Vol. 3 :: No. 12 December, 2001 (Mangsir-Poush)

Cover Feature

WTO High Stakes Gamble

Nepali leaders always project a better future for the poor and the gullible people – be it a promise to take Nepal to the standard of Singapore or pledge to bring enough drinking water to wash the entire streets of Kathmandu everyday. Inevitably, every leader’s most of the promises have proven to be farcical. Even responsible authorities like the heads of the government have misled the public more often than not.

News coverage in the print media since the last one year gives an impression to the people that it is not only the general public but also the policy makers and top class industrialists in general, barring only those few who are actually directly involved, do not have adequate knowledge about the World Trade Organization (WTO). Leaders – responsible for educating the people – are also giving rhetoric statement about Nepal’s urgency to join the WTO band wagon. True, given the benefit of doubt, Nepal may benefit from WTO in the long run. But there may be differences of view regarding the timing of joining the WTO, along with its advantages and disadvantages. Whatever be the case, the fundamentals and factual details should be disseminated correctly and leaders should not air misleading information to the general mass. Because it is an open secret that the majority of our leaders and politicians have awful perception on economic matters and make ludicrous speeches on the subject of the nation’s economic issues.

Therefore the attempt in our cover story will not be to influence the readers to mould their opinion in favour or against Nepal joining WTO but to consider certain aspects and make up the mind that whether we are completely ready to join immediately or not.

What is WTO ?

World Trade Organization is the most misunderstood organization globally because of its:

8 Binding obligations restricting individual country rights and

8 Criteria and terms of membership for new members not fixed.

WTO is a global body to regulate economic activities between the nations which has been an urgent need to create environment of predictability minimizing cost of risk and to protect vulnerable economies from the massive wave of globalization brought by economic interdependency; Consumerism; Comparative and Competitive Advantage and; Advancement of Information Technology.

Multilateral trading under WTO system are based on the principles of Non discrimination (MFN and National treatment), Transparency, Liberal policies, Market oriented mechanism which have indicated positive contribution in world output and growth.

8 Aggregate world trade reached US$ 7.6 trillion (US$ 6.2 in merchandise exports and US$ 1.2 in service exports) in 2000 growing more than 100 times the value of US$ 58 million in 1948.

8 Share of developing countries also increased accounting one third of world trade.

8 LDCs as a group got share of US$ 34 billion in merchandise exports with 28% rise from 1999 to 2000

8 FDI to LDCs increased fivefold from 2.8% in 1980 to 14.2% in 2000

8 LDCs yearly exports growth rate of 2.9% in 80s went up to 3.2% in 90s

8 Average non weighted tariff applied by major trading partners to LDCs exports has fallen from 10.6% in 1997 to 6.9% in 2001

8 US imports alone from LDCs amounted to US$ 8.9 billion in 2000. However it is just 0.7% of total US merchandise imports.

Issue, therefore, is not about WTO propagated growth in trade but on equitable distribution of benefit generated from growth. After establishment of WTO, priorities are seen divided into interest of Developed, Developing and Least Developed Countries. Even Regional blocs and alliances are seen emerging to strengthen their common interests.

Nepal, a LDC, can not remain isolated with global economic mainstream especially in the context of all the neighbors remaining within WTO. Therefore, Nepal is focussing on Accession terms.

Nepal’s priority is to protect her domestic interest and enhance her competitive capability which has to start with massive awareness within the country.

The WTO, however, is being criticised heavily for its agreements. The WTO agreements deal with and, therefore, affect a wide range of complex activities such as agriculture, textiles and clothing, banking, telecommunication, government purchases, industrial standards, food sanitation regulations and intellectual property. There have been hues and cries that agreements under the WTO like Trade Related Aspects of Intellectual Property Rights (TRIPS) and Agreement on Agriculture (AoA) will bring adverse impacts on the economies of the developing and least developing countries (LDCs). There is a criticism that the WTO system is exasperating the problems of the LDCs. The developed countries have been reaping the benefits of global race for globalization and liberalisation and the poorer nations are being further marginalised.

Two hundred and fifty years ago, the ratio of per capital income between the richest and the poorest country was approximately 5 to 1. Today, the same ratio is 400 to 1 and still growing! Reduction of their share of global exports from 0.7% in 1981 to under 0.4% in 2001 and surging debt from US$ 65 billion in 1985 to 120 billion in 1997 speak for themselves about the conditions of the LDCs today.

Recently, Nepal participated as an Observer in the Fourth Ministerial Meeting of the WTO in Doha, Qatar, Purna Bahadur Khadka, Minister for Industry, Commerce and Supplies representing Nepal, delivered the statement as an Observer during the meeting. Nepal in its statement clearly mentioned that the increasing marginalisation of the LDCs from the mainstream of world economy with a declining share in world trade, investment and output is indeed a grave concern. Hence meaningful integration of LDCs into the world economy must be a thrust of the conference.

It’s a fact that Nepal cannot remain isolated. But Nepal, being an LDC, needs to complete lots of homeworks before it becomes the member of the WTO. It therefore must weight the pros and cons of being the member of the organization and calculate the measures to reduce the losses and increase the benefits.

