How WTO talks will affect us
How WTO talks will affect us
Martin Khor
The Star
Asia News Network
Selangor, Malaysia
In the next two months, there will be intensive talks in and
about the World Trade Organization's (WTO) agenda as countries
try to meet a new deadline of the end of July to conclude
"framework agreements" on some issues.
The key topics include the so-called "Singapore issues" as
well as agriculture and industrial tariffs.
The "Singapore issues" (so-called as they were first
introduced at the WTOs Ministerial in Singapore in 1996) are
investment, trade and competition, transparency in government
procurement and trade facilitation. The talks on services are
also proceeding.
How these agreements will turn out will have serious
implications.
While the theme of last week's Budget Dialogue sessions
(chaired by Prime Minister and Finance Minister Abdullah Ahmad
Badawi) was Public and Private Sector Partnership towards
enhancing Malaysia's Performance and Competitiveness -- there are
strong global dimensions that will affect the country's future
economic performance and competitiveness.
Strengthening the nation's economy depends on managing both
the domestic and international aspects. Global developments can
impact on Malaysia's economy's performance, as shown by the
financial crisis of the late 1990s.
In recent years there has been concern that some existing
rules and especially some proposals being put in the WTO by some
developed countries could affect Malaysia's "policy space" and
constrain the country's ability to maintain some important
national policies.
At the WTO's Ministerial Conference at Cancun in September
2003 there was an attempt by major developed countries to start
negotiating on the "Singapore issues". However, many developing
countries (with Malaysia playing a prominent role) were able to
prevail on this point.
But, negotiations and discussions have resumed since March
2004. At the end of July, a General Council meeting will make
some important decisions.
Since 1996, the developed countries have put immense pressure
on starting negotiations towards new WTO agreements on these four
topics. Many developing countries have been resisting the start
of negotiations.
If new agreements are formed on these issues on the lines
proposed by the developed countries, it would be difficult for
developing countries to maintain many of their key economic and
social policies.
For example, in the case of an investment agreement -- with
"free competition" -- Malaysia would find it difficult to
regulate foreign investments (e.g. foreign investment
requirements on entry, equity, joint ventures, inflows and
outflows of funds, etc) and to give preferences or aid to local
firms.
On government procurement, the eventual aim is a treaty that
would provide "national treatment" to foreign firms, and thus
prohibit preferences to local firms for government projects and
supplies to government.
The proposed agreements are aimed at curbing assistance to
locals, while giving unprecedented rights to foreign goods,
services and firms. Social development policies such as balancing
of equity shares, as well as macro-economic management, and
regulation of financial flows, would be affected.
Although the Cancun talks failed, an opportunity now exists to
have at least three Singapore issues -- trade and investment,
trade and competition policy and transparency in government
procurement -- dropped altogether from the WTO agenda. A decision
to do this can be proposed at the July meeting of the WTO General
Council and if backed by a majority of developing countries, it
could get these issues off the table.
The EU, Japan and some other countries still want talks to
continue on all four issues (the fourth is trade facilitation).
But if a strong majority of developing countries take a strong
position that three of the issues should be knocked off the
agenda, they could well succeed.
What is required is an effort to unite as many developing
countries as possible to take a common position.
The WTO is also negotiating a new round of industrial tariff
cuts, under the title "non-agriculture market access" (Nama). The
main text being considered is known as the Derbez text (after the
name of the Mexican Trade Minister who chaired the Cancun
conference).
However, there are many problems in the Derbez text, which
could threaten the viability and growth of local firms.
o First, it wants a "non-linear formula" which dictates that
there be corresponding percentage tariff cuts, where tariffs are
higher. This formula will drastically reduce developing countries
tariffs, resulting in cheap imports that threaten their domestic
industries.
o Second, it dictates that almost all presently unbound tariff
lines shall be bound at twice the present applied rate (i.e. that
tariffs cannot be raised above this bound level) and also be
subjected to the non-linear formula.
o Third, there is also a "sectoral approach" proposal that
tariffs be brought down quickly to zero in a few years for seven
or more sectors. Local firms in these sectors will be affected.
As an answer to these proposals, the following positions can
be taken:
o Developing countries should not be subjected to the "non-
linear" and sectoral approaches.
o They should be given the flexibility to determine their own
rate of tariff reduction and the products for which to bind their
tariffs -- similar to the approach in the Uruguay Round talks
(1987-1995), in which developing countries were given a target of
average overall reduction of 27 percent, with the flexibility to
choose the rates of each tariff line.
Some of the major developed countries (and some developing
countries) have made requests through the WTO services
negotiations for Malaysia (and other developing countries) to
commit to remove restrictions and regulations (or to prohibit
future ones) in a wide range of service sectors, including
finance, distribution, telecommunications, other utilities, and
professional services, etc.
They would like foreign service providers not to face
restrictions regarding entry and equity ownership.
It is important to note that there is a difference between
unilateral liberalization, which is done by a country at its own
pace, and liking, and liberalization under WTO commitments.
Under unilateral liberalization a country can decide it is in
its own interests to liberalize and allow foreign participation
up to a degree and change without having to be penalized.
However, if liberalization measures are committed under the
WTO (by entering into the schedules in the services agreement),
the country is legally bound to stick to these levels of
liberalization and cannot alter them unless compensation is made.
Thus, if some degree of liberalization is seen to be desirable
in particular sectors, it may be better to carry out this
exercise unilaterally without necessarily committing it under the
WTO.
The services agreement in WTO also allows countries to choose
its own rate of commitments. Thus although a country like
Malaysia may receive requests for liberalization of many sectors
from many countries, it need not agree to them. Developing
countries are especially allowed by the WTO services agreement to
liberalize fewer sectors at a slower pace.
A services master plan mapping out national strategy for
services should be formulated. Within that plan, the enhancement
of domestic services sector, and their potential for export,
should be aimed for. The plan should also propose what is the
optimal level of foreign participation in the various sectors.
Based on this, the desired scope and pace of liberalization can
be determined.
Liberalization measures, when deemed appropriate, can be
undertaken on a "unilateral" basis, without necessarily
committing these measures (or without necessarily at the same
level liberalized) in the WTO. This allows for flexibility to
change policies or revert back, should the need arise.
It should be clear that while other countries are free to make
requests, the country is not obliged to agree to any of the
requests, and should thus not feel "pressurized" into making
commitments beyond what it is comfortable with.