Outlining India's priorities , Mr. Kamal Nath said that in agriculture, for India as well as the developing countries in G-20 and G-33 the effectiveness of instruments such as Special Products (SPs) and Special Safeguard Mechanism (SSM) were absolutely vital. In any case, any tariff reduction formula would have to secure what members had already agreed namely, factoring in the different tariff structures of developing countries for thresholds and proportionately lower tariff reduction commitments for developing countries, which should be at least one-third lower than that for developing countries .

Similarly, in non-agricultural market access (NAMA), he stressed the principle of less than full reciprocity in reduction commitments for developing countries, pointing out that ” just as SPs and SSM are a gateway issue in agriculture, I am convinced that para 8 flexibilities are a gateway issue in NAMA”. Flexibility provisions were a developmental necessity and could not be traded of against any other elements of the modalities, he added .

In services, he reiterated that for India satisfactory outcome in ensuring opening of sectors in cross border services (Mode 1) and movement of natural persons (Mode 4) were vital.

Mr. Lamy, on his part, said the moment of truth was approaching in the Doha Round of negotiations, as the 150 member countries of WTO had agreed in Hong Kong to reach convergence on key numbers in 3 areas viz., quantum of reduction of domestic subsidies in agriculture, quantum of reduction of tariffs on agricultural products and on industrial products by 30 th April 2006. India's offensive interests in the Doha Round cut across the entire negotiating agenda and are a sign of India's insertion in a globalised world”, he said. India had a lot at stake in these negotiations given its interests across the entire negotiating agenda and given the dynamism of its economy, Mr. Lamy said .

Posing a question as to who would be the main losers from a failure of the Doha Round, Mr. Lamy said: ”First (loser) would be the developing world, as the opportunity to redress the existing imbalances in multilateral trade relations will diminish. Were this round to fail, developing countries would pay the highest price . Next would be the smallest and weakest economies, for which the multilateral process acts as an ”insurance policy” against the pressure exerted by the strong in bilateral trade accords. The biggest loser, however, would undoubtedly be the WTO, the system that has served the collective interests of 150 different members, and that has ensured a trade opening that is adapted to changing realities and that is based on a consensus between us all”.

(N.B. : Full texts of the addresses by Mr. Kamal Nath
and Mr. Pascal Lamy at the ICRIER Conference in
New Delhi on 6 th April 2006, are given in the following pages)

 
Text of Kamal Nath’s address
at the ICRIER Conference
”WTO & the Doha round:
The Way Forward” in New Delhi
on 6th April, 2006
 

I am pleased that Director General of the WTO, Mr. Pascal Lamy is with us today. This is not the first time he is in India , but it is the first time he is here in his new 'avataar' as DG. I therefore welcome him. It is fitting that his first public engagement be at an ICRIER Seminar. I am sure that participants would benefit from his assessment of where we are in the negotiations and this would give us a clearer indication of what remains to be done.

We are at an important juncture in the Doha Round. Mr. Pascal Lamy remarked at the Trade Negotiations Committee last week ”The moment of truth is fast approaching. We do not have time to waste…”. No one can disagree with the DG's call for urgency in the negotiations. But the fact remains that mere urgency alone cannot bring about a solution . The developed countries will have to recognize the essential 'development' character of the current Round, and reflect this in what they are willing to commit to do. Only then will we be in sight of a solution .

More than ever before, trade and the rules of the multilateral trading system intersect with a wide array of issues and concerns which have a powerful impact on people's day-to-day lives. The multilateral trading system has recognized that trade must be conducted to raise the standard of living, ensure full employment and achieve steady growth in the volume of real income . It has also emphasized the need to enable developing countries to secure a share in world trade commensurate with the needs of their economic development. It is important that trade contributes to meaningful development and that the multilateral trading system responds to the aspirations of its vast majority.

The Indian economy has been engaging closely with the world economy. Our trade, both exports and import, have been rising steadily at 26% and 35% respectively for two continuous years. While our exports have touched 100 billion, our imports are 140 billion. Over and above this is our Services trade, which is another 100 billion dollars. We are aware that sustaining this growth pattern would require even closer integration with the global mainstream. We are also aware that our membership of the WTO has brought us benefits. But there are also pitfalls which we have to be wary of . Any trade negotiation, which does not recognize the need to address the issue of inequality through trade, is certain not to have a successful outcome. India looks at the ongoing negotiations from the perspective of her development and her socio-economic requirements, as also the needs of developing countries in general .

Agriculture: The most critical sector There is no denying the fact that the negotiations in agriculture are the most critical as these affect the livelihood of hundreds of millions of farmers, particularly in poor developing countries. The bulk of the rural poor in countries like India are vulnerable to external developments. Protection of their interests is cardinal for India . In agriculture, it remains central to our collective interests that the trade-distorting subsidies and protection provided by developed countries are eliminated so that a level playing field is established.

Agriculture tariffs remain the only instrument of safeguarding food and livelihood security. Appropriate policy space must be intrinsic to any modalities and the final outcome of the negotiations. It is important that any tariff reduction formula secures what Members have already agreed in the ”July Framework” and at Hong Kong higher thresholds for developing countries that factor in their different tariff structures and proportionately lower overall tariff reduction commitments by at least one-third than for developed countries. India is firmly of the view that the G-20 proposal is genuine middle ground.

For India , as well as the developing countries in the G-20 and the G-33, effectiveness of the instruments of Special Products (SPs) and the Special Safeguard Mechanism (SSM) remain absolutely essential to any agreement on tariff reductions. The G-33 has spearheaded the calls on

I am pleased that Director General of the WTO, Mr. Pascal Lamy is with us today. This is not the first time he is in India , but it is the first time he is here in his new 'avataar' as DG. I therefore welcome him. It is fitting that his first public engagement be at an ICRIER Seminar. I am sure that participants would benefit from his assessment of where we are in the negotiations and this would give us a clearer indication of what remains to be done.

We are at an important juncture in the Doha Round. Mr. Pascal Lamy remarked at the Trade Negotiations Committee last week ”The moment of truth is fast approaching. We do not have time to waste…”. No one can disagree with the DG's call for urgency in the negotiations. But the fact remains that mere urgency alone cannot bring about a solution . The developed countries will have to recognize the essential 'development' character of the current Round, and reflect this in what they are willing to commit to do. Only then will we be in sight of a solution .

More than ever before, trade and the rules of the multilateral trading system intersect with a wide array of issues and concerns which have a powerful impact on people's day-to-day lives. The multilateral trading system has recognized that trade must be conducted to raise the standard of living, ensure full employment and achieve steady growth in the volume of real income . It has also emphasized the need to enable developing countries to secure a share in world trade commensurate with the needs of their economic development. It is important that trade contributes to meaningful development and that the multilateral trading system responds to the aspirations of its vast majority.

The Indian economy has been engaging closely with the world economy. Our trade, both exports and import, have been rising steadily at 26% and 35% respectively for two continuous years. While our exports have touched 100 billion, our imports are 140 billion. Over and above this is our Services trade, which is another 100 billion dollars. We are aware that sustaining this growth pattern would require even closer integration with the global mainstream. We are also aware that our membership of the WTO has brought us benefits. But there are also pitfalls which we have to be wary of . Any trade negotiation, which does not recognize the need to address the issue of inequality through trade, is certain not to have a successful outcome. India looks at the ongoing negotiations from the perspective of her development and her socio-economic requirements, as also the needs of developing countries in general .

Agriculture: The most critical sector

There is no denying the fact that the negotiations in agriculture are the most critical as these affect the livelihood of hundreds of millions of farmers, particularly in poor developing countries. The bulk of the rural poor in countries like India are vulnerable to external developments. Protection of their interests is cardinal for India . In agriculture, it remains central to our collective interests that the trade-distorting subsidies and protection provided by developed countries are eliminated so that a level playing field is established.

Agriculture tariffs remain the only instrument of safeguarding food and livelihood security. Appropriate policy space must be intrinsic to any modalities and the final outcome of the negotiations. It is important that any tariff reduction formula secures what Members have already agreed in the ”July Framework” and at Hong Kong higher thresholds for developing countries that factor in their different tariff structures and proportionately lower overall tariff reduction commitments by at least one-third than for developed countries. India is firmly of the view that the G-20 proposal is genuine middle ground.

For India , as well as the developing countries in the G-20 and the G-33, effectiveness of the instruments of Special Products (SPs) and the Special Safeguard Mechanism (SSM) remain absolutely essential to any agreement on tariff reductions. The G-33 has spearheaded the calls on appropriate treatment of SPs and their self-designation. The SSM has been agreed to be based on price and volume triggers. Our task is now to precisely define the arrangements around these two triggers no more, no less. It would be entirely consistent with the political will Members have shown at Hong Kong to finalize these two instruments at the earliest possible. The SPs and SSM are 'gateway' issues . In fact, they hold the key to unlock the current impasse.

