Fair Trade for All - Stiglitz and Charlton

I have two cases- one to challenge the anti globalization argument and another to debate the idea of “fairness” of an agreement.

Mumbai, India 2004 – The world converged at the World Social Forum (WSF) to re-iterate the need for social justice/equity and bash that one word “globalization”, used indiscriminately through the entire 6 day conference. Having read inside-out coverage of the event and been at the heart of the almost revolution like fervor, I was left confused, till an argument came through in Pg 36 in this book. There was a particularly fiery speech by an Indian author and activist, Arundati Roy that was published center-fold in the most popular Indian newspaper, where she says “Poor countries that are geo-politically of strategic value to the Empire/Hegemon (USA), or have a `market' of any size, or infrastructure that can be privatized, or, god forbid, natural resources of value — oil, gold, diamonds, cobalt, coal — must do as they're told, or become military targets.” This is the kind of argument where people link trade or market access to political motives, which is not necessarily true. The WTO will not make countries military targets if they do not comply, a much less violent form called the Dispute Settlement Board exists.

Activists talk about unfettered and rapid globalization- none, absolutely none, of the WTO globalization efforts force developing or LDC’s to implement immediately after deals are signed. There is an internal reform process/legislation that needs to be structured and followed by each country in a phased out manner with a deadline, before they are expected to completely comply with the regulations. The answer to the long drawn verbose arguments on globalization is that the activists are more concerned about government failure than about market failure. Their diagnosis of the cause lies not in globalization but in failure of governments. This comes back to the distribution effects of globalization argument, where governments are expected to do the redistribution process, and we know the fall outs of the winners vs losers are not measurable and losers are not adequately compensated. Such bottle necks can be eased out only through an internal reform process. An important Doha reform proposal by Stiglitz in this book is called the “Market Access Proposal” where WTO nations provide free access to countries smaller than them (by GDP or per capita GDP) and get free access to WTO members larger than them, this can adjust the returns and retaliations according to size of markets. The only problem is that the most developed countries have no incentive at all to move to this type of framework.

What is a fair agreement?

My college in India witnessed huge demonstrations and street plays against India Amending its Patent Act in Dec 2004 to comply with the TRIPS agreement. Before this amendment, India patented only manufacturing processes and not the chemical molecules themselves (product patents.) After Jan 2005, they would have to legalize product patents, this would eliminate generic drug manufacturing (Generic drugs use different processes to re-engineer the same drug.) This puts life saving drugs far from the reach of the poor economies and a whole lot of pharma manufacturers into panic. Yet the margins of profit for these life-saving drugs are not high enough for Pharma companies to push for reform unless governments do. They would rather fight entry into the US market to sell the generic version of Lipitor than to fight polio or malaria antibiotics entry into LDC’s. Cipla, an Indian drug manufacturing company, manufactured generic anti retroviral treatment for under $1 a day, but is phasing out production because the governments that need it most are not buying them as they are upholding patent rights of international pharmaceutical companies. It therefore is a lack of flexibility of the TRIPS that prevents countries from getting anti retroviral treatment. Is this fair?

Its costs an incredible amount of money for a developing country firm to challenge intellectual property in a case involving a pharma firm in a developed economy. (The high costs challenge Procedural fairness in the DSB)

The Indian Government’s domestic policies in the Union budget 07-08 for the pharmaceutical industry aren’t thorough enough and sometimes inadequate. The government offered a tax exemption for pharma R&D for 5 yrs upto 2012, but the pharma R&D processes is risky and lengthy requires atleast 12-15yrs of protection, the incentive ended up being inadequate. The government also introduced customs duty on life savings drugs– this means these pharma companies cannot offer lower prices in developing markets. The government also proposed a future move from customs duty to Value Added Tax (VAT) on some pharmaceutical products (A similar change in South Africa, yielded no change in pricing or government revenue). Governments therefore might not be giving the right incentives to the right industries and when they need it.

Questions:

1. Challenging the fairness in outcome arguments- “Do we care that the argument for accessible life saving drugs is morally right and saves lives or that we have committed to patent protection so must stick by it?” How can we bring about a flexibility of policies at the WTO? And ensure they cannot be misused.
2. In the MAP, the USA for example will have to give free market access in all sectors to all those countries which have a GDP lesser than America’s, but the upward corollary of this argument does not hold. What incentives can we possibly give to developed countries in the MAP to move towards it?

