MacroScan (Printable Version) - World Trade: Who needs a New Round?

An end-July meeting of trade officials of the WTO's 142 member nations at Geneva, laid bare the constraints to the efforts of those pushing for the launch of a new, ninth round of international trade talks at the Ministerial Meeting scheduled for November at Doha, Qatar. Heading the drive for a new round is the US, which would like to see further reduction in barriers to its exports of industrial goods as well as more progress in the ongoing negotiations on freeing trade in agriculture and services. Any acceleration on trade liberalisation on these fronts it feels can only be achieved by incorporating negotiations on these matters into a new round of talks that cannot but end with agreement on freer trade.

Needless to say, few are convinced by the US' proclaimed commitment to free trade. Not only does it continue to support its agricultural sector with huge transfers that fall outside the scope of the definition of subsidies under the Uruguay Round's Agreement on Agriculture (AoA), but it has buckled under domestic political pressure to provide virtually no concessions to developing country exports of textiles and has unwarrantedly used “anti-dumping” levies to protect domestic producers of commodities like steel, against competition from developing country exporters. The net effect is that movements in world trade are not in keeping with the expectations of the developing countries. Although world trade as a whole as grown much faster that world GDP (Chart 1), this is more true of manufacturing trade and production than of agriculture (Charts 2 & 3). Hence, benefits to developing countries, if any, have been concentrated among the few who are major exporters of non-traditional manufactures.

It was the US which initiated in the 1980s the process of substituting measures of support that directly impinge on agricultural prices with income support measures, which are ostensibly “decoupled” from prices. One example of such decoupled support is "deficiency payments" made to farmers when actual prices rule below target prices. Since these payments, which are linked to specific crops and to farm area, allow farmers to remain in production despite incurring higher costs, they do affect the level of production and therefore must influence prices and trade. Yet the Uruguay Round Agreement excluded these payments from the list of subsidies that distort trade.

The lead provided by the US was followed by the European Union, which made the shift from price to income support the principal plank of the reform of its Common Agricultural Policy. Not surprisingly, these two powerful forces came together and ensured that these types of support to agriculture, categorised as “green box subsidies”, were excluded from computing the Aggregate Measure of Support (AMS), which nations were committed to reduce under the AoA, on the grounds that they were not trade-distorting. What is more, under the Peace Clause included in the AoA, no disputes could be raised regarding the "green-box policies" and other AoA conforming support and subsidy measures, during the phase when the agreement was being implemented.

The OECD, however, periodically computes the total subsidies provided to agriculture by its member countries, which it terms “producer subsidy equivalent”. In practice, while AMS commitments have been met, the PSE has remained at extremely high levels. To quote the WTO: "In 1999, the OECD estimated total support to agriculture at f306 billion, up 5.6% over 1998, a rise explained by ‘low world commodity prices, and the resulting pressure they put on farm incomes, [which] led many OECD countries to introduce new measures or to provide additional support to farmers'. Producer support granted in the area was estimated at f236.7 billion, of which the largest single share is accounted for by the European Union (45%), followed by Japan (23%) and the United States (21%); it should be noted that the OECD figures do not segregate less from more distorting measures of support, notably support in the 18 "green box" categories of Annex 2 of the Agreement on Agriculture. The OECD notes that producer support levels have risen to match previous highs established a decade ago, when the Uruguay Round was under way."

What is more, prior to 1986-88, which was taken as the base period for the benchmark figure in the Uruguay Round from which duty reductions had to be implemented, the US and other developed countries had substantially raised the support they provided to agriculture, making the base value extremely high. Thus, the producer subsidy equivalent in the US is estimated to have risen from 8 per cent of the value of agricultural production in 1979 to 45 per cent in 1986, and from 45 to 66 per cent in the EC (10). The net result of such protection has been an extremely slow growth of world agricultural trade during the 1990s (Chart 4).

