The Way Forward

WTO Ministerial

Road to Hong Kong: Where did we lose way?

M. A. Taslim

The final outcome of the Hong Kong Ministerial Conference has evoked mixed reaction. In one extreme some regarded it as a zanaza of our trade aspirations, while at the other extreme some saw it as a great opportunity to export anything from frog legs to airplanes. The former is no doubt a rather unkind assessment of the Hong Kong outcome. The latter is clearly overly optimistic. However, as is to be expected in such cases, both views have certain elements of truth.

The final revision of the Hong Kong Draft Ministerial Declaration contains 59 paragraphs that cover just about every issue under discussion in the WTO, from Agriculture to intellectual property rights, and technology to environment. Important areas of negotiations are supplemented by Annexes A to F. Text on some areas such as services and TRIPS are quite favourable to the least developed countries (LDCs). However, what is of immediate and direct relevance to Bangladesh is paragraph 47 that contains the political commitment of the WTO to the LDCs and Annex F that sets out the special and differential treatment for the LDCs.

The most important part of para 47 and Annex F for Bangladesh is the agreement of the WTO that 'all developed countries shall, and any developing countries declaring themselves in a position to do so should, provide duty free and quota free market access on a lasting basis for all products originating from all LDCs by 2008 or no later than the start of the implementation period in a manner that ensures stability, security and predictability'. This was a significant achievement on part of the LDC negotiators including our Geneva team who have struggled hard over the last several years to elicit such a bold commitment. In fact, until very recently the developed countries were willing to only consider, but not commit, duty-free and quota-free access while the developing countries were averse to any mention of them in the LDC paragraph. However, the gloss of the achievement is tarnished somewhat by the inclusion of a sub-para, 36a(ii), in Annex F which allows any developed country that faces difficulties to exclude at most 3 per cent of their tariff lines from their commitment.

At the eight-digit level 3 per cent amounts to about well over 300 tariff lines (products). Hence, 3 per cent exclusion limit effectively implies that any developed country, if it so desires, can exclude most export products of any LDC from receiving duty free entry in its market.

The export basket of Bangladesh is very small consisting of only a few items. In particular, only readymade garments comprise about 75 per cent of the total exports. Within readymade garments category only a few items account for bulk of the RMG exports. Hence, the Bangladeshi delegation was concerned that almost all apparel export products could be excluded from gaining duty-free status. This caused much frustration especially among those associated with the apparel industry. They had expected a better deal in Hong Kong.

With the benefit of hindsight, it now seems bizarre that Bangladesh had expected anything different from this Ministerial Conference. During the last few years several top-ranking US officials from Washington and the US Embassy in Dhaka had categorically stated that they could not grant duty free status to all RMG products from Bangladesh. Besides, our business leaders and officials who were engaged in negotiations with Washington for duty-free access knew all to well the reluctance of the US administration to consider duty-free status for Bangladeshi apparel.

And yet the message did not percolate well to the negotiating officials and others that duty-free access to US for all products was not immediately achievable.

Looking back, the preparations for Hong Kong seems to have been based on an 'all or nothing' approach. It was implicitly assumed that either the LDCs will get duty-free and quota-free access for all their products or the current stalemate would continue. It was not contemplated that the final outcome could be duty-free and quota-free status for less than 100 per cent of the products, in particular that only the RMG products could be excluded. Nor did the negotiating team fully appreciate that it could be isolated in the WTO and that most other LDCs could accept whatever was on offer. This exposes a gaping hole in the trade capacity of the nation particularly in the area of research, strategising and negotiations.

Commerce Minister Altaf Hossain Choudhury addresses a dialogue on Hong Kong ministerial outcome

Immediately after the commencement of the negotiations at Hong Kong, the US Trade Representative met with the LDCs to explain the US position vis-à-vis the LDCs. He stated in no uncertain terms that the USA was unable to grant duty-free entry to RMG products from Bangladesh and Cambodia which according to him were highly competitive apparel manufacturers that did not need additional assistance. The US side met separately with the leadership of Bangladesh delegation and also gave an exclusive press interview for Bangladeshi journalists to explain the US position. The Japanese delegation also met with the LDCs to explain why they could not give duty-free access to all LDC exports. When the final negotiated number for duty-free access (97%) was announced Bangladesh discovered that none but Cambodia was seriously opposed to the new text. Its feeble attempt to build a coalition of Asia Pacific LDCs plus Tsunami-affected Sri Lanka fizzled out within a day after Sri Lanka abandoned the LDCs and joined hands with Pakistan.