Book Review - Food Fights over Free Trade, Christina L Davis

“Farm Politics” – despite having studied trade for a while, it struck me when I saw this phrase how complicated, twisted and ironical agricultural negotiations can be, and this phrase “farm politics” seemed to sum it all up. A progressive reduction in agricultural subsidies will have an almost immediate impact on poverty elsewhere and like a senator put it “can mean life and death somewhere across the world.” The book has a thorough lay down of facts, evidence, arguments as well as a humanitarian face to things. I found the book “Food fights over free trade” a tough book to plough through initially, but one that leaves you feeling like you understand the political, economic and diplomatic complications of agriculture much better.

Davis’ argument on cross sector issue linkage- especially that between agriculture and industry can be weighted as successful if the linkages are highly correlated, then one can be effectively weighted against the other. But agriculture has always been a sector that lobbies independent of other sectors and it’s very hard to find a sector linkage strong enough to be compromised for decade-long agricultural subsidies, and you see how most agricultural negotiations end up being bilateral or a single issue negotiation. The “politics of negotiation” is captured in the agricultural sector as it captures the sentiment of the general public and are large vote-banks. Therefore the sector has a lot of political leverage. At the negotiating table nobody is benevolent- if you can give them incentive enough to switch, they will. But as in the case of most negotiations- a little crack of light needs to be found in order to further expand the scope of agricultural negotiations.

When looking at the course of trade negotiations through history- it is evident that the WTO’s organizational structure, its enforceable authority, and its various dispute settlement bodies, and their use of reputation costs to deter violators has worked better than the GATT system. By signing in as a member of the WTO domestic governments are tying their own hands against passing unilateral trade policies and changing existing tariffs. (EU in the hormone beef ban case violated this and could not do this for long) If not for this international carrot and stick policy- each time an industry lobby favored government party comes into power that industry would expect to get protected through tariff or non tariff barriers. A tangent to the argument about collective action problems is that of lack of awareness of the WTO redressal process and lack of communication of importers to their respective government agencies of countervailing or antidumping.

The US market size allows for a great deal of autonomy and bargaining power at the table- but sometimes the US is on the receiving end, as in the case of China. China refuses to revalue the Yuan despite immense pressure from the US government. This is because for one, the US is not China’s biggest importer, therefore the US does not have the “monopsony power in trade” Second, the huge number of dollar reserves that the Chinese government holds can cause serious currency value fluctuations if they decided to sell. It goes to prove that all negotiations have power and interests, both of which change over time and therefore need to be reprioritized as the balance of power and interests change between the parties involved.

A key summary of the issue, though can be easily missed, is the assumption of the state being a unitary actor- this means that domestic concerns should not theoretically play a part in international trade laws. Its failing, in cases like the Diet in Japan’s vehement opposition of importing “one grain of rice” – ultimately goes to say, we understand that the assumption of unitary actor does not hold. With strong international pressure in the Rice ban, hormone beef ban as well as CAP, it is fascinating to see how ultimately domestic interests “aggregate” towards liberalization and equilibrate the market.

The author also chronicles some significant but smaller incidents in the midst of negotiations such as the US bashing of Clayton Yuetter- him having rejected the US farmer petitions twice over, on grounds of straining US-Japan relations. Those on the forefront of such diplomatic talks realize how seemingly “right” it would have been to accept the petition but that would’ve made it so much easier for Japan to have shut itself off from negotiations all-together. Having come from India, a country where there are bilateral negotiations all the time with Pakistan, you realize how one comment or seemingly “right” decision to you might be a very sensitive issue for the other party in the negotiations- leading them to turn hostile. At the end of each of his chapters/parts the author gives us empirical evidence to make clear which of the negotiating structures or hypotheses have worked in the real world.

The conclusions of the book lie modest, yet insightful – the difficulties of saturation of cross sector linkages, where nothing in the newer industries can entice the countries to come to the table is a very pertinent difficulty in the long run. Adjudication is increasingly seen as a means to settle trade disputes, yet it can’t work always, and there must be a negotiating structure formulated to the specific circumstances. The formations of G-20’s G-8’s to resonate the developing country voices is a good proposition for the success of the Doha round. It is also dangerous – the combined bargaining power might lead to failed talks repeatedly and negotiations increasingly move towards bilateralism, which is not in-line with the WTO consensus approach. Multistage negotiation analysis gives us an understanding of how exactly to structure negotiations – first, a series of bargaining or should they raise only easy issues in the GATT rounds?

The strategic and negotiation studies of international relations, comparative politics and sometimes a long drawn out series of interests and threats are necessary to tip the balance and solve any issue as complex as agricultural issues.