As mentioned earlier, it was not only in agriculture that the US resorts to protection under the veneer of being a votary of free trade. For example, from the point of view of the developing countries, the most visible and "multilaterally" accepted non-tariff barrier arrangement is the Multi-Fibre Arrangement. That arrangement was the end-result of a series of negotiated agreements starting in the 1960s, all of which sought to provide the developed countries with the time needed to restructure their industries so that competitive textile exports from lower-cost developing countries do not "disrupt" their markets. Despite three decades of agreement on that principle and periodic revisions of the deadline for ending import restrictions, textiles still are not permitted free entry in developed-country markets. The case for an immediate end to such restrictions, under a new multilateral trade regime was therefore strong. However, though the Uruguay Round agreement on textiles and clothing provided for the phasing out of restraints stemming from the Multi-fibre Arrangement, it once again delayed the process of liberalisation. The process that was to occur in four stages over a ten-year period starting 1995 was heavily "back-loaded", in the sense that most of the liberalisation was to occur during the last stages. The four stages defined involved the following:

In the first stage, beginning on the date on which the Uruguay Round became effective, each signatory nation was required to remove quotas only on products that account for 16 per cent of its total volume of imports of four categories of textiles and clothing in 1990 (tops and yarns, fabrics, made-up textiles products and clothing);
In the second stage, beginning three years and one month after the agreement enters into force, quotas are to be removed on a further 17 per cent of the total volume of 1990 imports;
In the third stage, which begins four years later, quotas are to be removed on products that account for not less than 18 per cent of the total volume of 1990 imports;
Finally, after 10 years and one month, all other quota restrictions on imports accounting for 49 per cent of the total are to be eliminated.

This prolonged and back-loaded agreement in a labour-intensive area in which the developed countries had agreed to open up markets four decades back, points both to the relative positions of power of developed and developing countries in the Uruguay Round negotiations as well as to the extent of commitment of the latter to offer greater market access as a quid pro quo for the rapid liberalisation of trade and investment rules in the developing countries. The developed countries have exploited the back-loaded schedule, by liberalising in the initial phases textile products that do not appear in the export basket of the developing countries. As a result even after six years of the start of implementation of the Uruguay Round, the access of developing country textile exporters to developed country markets remains restricted. As Chart 5 shows, the growth of textile exports has collapsed during the 1990s, as compared with the second half of the 1980s. Further, there has been little change in the distribution of textile and clothing exports between major regions (Charts 6 and 7).

Protectionism in the industrial area has not been restricted to textiles. Over the last few years the US has been using the option of introducing “anti-dumping” levies to prevent import surges or market disruption as a protectionist device against manufactured imports from the developing countries. The most blatant example is that of steel, where industry and union pressure led to the introduction of levies that violate WTO norms. Not surprisingly, the WTO's dispute settlement panel has already ruled against the US in cases filed by some countries, and is expected to do the same in others, including one filed by India.

These developments have deprived most developing countries of even the limited benefits they were to get from the Uruguay Round, and made them suspicious of claims that a new round would bring further gains. Not surprisingly, they are demanding something in return for their own liberalisation efforts, which have substantially increased the access of developed-country producers and investors to their markets. This makes a review of the implementation of the Uruguay Round agreement, and a revision of that agreement to accommodate developing country interests, their principal concern.

Of all the Uruguay Round agreements, the TRIPS agreement is possibly the one in greatest need of revision. The TRIPS Agreement protects intellectual property rights in all WTO member countries and constrains the production of imitation products. It is estimated that the number of patents granted worldwide in 1995 was about 710,000 and that at the end of 1995 about 3.7 million patents were in force in the world. Since then, there has been an increase in patenting activity, dominantly by large companies based in the North. Thus, it has been estimated that industrial countries hold 97 per cent of all patents, and that 90 per cent of all technology and product patents are held by MNCs. Privately, negotiators acknowledge that the TRIPS Agreement was to a great extent driven by MNC interests rather than the requirements of citizens across the world. The developing country case for revision has many grounds:

