NAIROBI: The 10th World Trade Organisation ministerial meeting was to end on Friday. When I took a walk to KICC on that day at 4.30pm I could not go beyond Holy Family Basilica. I knew the WTO negotiations were getting tough.
What did the meeting achieve? Why was such a meeting so contentious? Why should negotiations go on for more than a decade without a conclusion? After the meeting overflowed into the night we may have to wait for finer details.
The trade negotiations have always been contentious from Transaharan trade to slave trade and Silk Road. At times war used was used to force negotiations. Do you recall the China–British opium wars? The World Trade Organisation was formed to avoid such wars and other unfriendly like retaliatory tariffs to resolve trade disputes.
On WTO websites, it is stared clearly that,”The World Trade Organisation (WTO) deals with the global rules of trade between nations. Its main function is to ensure that trade flows as smoothly, predictably and freely as possible.”
Trade has been a staple of economists for generations from David Ricardo and his comparative advantage to Jagdish Bhagwati, Eli Heckscher, Paul Krugman, Tabitha Kiriti Ng'ang'a and others. Trade has remained a top of agenda in most countries policies and development plans.
Trade is more than the exchange of goods and services. It means jobs, and higher standards of living. And in some countries, this is connected to political power.
Political contests in the most developed countries are won based on jobs created through trade and other means or on accusations of exporting jobs to China or abroad.
Look closely and a number of successful economies have relied on trade to rise; from Britain to Singapore, trade has been a launching pad into economic dominance. Really?
A quick measure of the role of trade in an economy is checking its contribution to GDP. For some countries, the contribution measured as trade/GDP in 2014 gives some interesting insights. Trade is total exports and imports. (See table and graph)
Back to contentious issues in WTO negotiations. One is agriculture which though contributing less than 10 per cent of the world trade is always at the centre of the negotiations.
The predominance of agriculture is not accidental. Countries subsidise the farmers to ensure food security which is a source of national pride. For example, if a bag of wheat costs Sh3,000 to produce and the price in the market is Sh2,500, the government could top up the price so that farmers get Sh3,500 per bag. Assured of profit they will continue producing.
This is contentious because farmers who have no subsidies will have to sell their wheat at lower price and make losses. They could find themselves out of the market. If you are a coffee or pyrethrum farmer in Kenya, you are too familiar with this sad situation. The developed countries have always given farmers subsidies, despite constituting a very small percentage of voters, because of national pride in food self sufficiency, not because they are prejudiced against other countries.
The health risks in food makes countries prefer self-sufficiency. Frequent travellers know how hard it is to carry foodstuff from one country to another, particularly perishables like meat or fish. The WTO meeting agreed that farm subsidies will be reduced but deadlines seem open.
Kenya is not innocent; we give subsidies to farmers through subsided fertilizer. However, we give our farmers less support compared with other countries. EU spends about 40 per cent of its budget on farm subsidies.
We were almost there once. Do you recall guaranteed minimum return (GMR)? It was a programme where farmers would get a guaranteed return on their crops despite changes in the market. I’m told a lot of Kenyans became farmers to eat that money, with no crops. I found debate on GMR in legislative council (parliamentary) proceedings of 1961 and in 1979. On October 17, 2013 Jimnah Mbaru was involved in a lively twitter conversation where he was calling for the return of GMR to increase food self-sufficiency.
Other contentious issues in WTO talks include e-commerce, a growing sector of the economy including Kenya’s. In some countries buying online is cheaper, because taxes are often waived, and seen as a subsidy. This issue does not seem to get a consensus till the next ministerial conference in 2017.
Environment is the other contentious issue; WTO states that, members’ environmental measures should not be trade barriers, unjustifiable discrimination or protectionism in disguise. Recall Kenya’s fresh produce export to EU and pesticides?
Government procurement was a hot potato in these talks. Should government open their procurement to outsiders? Currently this is voluntary. But imagine anyone vying for government contracts, without any restrictions?
Eliminating tariffs on ICT is another issue. This would greatly benefit developing countries, making Kenya a “hotter bed” of innovations. That could greatly reduce the prices of phones and other electronics greatly increasing access to information and the efficiency that goes with that. Do you recall life without mobile phones?
Intellectual property, away from land is another big issue. This is unlikely to be concluded in Nairobi. For LDC, this is where the future lies. Of interest is their need to have exemptions on critical items like drugs which are more expensive when under patents than when patents has expired (the generics).
LDC also wants quotas reduced so that they can have greater access to developed country markets and expand their markets. Remember AGOA? In addition, they want greater access to the market for non-agricultural goods.
WTO must also deal with regional trade agreements from COMESA to NAFTA and so. How much do they enhance or distort trade. How do they impact the work of WTO?
The other two issues are trade in services, which is becoming a bigger part of many economies and Trade Facilitation Agreement (TFA) which was the first agreement concluded at the WTO by all of its members. It focuses on “expediting the movement, release and clearance of goods, including goods in transit.” It also includes cooperation between customs and other appropriate authorities on trade facilitation and customs compliance issues.
Some of these issues will be concluded later. Trade negotiations are always work in progress, new issues arise every day, economies and the key players, people are never static.
Bigger questions arise beyond WTO meeting. Despite all the great outcomes of negotiation, a country must have something to trade in. Some countries like United Arab Emirates (UAE) and Singapore have successfully ensured that trade greatly contribute to their GDP. What do we offer to the world as a country? Surprisingly our level of trade has not changed much since independence despite of trade negotiations and changes in the global market (See the chart).
Finally we must never forget that trade negotiations are about taking care of the national interests, it is not about welfare. How many jobs will be created or lost at home. We must never assume that other countries will lose their sleep over our predicaments. One wishes African countries would show the same solidarity they have shown on matters of ICC on trade issues.
Once the Kenyan hotels have smiled after full bookings, the next question is how many Kenyans will smile into future through more trade, more jobs, higher standards of living, and longer and happier lives.