There is a misconception that only tariffs are an obstacle to Market Access. I assert that domestic support & subsidies are effectively an even greater obstacle to Market Access. These erect more adverse obstacles to trade, since these are illegitimate instruments, and the sooner they are dismantled, the better.

NAMA: Less than full reciprocity in tariff reduction for developing countries vital

In NAMA, the tariff commitments to be undertaken by the developing countries, cannot be greater than those being undertaken by the developed ones. Coefficients are mathematical numbers. I am more concerned with the effect of the coefficients. This is enshrined in the principle of 'less than full reciprocity in reduction commitments (LTFR)' for developing countries. We should, therefore, first determine the level of ambition in reduction percentage terms, for developed and developing countries, then these could be worked back to identify the coefficients in the Swiss Formula that would deliver the result.

Just as SPs & SSM is a gateway issue in Agriculture, I am convinced that Para 8 flexibilities are a gateway issue in NAMA. Flexibility provisions are a developmental necessity and cannot be traded off against other elements of the modalities, particularly less than full reciprocity in the tariff reductions formula. Even as a matter of sequencing, unless developing countries are given the comfort of the flexibilities, how can one expect them to have the confidence to make commitments?

It also needs to be recognised that India has been autonomously liberalising its tariff regime over the last few years. Our booming imports are testimony that we have already provided significant market access. On the other hand, we have not seen such autonomous liberalisation in tariffs in developed countries, particularly on products of export interest to developing countries.

Services: Offers of developing countries disappointing

Negotiations in the Services area follow a pattern slightly different from those relating to goods trade. Here, the request and offer pattern is adopted. India has joined five plurilateral groups, and has also made a substantially improved revised offer as compared to our initial offer. In contrast, the offers of developed countries are disappointing. For India , a satisfactory outcome in ensuring opening of sectors in cross border services (Mode 1) and Mode 4 is vital. The present inadequacy in commitments on temporary movement of natural persons will have to be rectified to facilitate movement of professionals. Coupled with market access commitments, it is equally important to have disciplines on domestic regulations.

Prevention of bio-piracy an important development issue

Developing countries are a recognised repository of traditional knowledge. We have, therefore, sought measures to prevent bio-piracy of biological material and to prevent misappropriation of traditional knowledge. India is asking for disciplines on disclosure of the source of origin of the biological resources and traditional knowledge, along with securing prior informed consent and equitable benefit sharing. It is an important development issue and India would like to see a concrete outcome on it as part of the Doha Work Programme. Unfortunately, this is not being discussed adequately. I fear that this could become a sticking point, preventing conclusion of an agreement if we do not deal with this effectively.

WTO not only about free trade but also fair trade

The central focus of the ongoing negotiations is to address the developmental concerns of developing countries while striving for a fair and equitable trade. WTO is not only about free trade, but also very much about fair trade. It is extremely important at this crucial stage of negotiations that we respect our negotiating mandate as any attempt to rewrite the mandate would be counter-productive. Equally important is the need to ensure transparency and inclusiveness in the negotiating process. I am aware that the Director General also attaches importance to the building block approach to the negotiations and the need for transparent and inclusive negotiating process.

I look forward to receiving the recommendations of this Seminar as a useful input in the tough negotiations that await us in the next few weeks.

Thank you.

 

Thank you Isher, My friend Kamal, Ladies and gentlemen,

When a child is born in some of our traditional societies, the family only gives it a name seven days after its birth. On the seventh day, the parents throw a big party and the relatives collectively decide on the name of the child. Then the eldest man of the family holds the baby in his lap, turns his face to the South, and whispers the name into the ear of the baby three times. Thus a name has been given to the child.

Doha: The Development Round

Giving a name to a round of trade negotiations is also a complex business. As in our traditional societies, there is a collective decision, a celebration and quite a lot of movement and whispering amongst the WTO family. What trade negotiators have not yet learnt from the wise people of our villages is to wait a while until they give a name. The current round of trade negotiations the Doha Development Agenda, or DDA in our jargon, bears the name of the city of Doha, the capital of Qatar, where the round was launched in the WTO Ministerial in 2001. It also has the word “Development” in it meaning that this round should be focused on, or aimed at, development.

The decision by WTO Members in 2001 to designate the Doha Round a development Round was a recognition that there remain, in today's multilateral trading system's rules and disciplines, imbalances that penalise developing countries and this must be corrected. The intention, therefore, is to try to improve the multilateral disciplines and the commitments by all Members of the WTO in such a way that they establish a more level playing field and provide developing countries with better conditions to enable them to reap the benefits of opening trade.

What are these imbalances? Many of them affect North-South trade and are a remnant of the old colonial relations. High agriculture trade distorting subsidies granted by rich countries, agriculture export subsidies or high tariffs on exports of agricultural and industrial products of interest to developing countries. But they are also more and more South-South. Today around 70% of duties paid by developing country are to other developing countries. A lot of these issues are carryovers from the previous round of trade talks, the Uruguay Round which, although hugely beneficial for all WTO members, is in need of updating to respond to the new realities of the multilateral trading system.

End date not picked out of the blue

Started in 2001, the end date for the Round is soon approaching it is the end of this year as a matter of fact. This is not a date that our membership has picked out of the blue; it is not a date that has fallen out of a hat. Rather, it is a date that corresponds to the expiry of the Trade Promotion Authority of the United States . And conventional wisdom has it that it will not be extended. We, therefore, have little time to waste and a huge task in front of us.

It reminds me of the days prior to the opening of the Olympic Games: construction works everywhere, signals to be put up, paint not finished, computers still to be cabled and only days before sportsmen and women jump on the arena. What is needed in these days is hard work, determination and nerves to focus on the final goal: a strengthening of the multilateral trading system to the benefit of all but in particular developing countries.

Where are we in these negotiations?

With the progress made in July 2004 and late last year during the Hong Kong Ministerial, we are now at roughly 60% of the Round. Substantial progress has been made and there is already a sizeable package on the table but still many hard nuts to crack.

Let me first quickly summarize what is already on offer on the table. On agriculture, 2013 as the end date for the elimination of export subsidies. Agreement that the EU, US and Japan will undertake the biggest reductions on agricultural subsidies that distort trade and that these will be effective cuts, which is a serious improvement as compared to the previous round. On cotton, which is of key importance to many African countries, export subsidies on cotton to be eliminated by 2006 and cuts to domestic subsidies will be greater and faster than for the rest of products. Special agriculture products and a safeguard to protect those agricultural products of developing countries with concerns about livelihood security, food security and rural development. On industrial products, a Swiss formula to cut tariffs, with high tariffs subject to bigger cuts, thus addressing tariffs peaks and tariff escalation in particular on products of interest for developing countries. A step forward towards a completely duty-free and quota-free access for the world poorest country Members of the WTO. On Services, the door has been opened to plurilateral negotiations. Countries have started tabling collective requests in the services of sectors that are of particular interest to them. Finally, an Aid for Trade package, to help developing countries address their supply-side constraints. The hope is that this will help those that now constitute around two thirds of our membership to translate the market access gains they make from the Doha Round, from theoretical into real commercial possibilities.

The moment of truth approaching in these negotiations

Since the beginning of this year, intensive activity has been taking place at various levels across the whole spectrum of the DDA in order to improve what is already on the table. The negotiating machine is humming and buzzing with activity. Work in Geneva has been complemented by a number of initiatives among some Members aimed at trying to take the negotiation forward. This seminar today is one of these activities and as such a valuable contribution to realising what is at stake for India but also for the multilateral trading system.

The focus of negotiations today is reaching an agreement by April on three key issues: the quantum of reduction of agricultural domestic subsidies, the quantum of reduction of tariffs on agricultural products as well as on industrial products. The WTO 150 members agreed in Hong Kong to reach convergence on the key numbers on these three areas by April.

This triangle of issues corresponds to a triangle of members: the European Union needs to do more on agricultural tariffs; the United States need to do more on reducing agricultural subsidies and the G-20 group of countries, where India is a key member, needs to do more on industrial tariffs. What is already on offer is important compared to what was done in the Uruguay Round but more is needed to reach a deal on thee core issues. Given the high expectations of developing countries in this round, there is no way that WTO members will settle for a “cheap round”. Finding the right level of ambition on the triangle of issues, which will serve as benchmark for the remainder of the issues on the agenda is our challenge number one.

There are only 24 days to go to the end of April. The moment of truth is, therefore, fast approaching. We do not have time to waste. It would be a huge collective mistake to postpone the establishment of modalities by the end of April. Back loading the three key areas of agriculture domestic support and market access in agriculture and industrial products is, in my view, a recipe for failure. We need to make rapid progress in these three areas as soon as possible as they hold the key to unlock the many other issues which also need to fall into place to conclude this Round by the end of the year.