It has been stressed by the representatives of several developing countries in the WTO that the objective of fostering the transfer and dissemination of technology, which is already explicitly stated in Article 7 of the TRIPS Agreement, should be made operational through special provisions. This is because, after a period in the early 1990s when technology access constraints were relaxed somewhat, there has been a tightening up after TRIPS was signed. Also, the stronger protection to invention which has been granted under TRIPS makes it more difficult for industries in developing countries to adapt and use, through reverse engineering and other devices, developed elsewhere. This reduces one of the more obvious means of "catching up" by late industrialisers, and closes one of the more important sources of technology particularly for small and medium enterprises across the world.
Much technological progress in the recent past has been in the field of biotechnology and genetic engineering, which in turn has been based on generic resources which are often available only in the tropics (that is, mainly developing countries). Increasingly, while research organised by private corporations into genetic resources has drawn on the traditional knowledge of indigenous communities, these communities and peoples themselves do not benefit from the patents or even from the resulting inventions. Reconciling the TRIPS agreement with the Convention on Biological Diversity and accommodating "farmers' rights", defined by the FAO as the "rights arising from the past, present and future contribution of farmers in conserving, improving and making available plant genetic resources" must become one of the focal points of renegotiation.
Article 27.3 (b) of TRIPS says that members may also exclude from patentability plants and animals other than micro-organisms, and essentially biological processes for the production of plants and animals other than non-biological and micro-biological processes. However, members shall provide for the protection of plant varieties either by patents or an effective sui generis system or by any combination thereof. These provisions were to be reviewed after four years, but no systematic review has been put into place at the WTO. In this context, a recent proposal of the African Group of WTO members is significant, as it questions the TRIPS Agreement's requirement for mandatory patenting of some life forms and some natural processes. It calls for a clarification that plants, animals and micro-organisms should not be patentable, and that natural processes that produce plants, animals and other living organisms should also not be patentable. The paper also puts forward the view that by stipulating compulsory patenting of micro-organisms (which are natural living things) and micro-biological processes (which are natural processes), Article 27.3(b) contravenes the basic tenets of patent laws: that substances and processes that exist in nature are a discovery and not an invention and thus are not patentable. The African countries have thus proposed a review of TRIPS which would : (a) clarify that developing countries can opt for a national sui generis law that protects innovations of indigenous and local farming communities; (b) allow the continuation of traditional farming practices, including the right to save and exchange seeds and sell their harvests; (c) prevent anti-competitive rights or practices that threatens food sovereignty of people in developing countries; (d) harmonise Article 27.3(b) with the provisions of the CBD and the FAO's International Undertaking, which take into account the conservation and sustainable use of biological diversity, the protection of the rights and knowledge of indigenous and local communities, and the promotion of farmers rights. These proposals have been supported by many other developing countries.

It has also been pointed out that the implementation of public health policies may be restrained by the implementation of TRIPS. It forces all countries rich and poor to adopt the same, strict guidelines on respecting corporate patents, trademarks and copyrights. The TRIPS guarantees monopoly ownership over, among other things, pharmaceutical patents; thus a WTO member may not be able to suspend intellectual property rights even to address critical public health issues. Once an approach focused on public health is accepted, several articles may require revision, for instance, Article 27.1 in order to exclude the patentability of "essential medicines" listed by WHO; Article 30 so as to incorporate an explicit recognition of an "early working" exception for the approval of generic products before the expiration of a patent; and, Article 31 in order to clarify the right to grant and the scope of compulsory licenses for public health reasons. One of the most important areas of public concern relates to the availability and prices of life-saving drugs. The move from process patents to product patents dramatically reduces the ability of companies in developing countries to produce cheaper versions of important life-saving drugs, especially those relating to cancer and HIV/AIDS. The extent to which this can make a difference is apparent in the very wide differences in drug prices that can be observed in India, where product patents are were not in force and other developing countries in Asia where such patents were allowed in the 1990s.

These concerns of the developing countries would be completely ignored if the US drive for a new round of trade negotiations is accepted. Unfortunately, the US is supported by the Cairns group of agricultural exporters, which includes Australia and Argentina, which wants a substantial reduction in barriers to trade in agricultural goods. This has made the EU, supported by Japan, which want to maintain the protection afforded to their agricultural sectors, the real stumbling block at the top.

As a filibustering measure, the EU and Japan have decided to bring in other issues into the picture. The new round, they argue, should be a comprehensive one that includes issues such as multilateral investment rules, competition policy and the environment. An earlier effort to push through a multilateral agreement on investment, that sought to tie the hand of nations when dealing with foreign investors investing in their soil, had led to such an acrimonious debate that it had to be shelved. Advocating the inclusion of investment as one of the subjects that must enter the agenda for a new round, is to rake up an issue that could prove controversial.

