Reclaiming development in a multilateral setting — Can we?

Wigberto E. Tañada, FTA Lead Convenor

Economic ministers, including those of the Philippines, are heading towards Geneva this week.

Pascal Lamy, WTO’s General Secretary, expects the economic ministers to wrap up in the next 2-3 weeks the final agreement on the modalities for Agreement on Agriculture (AoA), Non-Agriculture Market Access (NAMA), General Agreement on Trade in Services (GATS) and other related trade concerns that were unresolved in the 6th Ministerial Conference held in Hong Kong last December. The idea is to complete by the end of 2006 the new trade round, the Doha Development Round (DDR), which has divided the developed and the developing countries since the DDR launching in 2001.

We, at the Fair Trade Alliance (FTA), are not against the proposal to speed up these trade talks – so long as the whole process remains transparent and the outcomes, truly supportive of development for developing countries and equitable for all WTO members.

We are afraid that the pressures of self-imposed deadlines are artificially being used by Lamy and his supporters in the developed countries in order to push for trade modalities which are unequal and unfair to the Philippines and other developing countries. We also do not find comfort in the actuations of some economic officials who seem prepared to accept these modalities, harmful as they are to the national interest. The old, specious and tired argument being raised by these officials is that non-conformance might isolate the Philippines and leave her out in the cold in global trade.

We are distressed that in the ‘briefing’ conducted by DTI last week for business and civil society representatives on the NAMA trade talks, only two items were taken up:

  • One, how to identify the tariff items from the five vulnerable sectors (fishery, footwear, petrochemicals, iron and steel, and automotive parts) that should go into the list of the 253 sensitive products, which shall make up the 5 per cent of the unbound items as provided for under Paragraph 8 of the July 2004 Framework Agreement (should such 5% be the final figure for the percentage exceptions allowed), and
  • Two, what are the likely NAMA modalities – a 25 per cent coefficient for the Swiss tariff reduction formula to be applied on all bound items, and a 25 per cent mark-up for the 1,000 or so items still to be bound.

Among the items not taken up is the status of the demand of the Philippines and other developing countries to be credited for undertaking autonomous liberalization (often as a requirement of the IMF-WB group), that is to be granted a higher Swiss coefficient. Also not discussed were efforts of the Philippine Mission, in league with other members of the so-called NAMA 11, to push for a much higher coefficient, at least 35 per cent, for developing countries and a much lower coefficient, of around 5 per cent, for the developed countries.

Simulations show that a 40 per cent coefficient would drastically reduce tariffs of developing countries, with their high tariff averages, by almost the same percentage; in contrast, a 10 per cent coefficient would reduce those of developed countries, with their low average tariffs, by only a little over 20 per cent. This is so because the Swiss formula is really targeted at developing countries with high tariffs, meaning the lower the coefficient, the greater is the tariff reduction impact, while the lower is the tariff average, the lower is the tariff reduction impact.

The problem is that the Philippines, with its low average tariffs due to its earlier adherence to the IMF-WB structural adjustment program, looks like a developed country with low tariff averages. Thus, in the estimation by FTA, the Philippines needs a much higher coefficient of around 90 per cent and a mark-up for the unbound items by almost the same percentage to be able to have some tariff policy space equal or similar to those of other developing countries with high tariff averages. More concretely, a 90 per cent mark-up for the unbound items shall give us a tariff binding rate of roughly 23.4 per cent should the assumed coefficient be 30, while a 90 per cent coefficient shall reduce the bound tariffs to 18.50 per cent, which still represents a 20 per cent reduction. Otherwise, at 25 per cent or lower coefficient (15 per cent is the figure being proposed by the developed countries), the Philippines shall oddly find itself in the company of the developed countries which have both very low tariffs and very competitive industries.

Moreover, NAMA 11, in its March 20 statement, correctly pointed that the developed countries have hidden trade weapons – they have tariff peaks, tariff escalation mechanisms and high tariffs for around 1,000 or so selected tariff lines, which cover the home products that the United States, Europe, Canada, Japan and Australia are assiduously protecting. These products are nearly four times the 5 per cent flexibility of developing countries under paragraph 8 of the July 2004 Framework Agreement! The modality on how to tackle these tariff peaks, tariff escalations and existing high tariffs has not been fully tackled, as the discussion is overly focused on the two Swiss coefficients – Swiss 15 for developing countries and Swiss 10 for the developed, with broad hints that Swiss 15 can go up to Swiss 25 and Swiss 10, a little lower. This makes the NAMA trade talks truly unequal.

