The Roadmap To Hong Kong

GOVERNMENTS of the world are meeting in Hong Kong this month for the greatest battle in international trade ever between rich nations and developing countries. The occasion is the sixth Ministerial meeting of the WTO.

The meeting is widely expected to become a major showdown of power between the rich North and the poor South as industrial countries will push for further liberalisation of world trade. What is at stake in Hong Kong? While services, development issues, trade facilitation and intellectual property rights are all on the WTO agenda, the battle in Hong Kong will be about tariff reduction, for agricultural as well as for non-agricultural goods.Industrial countries are seeking a drastic reduction of tariffs worldwide.Tariffs are an important industrial policy instrument.Governments all over the world use tariffs to protect new industries, enabling them to mature and become internationally competitive.Moreover, tariffs are an important source of government revenue.Developing countries depend more on tariffs as a source of revenue than industrial countries.Industrial countries have generally lower tariffs levels as they have established mature industries that are able to compete internationally.On the other hand, tariff levels in developing countries are generally high, as industries in these countries are poorly developed and need protection.Developing countries such as Namibia therefore, will be more severely hit by a drastic reduction in tariffs than industrial countries.In an attempt to coerce all WTO members to drastically reduce tariffs on industrial goods, industrial countries are backing a proposed one-size-fits-all linear formula for tariff reduction, referred to as the Swiss formula.Under the Swiss formula, all member countries will reduce their tariffs uniformly, regardless of their specific development challenges.Under current proposals, all countries will cut their tariffs to below 8%.Allowing industrial countries to get their way with such a proposal will cast a death spell on any hope for industrial development in smaller countries such as Namibia.The country’s efforts to diversify the economy towards manufacturing industries will be severely affected, as domestic industries will have to compete directly against Transnational Companies (TNCs) for domestic markets.Also, the resulting revenue losses will drastically curtail the ability of government to provide economic services needed to create a conducive environment for industrialisation.Even worse, the ability of government to deliver basic social services such as education, health care, water etc will be severely impacted, leading to the sale of such services to TNCs.Moreover, government will have to raise domestic taxes to make up for the loss of revenue.Higher taxes in turn will put a great financial burden on workers and domestic employers alike.Fighting back Due to some of the above concerns, the Caribbean group of countries recently submitted an alternative proposal containing a formula that accommodates specific development concerns by developing countries.The Caribbean formula is a non-linear formula that provides for credits to each country according to their individual development challenges.Such challenges may range from the need to protect infant industries, the importance of tariffs as a source of government revenue to specific concerns of landlocked countries.As expected, industrial countries have rejected the Caribbean proposal, claiming that it was contrary to the WTO mandate on market access under the Doha Development Agenda.The Doha declaration, however, states clearly that negotiations on market access “shall take fully into account the special needs and interests of developing and least developed countries.”The biggest area of concern to developing countries is the negotiations on agriculture.Despite worldwide calls for the reduction of trade-distorting agricultural subsidies in industrial countries, these countries continue to pay huge amounts of money to their farmers.Industrialised OECD countries pay their farmers an estimated US$1 billion per day in agricultural subsidies.Despite having lower tariffs, agricultural subsidies in industrial countries make agricultural exports from developing countries uncompetitive in developed countries’ markets.Despite these imbalances, however, industrial countries are pushing for the reduction of agricultural tariffs in developing countries, threatening the survival of agricultural industries, often the mainstay of the economies of smaller nations.The results of further reduction in tariffs on both agricultural and non-agricultural industries will be a complete de-industrialisation of the developing countries.Our economies will be transformed into a captive market for agricultural and industrial goods from industrial countries.Instead of manufacturing, local industries will be turned into packaging and distributing industries without any linkages to the rest of the economy.Such industries are known to create much fewer jobs than manufacturing industries, adding little value to a country’s resources.If the agenda of industrial countries prevails, African governments will be forced to further sell our natural resources to TNCs, including water, minerals etc, to make up for revenue losses.TNCs will increasingly take over the role hitherto played by the state.Developing countries must oppose these developments with all means at their disposal.The smaller countries, under the banner of the G33, must stand firm on a number of vital issues: They must oppose the one-size-fits-all Swiss formula and back alternative proposals such as the Caribbean formula in the NAMA negotiations.They must demand the complete elimination of agricultural subsidies by rich nations.In this regard, industrial countries must commit to a definite time frame for the elimination of their subsidies.They must oppose the introduction of non-trade barriers in areas where industrial countries make tariff concessions.They must demand a definite agreement on development issues as stated in the Doha Development Agenda.If developing countries are to defend their right to take their own decisions and continue their efforts towards industrialisation, they must stand firm on the above issues in Hong Kong.They have to oppose any pressure by industrial countries for further trade liberalisation.Failure to do so would have devastating consequences for the poor in developing countries and dash any hopes for development and employment creation.