A similar controversial issue is the environment, with the focus of attention now on genetically modified (GM) foods. Partly under pressure from consumers, the EU has come up with proposals for labelling of GM foods. The proposals would introduce a system for tracing genetically modified organisms (GMOs) from the farm to the supermarket; a requirement to label all foods derived from GM ingredients; and a 1 per cent limit on the amount of GM material that finds its way accidentally into food or feed. This has already angered American farmers who currently grow GM foods like corn varieties, which are currently not authorised in the EU. Others, like the Cairns group countries are worried about the impact this can have on agricultural trade in the future. And developing countries as a group are concerned that the environment issue is being raised by the EU as a means of using environmental regulations as protectionist devices.

Despite these divisions, there is growing optimism that a deal can be struck between the EU and the US brokered by two friends, Pascal Lamy, the EU trade commissioner, and Robert Zoellick, the US trade representative, who are working overtime to convince the governments they represent that concessions leading to agreement are a must. In their effort they are being backed by arguments that a new round is the best medicine to combat the recession that looms large over the developed world. Even the “narrow agenda” being advocated by the US would deliver hugely positive results argue some. One study by Drusilla Brown of Tufts University and Alan Deardorff and Robert Stern of the University of Michigan estimates that a reduction in tariffs on agricultural and industrial products and services by 33% would deliver a one-off increase in global welfare of over $600 billion, as compared with a $75 billion increase garnered from the Uruguay Round.

Developing countries are unlikely to be taken in by such rosy estimates of the welfare benefits of a new round. A GATT study (1994) estimated that merchandise exports of developing countries will increase by about 37 per cent in real terms after the Uruguay Round benefits are fully phased in. This figure was much higher than that for developed countries and economic groupings such as the US (8.2 per cent) and the European Union (7.8 per cent). Exports of developing countries of manufactured goods amounted to $700 billion in 1992 and when estimated to grow at a "normal" rate of 6 per cent per annum were expected to touch $1,500 billion by the year 2005. This implies that the Uruguay Round was estimated to contribute to an additional increase in the manufactured exports of developing countries of $560 billion (37 per cent of $1,500 billion). In addition, GATT estimated static and dynamic income gains of $116 billion for developing countries from three sources: gains from the reduction of tariffs on industrial goods ($33 billion); the elimination of non-tariff barriers on industrial goods ($68 billion); and the reduction of agricultural barriers ($14 billion). The most important gains were expected from the elimination of industrial non-tariff barriers, especially those of quotas under the Multi-fibre Arrangement. Suffice it to say, current prognoses about trends in world trade are far less optimistic. In fact, the evidence seems to indicate that developing countries have been major losers. If the Brown, Deardorff, Stern study quoted above is considered, even their optimistic methods estimate total gains from the Uruguay Round at just $75 billion; given their uneven distribution, this would make developing country gains, if any, well short of the $116 billion promised by GATT in 1994.

This makes the position, taken by the "like-minded group" of developing countries, led by India, Pakistan, Egypt and Malaysia, that implementation issues and a review of impact are crucial, extremely strong. But dissensions between the 142 members in general and the developing countries themselves in particular, makes their case weak in practice, even if not in theory. There are reportedly 30-40 members, including the US, which are willing to go along with the EU on including investment in the agenda. This provides a major weapon for working a compromise, even if at the expense of the developing countries. And within the developing countries, there are some who have reportedly expressed their willingness to divide implementation issues into those that need to be addressed before a new round and those that can be considered as part of the round. This could help postpone discussion of the most controversial issues like textiles and agricultural support.

Once the developing camp is divided, pressure exerted by using mechanisms outside the terrain of the WTO can force developing countries fall in line. This is precisely what happened in the Uruguay Round, where the original negotiating position of countries like India had little to do with what they settled for finally. It is therefore ominous that the Financial Times reported that besides Brazil, Mexico and South Africa, "that favour a round, as does China, which is poised to enter the WTO", "even India, which has long led the opposition to new global negotiations, seems to be wavering."

If this tendency is visible so early in the negotiations, the likelihood is that the developing countries would be forced to go along with any agreement on the agenda for a new round thrashed out between the US, on the one hand, and the EU and Japan on the other. If, therefore, any equity has to be introduced into the system of world trade that is being institutionalised through repeated trade negotiations, those joining the growing opposition to globalisation within civil society must deliver it. No wonder, the G-10 has been forced to sit up and take note of this opposition, even if it is with the aim of suppressing it.