The other experiences of the developing countries have already proved that the countries can be benefited from the WTO provided they have a strong domestic economy. And as far as Nepal is concerned, the case is poor. Hence there must be improvement in its domestic economy and the government must restructure it and strengthen the entrepreneurial capability and improve the human resources of the country.

Gain from WTO

The experts in the field of WTO states that Nepal can expect to have a say in how the global trading rules are shaped in this century. Because decisions are taken on the basis of consensus, every government has a say in what happens in WTO. Nepal can expect to be able to defend its interests through a system of dispute resolution, which, notwithstanding some problems, is uniquely effective. Nepal can be guaranteed the highest level of market access offered by 140 member governments. Non-members can be discriminated against, but those in the WTO, receive the most favoured status. This means that Nepali goods and services would not and could not be subject to discrimination. Nepal will also have access to technical assistance and training which is designed to enhance the government’s capacity to take advantage of its right under the multilateral trading system.

A limited number of commodities, concentrated in a few particular markets, is the unique feature of Nepalese international trade. To be procise, garments in United States and carpets in Germany and a few other items like handicrafts, leather and lintels in other European markets give the real picture of our international trade. The number one exportable item of Nepal is garments, which comes under the Multi Fiber Agreement. The WTO has already agreed to abolish the quota system under this agreement by 2005. This will affect us no matter what steps we take for accession to the WTO.

Our share in the volume of world trade is very insignificant. Our accession to the WTO will not be as attractive as the accession of China in the world trade scenario. The total explanations requested in our presentation of foreign trade regime are not even 400 in numbers, where as thousands of questions were raised when it came to China’s entry. The reality of our international trade dictates us not to remain in isolation. The size of the country and fait accompli of geographical position also demand trade diversification and the development of international links, based on trade and investment. The revolution in information technology and the emergence of the concept of a global village also raises the need to be with the international community. We cannot remain aloof in the globalization of world economy. We have to adjust our policy measures, compatible with the external environment.

Specific provisions, especially meant for LDCs and land locked nations, could be beneficial to us. The special and differential clauses for developing and least developed countries as such the allowance of fast track, the obligations commensurate with the level of development of the country and meaningful transfer and dissemination of technology from developed countries, could be utilized for the good of the nation by entering into the WTO.

The WTO members together account for over 90 percent of world trade. The attraction is such that more and more developing countries have opened up their economies thinking that trade will be an engine of growth.

The WTO is also a powerful court of law that settles trade disputes and authorizes sanctions on offenders. According to UNDP, the global trade has grown 12 fold since the setting up of the first trade body in 1948. The trade liberalization negotiated in the Uruguay Round is expected to increase the value of world trade by at least US$ 200 billion by 2005.

However, 70 percent of this new wealth is set to go to the industrialized countries of the rich North and while a handful of powerful exporters in Asia and Latin America will share in the gains, the world’s least developed countries stand to be worse off than before.

The economies of the LDCs are increasingly marginalized by global trade, as their share of world exports is 0.4 percent. For Nepal, with few exportable items in its basket, poor infrastructure and comparatively higher cost of production due to unskilled labor and geographical conditions finding a place in the global market is going to be anything but comfortable.

Whatever be its costs, closer home five out of seven SAARC nations are already members of the WTO. Both Nepal and Bhutan, too, are preparing to join the world trading body.

The competition of world trade is like a tiger that will eat everyone weaker or dumber. The only good news is that WTO puts this tiger inside a cage of rules and regulations. Now we have to get inside the cage because the alternative of not knowing where the tiger is lurking or when it will attack us is even more dangerous. Nepal's accession will help at least remove all imaginary tigers and help us to prepare to face the real tiger.

By delaying entry Nepal will not gain any additional grace time, the clock is already ticking with important milestones already laid down. For example, whether we join or not our garments quota will vanish by 2005. The best course for us is to negotiate the terms of our entry into WTO with sufficient preparation. We have to try to get the best deal under the Integrated framework created for LDCs like us.

Why Hurry ?

Preparation does not only mean putting tick marks on the WTO checklist to fulfill threshold requirements for becoming a member of the WTO. It is much more than that. It is about understanding and appreciating the concerns of each and every sector of the economy and society that is going to be affected by Nepal becoming a member of the WTO and putting in place mechanisms to ensure that the impacts, in whatever forms, are minimised.

We need to seriously evaluated our level of preparedness before we move further ahead on the accession trail. The most crucial aspects, which we should consider are summarised below:

The first and foremost condition for a free, liberal and open economy, as envisaged by the globalisation pundits, is the existence of a mechanism to protect competition and competitive processes. Since the raison d’etre of the free trade is promoting competition, making efficient allocation of productive resources and providing greater choice to the consumers, it becomes the responsibility of the State to ensure that big companies do not abuse their market power and engage in monopoly or anti-competitive practices. What we need to see is how much are we geared towards facing this challenge in the post-accession era.