Setting these three issues is by no means the end of the round. We will need to continue advancing the agenda on opening up trade in services, rules (including transparency in bilateral trade agreements, anti-dumping and subsidies), trade facilitation, trade & environment, TRIPS, Dispute Settlement or Aid for Trade to name a few. As you can see the menu seems almost as challenging as a cricket One Day Match. I hope over the coming days WTO negotiators follow the spirit of the India 's cricket team as it plays against England today and go for a win rather than for a draw.

India 's broad agenda in the Doha Round

Now let me turn to India . India has a tradition of contributing to success stories. One of them a universal success story, whose importance is often underestimated is the consolidation of the decimal system. Pierre Simon Laplace, the XVII century French mathematician who comes from Normandy , my hometown region, once noted that “the ingenious method of expressing every possible number using a set of ten symbols emerged in India . The idea seems so simple, that its significance and profound importance is no longer appreciated”. Well, with or without appreciation, the fact is that India has given the world a system of thought. I am sure India can and I hope will today contribute to another success story that of the Doha Round. This would fit with India 's broad interest, which span the entire Doha agenda of negotiations.

India 's economy has grown at a healthy pace for the last years and is now the 11th world largest economy. In 2004, India was the world's 20th largest exporter and 11th largest importer. India 's merchandise exports have grown at an average of 10% for the last 10 years. The growth reached 32% in 2004 and 19% in 2005, well above world average. On services trade, India is now among the top 10 world traders, with exceptionally high performance on computer related services. Data for the first 2 quarters of 2005-2006 fiscal year shows a 76% increase in Indian exports of commercial services.

Being a founding member of the old GATT, India has long been an important member of our organization. India has always played an active role in almost all negotiating areas. India is a key Member in the G20 and G33, coalitions formed by developing countries, which have played an important role in particular in the agricultural agenda of the negotiations. But India has also been active in the service negotiations, in particular on Mode 4, pushing for less restrictions on movement of natural persons, especially medium and highly skilled professionals and on cross border supply, actively seeking full market access and national treatment.

On Trade Facilitation, as a member of developing countries Core Group, India not only supported most proposals, but also helped bring the Group's most sceptical partners towards a middle ground. During the negotiation of the Protocol amending the TRIPS Agreement on Public Health last December, India 's contribution was key to reach a final agreement. India leads a group of developing countries seeking a better relation between the WTO agreement on intellectual property rights (TRIPs) and the Convention on Bio-Diversity (CBD). It is also active in the extension of geographical indication protection (GIs) to many of India 's homegrown Darjeeling Tea, Basmati rice or Alphonso mangoes. In other areas of the negotiations, such as Rules or Special and Differential Treatment for developing countries, India has been active as well.

By saying so, I would like to make two points: firstly, that India is a key Member in the WTO; secondly, that India has benefited from a more open global trading environment and the healthy development of this system is very important for India's economic take off and its efforts to become a global power. The WTO Dispute Settlement system has also allowed India to successfully challenge major WTO players such as the EU, on the case concerning bed linen or the Generalised System of Preferences, or the US on several cases including one on shirts and blouses or on the Byrd amendment. It is thus clear that India has a strong systemic interest in safeguarding and strengthening the multilateral trading system.

India 's offensive interests in the Doha Round cut across the entire negotiating agenda and are a sign of India 's insertion in a globalised world.

Take agriculture. A little known fact is that India is a net food exporter. In fact, its share of exports in world exports is greater for agriculture than it is for manufactured products. India 's agricultural exports have continuously grown since 1999. It is, therefore, clear that India is on the offensive on agriculture. It is in India 's interest that the EU, the US , Japan and other major agriculture subsidisers significantly reduce their farm subsidies; it is also clear that the elimination of export subsidies by 2013, with an important part frontloaded by 2010, will eliminate a source of distortion to Indian food exports. The same can be said of the elimination of export subsidies on cotton by 2006. It is also in India 's interest that other countries decrease tariffs to its farm exports on products such as basmati rice, meat or cotton. But modern India also has the capacity to tap into new market with agricultural products such as fruits and vegetables, organic food or flowers. These labour-intensive exports are expected to grow at almost three digits as a result of the Round, translating into benefits across a large group of farmers and contributing to stabilising their incomes.

Next to this thriving agriculture sector, there is also a large part of the Indian rural population in subsistence farming. The Indian government has fought hard, and my good friend Kamal knows that only too well, and obtained measures to protect fragile rural populations from the instability caused by sudden changes in their environment. Developing countries will for a start cut tariffs only in proportion to the cuts by developed countries. Secondly, India together with the G-33 have secured proStection for agriculture products there where it is needed with the recognition of a category of special products as well as a special safeguard mechanism.

I am confident that in the coming weeks India will cleverly balance these two interests by insisting on an ambitious tariff reduction formula while at the same time forcefully making the case for the protection needed in certain sectors of its farming.

Turning now to manufactures, using a Swiss formula with a coefficient in the range of what members have tabled for developed countries would translate in a reduction of the EU's average bound rates to 2.3% and that of the US to 2.1%; If we consider that these two Members alone absorb over 40% of India export products, and that manufactures account for over 70% of India's total exports, any meaningful tariff reduction in these markets is commercially very valuable. Furthermore, it is in India 's interest to see a drastic reduction of the tariff peaks applied by these two countries on a number of key Indian export items such as textiles, clothing or leather products. It happens to be in these sectors where the EU and US have their tariff peaks. Again, with such coefficient, EU and US tariffs on textile would be reduced to around 6%. This will greatly expand India 's export potentials. It is clear, therefore, that India has a lot to gain on the negotiation on industrial products. At the same time, India is also been asked by a large number of members, whether developed or developing, to reduce its own tariffs on manufactures. This is not news to India since the government has embarked for some time now in a gradual opening of its market by reducing imports tariffs in a harnessed manner. This means India has margins of manoeuvre to be ambitious in the negotiation on manufactures, which are only likely to continue to grow in the coming years. Given the experience and shrewdness of Indian negotiators, I would fully expect them to try to trade these self-serving reductions against concessions in this or other areas in the WTO.

Another area in which India has been very active is in trade facilitation, our jargon to define a set of measure to simplify customs procedure and cut red tape. A recent World Bank study has showed that in Peru, custom staff training and introduction of a code of conduct shortened customs release time from 15-30 days to 2-48 hours. In Costa Rica, electronic declaration and the switch towards a single window warehouse clearing reduced customs clearing time from average of 6 days to 12 minutes. There are, of course, many other examples in this regard.

On services, India's interests extend from Mode 4, i.e. temporary movement of professionals, to cross border supply of services or computer and related services. It is a clear reflection of the modern India and an area with enormous potential for many developing countries. In my discussions with the business community over yesterday and today they have indicated their interest in an ambitious agenda in this area, in areas such as engineering, architectural services, or health related services, which I believe is a clear reflection of 'modern India'. I have also heard concerns from members of civil society to commitments on sensitive sectors, which would impinge on the ability of the government to regulate. I can only recall that negotiations on trade in services in the WTO are based on request and offers, where each member decides on the sector it opens to foreign competition and under which conditions provided these are not disguised discriminations. Again, an area where I believe India has all to gain from an ambitious approach to these negotiations.

Finally, let me mention another area where India is also playing a very important role: rules, and in particular anti-dumping. Both as user number one but also major target of anti-dumping proceedings India is pursuing

moderate and realistic positions reflections its dual interest.

Conclusion

India has a lot at stake in this negotiation given its interests across the entire negotiating agenda and given the dynamism of its economy. As I often say, India is one of the elephants of the world trading system of the XXI century together with countries such as Brazil, China or South Africa. But with this also come the responsibilities.

We are at a stage of the negotiations where the three key actors need to move: the EU needs to move, the US needs to move and the G-20, including India, needs to move. The key to progressing towards the success of the Round lies today in their hands.

Who would be main losers from a failure of the Round?

Who would be the main losers from a failure of the Round? First would be the developing world, the opportunity to redress the existing imbalances in multilateral trade relations will diminish. Were this Round to fail, developing countries would pay the highest price. Next would be the smallest and weakest economies, for which the multilateral process acts as an “insurance policy” against the pressure exerted by the strong in bilateral trade accords. The biggest loser, however, would undoubtedly be the WTO, the system that has served the collective interests of 150 different members, and that has ensured a trade opening that is adapted to changing realities and that is based on a consensus between us all.

India has been a key player in the multilateral trading system for more than 50 years. It is in India's interests to fight for an open, stable and predictable global trading environment. India would be the first to suffer if protectionism prevails. Given what is at stake, I trust India will make its contribution to a win-win outcome.

Thank you.