Themes > Features	07.08.2001


World Trade: Who Needs a New Round?

An end-July meeting of trade officials of the WTO's 142 member nations at Geneva, laid bare the constraints to the efforts of those pushing for the launch of a new, ninth round of international trade talks at the Ministerial Meeting scheduled for November at Doha, Qatar. Heading the drive for a new round is the US, which would like to see further reduction in barriers to its exports of industrial goods as well as more progress in the ongoing negotiations on freeing trade in agriculture and services. Any acceleration on trade liberalisation on these fronts it feels can only be achieved by incorporating negotiations on these matters into a new round of talks that cannot but end with agreement on freer trade. Needless to say, few are convinced by the US' proclaimed commitment to free trade. Not only does it continue to support its agricultural sector with huge transfers that fall outside the scope of the definition of subsidies under the Uruguay Round's Agreement on Agriculture (AoA), but it has buckled under domestic political pressure to provide virtually no concessions to developing country exports of textiles and has unwarrantedly used “anti-dumping” levies to protect domestic producers of commodities like steel, against competition from developing country exporters. The net effect is that movements in world trade are not in keeping with the expectations of the developing countries. Although world trade as a whole as grown much faster that world GDP (Chart 1), this is more true of manufacturing trade and production than of agriculture (Charts 2 & 3). Hence, benefits to developing countries, if any, have been concentrated among the few who are major exporters of non-traditional manufactures. It was the US which initiated in the 1980s the process of substituting measures of support that directly impinge on agricultural prices with income support measures, which are ostensibly “decoupled” from prices. One example of such decoupled support is "deficiency payments" made to farmers when actual prices rule below target prices. Since these payments, which are linked to specific crops and to farm area, allow farmers to remain in production despite incurring higher costs, they do affect the level of production and therefore must influence prices and trade. Yet the Uruguay Round Agreement excluded these payments from the list of subsidies that distort trade. The lead provided by the US was followed by the European Union, which made the shift from price to income support the principal plank of the reform of its Common Agricultural Policy. Not surprisingly, these two powerful forces came together and ensured that these types of support to agriculture, categorised as “green box subsidies”, were excluded from computing the Aggregate Measure of Support (AMS), which nations were committed to reduce under the AoA, on the grounds that they were not trade-distorting. What is more, under the Peace Clause included in the AoA, no disputes could be raised regarding the "green-box policies" and other AoA conforming support and subsidy measures, during the phase when the agreement was being implemented. The OECD, however, periodically computes the total subsidies provided to agriculture by its member countries, which it terms “producer subsidy equivalent”. In practice, while AMS commitments have been met, the PSE has remained at extremely high levels. To quote the WTO: "In 1999, the OECD estimated total support to agriculture at f306 billion, up 5.6% over 1998, a rise explained by ‘low world commodity prices, and the resulting pressure they put on farm incomes, [which] led many OECD countries to introduce new measures or to provide additional support to farmers'. Producer support granted in the area was estimated at f236.7 billion, of which the largest single share is accounted for by the European Union (45%), followed by Japan (23%) and the United States (21%); it should be noted that the OECD figures do not segregate less from more distorting measures of support, notably support in the 18 "green box" categories of Annex 2 of the Agreement on Agriculture. The OECD notes that producer support levels have risen to match previous highs established a decade ago, when the Uruguay Round was under way." What is more, prior to 1986-88, which was taken as the base period for the benchmark figure in the Uruguay Round from which duty reductions had to be implemented, the US and other developed countries had substantially raised the support they provided to agriculture, making the base value extremely high. Thus, the producer subsidy equivalent in the US is estimated to have risen from 8 per cent of the value of agricultural production in 1979 to 45 per cent in 1986, and from 45 to 66 per cent in the EC (10). The net result of such protection has been an extremely slow growth of world agricultural trade during the 1990s (Chart 4). As mentioned earlier, it was not only in agriculture that the US resorts to protection under the veneer of being a votary of free trade. For example, from the point of view of the developing countries, the most visible and "multilaterally" accepted non-tariff barrier arrangement is the Multi-Fibre Arrangement. That arrangement was the end-result of a series of negotiated agreements starting in the 1960s, all of which sought to provide the developed countries with the time needed to restructure their industries so that competitive textile exports from lower-cost developing countries do not "disrupt" their markets. Despite three decades of agreement on that principle and periodic revisions of the deadline for ending import restrictions, textiles still are not