Democracy is a wonderful system; we can bask in the glory of any successes that the collective achieves, and blame the government and the politicians for all failures. That the Ministry of Commerce was not well prepared to effectively deal with the WTO matters is not disputed; nor is it disputed that the Ministry must bear the lion's share of the responsibility of the way things panned out in Hong Kong. However, in all fairness it must be admitted that there were other interested parties, other stakeholders in the preparations for Hong Kong. During the last couple of years scores of round tables/seminars/ discussions meetings have been held by a number of NGOs, research institutions and business chambers and associations. A large number of commissioned (and non-commissioned) papers describing the state of play in every conceivable negotiation committee or working group at the WTO and elsewhere had been written. Each group had come out with copious suggestions for the negotiating strategy of the government. Despite the fact that most people felt that duty-free access was the overriding issue for Bangladesh in the Hong Kong Conference, none had even remotely suggested the possibility of an outcome that actually occurred.

In retrospect, what happened would appear to be the most rational outcome at the Conference. If anyone had only asked himself what could be the USA's strategy in respect of the LDC text given that they would not allow Bangladeshi apparel duty-free access, which was writ large on the wall, he would have arrived at the same strategy as the USA had adopted. Since countries cannot be singled out for exclusion from any trade benefits, if any country has to be excluded from a benefit such as duty-free access, it must be done by choosing the products that it exports. That's precisely what the USA did. What made its work particularly easy is that only two other countries, Cambodia and Nepal, are affected by the exclusion of textile products, while rest of the countries benefit as their export products already receive or are likely to receive duty-free treatment. In one fell swoop the USA had effectively isolated Bangladesh from the rest of the LDCs and confronted it with the choice of alienating the entire WTO membership by withholding its consent on the Declaration. In the end, Bangladesh did not have the political will to withhold consent. Failure to anticipate the US move prevented Bangladesh from thinking about appropriate strategies, particularly in respect of forming alliances.

What losses will Bangladesh suffer as a result the Hong Kong Agreement? In one sense, none. The Hong Kong Declaration does not reduce any of the preferences that Bangladesh currently enjoys. As an LDC Bangladesh has duty-free access for almost all its export products to all developed countries excluding the USA. This benefit has been offered unilaterally and are most unlikely to be reduced or withdrawn. Bangladesh currently does not have duty-free access to the USA for its RMG and leather products. The three per cent exclusion limit will allow USA to continue with its current custom regime. The number of tariff lines that will be duty-free (97 percent) will be vastly greater than that under the current US GSP scheme. If our manufacturers can competitively produce any of these products, they can benefit from the preference margin. Furthermore, all RMG product lines may not be excluded; it is possible that some high value apparel items could be given duty-free entry. Negotiations in Geneva and Washington in the coming months would be crucial in extending the RMG tariff lines that could receive duty-free status.

In another sense the real loss of the nation must be reckoned not in terms of reduction of actual output or export, but in terms of loss of potential output and export. Had Bangladesh received duty-free access to the prized US market there would have been a large spurt in investment in the textile and clothing sector of the economy as well as in accessories and other related industries. The sector would have also attracted foreign investment. The export of apparel to the USA, BGMEA leaders claim, could have doubled in only three to four years. This would have meant jobs for additional 500-600 thousand people and perhaps $100 million in net profits per year for entrepreneurs. The growth rate of the economy could have been boosted up by about one per cent. It could have made a very significant and lasting contribution to poverty alleviation. This is the opportunity that we lost due to our incapacity to effectively deal with the situation.

Anti-WTO procession in Honk Kong

The experience of Hong Kong should be an eye-opener to all, in particular the Ministry of Commerce. The gaping inadequacies in trade research and strategising are all too apparent now. Ministry's preparations, like that of the private institutions, essentially entailed summarising the findings and views of various international research institutions, country submissions at the WTO and such other papers. This would have sufficed had the concerns of Bangladesh were similar to that of the rest of the LDCs. But the US strategy at Hong Kong forced a divergence of interests of Bangladesh (as well as Cambodia and Nepal) from that of the rest of the LDCs. The international research effort was directed at LDCs in general and not to particular problems of Bangladesh. As such there were no recommendations for such a situation. The domestic researchers who mostly borrowed from the international research publications also entirely missed the possibility of such an outcome. This is bound to happen from time to time when domestic researchers become overly dependent on international researchers. The only solution to this is the development of greater analytical capacity. Commerce Ministry cannot overly depend on voluntary advice of civil society people or external organisations for policies or negotiating strategies. These are the work of hardnosed professionals dedicated to a single objective. The Ministry has to develop in-house expertise as far as practicable. It could of course hire professionals or private institutions to work in particular areas. Civil society discussions and advice can supplement the in-house work but cannot substitute for it. The government is ultimately responsible for the outcome of any policy or strategy, and hence should have the capacity to develop and implement it.

Policy shortcomings have cost Bangladesh dearly from time to time. In most situations run-of-the-mill policies designed by officials will work fine; but when special situations develop, special expertise is needed to work out the right course of action. If such expertise is lacking, the nation will miss out on a good opportunity or suffer losses that could otherwise have been avoided. Hong Kong Ministerial will have served a good purpose if this realisation sinks in the mind of the concerned people.

................................................................................
The author is a Professor of the Department of Economics, University of Dhaka. He was a member of the Bangladesh Delegation to the Hong Kong Ministerial.