D Ravi Kanth: Not the best midwife in town

TRADING THOUGHTS

Pascal Lamy, the World Trade Organization’s (WTO) embattled director general, says he wants to perform the role of a “midwife” to salvage the Doha trade negotiations. This is what he confessed to the Indian trade team during his closed-door meetings in New Delhi last week. Apparently, Lamy said that the Indian trade minister Kamal Nath and the United States Trade Representative Ambassador Susan Schwab are “pregnant”. As a midwife, he said, it is his duty to ensure a smooth delivery so that the faltering Doha project comes to fruition.

The underlying rationale is that everything in the Doha Round can be resolved if the US and India settle their differences over the Special Safeguard Mechanism for farm products for developing countries. Nothing, though, could be farther from the truth given the number of unresolved elements in the Doha Development Agenda.

Besides, such a pronouncement is bound to make WTO members sit up and ask whether the director general can offer neutral and unbiased services like a classical midwife. Because of his diverse roles in the past ranging from a banker to the European Union’s top trade policy job, there will always be nagging doubts about his new role.

Lamy’s first major engagement as a director general with trade ministers took place at Zurich in October, 2005. This was a meeting convened by the US to tell the world how committed it was to drastically reduce its trade-distorting farm subsidies. Even before the ministers gathered in the room, Washington made a splash in the Financial Times saying it would reduce its trade-distorting farm subsidies by 53 per cent to around $22 billion — ironically, this left the actual trade-distorting elements nearly untouched. Instead of playing the honest broker, Lamy praised the US proposal (despite it not touching the trade-distorting subsidies) and asked the European Union to do the same in the case of market access for farm products.

After Zurich, Lamy faced the second major test at the Hong Kong Ministerial Meeting in 2005. Apart from US domestic subsidies and the EU’s elimination of export subsidies, other important issues ranged from market access for industrial goods to the liberalisation of services, and more importantly cotton as well as duty-free and quota-free access for least developed countries. Lamy’s role once again came under scrutiny following the criticism levied by EU Trade Commissioner Peter Mandelson in the final hours of the meeting. The poorest countries in Africa remained unhappy at the meeting because of the ambivalent stance adopted by the US on the cotton issue and the duty-free and quota-free access.

An impression gathered ground that Lamy tends to be soft when it comes to dealing with Washington while displaying unusual exuberance when dealing with developing countries. Lamy, for example, suspended the negotiations to help Washington which had refused to budge from its unsustainable position of bringing down farm subsidies below $22 billion in 2006. And during this period he was sending missives to developing countries like China, India, Indonesia, and Philippines questioning their hard-line stance on special products and the Special Safeguard Mechanism for developing countries.

By the time the negotiations came back on the rails last year following a series of failures, he ought to have drawn important lessons on how to maintain equidistance from key players. But that did not quite happen as can be seen from the manner in which negotiations evolved in different Doha dossiers, especially in the case of the rules and the three TRIPS-related issues, as they would have created difficulties for Washington.

It always remains a mystery as to why Lamy did not fix the final figure for the US overall trade-distorting support for agriculture at $13 billion as demanded by six out of seven trade ministers during the failed mini-ministerial meeting at Geneva last month. Though it is important for the director general to be close to the US because of Washington’s influence over the global trading system, it is also equally important that he calls a spade a spade when that country adopts unyielding positions. He cannot remain silent for the sake of the elephant that is in the room when life-and-death-issues such as cotton for the poorest of the poor remain unresolved.