permitted free entry in developed-country markets. The case for an immediate end to such restrictions, under a new multilateral trade regime was therefore strong. However, though the Uruguay Round agreement on textiles and clothing provided for the phasing out of restraints stemming from the Multi-fibre Arrangement, it once again delayed the process of liberalisation. The process that was to occur in four stages over a ten-year period starting 1995 was heavily "back-loaded", in the sense that most of the liberalisation was to occur during the last stages. The four stages defined involved the following: In the first stage, beginning on the date on which the Uruguay Round became effective, each signatory nation was required to remove quotas only on products that account for 16 per cent of its total volume of imports of four categories of textiles and clothing in 1990 (tops and yarns, fabrics, made-up textiles products and clothing); In the second stage, beginning three years and one month after the agreement enters into force, quotas are to be removed on a further 17 per cent of the total volume of 1990 imports; In the third stage, which begins four years later, quotas are to be removed on products that account for not less than 18 per cent of the total volume of 1990 imports; Finally, after 10 years and one month, all other quota restrictions on imports accounting for 49 per cent of the total are to be eliminated. This prolonged and back-loaded agreement in a labour-intensive area in which the developed countries had agreed to open up markets four decades back, points both to the relative positions of power of developed and developing countries in the Uruguay Round negotiations as well as to the extent of commitment of the latter to offer greater market access as a quid pro quo for the rapid liberalisation of trade and investment rules in the developing countries. The developed countries have exploited the back-loaded schedule, by liberalising in the initial phases textile products that do not appear in the export basket of the developing countries. As a result even after six years of the start of implementation of the Uruguay Round, the access of developing country textile exporters to developed country markets remains restricted. As Chart 5 shows, the growth of textile exports has collapsed during the 1990s, as compared with the second half of the 1980s. Further, there has been little change in the distribution of textile and clothing exports between major regions (Charts 6 and 7). Protectionism in the industrial area has not been restricted to textiles. Over the last few years the US has been using the option of introducing “anti-dumping” levies to prevent import surges or market disruption as a protectionist device against manufactured imports from the developing countries. The most blatant example is that of steel, where industry and union pressure led to the introduction of levies that violate WTO norms. Not surprisingly, the WTO's dispute settlement panel has already ruled against the US in cases filed by some countries, and is expected to do the same in others, including one filed by India. These developments have deprived most developing countries of even the limited benefits they were to get from the Uruguay Round, and made them suspicious of claims that a new round would bring further gains. Not surprisingly, they are demanding something in return for their own liberalisation efforts, which have substantially increased the access of developed-country producers and investors to their markets. This makes a review of the implementation of the Uruguay Round agreement, and a revision of that agreement to accommodate developing country interests, their principal concern. Of all the Uruguay Round agreements, the TRIPS agreement is possibly the one in greatest need of revision. The TRIPS Agreement protects intellectual property rights in all WTO member countries and constrains the production of imitation products. It is estimated that the number of patents granted worldwide in 1995 was about 710,000 and that at the end of 1995 about 3.7 million patents were in force in the world. Since then, there has been an increase in patenting activity, dominantly by large companies based in the North. Thus, it has been estimated that industrial countries hold 97 per cent of all patents, and that 90 per cent of all technology and product patents are held by MNCs. Privately, negotiators acknowledge that the TRIPS Agreement was to a great extent driven by MNC interests rather than the requirements of citizens across the world. The developing country case for revision has many grounds: It has been stressed by the representatives of several developing countries in the WTO that the objective of fostering the transfer and dissemination of technology, which is already explicitly stated in Article 7 of the TRIPS Agreement, should be made operational through special provisions. This is because, after a period in the early 1990s when technology access constraints were relaxed somewhat, there has been a tightening up after TRIPS was signed. Also, the stronger protection to invention which has been granted under TRIPS makes it more difficult for industries in developing countries to adapt and use, through reverse engineering and other devices, developed elsewhere. This reduces one of the more obvious means of "catching up" by late industrialisers, and closes one of the more important sources of technology particularly for small and medium enterprises across the world. Much technological progress in the recent past has been in the field of biotechnology and genetic engineering, which in turn has been based on generic resources which are often available