 
Subsistence Agriculture not for negotiation, KAMAL NATH tells WTO says talks have not moved due to intransigence of developed
 
 

Mr. Kamal Nath, Minister of Commerce & Industry, has made it clear to the World Trade Organisation (WTO) that subsistence agriculture is not for negotiation, nor would any moves that could lead to deindustrialization in developing countries be acceptable. This formed part of the Doha mandate reiterated in the July framework and must be respected by all, he told the Director General of WTO Mr. Pascal Lamy, while transiting through Geneva from Hannover . He expressed disappointment that the principal objective of the Doha Round of multilateral trade negotiations -- viz., that development dimension should be at the core of the global trade talks was being lost sight of and there could be no progress in the talks due to the intransigence of developed countries on crucial issues of concern to the developing world such as agricultural market access, domestic support etc. ”Commerce is for negotiation, not subsistence”, Mr. Kamal Nath said while addressing a news conference in Geneva.

Reflecting a continued tough stance on key issues, Mr. Kamal Nath called upon developed countries to realise that agricultural tariffs were a major instrument for protection of farmers against subsidized imports and ”we cannot be expected to give up that protection”, he said. The heavy

 
 
 

farm subsidies given by developed countries must be effectively reduced below applied levels as these were trade distorting and countries like India should not be expected to pay a price for developed countries doing something which they should not be doing in the first place. He also spoke strongly against attempts to reinvent or redefine the Doha mandate. In this context, he mentioned, a US proposal received recently on special safeguard mechanism (SSM) in agriculture which, he said, was very retrograde and was against the very spirit of the mandate agreed upon, as it would adversely impact on the interests of developing countries.

On the issue of industrial tariffs or non-agricultural market access (NAMA), Mr. Kamal Nath made it absolutely clear that India had provided market access unilaterally since the Uruguay round. In fact, overall reduction amounted to almost 55% in the last 5 years whereas developed countries like the US and the European Union (EU) had made no reduction at all since the Uruguay Round. He said they must reduce by 55% to come to parity with India in NAMA before seeking market access in developing countries. He further pointed out that developed countries had provided full protection to develop their own industries and could not now deny developing countries the same.

On Services, he said India had made revised offers in a number of sectors, but this was not matched by offers from the US or the EU.

While reiterating India 's commitment to the multilateral trading system, Mr. Kamal Nath made it clear that there could be no compromise on the special & differential (S&D) treatment for developing countries like India in the ongoing negotiations.

 
 

KAMAL NATH to G-6: Might as well
wind up talks and go home if Developing Country concerns are not met

Mr. Kamal Nath, Union Minister of Commerce & Industry, told the developed country representatives at the G-6 meeting held in London on 11 March, that ”we might as well wind up the talks and go home” if the concerns of developing countries in the area of market access are not met. The G-6 meeting was attended by the European Union (EU), USA, Brazil, India, Japan and Australia to discuss issues relating to the ongoing Doha Round of multilateral trade negotiations.

Turning the tables on developed countries through a twist to para 24 of the Hong Kong Ministerial Declaration, Mr. Kamal Nath strongly underlined the need for special & differential (S&D) treatment for developing countries by insisting that the ”level of ambition” in the negotiations should first be done in percentage terms rather than in terms of coefficients. Presenting a simple and straightforward formula for progress of the trade talks, the Minister said that developed countries should first declare their ”level of ambition” in agriculture, and whatever they were willing to do, developing countries would do two-thirds of that. Whatever developed countries were willing to do in agriculture, developing countries could be willing to match in non-agricultural market access (NAMA), but here also developed countries must do 10% more. This linkage would satisfy the requirement of para 24 of the Hong Kong Ministerial Declaration. But developed countries were not willing to follow this methodology, Shri Kamal Nath said, while noting that the EU was unwilling to move in agricultural market access, and the US was unwilling to move on domestic support or farm subsidies, but both, together with some other developed countries, were pressing countries like India and Brazil to provide more market access in the industrial sector through coefficients for tariff cuts that did not take into account sensitivities of developing countries.

At the time of the Hong Kong Ministerial, the linkage between agriculture and NAMA established in para 24 of the Hong Kong Ministerial Declaration was seen in some quarters as detrimental to developing countries. But now at the G-6 meeting, India has used the same para as the strongest weapon in its arsenal. ”By saying that developing countries are willing to match in NAMA what developed countries do in agriculture (and basing this on para 24) India has put them on the mat. So far, the talks are deadlocked and expectations for a solution by 30 th April are dim”, said reports from London .

On agriculture, the Minister made it clear that at Hong Kong , it was agreed that domestic support cuts must be effective. ”For me, this is the central barometer of this round. Otherwise, any market access commitments by developing countries cannot be justified”, he said. On NAMA or industrial tariffs, Shri Kamal Nath emphasised that the principle of less than full reciprocity in reduction commitments is clearly mandated in the Doha Declaration and reaffirmed in the July Framework and the Hong Kong Declaration. This clearly means that developed countries will offer greater percentage reductions than the developing countries in average terms. (For instance, if the US wants developing countries like India to take a coefficient of 20 which would result in an approximately 68% reduction then the US would need to take a coefficient of 2, which would result in a 78% reduction. The easiest way forward is for the developed countries to indicate the level of ambition. The developing countries can then offer reductions based on less than full reciprocity).

 

Note: Para 24 of the Hong Kong Ministerial Declaration adopted on 18 th December, 2005 relates to Balance between Agriculture and NAMA. It reads as follows:

We recognize that it is important to advance the development objectives of this Round through enhanced market access for developing countries in both Agriculture and NAMA. To that end, we instruct our negotiators to ensure that there is a comparably high level of ambition in market access for Agriculture and NAMA. This ambition is to be achieved in a balanced and proportionate manner consistent with the principle of special and differential treatment .

 
 
 

WTO & its Implications for India

GATT to WTO….

  • Since the creation of the GATT, in 1948 - with 23 founding members ( India was a founder member of the GATT) - there have been significant changes in the political and economic landscape of the world. Technology is linking us together in an unprecedented manner through communications, information technology, and ideas, as well as trade, services and investments. This has generated unprecedented potential for an inter-dependent world.
  • The General Agreement on Trade and Tariff (GATT), which came into force on January 1, 1948, had been established as an attempt to create an effective rules-based system in multilateral trade. Rapid tariff increases, unimpeded by multilateral obligations, had been the order of the day.
  • Unconditional MFN is one of the fundamental principles of the multilateral system. The great economic depression was partly seen as a consequence of closed and unruly markets. One of the most important principles of the WTO is the most-favoured nation (MFN) provision. Thus, any tariff or other advantage given by a WTO Member to any other Member automatically becomes available to all other Members. This is particularly useful for developing countries, like India , as obtaining such an advantage on a bilateral basis particularly from developed countries would be a much more difficult task.
  • The WTO ensures that all Members extend to imported goods, treatment which is not more restrictive than what is applicable to domestic goods. Such national treatment ensures, for instance, that India 's exports are not subject to any unfavourable restriction in terms of sale, purchase, transportation or distribution in the market of the importing country.
  • The establishment of WTO in 1995 reflected a recognition that the process of trade liberalisation in an increasingly economically inter-dependent world would require an institutional set up going beyond what was provided by the GATT. This became particularly necessary because the Uruguay Round had considerably expanded the ambit of trade negotiations into new areas of domestic economic policy making.
  • The number of WTO members has now increased to 150. 28 more countries, including Russia & Vietnam are in various stages of their accession negotiations. This enormous increase in its Membership clearly demonstrates the significance and value attached to the WTO by the world community.

Trade, growth and development…..