* Cons Karamata is a researcher with the Labour Resource and Research Institute.What is at stake in Hong Kong? While services, development issues, trade facilitation and intellectual property rights are all on the WTO agenda, the battle in Hong Kong will be about tariff reduction, for agricultural as well as for non-agricultural goods.Industrial countries are seeking a drastic reduction of tariffs worldwide.Tariffs are an important industrial policy instrument.Governments all over the world use tariffs to protect new industries, enabling them to mature and become internationally competitive.Moreover, tariffs are an important source of government revenue.Developing countries depend more on tariffs as a source of revenue than industrial countries.Industrial countries have generally lower tariffs levels as they have established mature industries that are able to compete internationally.On the other hand, tariff levels in developing countries are generally high, as industries in these countries are poorly developed and need protection.Developing countries such as Namibia therefore, will be more severely hit by a drastic reduction in tariffs than industrial countries.In an attempt to coerce all WTO members to drastically reduce tariffs on industrial goods, industrial countries are backing a proposed one-size-fits-all linear formula for tariff reduction, referred to as the Swiss formula.Under the Swiss formula, all member countries will reduce their tariffs uniformly, regardless of their specific development challenges.Under current proposals, all countries will cut their tariffs to below 8%. Allowing industrial countries to get their way with such a proposal will cast a death spell on any hope for industrial development in smaller countries such as Namibia.The country’s efforts to diversify the economy towards manufacturing industries will be severely affected, as domestic industries will have to compete directly against Transnational Companies (TNCs) for domestic markets.Also, the resulting revenue losses will drastically curtail the ability of government to provide economic services needed to create a conducive environment for industrialisation.Even worse, the ability of government to deliver basic social services such as education, health care, water etc will be severely impacted, leading to the sale of such services to TNCs.Moreover, government will have to raise domestic taxes to make up for the loss of revenue.Higher taxes in turn will put a great financial burden on workers and domestic employers alike. Fighting back Due to some of the above concerns, the Caribbean group of countries recently submitted an alternative proposal containing a formula that accommodates specific development concerns by developing countries.The Caribbean formula is a non-linear formula that provides for credits to each country according to their individual development challenges.Such challenges may range from the need to protect infant industries, the importance of tariffs as a source of government revenue to specific concerns of landlocked countries.As expected, industrial countries have rejected the Caribbean proposal, claiming that it was contrary to the WTO mandate on market access under the Doha Development Agenda.The Doha declaration, however, states clearly that negotiations on market access “shall take fully into account the special needs and interests of developing and least developed countries.”The biggest area of concern to developing countries is the negotiations on agriculture.Despite worldwide calls for the reduction of trade-distorting agricultural subsidies in industrial countries, these countries continue to pay huge amounts of money to their farmers.Industrialised OECD countries pay their farmers an estimated US$1 billion per day in agricultural subsidies.Despite having lower tariffs, agricultural subsidies in industrial countries make agricultural exports from developing countries uncompetitive in developed countries’ markets.Despite these imbalances, however, industrial countries are pushing for the reduction of agricultural tariffs in developing countries, threatening the survival of agricultural industries, often the mainstay of the economies of smaller nations.The results of further reduction in tariffs on both agricultural and non-agricultural industries will be a complete de-industrialisation of the developing countries.Our economies will be transformed into a captive market for agricultural and industrial goods from industrial countries.Instead of manufacturing, local industries will be turned into packaging and distributing industries without any linkages to the rest of the economy.Such industries are known to create much fewer jobs than manufacturing industries, adding little value to a country’s resources.If the agenda of industrial countries prevails, African governments will be forced to further sell our natural resources to TNCs, including water, minerals etc, to make up for revenue losses.TNCs will increasingly take over the role hitherto played by the state.Developing countries must oppose these developments with all means at their disposal.The smaller countries, under the banner of the G33, must stand firm on a number of vital issues: They must oppose the one-size-fits-all Swiss formula and back alternative proposals such as the Caribbean formula in the NAMA negotiations.They must demand the complete elimination of agricultural subsidies by rich nations.In this regard, industrial countries must commit to a definite time frame for the elimination of their subsidies.They must oppose the introduction of non-trade barriers in areas where industrial countries make tariff concessions.They must demand a definite agreement on development issues as stated in the Doha Development Agenda.If developing countries are to defend their right to take their own decisions and continue their efforts towards industrialisation, they must stand firm on the above issues in Hong Kong.They have to oppose any pressure by industrial countries for further trade liberalisation.Failure to do so would have devastating consequences for the poor in developing countries and dash any hopes for development and employment creation.* Cons Karamata is a researcher with the Labour Resource and Research Institute.