Sri Lanka and world trade
View(s):At the Geneva headquarters of the World Trade Organisation (WTO), the talk these days in the corridors of this powerful mechanism for global trade is about who will replace its head.
Director-General Pascal Lamy ends his term in a few months’ time and the search for a new candidate is on by an internal committee. Alongside this search are rather frantic preparations for the next round of trade negotiations in Bali, Indonesia which takes place later this year.
The WTO sets the rules for smooth world trade, and its’ DG and his staff are the main facilitator of this process.
However how many Sri Lankans are familiar with the workings of this organization, what it means and how it would impact on the lives of ordinary and simple people like farmers, traders or housewives?
Not many I’m afraid. The WTO doesn’t dominate media headlines like the United Nations (UN), the UN Human Rights Council (UNHRC), the World Health Organisation (WHO) or other regional trading arrangements like the Indo-Lanka Free Trade Agreement (FTA) for example.
It doesn’t generate sexy headlines or eye-catching news though it should in fact because this is one institution that ensures that trade flows across borders are equitable and just; is built on equality and consensus – no big bully or super power status. Any small country member could win a case of unfair trade against for instance the United States (US) under an effective dispute resolution mechanism. The WTO impacts on Sri Lankan farmers, producers, consumers or traders far more than any other global body including the UN.
Unlike UN Secretary-General Ban-Ki Moon, WTO chief Lamy’s job is more difficult. Every decision in the WTO is through consensus; no one has more power than the other. The US, European Union, China, India or Russia and every other member have equal status even though the US for example is the biggest single importer in the world. Consensus on the other hand is what has stalled progress of the earlier Doha round of trade talks and reaching agreement on the future of world trade (and a new set of rules) at the upcoming Bali talks is getting more and more complex, as this editorial columnist discovered this week during a week-long sojourn in Geneva to understand how world trade rules operate.
“If we fail in Bali, it would be a failure for all countries – developing and developed, small and big nations,” says US Ambassador at the WTO, Michael Punke, adding, “it would impact on the US, the most.” The US is not only the largest importer in the world but by virtue of this position, also has the largest trade deficit in the world.
The filibustering to reach consensus continues as countries like the US for example want a new agreement on agriculture and breaking down on tariff barriers in importing countries, among other issues.
Closer home, growing protectionist policies by the Government to protect local farmers and higher import tariffs to raise revenue are not helping Sri Lanka’s cause where consumer prices are very rising, subsidies are expanding and the budget deficit widening.
Over the past few years, the Government has increased tariffs on imports of onions, chillies, potato, lentils, etc during festive seasons when demand rises and producers need to be protected. Striking a balance between providing a good price both the farmer and the consumer has been a critical part of Government policy over the years. The issue is exacerbated by the simple fact that local farming is very costly, inefficient and unproductive … thus subsidies are high and then leads to increased taxation, which is reflected in the tax story on Page 1.
Sri Lanka needs to develop an economy on a comparative advantage basis producing high value items for export and importing food which is cheaper than producing locally like rice for example.
However large agriculture subsidies in developed countries to protect local producers and lack of favourable market access are not helping in enunciating such a policy. Nevertheless Sri Lanka’s protectionist policies are not helping this cause, either.
Two areas where Sri Lanka benefits, as a WTO member, are in dispute resolutions where complaints can be filed against another country in a trade dispute and expect a just verdict, or for example in smoother facilitation of export trade with another country. Yet while Sri Lanka for example may want the barriers to non-tariff exports broken down, in the same spirit barriers to imports need to reciprocally ‘more friendly’.
The Bali trade negotiations is all about charting a new course for global trade which as explained, in Sri Lanka’s interests, must not fail. The word in Geneva is that the WTO, due to its consensus-in-decision-making process may be losing its glitter. One of the biggest challenges is the 300+ trade agreements between countries and regions which have their own rules of engagement.
How these agreements play in the overall effectiveness of the WTO is one of the issues drawing the attention of the organization.
Like it or not, globalization has resulted in more efficient trade across borders and led to cheaper prices for consumers particularly in the health sector across the world (maybe not in Sri Lanka). Thus like many other developing countries, it is in Sri Lanka’s interest to ensure that the Bali trade talks doesn’t fail.
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