  • It may be difficult to escape the conclusion that countries that have chosen to make trade a pillar of economic growth have, indeed, grown more strongly and become more prosperous than those which have chosen to remain behind protective walls. Trade is one of the engines of growth in the economy of a country. Some countries have consciously chosen trade as the major vehicle for accelerating growth in their economies. For India , trade is not an end in itself, but a means to economic growth, employment generation and overall national development.
  • In the early years of our Independence , when we were a fledgling nation, the strong role of government in social & economic policy was necessary. It achieved results. We laid a strong infrastructural base, and broke out of the cycle of famine. But times change and with times policies must change too.
  • India 's involvement in the WTO is to ensure that international trade must be conducted to raise the standard of living, ensure full employment and achieve steady growth in the volume of real income of our citizens. We emphasise the need to enable the developing countries to secure a share in world trade commensurate with the needs of their economic development. It is important that trade contributes to meaningful development and that multilateral trading system responds to aspirations of the vast majority. That is why the current round is the Development Round.
Doha Round….
  • The current negotiations at the WTO under the Doha Work Programme are broadly under the major areas of agriculture, manufactured goods, services and the broad category of Rules which deal with disciplines governing determination and levy of anti-dumping, countervailing duties or in simplification of customs procedures and regional trading arrangements, trade and environment and TRIPS related issues.
  • Of these, the negotiations in agriculture are the most wide-ranging and critical as these affect the livelihood of millions of farmers, particularly in poor developing countries. In agriculture, it remains critical to our collective interests that the trade-distorting subsidies and protection provided by a few developed countries are eliminated so that a level playing field is established. While striving for removal of distortions and protection in developed world, it is also a fact that agriculture supports and provides livelihood to the bulk of the farming community in the developing world. The bulk of the rural poor in countries like India are vulnerable to external developments. Protection of their interests is cardinal for India .
  • In non-agricultural market access (NAMA) negotiations, India seeks significant market access for developing countries through the reduction in tariff peaks, tariff escalation, high tariffs and non-tariff barriers in the developed countries on products of their export interest. Regarding the tariff commitments to be undertaken by the developing countries, these should reflect their developmental needs and should include the provision of adequate policy space. It also needs to be recognised that India has autonomously been liberalising its tariff regime over the last few years. This has provided significant market access to other countries in the Indian markets. On the other hand, we have not seen such autonomous liberalisation in tariffs in developed countries, particularly on products of export interest to developing countries.
  • In Services, our negotiating objectives have evolved keeping in mind our strengths and the vibrance of services sector as witnessed in the past few years. Negotiations in the Services area follow a pattern slightly different from those relating to goods trade. The request and offer pattern is adopted where a Member makes request to another Member or group of Members (plurilateral) for providing access to its services in a particular sector. In response, Members make offers indicating the service sector which they are willing to open to other Members subject to conditions which apply across the board. India is particularly interested in ensuring opening of sectors for Indian professionals going abroad or Indian firms providing cross border services - Mode 1 and Mode 4.
  • India has also been pushing to ensure that our concern for providing affordable medicines for the poor is ensured through linking of public health concerns in the TRIPS Agreement. The General Council brought in flexibilities to address the public health problems, resulting from HIV/AIDS, tuberculosis, malaria and other epidemics, and to enable to manufacture and export pharmaceutical products under compulsory license to countries with limited or no manufacturing capacities in the pharmaceutical sectors. In this regard, the amendment to the TRIPS Agreement has also been made and reaffirmed by the Hong Kong Ministerial Conference. Specific provisions for compulsory licensing have been provided in our own patent law.
  • India has also been at the forefront of an effort of many developing countries striving to guard against bio-piracy by incorporating suitable provisions in the TRIPS Agreement to ensure that our biological/genetic material and traditional knowledge is adequately compensated through reasonable benefit-sharing. We are facing immense opposition from developed countries in these efforts, but we have emphasized that this is an essential component of the development dimension of the Doha Round. In this regard, India is raising the issue of bringing appropriate harmony between the objectives of the TRIPS Agreement and the objectives of the Convention on Biological Diversity (CBD).
  • Negotiations in the area of Rules (anti-dumping and subsidies agreement) also need to deliver on pro-development outcome and lead to such strengthening in disciplines as may be necessary to ensure that these instruments are used to check unfair trade practice only and not used to restrict market access for developing countries exports.
  • The Hong Kong Ministerial was an important milestone. The outcome of the Ministerial envisages that the negotiations must be concluded in 2006 and establishes time-lines and targets in specific negotiating areas. From India's perspective, the Hong Kong Ministerial Declaration addresses some of our core concerns and interests and provides us negotiating space for future work leading up to modalities. Salient elements of the Declaration and gains for India are as follows:
  • Duty-Free, Quota-Free market access for all LDCs' products by all developed countries. Developing country declaring itself in a position to do so to also provide such access; however, flexibility in coverage and to phase in their commitments provided.
  • In Cotton, export subsidies to be eliminated by developed countries in 2006; trade distorting domestic subsidies to be reduced more ambitiously and over a shorter period of time.
  • To establish modalities in Agriculture and non-agricultural market access (NAMA) by 30 April 2006; Draft Schedules by July 31 2006.
  • In agriculture, to eliminate export subsidies by 2013, with substantial part in the first half of implementation period; elimination of cotton export subsidies by developed countries by 2006.
  • On their trade distorting domestic support, the three heaviest subsidizers to attract steepest cuts; developing countries like India with no AMS will be exempt from any cuts on de minimis and on overall levels
  • Developing countries to have the flexibility to self-designate Special Products; price and quantity triggers agreed on the Special Safeguard Mechanism
  • In NAMA, S&DT elements, such as on flexibilities and less than full reciprocity in reduction commitments for developing countries re-affirmed.
  • In Services, to submit a second round of revised offers by July 31, 2006; Final Draft Schedules by October 31, 2006.
  • No sub-categorization of developing countries when addressing concerns of small, vulnerable economies.
  • Further, India has formed broad-based alliance with other like-minded developing countries such as G-20 and G-33 on issues of common interest. The efforts of coalition building by India and other developing countries was reflected in the outcome at Hong Kong Ministerial Conference in December 2005.
  • On the domestic front, the Government holds periodic consultations with various stakeholders to fine tune its approach to the negotiations. In this regard, the Government also gets analysis done of various negotiating issues and feedback from these studies is again fed into the negotiating strategy.
  • Our experience of the last more than 10 years shows that on balance, our membership of the WTO is beneficial to us. Since the establishment of the WTO on January 1, 1995, India 's trade has been growing continuously, both in the merchandise goods category as well as commercial services. Total merchandise goods exports of India have increased from US $ 26 billion in 1994-95 to US $ 81 billion in 2004-2005. While total merchandise imports (excluding petroleum products) of India have increased from US $ 23 billion in 1994-95 to US $ 77 billion in 2004-2005. Similarly, India 's total commercial services trade increased from US $ 14 billion in 1994 to US $ 80 billion in 2004.
  • The Indian economy has averaged a growth rate of about 7% for over a decade and looks poised for achieving even higher growth of 8 to 10 per cent in the next few years. Our trade, both exports and import, have been rising steadily. There is little doubt that sustaining this growth pattern would require even closer integration with the global mainstream. India looks at the ongoing negotiations from the perspective of her development and the economic growth and development requirements.

(Based on Kamal Nath's address at the National Defence College Course on ”WTO & Its
Implications for India ”, New Delhi , 3/3/2006)

 

üChallenge to patents that affect Indian market

During the hearing of a Civil Writ Petition praying to direct the Government of India to facilitate revocation of a patent granted by European Patent Office on a soft-milling wheat, the Hon'ble Supreme Court had directed the appointment of a Committee to examine the matter. Accordingly, a Committee was appointed by Secretary, Department of Agricultural Research. & Education and Director General , India Council of Agricultural Research. The report of the Committee has since been submitted to the Hon'ble Supreme Court. The patent in question was revoked on 3.10.2004 as per the European Patent rules.

Patents are sought and obtained by applicants/ inventors, both Indian and foreign, in different countries to safeguard and promote their commercial and other interests. Such patents are granted under the sovereign prerogative of countries according to their respective patent laws and have territorial effect, that is, they are effective only in the country of grant. In order to qualify for grant of patent in any country an invention, whether process or product, has to meet the criteria of patentability, namely, novelty, inventiveness and industrial applicability. Indian goods/items, which are already in public knowledge/domain, cannot be patented.

As patents are essentially private they are normally challenged, in accordance with the patent laws of the country concerned, by the person(s) whose interests are affected/ jeopardized.

As and when information is received about patents being obtained on certain items which are not considered patentable and which affect Indian interests, steps are taken to assess whether the grant of such patent can be challenged under the patent laws of the country concerned. Earlier, a patent granted in the United States of America on the use of turmeric in wound healing was successfully challenged and was also cancelled by the Patent Office of the country concerned. Similarly, a patent on the fungicidal property of Neem, granted in Europe , was successfully challenged. The claims of the patent on Basmati Ricelines and grains granted in the United States of America which had the potential of affecting India 's commercial interest were also challenged. The said claims were subsequently cancelled by the United States Patent and Trademark Office and the title of the Patent was also amended.

 

ü Registration of Indian geographical indications

In order to provide better protection to goods bearing geographical indications, the Geographical Indication of Goods (Registration and Protection) Act, 1999 was enacted. This law provides for protection through registration of geographical indications. The registration of a geographical indications shall, if valid, give to the authorized user the exclusive right to the use of the geographical indication in relation to the goods in respect of which the geographical indication is registered. It also gives the registered proprietor and the authorized user the right to obtain relief in respect of infringement of the geographical indication. The Act was brought into force with effect from 15th September, 2003. This being a new legislation, steps have been taken to organize awareness programmes throughout India in a phased manner, and thereby to promote registration of Indian geographical indications. Fifteen sensitization workshops were conducted during 2003-04 and 2004-05. As a result of these initiatives, the Geographical Indications Registry has been able to receive 46 applications for registration of geographical indications upto 31st December 2005, out of which 27 have already been registered. The registered goods bearing geographical indications, inter alla, include Darjeeling Tea, Chanderi Sari, Pochampalli, Ikat, Kota Doria, Kangra Tea, Coorg Orange, Channapatna Toys and Dolls, Nanjanagud Banana, Mysore Agarbathi etc.

