegotiate its position in the World Trade Organization (WTO) nonagricultural market access agreement (NAMA). This agreement was a product of the Doha Mandate, which, primarily, regards development as the central issue, particularly for developing countries. In reality, however, negotiations on the NAMA have so far neglected the needs of developing countries in achieving their developmental objective.

The modalities that will be used to lower tariffs remain the subject of contention between the developing and developed countries. Meanwhile, Indonesia's position in the existing negotiations on NAMA is still rather unclear.

Prior to the ministerial meeting in Cancun, the Indonesian government stipulated that Indonesia would prefer to get involved in the implementation of NAMA on a voluntary basis. However, looking at the proposed modalities produced by the Negotiating Group on Market Access (NGMA), which was issued in May 2003, it is likely that further commitment to the NAMA agreement would put Indonesia's nonagricultural sectors in jeopardy. Indonesia will, once again, become another nation suffering enforced global trade liberalization.

Although the core agenda of the Fourth WTO Ministerial Conference in Doha, Qatar, on November 2001, was to reduce tariff and nontariff barriers on industrial goods, developed and developing countries are still in contention over the way in which this objective should be implemented.

The proposed methods included in Girard's text (named after NGMA chairman Pierre-Louis Girard), which was issued during the WTO Ministerial Meeting in Cancun, Mexico, last December, were based on the Swiss formula that requires all participating countries to make drastic cuts in tariffs.

Developed countries argued that the proposed methods for tariff elimination were not sufficient enough to ensure global trade liberalization in the foreseeable future. The U.S., in particular, gave the most ambitious proposal to date, in which tariff levels should be no more than 8 percent by 2010 and, subsequently, zero by 2015. The European Union also warned that the formula used should not reward those countries that maintained a high level of duties.

Most developing countries generally resisted the proposed methods because of the lack of attention given to their needs and interests.

First, developing countries generally consider that the mandated deadline for NAMA negotiations to conclude by January 2005 is too fast.

Second, tariffs are of critical importance for many developing countries because they generate revenue for the government and the promotion of industrialization and employment.

Third, tariffs are also crucial to protect small and infant industries. The seven industry sectors identified in the NAMA negotiations (electronic and electrical goods; fish and fish products; footwear; leather goods; motor vehicle parts and components; stones, gems and precious metals; textiles and clothing) are often considered critical for developing countries.

Fourth, the lowering of tariffs on industrial goods may also damage domestic agricultural production. There is a possibility that trade liberalization on nonagricultural sectors could lead to a massive exodus of labor and capital from agriculture to industrial sectors.

Fifth, liberalization on industrial goods would have a devastating effect on the environment because it could lead to the intensification and consumption of environmentally sensitive products. On the whole, developing countries still need to impose tariffs on many of their nonagricultural sectors to avoid deindustrialization and to build domestic competitiveness.

Unlike developed countries that push for nonlinear approaches in tariff elimination, developing countries prefer to adopt a linear approach. The emphasis on the nonlinear approach would simply mean that developing countries had to make drastic tariff cuts, with few gains in return.

It will come as no surprise that in the next WTO General Council Meeting, at the end of July, developed countries will press harder for the NAMA to come into realization.

Early this year, for example, U.S. Trade Representative Robert Zvellick stated that he did not want 2004 to be a lost year for negotiations during his visits to various counterparts in Asia, Africa and Europe.

As far as Indonesia is concerned, the government has not been in a strong bargaining position to influence the formulation of the Girard text.

Prior to the WTO meeting in Cancun late last year, Minister of Industry and Trade Rini M.S. Soewandi also hinted that the voluntary approach would be the most appropriate method for tariff reduction. However, pressing ahead with this approach would only slow down total liberalization in Indonesia

It is, therefore, imperative that the Indonesian government take a very cautious approach in the next NAMA negotiations. The government's decisions in the negotiations should reflect the needs and interests of its domestic constituents. Indonesia's weak bargaining power in the negotiations will not help Indonesian farmers, laborers and entrepreneurs.

The last thing we want to see is the death of our nation under global trade liberalization.

The writer (chandra_alex@yahoo.co.uk) is studying for a PhD at Hull University and is a researcher at the Institute For Global Justice.