Secondly, it is an open secret that the inclusion of Trade Related Aspects of Intellectual Property Rights (TRIPs) Agreement in the WTO goes against the principle of trade liberalisation ushered in by WTO as it facilitates the use of ‘limited monopolies’. Almost 70 members of WTO not being able to comply with the requirements of TRIPs within the prescribed (December 31, 1999) explains that there is something terribly wrong with this Agreement which need to be rectified.

This agreement in its present form is extremely deleterious to the interests of the Nepalese farmers, indigenous communities, consumers, biodiversity and traditional skills, knowledge and technologies. Thus to prevent an open assault of the TRIPs Agreement on our livelihood, legislation aimed and protecting biodiversity, farmer rights and rights of the indigenous communities need to be enacted and effectively enforced. However, there is hardly any initiative from our government in this direction. Moreover, in order to prevent piracy of our genetic resources, which is indirectly perpetuated by this very Agreement, the government should initiate the process for their documentation and/or registration. But the government has been moving at a snail pace in this direction.

Thirdly, complete liberalisation of agriculture sector will breed food insecurity for the net food importing Least Developed Country (LDC) like Nepal due to increase in global food prices resulting from massive reduction in subsidies provided by the developed countries. However, this situation could be completely reversed if we could become a net food exporter and take advantage of whatever incremental market opening come our way. In order to ensure that it is indispensable to implement Agriculture Perspective Plan (APP) fully and faithfully is needed. The lack of political and bureaucratic commitments to implement the APP is a matter of grave concern for all. This needs to be corrected as an issue deserving topmost priority.

Fourthly, WTO will trigger dislocation in some of vital nerves of economy. Ready-made garment sector, the number one foreign exchange earner for the country at the moment, is one of them.

The vulnerability of this sector is evidently clear because of the heavy dependence of our export on quota items, which occupy 80% business of this sector. After 2004, due to eventual phase out of quota system granted to Nepal under the multi-fibre arrangements, this sector is likely to receive a shot on the arm. But the government does not seem to have any programme in hand at this stage to be prepared to tackle this inevitable crisis.

The private sector, on its part, is worried to see that sectors like garment exports – that earned over 13 billion rupees last year – will be affected after the quota regime is removed. Till now, we don't know what would happen to labor laws, bilateral treaties and duty structure once the WTO officials say they, too, are studying the likely impact.

Experts say Nepal will have to focus on protecting and patenting her rich bio-diversity, getting more technical assistance from the WTO even before becoming the full member of WTO and doing adequate homework to be in a better position for bargaining.

Nepal houses over 6,800 species of plants and 700 species of medicinal herbs. There is widespread concern that once Nepal becomes a member, multinationals will try to patent this vast biodiversity. However, the WTO’s TRIPS Agreement prohibits basic life forms from being patented.

After reading the press and listening to the statements of various groups and political parties, there is an impression that there are some dissatisfactions with Nepal’s role in accession to the WTO. It has been repeatedly claimed that national interests are not being protected at the negotiations. The implementation of the results of this round would retard industrial growth, decimate small-scale industry, ruin the lives of artisans and choke the development of agriculture. It has also been argued that foreign imports and enterprises would come to dominate every aspect of economic life while the domestic sector would be left to face a slow and lingering death.

There is an urgent need to build a national consensus for the speed of liberalization of the economy. The political bosses, either of the Nepali Congress or the Main Opposition CPN-UML, have rarely bothered to understand the intricacies or complexities of international trade negotiations. The bureaucrats, traditionally use to secrecy, have always held the card close to the chest. Trade and industry were rarely taken into confidence. They seldom shared the implications of the various proposals under negotiation. Parliament and the people are generally kept in the dark about the progress of negotiations. They are not made parties to the dynamics and compulsions of the negotiations. The time has now come to break out of the cocoon and educate the people on the benefits of accession to the WTO. Why should the narrow, selfish interests of a few take precedence over the public good of many? Why should the Nepalese people continue to be at the mercy of public monopolies and their pampered employees? Why should the Nepalese consumer be deprived of better products for the sake of ensuring abnormal profits for the local producer? The country needs to understand these questions.

The WTO agreement is different from many other international treaties in the accession procedure. There is no possibility for entering reservations, and the acceding nation is bound to accede to all the provisions of WTO agreements. When the whole WTO package is taken, the recipient nation or the acceding nation is required to bring her laws and regulations into conformity with the provisions of the WTO agreements. In Nepal, international agreements are implemented through the enactment of new legislation or through amendment to the existing laws. Also, following accession to the WTO a member state must very carefully monitor or observe whether or not the laws or rules made or decisions taken by her are compatible with WTO provisions. The member states are required to increase transparency in their trade-related activities. All trade related laws, regulations and judicial decisions must be published and made available to the interested parties. The other important stipulation of the WTO is that any national law of any country, which contradicts WTO rules, can be challenged by any member at the Dispute Settlement Body (DSB).

There are however, two points that merit serious looking into both by the government and its WTO cell. The first is whether previous bilateral agreements among WTO members states will remain valid, and if so whether joining the WTO would really be worth it. And secondly, if opposite is the case, whether we will have the political will to take up issues to the Dispute Settlement Body of the WTO against a larger and all powerful neighbor should the need arise. These are pertinent questions that merit serious attention – questions that are likely to surface at a later stage.

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