Duty and Quota Free Market Access to LDCs — India, China must act now

The Hindu Business Line, June 13, 2007

By Pradeep S Mehta & Pranav Kumar

As part of the international agenda of providing Duty Free and Quota Free (DFQF) market access to less developed countries, as an affirmative action programme to help the disadvantaged and weaker nations with concessions, not as a favour but as a right, India recently announced zero duty access to exports from LDCs of the South Asian region under the South Asian Free Trade Agreement (SAFTA) to be adopted by 2008.The European Union is the only major trading power that has a DFQF-type scheme: `Everything But Arms (EBA),’ which has been operationalised to a large extent.

The US has a similar scheme but only for sub-Saharan Africa: The African Growth and Opportunity Act (AGOA). Both the US and the EU came under pressure at the World Trade Organisation’s ministerial meeting in Hong Kong, in December 2006, to extend a higher level of DFQF market access. At the same meeting, a call was also made to major developing countries such as Brazil, India and China to join in this move. While Brazil has notified its scheme, India and China have only stated their intentions, but not moved forward yet.

MFN shortcomings
The concept of DFQF is based on the argument that trade on MFN (most-favoured-nation) basis ignores the unequal economic realities among the trading nations, especially between the rich and the poor. As part of global policy responses to correcting the imbalances in global economic relations, special and differential treatment needs to be provided to developing countries.

Pursuant to the growing feeling within the international community of an urgent need to intensify efforts to enable LDCs better integrate into the world economy, several countries have shown their intention to provide non-reciprocal trade preferences to them.

It is not only the rich countries commitment to DFQF for LDCs but efforts are on to bring even advanced and large developing countries under its purview. The root of this particular initiative lies in the Global System of Trade Preferences (GSTP) among Developing Countries.

The idea received its first political expression at the 1976 Ministerial meeting of the Group of 77 (G-77) in Mexico City and was further developed at G-77 Ministerial meetings in Arusha (1979) and Caracas (1981). The agreement, however, was formally adopted in 1988 by a group of developing countries that participated in the negotiations. The following year, the agreement entered into force.

The signing of GSTP in 1989 did not have any immediate impact. Only in the late 1990s did a few developing countries announce offers on non-reciprocal trade preferences to LDCs. Announcements regarding the introduction of a type of GSP for LDCs were made by Egypt, Republic of Korea, Malaysia, Singapore and Thailand.

Morocco proposed the same but only for African LDCs, while India and South Africa sought to provide preferences to LDCs that are members of their respective integration groupings — the South Asian Association for Regional Cooperation (SAARC) and the Southern African Development Community (SADC) respectively. In a nutshell, most of these announcements did not go beyond mere good intentions and were limited to their own regions.

However, two major developments in the recent years call for larger developing countries to make more serious efforts in providing DFQF to LDCs. First, in June 2004, during the UNCTAD XI Conference in Sao Paulo, Brazil, the Ministers decided to launch the third round of negotiations under the GSTP.

To date, 43 countries have ratified/acceded to the agreement that includes Brazil and India. In October 2006, the GSTP received a major boost with the accession of Mercosur, the Southern Common Market, comprising Argentina, Brazil, Paraguay and Uruguay.

The second important breakthrough was achieved at the Hong Kong Ministerial of the World Trade Organisation, in December 2005, when a separate annexure was added to the Declaration, which inter alia urged both developed and developing countries “to provide DFQF market access on a lasting basis, for all products originating from all LDCs by 2008 or no later than the start of the implementation period in a manner that ensures stability, security and predictability”.

The aim was to institutionalise this process and also make it more binding in nature. However, one caveat was added that, “Members facing difficulties shall provide DFQF market access for at least 97 per cent of products originating from LDCs, defined at the tariff line level.” This particular clause has made it a zero-sum game for LDCs.

Much has been written and discussed about this 97 per cent clause. LDCs have every reason to feel let down by the WTO members, especially the developed countries.

It is no secret that it was the US that vehemently opposed granting DFQF market access on all products to LDCs. The US’ main target was Bangladesh and perhaps Cambodia, which are major exporters of apparels.

As per recent information only the Brazilian government plans to start granting DFQF market access to exports from 32 of the world poorest countries in 2007.

If realised the move would make Brazil the first developing country to accord unrestrained access to goods from the 32 LDCs members of the WTO.

India too is under immense pressure to announce a similar scheme. According to official sources, the process is on to work out for LDCs acomprehensive trade package; this is likely to be notified soon. In the process, India has also consulted LDCs.

Quid Pro Quo for LDCs
The effective promulgation of DFQF market access for LDCs from larger developing countries and their implementation would herald an innovation in the South-South trade and economic cooperation. Moreover, developing country members of the WTO are indebted to LDCs for the crucial support in the ongoing Doha Round of trade negotiations.

Since the 2003 WTO Cancun Ministerial Conference, LDCs have stood up to the pressure from developed countries and lent crucial support to G-20 and G-33 in their aggressive effort to dismantle the huge farm subsidies of the West. Now, it is time for larger developing countries to repay the LDCs by granting them DFQF market access. This is economically and politically very significant.

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