 

ü FDI in wholesale trading

With a view to improving the investment climate and to rationalise the Foreign Direct Investment (FDI) Policy, Government has recently notified several policy rationalisation measures which, inter-alia, include allowing FDI upto 100% under the automatic route for wholesale cash and carry trading. Prior to this, FDI upto 100% was permitted in wholesale cash & carry trading with prior Government approval. FDI complements and supplements domestic investment and leads to additional employment opportunities.

 

ü Rules for single brand retailing

The Government has allowed Foreign Direct Investment (FDI) upto 51% with prior Government approval, only in the retail trade of 'Single Brand' products. The Guidelines notified, vide Press Note 3 (2006 Series) inter-alia, provide that:

  1. Products to be sold should be of 'Single Brand' only
  2. Products should be sold under the same brand internationally; and
  3. 'Single Brand' product-retailing would cover only products which are branded during manufacturing.

(Source : Replies given in Parliament in March, 06)

 

Lamy praises Portman, welcomes USTR nominee Schwab

Director-General Pascal Lamy has praised Rob Portman, outgoing US Trade Representative, for his contribution to the global trading system while welcoming the announcement by US President George Bush that Deputy US Trade Representative Susan Schwab, has been nominated as Mr. Portman's successor. Mr. Portman has been nominated by President Bush to serve as White House Budget Director.

”It has been a pleasure to work with Rob. His sense of leadership, constructiveness and his excellent relationship with US Congress have been greatly appreciated within the trade negotiators' community,” Mr. Lamy said. ”I have had a rich and productive working relationship with Rob, who has been instrumental in efforts by the US towards reaching greater convergence in the negotiations. I look forward to working with Susan as we enter a decisive phase in the negotiations, when key players will be asked to take bold moves, in order to secure a successful conclusion of the Round by the end of this year.”

 

TRADE POLICY REVIEW: UNITED STATES

Openness fuels solid economic growth, but market access barriers remain

The United States has undergone solid economic growth since its last Trade Policy Review in 2004, aided by the openness and transparency of its trade regime which has supported the continuous drive for change and efficiency characteristic of the US economy as a whole, according to a WTO Secretariat report on the trade policies and practices of the United States.

During the period under review, the United States , the world's largest import market and a key engine of global growth, continued making incremental changes to its trade regime, including liberalization on an MFN and preferential bases. The report notes, nonetheless, that market access barriers and other distorting measures, notably subsidies, persist in a few but important areas, and that addressing these distortions would benefit U.S. consumers and taxpayers and help strengthen the global economy.

The report also says that it is important to pre-empt possible protectionist sentiment , which may require efforts in the United States , including through a reduction in public sector absorption, and in the rest of the world, through increased spending.

The report, along with a policy statement by the Government of the United States , will be the basis for the eighth Trade Policy Review (TPR) of the United States by the Trade Policy Review body of the WTO on 22 and 24 March, 2006.

 

FIRST WTO TRADE POLICY REVIEW OF CHINA

Economic reform has produced impressive results but important challenges remain

China's gradual economic reforms have opened the economy to international trade and investment and have made it one of the fastest growing in the world, with a nearly nine-fold increase in GDP per capita since 1978, according to a WTO Secretariat report on the trade policies and practices of China .

Ongoing trade and structural reforms, given added impetus by China 's membership of the WTO since 2001, have made it the world's third largest trader and one of the largest FDI recipients. These reforms have also reduced the proportion of China 's population living in poverty from 73% in 1990 to 32% in 2003. At the same time, however, income disparity has increased, especially between the coastal and inland regions and between urban and rural areas. Trade and investment barriers have declined considerably, in part due to WTO commitments. Nevertheless, the report notes that the Government continues to intervene to ”manage” trade, including for domestic supply considerations.

Continued structural reform will increase unemployment in certain sectors and over 100 million jobs will need to be created over the next decade. The report suggests it may be necessary to reappraise the current policy to attract investment to export-oriented capital intensive manufacturing and to place greater emphasis on removing impediments to the expansion of the services sector. The Government also needs to accelerate its efforts to raise the quality of the labour force in order to move away from traditional low-skilled, labour-intensive industries into higher value-added production. Other challenges include bottlenecks in infrastructure as well as the continued need to restructure the financial sector and capital markets by making them more market oriented.

The WTO report, along with a policy statement by the Government, will be the basis for the Trade Policy Review (TPR) of China by the Trade Policy Review Body of the WTO on 19 and 21 April, 2006.

Note:

Trade Policy Reviews are an exercise, mandated in the WTO agreements, in which member countries' trade and related policies are examined and evaluated at regular intervals. Significant developments that may have an impact on the global trading system are also monitored. For each review, two documents are prepared: a policy statement by the government of the member under review, and a detailed report written independently by the WTO Secretariat. These two documents are then discussed by the WTO's full membership in the Trade Policy Review Body (TPRB). These documents and the proceedings of the TPRB's meetings are published shortly afterwards.

 

WORLD TRADE 2005, PROSPECTS FOR 2006

Trade picks up in mid-2005, but 2006 picture is uncertain

World trade began 2005 with sluggish growth and then regained momentum to end the year registering 6% growth in the volume of goods traded, WTO economists say.

There are a number of uncertainties on the horizon for 2006, with signs of a stronger investment climate mixed with fragile prospects for consumption and employment, particularly in Europe . WTO economists predict 7% growth in the volume of goods trade (i.e. in real terms, discounting price changes) and 3.5% growth in the world economy in 2006. A similar pattern can be seen for trade in goods and services measured in dollars even though the numbers are different because of higher energy prices, they say.

Overview of major trade developments in 2005

In 2005, world trade, as measured by merchandise exports, grew by 6% in real terms (at constant prices, i.e. volumes adjusted to take account of price changes), after an exceptional 9% expansion recorded in 2004. The slowdown reflected a weaker world economy, and was observable from mid-2004. However, this downward trend in trade growth was arrested and reversed by the second quarter. (Data on trade in commercial services are not available in real terms.)

Trade growth in dollar value terms, which is affected by price changes, decelerated more strongly than real trade growth in 2005, as average dollar prices increased less rapidly (6.5% in 2005 compared to 11% in 2004). The value of world merchandise exports rose by 13% in 2005, compared to 21% in 2004 and exceeded the $10 trillion mark for the first time. Commercial services exports are estimated to have increased by 11% at current prices (i.e. in nominal or dollar terms) to $2.4 trillion in 2005 (19% in 2004).

Fuelled by the rise in oil prices, Africa, the Middle East, Central and South America and the Commonwealth of Independent States (CIS, the former Soviet Union countries excluding the Baltic states ) recorded strong merchandise export growth in 2005. All these regions are large net exporters of fuels. Africa and the Middle East recorded their highest shares in world merchandise exports in two decades, due to developments in the oil market over the last two years.

Europe 's trade performance was sluggish in 2005, in line with its overall economic performance. Export and import growth were weaker than in all other regions in terms of both goods and services. The rise in North America 's merchandise and services exports remained slightly below the global expansion rate.

Merchandise trade by sector

Trade developments by sector showed a large variation, mostly due to relative price developments. Weak and stagnating prices for food, agricultural raw materials and manufactured goods contrasted with a further sharp rise in metals and fuels prices. Consequently, the share of fuels and other mining products in world merchandise trade rose to 16%, the highest level since 1985. On the other hand, the share of agricultural products in world merchandise exports decreased to a historic record low of less than 9%.

Within the manufacturing sector, the largest export value increases were observed for iron and steel products and for chemicals. Although global demand recovered somewhat for computers and other electronic products, the trade value of these categories expanded no faster than that of manufactured goods in general. In other words, electronic products have not regained the dynamic role they played in the expansion of trade in manufactures throughout the 1990s. In the 1990s, the export value of electronic goods rose on average by 12% or twice as fast as all other manufactured goods. Available information in early 2006 points to a below average expansion of global trade in textiles and clothing in 2005.

Services

Among the broad commercial services categories (transportation, travel and other commercial services) expansion rates were rather similar in 2005, ranging from nearly 10% for travel to 12% for transportation services.

The economic climate

Exchange rate fluctuations were significant in 2005. In the course of the year, the euro, the British pound and the Japanese yen depreciated vis-à-vis the dollar, reversing the appreciation which had occurred throughout 2004. However, the annual 2005 averages of these exchange rates to the US dollar remained largely unchanged from the preceding year. On the other hand, the currencies of a number of major natural resource exporting countries such as Australia , Brazil , Canada , Chile and Mexico , appreciated between 3.5% and 17%.

The marked rise in prices for fuels and other mining products has boosted the trade surplus of the oil exporting countries (regions) and deepened the trade deficit in many oil importing countries. The United States , which was already running large deficits in its trade balance (goods) and current account (goods and services) in 2004, experienced a further widening of these deficits in 2005. The US deficit in goods and services trade corresponded to slightly less than 6% of US gross domestic product (GDP). It was also about 6% of world merchandise and commercial services exports.

