Bishwambher Pyakuryal

As WTO is generally captured by special interests, the structural advantages have been less effective.

The free trade deal of the US with political allies and China’s deal with Asian neighbours have complicated trade and geopolitical issues. The bilateral deals have often created a confusing system of preferences and regulations against WTO framework. Some may like this observation, some may not, but this is a hard truth that has violated the norms of new global initiative. Be it a question of raising export tariff by China, or Europeans in return agreeing to end arms embargo against China, bilateral deals have always been overshadowing multilaterism, on which the entire global trading system depends. Therefore, the willingness to violate the rules is nothing more than politics in trade. Commenting on China’s overvalued currency, Philip Bowring in International Herald Tribune of May 23, 2005 observes that China has been advocating such factors as their “sovereign” issue, which lies outside WTO rules. Similarly, the US contends that its fiscal and monetary policies are no one else’s business. This has been weakening multilaterism in trade and finance. This is the politics in trade.

Recently G8 finance ministers unilaterally pledged to relieve outstanding debt of US$40 billion of 18 poor countries of Sub-Saharan Africa (SSA) and Latin America. The African nations are seeking debt cancellation worth US$300 billion. Besides the ones that got debt relief, 27 countries qualify under highly indebted poor countries (HIPC) initiative. South Asia may deserve more attention than SSA since external debt level of SSA increased to 30 per cent between 1990 and 2003, whereas it remained at 46 per cent for South Asia (SA). The World Bank statistics show Nepal’s external debt increased to 31 per cent. Even aid per capita in SA remains $5 as against $28 for SSA.

My argument is not to prepare a case for additional aid to SA; the concern is to encourage public debate to carefully assess the link between aid and productivity. To be accountable to future generations, it should be determined whether aid has been effectively utilised to alleviate poverty. But the past fifty years is not that encouraging. The donors complain about unsatisfactory macroeconomic policy environment and poor quality of governance, and aid recipients blame stringent covenants of the donors and neglect of the receiving country’s domestic priorities. ADB brought out a working paper entitled,”Poverty and Foreign Aid:Evidence from Cross Country Data” in March, 2005 by collecting data from East Asia and the Pacific, Europe and Central Asia, Latin America and the Caribbean, Middle East and North Africa, SA and SSA. Although macro policy environment and the quality of governance have a direct bearing on poverty reduction, aid effectiveness is not critically contingent on them. A look at the macro perspective shows effectiveness of aid in diverse countries under various policy environments with differing quality of governance. It also says that aid is effective when it is moderate in volume, but becomes largely ineffective when it exceeds a country’s absorptive capacity

Since WTO rules are being interpreted in terms of safeguarding the interest of powerful trading partners, lately, trade debates in national and global forums focus on assessing the merits and demerits of multilateral, bilateral and unilateral trade regime. A brief review of the structure of different trading agreements may be helpful to identify critical issues for discussions in the WTO ministerial to be held in December in Hong Kong. Theoretically, the multilateral trade agreement under WTO is said to be much better than the bilateral free trade agreement since it applies universally and leads towards greater liberalisation. However, as WTO is generally captured by special interests, the structural advantages have been made less effective. In bilateral trade agreement, which is also a preferential trade or regional trade agreement, two or more countries are involved that agree on lower tariffs between members. This reflects narrower agreements such as the Canada-US bilateral free trade. Bilateral trade agreements are important to make member countries a single economy.

Unilateral trade is considered the best form of ‘agreement’ since it is impossible for vested interests to demand concessions from other countries in return. However, off and on, unilateral agreement has been made a bargaining chip to seek concessions from the concerned parties. India’s concessions offered to Nepal can be used as a sample case to investigate the beauty or complexity of unilateral trading arrangement. To conclude, there always arises confusion between the ‘free’ and ‘fair’ trade. As we know, since there is no yardstick to judge the country if she is playing a fair game in trade relations with others,

“fair” competition in trade relations has become a common parameter in all the cases, the multilateral, bilateral or unilateral trade agreements.

Prof Pyakuryal is president, Nepal Economic Association