In contrast to the tariff situation in the developed countries, the Philippines does not have tariff peaks, tariff escalation and high tariffs, for it had liberalized its tariff regime in the l980s and l990s in a wholesale fashion on a sector by sector basis. The tariff reduction was NOT DONE industry by industry, much less tariff line by tariff line, as what the developed and the big developing countries such as China and India have done and have been doing.

All this brings us to the bigger issue raised by the Philippines Permanent Mission in Geneva and by the NAMA 11 group – how can developing countries reclaim development, as written in the WTO’s preamble and the DDR rationale, when the trajectory in the trade modality talks in NAMA is towards less and less policy space and less and less flexibility for developing countries, especially for the Philippines?

The five most vulnerable sectors for the Philippines are indeed very sensitive and strategic for the country. Fishery affects the lives of a large number of Filipinos living in the coastal areas of an archipelago of over 7,000 islands; thus, the massive subsidies given by the global subsidizers to their fishing industries and the proposed horizontal lowering of tariffs across the board are directly related to the poverty situation in these coastal communities. Footwear is a labor-intensive industry which can still be turned around given the creativity and skills of Filipino shoe producers, if only the government and industry can get their act together in stamping out smuggling, promoting value-adding integration or linkages, strengthening quality production and campaigning for a buy-Filipino movement. Petrochemicals is an industry which no industrialized or industrializing economy, in the age of chemicals and plastics, can afford to neglect. The same for iron and steel, especially now that the world hunger for these materials is intensifying due to the China factor. The automotive parts industry, once a very promising industry, can still bounce back and create thousands of jobs if only the Philippines can craft and pursue with consistency a clear vision of development for the vehicle industry, auto parts industry and the country in general.

Unfortunately, a clear and strategic vision of agro-industrial development is what has been missing. This explains why some Philippine trade officials do not seem to be even alarmed over the shrinking policy space and the trend towards greater asymmetry in global trade that are likely to occur if the developed countries would have their way in the ongoing NAMA, AoA and GATS trade talks.

In the AoA, the developed countries are still in their stubborn selves – trying to oppose the efforts of the Philippines and a number of developing countries to have wider flexibility in self-designating their own special products (SPs) and in having ready access to special safeguard mechanisms (SSMs). They are even relentless in their covert campaign to divide the developing countries and in their not-so-covert demand that the AoA talks focus on tariff reduction in the name of market access, instead of the more legitimate issue of the trade-distorting agricultural subsidies. We support the position of the Task Force WTO on AoA (TF-WAR) – coherent balance on the three pillars, namely calibrated approach to market access with full recognition of the SPs and SSMs, phase-out of all forms of export subsidies and removal of all trade-distorting domestic support by the developed countries.

In GATS, the developed countries are still adamant on their demand for the wholesale liberalization of service industries. And yet, it is now abundantly clear that these countries are themselves not prepared to open up their own service industries in a similar wholesale manner, for services are highly regulated in their home countries. Indeed, the Philippines, as correctly raised by our Permanent Mission in Geneva, should first ask the demandeurs, e.g., United States, Europe and others, as to how open — in their own home countries — are the industries they are seeking to open up in other countries. Likewise, we support the position of the Permanent Mission that the plurilateral talks are not mandatory and should be treated on a case to case basis, in accordance with our national interests. In this connection, we are proposing that the GATS liberalization talks should not be conducted without any benchmarking study on the regulatory policies obtaining in the countries of the demandeurs, particularly in industries affecting public health, public safety, environment, education and domestic competition.

In conclusion, Madame President, may we know what is the mandate given to our trade officials who are attending the Geneva trade talks – to further open up the economy in an aimless and reckless manner, as what had happened in the past, or to assert the national interest in accordance with our strategic development priorities? Do they have a clear outline of what are the likely winners and losers among our industries and cropping areas, and, therefore, what should be our offensive and defensive interests in these trade talks?

Madame President, are we still prepared to say NO to unbridled globalization, as you eloquently put it in 2002, or are we content to become a mere object of development by the external trade liberalizers and aid givers? Can we be part of the global movement of developing countries seeking to reclaim genuine development, or are we part of the group of countries which have lost the will to grow and develop, contented in receiving alms, including poor economic advice (in the name of aid for trade), from developed countries? In short, are we providing space, flexibility and the means for the present and future generations to shape a better and more progressive Philippine economy?

Sa ngalan ng kasapian at mga sector na kasanib sa Fair Trade Alliance (FTA), kami ay nanalangin para sa pagbabanyuhay ng ating naunsiyaming ekonomiya. Maraming salamat.

Letter submitted to President Gloria Macapagal Arroyo dated 17 April 2006. Copies furnished to the Department of Trade and Industry, Department of Agriculture, National Economic and Development Authority, Tariff Commission, Philippine Mission to the WTO and Members of both Houses of Congress.

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