Low interest rates in developed country markets contributed to an easing of the debt situation in many developing countries. The resurgence of foreign direct investment (FDI) flows and the sharp rise in the stock markets worldwide are additional indicators that capital market developments were supporting the recovery of the global economy and trade in the course of 2005.

Growth: lower gear in 2005

Following its strong expansion in 2004, the world economy slowed to 3.3% in 2005. This deceleration was very much in line with the projections made in early 2005. Only economic developments in Japan turned out to be much more favourable than predicted. Japanese GDP growth was 2.8% the strongest performance since the 1997 Asian financial crisis. At 6%, reported global trade growth for 2005 was slightly lower than what was predicted in April 2005.(1) Growth in world merchandise trade was nearly twice as high as world output growth, and this corresponds to the prevailing trend over at least the last decade. It is also noteworthy that despite lower trade and output growth last year compared to 2004, the expansion in both was still faster than the average rates over the 1995-2005 period (see Chart 1).

Chart 1: Growth in the volume of world merchandise trade and GDP, 1995-05 Annual percentage change

Source: WTO.

 

Regions

Europe's four major economies ( France , Germany , Italy and the United Kingdom ) all recorded sluggish economic growth in 2005, ranging from near stagnation in Italy to a meagre 1.8% for the United Kingdom . Economic growth in the 10 new European Union members , however, was close to 4%, again much stronger than the average rate for the European Union.

North America 's GDP and real trade growth 3.4% and a little more than 6% respectively corresponded closely to the global averages. Lower economic growth in the United States contributed to a deceleration in merchandise imports, which for the first time since 1997 rose less than merchandise exports.

Economic growth in the developing regions remained strong, although somewhat less dynamic than in the preceding year. In South and Central America (including the Caribbean), Africa and the Middle East , regional GDP growth rates averaged between 4% and 5%. Developing Asia did not escape the global trend towards more moderate growth, but at 6.5% in 2005, again recorded the strongest performance among all developing regions. China and India, the two most populous countries in the world, again reported outstanding GDP growth in 2005 (9.9% and 7.1% respectively).

The strongest economic growth of all regions in 2005 was reported by the Commonwealth of Independent States. Substantial gains from sharply higher export earnings stimulated public and private expenditure and resulted in GDP growth of 6.6%, or twice the global average. Not surprisingly, the region also showed by far the strongest real increase in merchandise imports of all regions.

In Canada and the United States , economic growth was strong enough to reduce further the unemployment rate, while sluggish growth in Europe kept unemployment in the European Union (25) well above 8%. For developing countries, the unemployment data are much more scattered but with a labour force growth in most developing regions ranging between 2% and 3%, it is clear that only very high economic growth can provide employment growth sufficiently strong to reduce unemployment and underemployment in these regions.(2)

Policies and climate

Monetary and fiscal policies in the major industrial countries aimed at stimulating sluggish economic activity, with low real interest rates and rising public sector deficits. However, higher energy costs had an adverse effect, limiting the rise in real incomes in the oil-importing countries and holding back the recovery.

Oil market developments contributed to the widening of the current account deficit of the United States and reduced the current account surplus of Europe, Japan and developing East Asia . Oil exporting regions/countries reported a further increase in their current account surplus in 2005 and increased substantially their foreign exchange reserves.

In 2005, international capital flows to emerging markets recorded an increase in net private flows and a decrease in net official flows, in particular to Latin America.(3) Global foreign direct investment (FDI) flows grew by nearly 30% in 2005, to about $900 billion, propelled by an increase in merger activities. Although the overall rise was largely attributable to developments in Europe, strong increases have also been observed in flows to Africa and the Middle East . China remained the major destination of FDI to the developing world, which at $60 billion represented the same level as in the preceding year.(4)

Prices

Domestic inflation rates, in particular core inflation, remained moderate in North America and Europe, while the deflation ended in Japan . In South America, the Middle East and developing Asia , consumer price inflation increased by less than one percentage point and remained in a range from 4% to 7%.

In contrast to the worldwide trend towards moderately higher domestic prices, the dollar prices of international traded goods increased by 6.5% in 2005, less than in the preceding year when the world export unit value index

rose by 11%. The smaller increase in world trade prices last year was the net result of mixed developments within the major product groups. While prices of fuels surged by more than 35% in 2005, which was faster than in the preceding year, the prices of agricultural and manufactured goods rose by between 2% to 3%, a markedly lower increase than in the preceding year (Chart 2).

Prices of minerals and non-ferrous metals were up by one-quarter in 2005, on the back of an increase of more than one-third in 2004. Over the course of two years, the cumulative nominal price increase for the two product groups fuels and minerals and non-ferrous metals exceeded two-thirds. These price gains are substantial both in nominal terms and relative terms. Prices for manufactured goods rose by only slightly more than 10% over this two-year period. These marked shifts in relative prices have strongly shaped nominal trade flows over the last two years.

Chart 2: Export prices of selected primary products, 2004 and 2005 back to top Annual percentage change

a. Comprising coffee, cocoa beans and tea. Source: IMF, International Financial Statistics.

 

Exchange rates

Relative price developments in 2005 differed markedly from those observed in 2004 as the depreciation of the US dollar vis-à-vis Japanese yen, the euro and the British pound was partly reversed. On an annual average basis, the yen and the pound depreciated slightly and the euro stagnated vis-à-vis the dollar in 2005 in marked contrast to 2004 when the dollar depreciated against these three major currencies (Chart 3).

The lifting of the long-standing peg of the Chinese Yuan to the US dollar resulted in a slight appreciation of the Yuan, which apparently did not have any impact on limiting the rise of China 's trade surplus in the second half of 2005. However, the exchange rates of two groups of economies continued to strengthen vis-à-vis the US dollar: first, countries which benefited from the strength in fuels and other commodity prices and second, a group of major high-income exporters of manufactures in East Asia (such as Chinese Taipei, the Republic of Korea and Singapore).

On balance, exchange rate developments in 2005 tended to accentuate the impact of relative price developments on nominal trade flows and made little contribution to reducing the major current account imbalances.

Chart 3: Dollar changes vis-à-vis European and Asian currenciesa, 2001-05 back to top Indices, January 2001=100

a. Currency baskets weighted by trade values. European currencies are those of Euro Area, the UK, Switzerland, Sweden, Norway, Bulgaria, Czech Rep, Estonia, Hungary, Latvia, Lithuania, Poland, Romania and Slovak Rep.

b. Trade weighted currency basket of the Korean won, the Singapore dollar and Chinese Taipei dollar.

Real merchandise trade developments by region

In 2005, all regions except CIS contributed to the deceleration of world trade, as real merchandise imports of each region expanded less rapidly than in the preceding year. However, imports of the oil-importing developed countries Japan , the European Union and the United States were particularly sluggish. These economies reported the lowest expansion of imports among the major regions in 2005. Most regions also recorded a slower expansion of their exports, with the exception of Africa and the Middle East , whose exports are estimated to have risen slightly faster than 7% in 2004.

Europe

As three-quarters of European trade is within Europe , total European exports and imports expanded at only about 3%, which was far less than the global average (Table 1). This is in line with Europe 's relatively low GDP growth in 2005.

Table 1. GDP and merchandise trade by region, 2004-05 Annual percentage at constant prices

 

a. Including the Caribbean .

b. Trade volume data are based on Japan 's customs statistics. National account data report a markedly stronger export and import growth in 2005.

US

US imports rose by 5.5% in real terms, which was not only less than world trade but also less than its own exports, which increased by 7%. For the first time in eight years, US merchandise exports rose faster than world merchandise exports. The relative strength in US merchandise exports can be attributed to the recovery of agricultural product shipments and the strength in capital goods exports. On the import side, industrial supplies (including crude oil and oil products) and automotive products recorded below average growth rates in 2005.

While Europe and the United States experienced markedly slower GDP growth in 2005 than in 2004, China 's economy continued to grow very strongly, at nearly 10%. Despite this GDP growth rate, China's import growth was nearly halved, to 11.5%, while real merchandise exports continued to expand by 25%, about as fast as in the preceding year. In 2004, real export and import growth rates were far more similar. According to Chinese customs, imports decreased in real terms for many semi-manufactured goods (e.g. textiles, non-ferrous metals) and special machinery, and stagnated for fuels and road motor vehicles. However, imports of computers, telecom equipment and electrical machinery continued to rise sharply.

Others

The Commonwealth of Independent States (CIS) and South and Central America recorded the highest GDP growth of all major regions and at the same time a double-digit import growth. Real merchandise import growth of 12% is estimated for Africa and the Middle East combined.

The trade volume data presented in Chart 4 (and Table 1) indicate that variations in real trade flows bear a correlation to relative price developments. The net exporters of fuels and other mining products such as CIS, Africa, the Middle East and South and Central America report an excess of import over export growth, while the net fuel importing regions, including Europe, Asia and the United States expanded their real merchandise exports faster than their merchandise imports in 2005.

