How successful was the HK Ministerial?
By Navin Dahal
Decisions in HK indicate that the present negotiations in this area are likely to result in tariff reductions in developing countries and duty-free and quota-free access to Nepalese exports in the developed countries.

The sixth Ministerial of the World Trade Organisation (WTO) recently concluded in Hong Kong in December 2005, drawing mixed reactions. Some admit that it was a success and some argue that it was a failure. The fifth WTO Ministerial held in Cancun in 2003 was dubbed a failure as WTO Members could not reach a consensus and the Ministerial ended without adopting a declaration. Many were apprehensive that Members would not be able to reach a consensus even in Hong Kong and the Ministerial would meet the fate of the Cancun Ministerial. On this account, the Hong Kong Ministerial can be dubbed a success as it adopted a declaration.

However, the success of a Ministerial cannot be and should not be judged solely on the basis of whether or not it was able to agree on a declaration. For a least developed country (LDC) like Nepal, a Ministerial can be termed successful only if the decisions help it to enhance trade opportunities. In the light of this fact, let’s examine whether or not the decisions of the Hong Kong Ministerial in different areas will help countries like Nepal to expand and enhance trade opportunities in the international market.

Agriculture

Agriculture has been the ‘make or break’ issue in WTO negotiations. Huge domestic and export subsidies in the developed countries have distorted international trade in agriculture. At the time of the establishment of the WTO, Members agreed to discipline the agriculture sector by reducing domestic and export subsidies. In the present round of trade negotiations, Members are negotiating on the new reduction commitments and time period. Of all the different areas requiring Members to make reduction commitments, they were able to agree only on the end date for the elimination of export subsidies in the HK Ministerial. Members have agreed to the parallel elimination of all forms of export subsidies and disciplines on all export measures by the end of 2013. Some major decisions were also made in other areas. The modalities will be finalised in the next few months in Geneva.

The end of export subsidies is likely to increase the world prices of agriculture commodities. This could result in a higher food bill for a net food importing country like Nepal. However, increased prices may act as an incentive for farmers to grow more.

LDCs like Nepal are not required to make commitments to reduce domestic support and export subsidies in the present round. However, Nepal will have to be cautious that the modalities for tariff reduction ensure enhanced market access in the developing countries and elimination of tariff peaks and tariff escalation in the developed countries (in case these are not addressed by duty-free quota-free access).

Non Agricultural Market Access (NAMA)

As Nepal has already bound 99.3 percent of its tariff lines and LDCs are not required to make further reduction commitments in this round, the outcome of this round is not going to alter Nepal’s import tariffs. Nepal’s interest in this area is thus market access for its manufactured goods including garments in developing and developed country markets. Decisions in HK indicate that the present negotiations in this area are likely to result in tariff reductions in developing countries and duty-free and quota-free access to Nepalese exports in the developed countries.

Services

The liberalisation of the services sector and particularly in ‘mode 4’, cross border movement of natural persons, can have a huge positive impact in the livelihood options for Nepal. Liberalisation in this mode in developed countries and particularly for ‘low skilled and unskilled’ categories is important for Nepal. This needs to be accompanied by the elimination of employment conditions, economic needs tests, quota restrictions in visa and recognition of qualifications.

The progress in this area is discouraging for Nepal. Annex C of the HK Ministerial declaration mentions that ‘new or improved commitments on the categories of Contractual Services Suppliers and Independent Professionals’. This is a major setback for Nepal and it will be a Herculean task to include low skilled and unskilled labour in this category. It is still not too late as the annex mentions that ‘methods for full and effective implementation of the LDC Modalities including according special priority to sectors and modes of supply of interest to LDCs’.

Intellectual Property Rights

Access and Benefit Sharing (ABS) and Prior Informed Consent (PIC) are two important principles of equity recognised and legitimised in the Convention on Biological Diversity (CBD), 1992. However, the Agreement on the Trade Related Aspects of Intellectual Property Rights (TRIPS) of the WTO conflicts with CBD and violates the principles of ABS and PIC. It would have been to the advantage of the developing countries to see an explicit negotiating mandate included in the Ministerial Declaration, calling for an amendment to the TRIPS Agreement to require patent applicants to disclose the origin of genetic resources and associated traditional knowledge along with evidence of PIC and benefit-sharing in their application. However, this did not happen and developing countries will have to work hard to achieve this in future negotiations.

Decisions in favour of LDCs

Duty-free quota-free Access

The most significant point of the Ministerial Declaration is the developed countries’ obligation to provide duty and quota-free access for LDC exports as of 2008.

There is, however, an important caveat with regard to product coverage: developed countries that face difficulties in providing full unrestricted access in 2008 will only be required to do so for 97 percent of tariff lines. This 3 percent of tariff lines may essentially deprive them of market access for all their products.

Trade Related Investment Measures (TRIMs)

The HK Ministerial Declaration allows LDCs to maintain on a temporary basis (five years, renewable subject to review) measures that deviate from their obligations under the TRIMs Agreement. This means that Nepal now has the flexibility to implement provisions such as local content requirement on foreign investment. Though Nepal’s investment regime is liberalised and such provisions have been done away with, this provision allows policy space for future industrial policy changes.

Aid for Trade

The emphasis the HK Ministerial text has put on aid to build the trading capacities of LDCs can be termed as another major achievement for the LDCs. The acceptance that aid for trade needs to cover hardware such as infrastructure in addition to software is likely to help the LDCs to improve their infrastructure. Japan has already committed US $ 10 billion in the next three years and the European Union (EU) and the United States (US) have promised to increase their support to Euro 2.7 billion and US $ 2 billion by 2010.

If the government is able to channel these funds to Nepal and improve trade related infrastructure, this is likely to result in an expansion of trade and creation of new employment opportunities.

Policy Space

The WTO is often criticised for putting the LDCs under pressure by imposing conditions that they have difficulty in fulfilling. The HK Ministerial made a breakthrough in this area as the declaration mentions that “LDCs will be required to undertake commitments and concessions to the extent consistent with their individual development, financial and trade needs, and their administrative and institutional capabilities. Should a LDC Member find that it is not in a position to comply with a specific obligation or commitment on these grounds, it shall bring the matter to the attention of the General Council for examination and appropriate action.” This will allow Nepal to forfeit the implementation of any obligation or commitment if it is financially and technically beyond its means.

The Hong Kong Ministerial can thus be termed moderately successful in addressing the issues of interest to Nepal. The litmus test of success however is whether Nepal will be able to address its supply-side constraints and enhance competitiveness to take advantage of the market access opportunities.

(Navin Dahal is the executive director of South Asia Watch on Trade, Economics and Environment, a Kathmandu based regional network of NGOs.)