Protectionism in disguise World trade trick Nepal should perceive

Bijendra Man Shakya

Trade not aid’ is the catchphrase that is leading poor countries to open up their markets at par with rich nations. Nepal, for instance, has dismantled both tariff and non-tariff barriers in the name of globalisation process. Over the past three decades, trade barriers have been dismantled conspicuously to integrate the world economies. Rich countries boast about their average tariff coming down to the lowest level. Reciprocally, poor countries also slashed their tariff rates perceptibly. Greater international initiatives have been taken to eliminate non-tariff barriers, such as phasing out of quotas on textiles and clothing, reducing subsidies that distorted farm trade, and harmonising other trade related rules for fair play in international trade. Commitments to such things are worth applauding. But maybe not in the case of Nepal. The quota-free world apparel trade pretends to be a vice, not virtue, to Nepali traders as they are losing the ground for the “guaranteed market access” of the quota regime. The country’s minuscule farm export seems to be impeding the Nepali farmers’ ability to compete efficiently in the global agriculture trade, mostly protected by the prodigious subsidy. Nepali traders are baffled by the incre-ased application of the “back do-or” policies in international trade.

Seeing the benefits of a liberal trade regime, poorer countries undertook massive trade reforms and dismantled trade barriers in the last three decades and particularly during the 1980s. It would be illogical to underestimate the unilateral decision of poorer countries to open up their markets. In contrast, rich nations stimulated new protectionist measures including VER (voluntary export restraint) and anti-dum-ping during the period. Apparently they wanted to restrain poor countries’ exports if the latter failed to abide by the rules related to environment, labour standards, and product and hea-lth safety labels of the former. The Seattle debacle revealed the escalating discontent of the opponents of free trade in the rich countries.

It is hard to believe that rich nations build barriers in many areas where poor countries are able to compete. The most notable examples are in textiles, garments and agriculture. Since 1961 export of textile and clothing of poor countries has been restricted under the specialised arrangement and the multi-fibre arrangement (MFA), which allowed quotas and higher customs duties in industrialised nations. Even after the gradual phasing out of the quotas under the MFA, which is concluding in December 2004, the average tariff on textiles remained at 12% in industrialised countries. And that rate is more than three times the average tariff levied on goods traded between the industrialised countries. In agriculture, the rich nations, particularly the OECD countries, spend a billion dollars in an average to support their farm export each day even today.

If developed countries are opening their markets to developing countries on conditions, the latter are opening their markets at a faster rate under the world trading system. It is also important to realise that trade of poorer countries is expected to benefit only marginally from the tariff reduction and removal of other barriers resulting from the Uruguay Round (the last round of negotiation done under the General Agreement on Tariff and Trade-GATT that was replaced by the WTO in 1995). That is because many poor countries face barriers to exporting manufacturing goods to rich countries due to high tariffs and the “tariff escalation” that discouraged value addition in exports from developing countries. Poorer countries won’t be able to diversify their export manufacturing if the tariff escalation persists in rich countries.

The industrialised nations were allowed to give tariff concessions to the exports of developing countries in the multilateral trading system. Including Nepal, most of the poor countries’ exports were supposed to benefit from the rich-country concession under the popular generalised system of preferences (GSP). The rich countries like to show off their generosity to poorer countries’ export through the GSP privilege. However, the preferential treatment is not without illusions which are equally important to be understood by traders. The decision to give GSP preference lies within the discretion of the rich countries. The system is not binding, but strictly conditional. It is based on tough rules of origin. A World Bank report, published in 2003, says that only 40 per cent of products eligible for preferential access come into the rich countries due to complicated rules of origin and “uncertainties” in administrative regulation.

Least efficient countries like Nepal are losing the “level playing field” in some specific sectors due to the discriminatory application of such privilege. For instance, the Nepali clothing industry bemoans the daunting challenges as a result of the US duty preference to the apparel imported from the poorer nations in sub-Saharan Africa, under the US Bill well known as African Growth & Opportunity Act or AGOA. In the EU region, Nepali apparel gets duty privilege, but subject to complicated rules of origin. Without continuity of relaxation from the origin rules (the EU has derogated from the GSP rules of origin for Nepali clothing until December 2004, however), Nepali exporters won’t be able to retain their present position in the European markets despite the facility.

Shakya, a TU lecturer, is with WTO Cell/GAN