Chart 4: Real merchandise trade growth by region, 2005 Annual percentage change

Source: WTO.

Nominal trade in 2005

Longer term trends are best assessed in real terms (i.e. excluding price changes), as in the sections above. But the impact of prices can also be important for the revenue derived from trade, a country's trade balance or a trader's share in world trade. For these, nominal trade values (i.e. including price changes and exchange rates) matter. Moreover, in some areas such as commercial services trade, information in real terms is unavailable because there are no data at a global level. The following looks at the nominal situation.

In 2005, the value of world merchandise exports rose by 13%, to $10.1 trillion and the value of world commercial services exports by 11%, to $2.4 trillion. For both merchandise and commercial services, this represented a marked deceleration in growth when compared to 2004. For the third year in a row, cross border commercial services exports expanded less rapidly than world merchandise exports (Table 2).

Table 2. World exports of merchandise and commercial services, 2005 Billion dollars and percentage

Source: WTO.

Europe

Europe , the largest trader among the major geographic regions, recorded the lowest export and import growth for both merchandise and commercial services of all regions in 2005. It was also Europe that experienced the steepest deceleration among all regions in trade growth measured in dollar terms in 2005 (Appendix Table 1 and Appendix Table 2). Most of this deceleration can be attributed to exchange rate developments. Measured in euro terms, Europe 's merchandise and commercial services both expanded by 7.5% in 2005, only moderately less than in 2004 (see Chart 5).

Chart 5: Europe 's nominal merchandise and commercial services exports, 2003-05 Annual percentage change, euro and dollar values

North America

North America 's merchandise and commercial services exports rose by 12% and 10% respectively, which was somewhat less than the corresponding global averages. Over the last five years, the growth of North America 's merchandise and commercial services exports was only about half the 10% average annual growth rate observed globally. North America 's merchandise imports expanded by 6%.

Others

The Middle East, Africa and the CIS, the world's largest net exporters of fuels, benefited from the further rise in fuel prices and increased their merchandise exports values between 29% and 36% in 2005. Sharply rising export revenues in 2004 and 2005 enabled these regions to expand their merchandise and services imports faster than the global average.

South and Central America (and the Caribbean ) not only recorded very high merchandise trade growth, of nearly one-quarter in 2005, but also the strongest expansion in commercial services trade of all regions. Strong economic growth, favourable commodity price developments and exchange rate appreciations contributed to these outstanding developments in the region's nominal traade values in 2005.

Countries: goods

Large differences are apparent in the trade performance of individual countries. Among the top 30 merchandise exporters, there is a marked contrast between the moderate export increases reported by several European countries (e.g. France and Spain ) and the sharp rises reported for the oil-exporting countries.

Despite these large variations, the changes in the ranking of exporters was not much affected. The United Arab Emirates moved up three places in the rankings, and Russia two places, to become respectively the 24th and 13th largest merchandise exporters in 2005. Saudi Arabia and Brazil moved up by one place to become the, 18th and 23rd largest exporters.

On the import side, annual growth rates of the thirty leading importers varied between a low 4% recorded by Austria to a peak of 35% for India. Japan became the fourth largest importer, as its imports exceeded those of the United Kingdom and France . India, the Russian Federation, the United Arab Emirates and Brazil recorded higher rankings in world merchandise imports, along with larger shares (Appendix Table 3).

Appendix Table 4 provides the ranking of leading traders in world merchandise trade when trade among the EU(25) is excluded. Considering the EU(25) as a single trader adds about 10 new entrants to the list of the top 30 exporters and places Hong Kong China , the Republic of Korea , the Russian Federation , Singapore and Mexico among the ten major merchandise exporters. Compared to 2004, two oil exporters, Kuwait and Nigeria , are newcomers among the top 30 in this listing.

Countries: services

For commercial services trade, the performance of the 20 leading exporters ranged from a minor decline in the exports of the United Kingdom to very high increases in the services exports (and imports) of China and India. Unfortunately, the available official data for China cover only the first six months of 2005, while for India the outstanding increases seem also to be affected by an improved coverage of transactions. Nevertheless, it is certain that India considerably improved its position in the ranking of services traders.

While there is no change in the ranking of the top five commercial services exporters and importers, China is estimated to have improved its ranking slightly on both exports and imports, becoming the world's eighth largest exporter and seventh largest importer.

The slack in commercial services exports of the United Kingdom is mainly due to the increase in insurance claims a component of the “other commercial services” category. Among the leading services importers, Japan and the Netherlands only recorded a marginal increase in their commercial services imports in 2005. In both countries, the decline in travel expenditure abroad was the main cause (Appendix Table 5).

Trade prospects for 2006

The global economic situation at the beginning of 2006 remains full of uncertainties. In the developed countries, the broadly improved financial situation of the corporate sector and the rise in stock markets are indicators suggesting that the long awaited recovery of investment in Europe will eventually materialize and trigger broader economic growth. However, the recovery of private consumption remains fragile if the employment situation does not improve and energy costs continue to rise. It is the strengthening of the European economy that most forecasters use as a base for their predictions of higher overall growth in developed countries. While the US economy is expected to grow slightly less than in 2005, its expansion rate of 3% to 3.5% continues to exceed that of the European Union and Japan .

Confidence in projections of steadily improving economic growth in developed countries has been put in question as GDP growth slackened in the fourth quarter of 2005 in both the United States and the European Union (Chart 6).

Assuming that economic growth in the OECD countries gains momentum in the first half of 2006, and that the developing regions will sustain their high growth observed in 2005, the world economy is expected to grow by about 3.5% in 2006 only a little faster than in 2005.

World trade is expected to benefit from this slightly stronger economic growth in particular in the European Union, and could advance by 7% in 2006. This estimate is supported by evidence from the Secretariat's time series forecasting model which predicts trade growth of between 5.5% and 6% in the OECD area during 2006(5).

Among the downside risks in this trade projection are that US demand could slow more strongly than expected under the impact of increased real interest rates and higher energy costs, and that the fledgling EU recovery does not materialize. A further rise in energy costs in 2006 cannot be excluded, as crude oil prices reached a new peak in the first quarter of 2006, already exceeding the annual average of 2005 by 10%.

Chart 6: Real GDP and trade growth of OECD countries, 2004-05 Percentage change on quarter to quarter basis (at annual rates)

 

Appendix Table 1 World merchandise trade by region and selected country, 2005 (Billion dollars and percentage.)

a. Includes the Caribbean .
b. For composition of the group see the Technical Notes of WTO, International Trade Statistics, 2005.
c. Algeria, Angola, Chad, Congo, Equatorial Guinea, Gabon, Libya, Nigeria, Sudan.
d. Chinese Taipei , Hong Kong , China , Republic of Korea , and Singapore .

Source: WTO.

 

Appendix Table 2 World trade of commercial services by region and selected country, 2005 (Billion dollars and percentage.)

a. Includes the Caribbean .
b. For composition of country groups see the Technical Notes of WTO, International Trade Statistics, 2005.
c. Chinese Taipei , Hong Kong China , Republic of Korea and Singapore .

Source: WTO.

Appendix Table 3 Leading exporters and importers in world merchandise trade, 2005 (Billion dollars and percentage.)

 

a. Retained imports are defined as imports less re-exports.
b. Secretariat estimates.
c. Imports are valued f.o.b.
d. Includes significant re-exports or imports for re-export.

Source: WTO.

 

Appendix Table 4 Leading exporters and importers in world merchandise trade (excluding intra-EU (25) trade), 2005 back to top (Billion dollars and percentage.)

a. Retained imports are defined as imports less re-exports.
b. Secretariat estimates.
c. Imports are valued f.o.b.
d. Includes significant re-exports or imports for re-export.

Source: WTO.

 

Appendix Table 5 : Leading exporters and importers in world trade in commercial services, 2005 back to top (Billion dollars and percentage.)

a. Secretariat estimate.

Note: Figures for a number of countries and territories have been estimated by the Secretariat. Annual percentage changes and rankings are affected by continuity breaks in the series for a large number of economies, and by limitations in cross-country comparability.

Source: WTO.

 

Footnotes

1. This proximity of actual and predicted trade growth in 2005 occurred despite higher than projected increases in oil prices. Apparently, the model simulations on the impact of higher oil prices on global economic activity were at least in the short run too pessimistic. back to text

2. According to ILO estimates world employment increased by 1.5% in 2005, while the global unemployment rate remained unchanged from the preceding year. As labour force growth increased faster than employment, the number of unemployed is estimated to have increased by slightly more than 1% in 2005 (ILO, Global Employment Trends Brief, January 2006). back to text

3. Institute of International Finance, Capital Flows to Emerging Market Economies, January 19, 2006. back to text

4. UNCTAD, Press Release, January 23, 2006. back to text

5. Keck, A and Raubold, A, 2006, “Forecasting Trade: A Time Series Approach,” WTO Staff Working Paper (forthcoming) back to text