only in the tropics (that is, mainly developing countries). Increasingly, while research organised by private corporations into genetic resources has drawn on the traditional knowledge of indigenous communities, these communities and peoples themselves do not benefit from the patents or even from the resulting inventions. Reconciling the TRIPS agreement with the Convention on Biological Diversity and accommodating "farmers' rights", defined by the FAO as the "rights arising from the past, present and future contribution of farmers in conserving, improving and making available plant genetic resources" must become one of the focal points of renegotiation. Article 27.3 (b) of TRIPS says that members may also exclude from patentability plants and animals other than micro-organisms, and essentially biological processes for the production of plants and animals other than non-biological and micro-biological processes. However, members shall provide for the protection of plant varieties either by patents or an effective sui generis system or by any combination thereof. These provisions were to be reviewed after four years, but no systematic review has been put into place at the WTO. In this context, a recent proposal of the African Group of WTO members is significant, as it questions the TRIPS Agreement's requirement for mandatory patenting of some life forms and some natural processes. It calls for a clarification that plants, animals and micro-organisms should not be patentable, and that natural processes that produce plants, animals and other living organisms should also not be patentable. The paper also puts forward the view that by stipulating compulsory patenting of micro-organisms (which are natural living things) and micro-biological processes (which are natural processes), Article 27.3(b) contravenes the basic tenets of patent laws: that substances and processes that exist in nature are a discovery and not an invention and thus are not patentable. The African countries have thus proposed a review of TRIPS which would : (a) clarify that developing countries can opt for a national sui generis law that protects innovations of indigenous and local farming communities; (b) allow the continuation of traditional farming practices, including the right to save and exchange seeds and sell their harvests; (c) prevent anti-competitive rights or practices that threatens food sovereignty of people in developing countries; (d) harmonise Article 27.3(b) with the provisions of the CBD and the FAO's International Undertaking, which take into account the conservation and sustainable use of biological diversity, the protection of the rights and knowledge of indigenous and local communities, and the promotion of farmers rights. These proposals have been supported by many other developing countries. It has also been pointed out that the implementation of public health policies may be restrained by the implementation of TRIPS. It forces all countries rich and poor to adopt the same, strict guidelines on respecting corporate patents, trademarks and copyrights. The TRIPS guarantees monopoly ownership over, among other things, pharmaceutical patents; thus a WTO member may not be able to suspend intellectual property rights even to address critical public health issues. Once an approach focused on public health is accepted, several articles may require revision, for instance, Article 27.1 in order to exclude the patentability of "essential medicines" listed by WHO; Article 30 so as to incorporate an explicit recognition of an "early working" exception for the approval of generic products before the expiration of a patent; and, Article 31 in order to clarify the right to grant and the scope of compulsory licenses for public health reasons. One of the most important areas of public concern relates to the availability and prices of life-saving drugs. The move from process patents to product patents dramatically reduces the ability of companies in developing countries to produce cheaper versions of important life-saving drugs, especially those relating to cancer and HIV/AIDS. The extent to which this can make a difference is apparent in the very wide differences in drug prices that can be observed in India, where product patents are were not in force and other developing countries in Asia where such patents were allowed in the 1990s. These concerns of the developing countries would be completely ignored if the US drive for a new round of trade negotiations is accepted. Unfortunately, the US is supported by the Cairns group of agricultural exporters, which includes Australia and Argentina, which wants a substantial reduction in barriers to trade in agricultural goods. This has made the EU, supported by Japan, which want to maintain the protection afforded to their agricultural sectors, the real stumbling block at the top. As a filibustering measure, the EU and Japan have decided to bring in other issues into the picture. The new round, they argue, should be a comprehensive one that includes issues such as multilateral investment rules, competition policy and the environment. An earlier effort to push through a multilateral agreement on investment, that sought to tie the hand of nations when dealing with foreign investors investing in their soil, had led to such an acrimonious debate that it had to be shelved. Advocating the inclusion of investment as one of the subjects that must enter the agenda for a new round, is to rake up an issue that could prove controversial. A similar controversial issue is the environment, with the focus of attention now on genetically modified (GM) foods. Partly under pressure from consumers, the EU has come up with