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«November 4, 2005 From Seattle to Hong Kong: Are we Getting Anywhere? By Jagdish Bhagwati Jagdish Bhagwati is Senior Fellow in International Economics ...»

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Now, the EU has no substantive interest in agricultural reciprocity because it has no comparative advantage in agriculture. So, it does not really seek what economists call “sectoral reciprocity”, i.e. it has no real interest in getting the Cairns group countries to make concessions in agricultural tariffs. But that is not true of the United States which expects to be a net exporter. So, Ambassador Portman must seek reciprocal tariff cuts from the Cairns Group countries as well.

Besides, all studies show that the Cairns group concessions would help not merely themselves --- yes, contrary to Oxfam, Joseph Stiglitz and Dani Rodrik --- but also other developing countries. In fact, even if one concentrates on market access, cuts in other countries’ tariffs open the doors to their markets; but if your own tariffs create a bias in favour of the home market and against exportation, your potential exporters will not have an incentive to get past your own door.

Second, the EU is right to insist that the Doha Round negotiation now requires that the huge focus on agriculture be accompanied immediately by focus on manufactures where the EU finds its own balance of reciprocity. These are the so-called NAMA (nonagricultural market access) negotiations where Brazil and India can provide immediate lead. The extent of concessions is a matter for negotiation; whether some concessions must be made is inevitable if the Round is to make progress. It cannot be doubted again that their own trade liberalization in manufactures will achieve efficiency gains in the larger developed countries such as Brazil and India that have come of age.

Third, services need to make progress. Little has been accomplished to date as many have been preoccupied with agriculture while others have stayed in an idle mode on the sidelines. Greater commitments in insurance and banking can be made fairly quickly and would help improve efficiency in the developing countries, and would even enhance their export performance, since these sectors provide essential inputs in the chain of production and trade. Some of the developing countries have made much of Mode 4 delivery of services where they want greater concessions to be made on temporary inflow of providers of services from the developing countries. It is not entirely clear, however, that this is a sensible project for the WTO negotiations because immigration policy in the rich countries, owing largely to demographic changes which the former UN demographer Joseph Chamie has highlighted brilliantly, is increasingly going to be shifting towards temporary immigration programs much as the postwar gastarbeiter programs provided workers to support the European recovery and expansion after the Second World War had decimated their populations. Concessions are therefore inevitable; but they are more likely to be handled with the necessary nuances and political accord if they are dealt with as immigration, rather than as trade, issues (though admittedly they are on the interface of the two).

In conclusion, as the Expert Group Report on the Future of the WTO, submitted in January of this year, emphasized, there is need to have the poor countries overcome their fear of trade liberalization by providing the institutional support for the potential downside that may arise. Two issues need to be addressed, in particular. If poor countries which are dependent on tariff revues as a large fraction of their budget for socials spending were to lose revenues if they cut their tariffs --- Art Laffer and Milton Friedman would remind us that the revenues may actually rise, and there is empirical evidence that in some cases it did ---, then international agencies such as the World Bank should stand ready to provide offsetting aid until as long as it takes to fix the tax system to raise revenues in other, more appropriate ways. Then again, the developing countries need adjustment assistance to cope economically and politically with the effect of import competition in specific industries. Western nations have such Adjustment Assistance programs, the US since 1962 when one was started to provide support for the Kennedy Round. Again, the World Bank is an ideal source for such support, both to design and to finance such programs in the developing countries that liberalize their economies. In the absence of such safety nets, these countries cannot be expected to walk out on the high wire of globalization. Fortunately, the Bank has finally listened to such appeals by trade economists; so progress can be made quickly.

Finally, there is hesitation by many of the smaller developing countries enjoying one-way preferences under the Generalized Schemes of Preferences (GSP) and the Anything but Arms initiative of the EU. These preferences are relative to MFN tariffs, of course. Many economists earlier told the recipients of these preferences that these were wasting assets and that pushing for MFN trade liberalization with coverage of products of interest to them would be a better approach. But neither the donors nor the recipients of the one-way preferences listened. Now, they complain and many want MFN trade liberalization in products where they enjoy preferences to be reduced or eliminated! It is surely a better alternative to compensate them instead for the reduction of their preferences, by allocating aid funds for the purpose to a multilateral agency such as the World Bank.

Lamy has expressed support for these and other uses of “aid for trade”. What is needed is action to advance this agenda forthwith with the establishment of a highpowered group, under WTO auspices, with membership of the informed senior staff of the World Bank and the IMF and world-class trade economists, to suggest concrete steps by mid-2006 over how the “aid for trade” agenda must be designed and implemented.

A multi-pronged approach along these lines would help surmount the few obstacles that remain in the path of success. There is little here that is not doable. Hong Kong helps us concentrate our minds. All it needs now is good vision and fine traction in

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