proposals for labelling of GM foods. The proposals would introduce a system for tracing genetically modified organisms (GMOs) from the farm to the supermarket; a requirement to label all foods derived from GM ingredients; and a 1 per cent limit on the amount of GM material that finds its way accidentally into food or feed. This has already angered American farmers who currently grow GM foods like corn varieties, which are currently not authorised in the EU. Others, like the Cairns group countries are worried about the impact this can have on agricultural trade in the future. And developing countries as a group are concerned that the environment issue is being raised by the EU as a means of using environmental regulations as protectionist devices. Despite these divisions, there is growing optimism that a deal can be struck between the EU and the US brokered by two friends, Pascal Lamy, the EU trade commissioner, and Robert Zoellick, the US trade representative, who are working overtime to convince the governments they represent that concessions leading to agreement are a must. In their effort they are being backed by arguments that a new round is the best medicine to combat the recession that looms large over the developed world. Even the “narrow agenda” being advocated by the US would deliver hugely positive results argue some. One study by Drusilla Brown of Tufts University and Alan Deardorff and Robert Stern of the University of Michigan estimates that a reduction in tariffs on agricultural and industrial products and services by 33% would deliver a one-off increase in global welfare of over $600 billion, as compared with a $75 billion increase garnered from the Uruguay Round. Developing countries are unlikely to be taken in by such rosy estimates of the welfare benefits of a new round. A GATT study (1994) estimated that merchandise exports of developing countries will increase by about 37 per cent in real terms after the Uruguay Round benefits are fully phased in. This figure was much higher than that for developed countries and economic groupings such as the US (8.2 per cent) and the European Union (7.8 per cent). Exports of developing countries of manufactured goods amounted to $700 billion in 1992 and when estimated to grow at a "normal" rate of 6 per cent per annum were expected to touch $1,500 billion by the year 2005. This implies that the Uruguay Round was estimated to contribute to an additional increase in the manufactured exports of developing countries of $560 billion (37 per cent of $1,500 billion). In addition, GATT estimated static and dynamic income gains of $116 billion for developing countries from three sources: gains from the reduction of tariffs on industrial goods ($33 billion); the elimination of non-tariff barriers on industrial goods ($68 billion); and the reduction of agricultural barriers ($14 billion). The most important gains were expected from the elimination of industrial non-tariff barriers, especially those of quotas under the Multi-fibre Arrangement. Suffice it to say, current prognoses about trends in world trade are far less optimistic. In fact, the evidence seems to indicate that developing countries have been major losers. If the Brown, Deardorff, Stern study quoted above is considered, even their optimistic methods estimate total gains from the Uruguay Round at just $75 billion; given their uneven distribution, this would make developing country gains, if any, well short of the $116 billion promised by GATT in 1994. This makes the position, taken by the "like-minded group" of developing countries, led by India, Pakistan, Egypt and Malaysia, that implementation issues and a review of impact are crucial, extremely strong. But dissensions between the 142 members in general and the developing countries themselves in particular, makes their case weak in practice, even if not in theory. There are reportedly 30-40 members, including the US, which are willing to go along with the EU on including investment in the agenda. This provides a major weapon for working a compromise, even if at the expense of the developing countries. And within the developing countries, there are some who have reportedly expressed their willingness to divide implementation issues into those that need to be addressed before a new round and those that can be considered as part of the round. This could help postpone discussion of the most controversial issues like textiles and agricultural support. Once the developing camp is divided, pressure exerted by using mechanisms outside the terrain of the WTO can force developing countries fall in line. This is precisely what happened in the Uruguay Round, where the original negotiating position of countries like India had little to do with what they settled for finally. It is therefore ominous that the Financial Times reported that besides Brazil, Mexico and South Africa, "that favour a round, as does China, which is poised to enter the WTO", "even India, which has long led the opposition to new global negotiations, seems to be wavering." If this tendency is visible so early in the negotiations, the likelihood is that the developing countries would be forced to go along with any agreement on the agenda for a new round thrashed out between the US, on the one hand, and the EU and Japan on the other. If, therefore, any equity has to be introduced into the system of world trade that is being institutionalised through repeated trade negotiations, those joining the growing opposition to globalisation within civil society must deliver it. No wonder, the G-10 has been forced to sit up and take note of this opposition, even if it is with the aim of suppressing it.



© MACROSCAN 2001