November 2005

SAARC Leaders Keen on South Asian Economic Union

The 20-year old South Asian Association for Regional Cooperation (SAARC) just concluded its 13^th Summit in Dhaka on 13 November, 2005. Afghanistan is to join the 7-nation group and China and Japan want to become Observers in SAARC. The leaders signed three Agreements covering avoidance of Double Taxation; Customs; and the establishment of a SAARC Arbitration Council. The South Asian Free Trade Agreement (SAFTA) is to enter into force on 1 January, 2006.

SAFTA First step in South Asia’s Economic Union - Manmohan

The Prime Minister of India, Dr. Manmohan Singh seemed pleased with the outcome of the 13th SAARC Summit in Dhaka. "The Declaration we have adopted is a forward-looking document that will add new vigour to the SAARC process," he said. "We have planned several measures to develop our most valuable asset, our human resources," Dr. Singh noted.

The Helsinki Process Enters Second Phase

The first phase of the Helsinki Process, a joint collaborative effort taken up by the Presidents of Finland and Tanzania, has drawn to a close after two years. The two Presidents have pointed out that efforts such as the Helsinki Process are needed to offer an action-oriented bridge across different opinions and between various stakeholders. Last month, at the Helsinki Conference to mark the close of the first phase, 13 governments in total took on some commitments.

Africa Concerned with Direction of WTO Negotiations

In a letter to the Mr. Pascal Lamy, Director-General of World Trade Organization and Chairman of the Trade Negotiations Committee, the African Group has expressed concern that the negotiations were not moving in a direction that would show meaningful progress. It provides a comprehensive guide to some of the principal concerns of the Africa Group.

More in this issue:

South & East Asia: Leading the World Economy

"It is a great honor for me to be giving a lecture at the home of UNCTAD, where our annual meetings of Project LINK in cooperation with the United Nations are being held. My first encounter with the United Nations took place at Lake Success (a very interesting name for the early site of United Nations work for the world in many diverse fields). The first encounter involved the economic outlook for some major industrial countries, but over the years in cooperation with UNCTAD and with the UN Secretariat, it has been an extremely fruitful working relationship between academia and international civil service to improve our understanding of the functioning of the total world economy, and not simply the leading industrial countries that led me to visit Lake Success in the early work of the United Nations.

The main interest of Raúl Prebisch was usually with efforts to use knowledge of performance throughout the World Economy to improve the relative status of the developing world. Times have changed greatly, and we are here now to assess World economic prospects at a time when developing countries are the star performers. In recent years, we often approached such meetings with the thought that there was a main, sole locomotive for the World economy, but that situation has run its course, and the motive power presently comes from China and India, with the economy of the United States stumbling with twin deficits, an elevated inflation rate, and a costly war, in which an unexpected casualty rate has become serious.

Our World Summary tables at these Project LINK meetings have changed in such a way that the strong growth comes now from China and India, at very high figures, followed by moderately high growth figures from other developing countries and unusually weak growth figures from the advanced industrial countries. Of course, there are still poor performers in the developing world and some moderately good figures from the advanced industrial countries. Also, developing actions are not in immediate sight of high levels; for the most part they enjoy impressive growth.

Dr. Prebisch in one, among many, interesting papers which was published in the American Economic Review, looked upon the world economy in the following way: He called the advanced countries the industrial center and the developing countries the periphery. [1] He did not pay special attention to the centrally planned economies, in a third grouping, but one of these (China) is now in a locomotive role, and Russia is a major power source for the world train as the world’s second largest oil exporter. The economies in transition, encompassing more than China and Russia, have made striking turnaround efforts and rank today among the leaders. One grouping is called the BRICs, with Brazil included as a developing country, together with India, Russia, and China. It is plausible to consider that a "real" BRICK is in the offing, namely by adding Korea (ROK).

In 1959, Raúl Prebisch stressed the role of large income elasticities of imports for the periphery, especially in Latin America, vis-à-vis low elasticity of demand for agricultural imports on the part of the industrial center. To fight this imbalance Dr Prebisch said, "… import substitution … is the only way to correct the effects of peripheral growth…"

In this era of globalization, advanced technology, and a tripartite world economy – advanced industrial countries, transition countries, developing countries – we now find a very interesting new arrangement in which import substitution does not seem to be the answer. Nevertheless there do seem to be answers that differ from Prebisch’s vision but do provide hope for the countries of the periphery in dealing with the prospects for economic gain of the sort that Prebisch wanted for the developing countries. Globalization is here to stay, one cannot back away from that fact, but today’s new order can be tapped for the advancement of the entire world economy through peaceful economic efforts.

The target for developing countries should be one of generating higher and higher value added output, while at the same time improving productivity wherever possible, even in the primary production sectors, but not exclusively there.

The world economy is made up of excellent examples of countries who excel in primary products, but their accomplishments in that sector alone would not have been enough to bring them into the groupings of advanced industrial nations. I have in mind the Netherlands, Denmark, New Zealand and other prosperous and wealthy countries where technical expertise in finance, shipping, the most advanced branches of manufacturing, and higher education prevail on important scales. For them to have focused alone on their agricultural skills would not have brought them into the top grouping, but the fact that they also can produce a broad span of goods and services for their own consumption and for that of the world at large, through trade, has brought them to positions of high rank on a world scale of material well being.

In a conference last year of economists from Latin America and the Caribbean (LAC) in Costa Rica, one speaker after another lamented that economies in their native area could not reach the markets of the world with efficiently produced items of higher value added. Chile, for example, where praise falls upon them for their advanced market reforms, for supplying fine wines to the world, for sending Southern Hemisphere fruits and vegetables to the North during cold winter months there, and even for supplying much of the world’s primary copper was described by one of her economist sons of not being in a position to make its economic ranking a great deal higher without going on to supply of higher value-added products in its impressive list of exports.

Some economists look toward higher values of total factor productivity (TFP) as the required ingredient and not import substitution. Paul Krugman declared in the late 90s, with considerable foresight, that the Asian Miracle was just a mirage because production was elevated to great heights without corresponding increases in TFP. He drew partly upon the work of Lawrence Lau, who also could see possible crisis situations in Asian development, following Mexico’s crisis of 1994-95, and later refined his productivity analysis of developing Asian countries to allow for TFP if embedded productivity were allowed for in the production specification. Also, if some of the Asian countries had not foolishly pegged their currencies to the US dollar throughout the 90s, they may have avoided the worst damages of the crisis. Their policy prevailed at a time when the dollar was so strong that they priced themselves out of the world market. In Latin America, Brazil, among the BRICs, may indeed make advances beyond coffee, sugar, iron ore, soybeans, orange juice and grow at sustained rates above 5% through their efforts in the secondary sector, producing aircraft, cars, computers, and other products of higher value-added.

Mexico, Venezuela, Ecuador, Colombia and others have such vast resources of oil, together with ecotourism that they may, indeed, advance at somewhat higher sustained rates, but are not realizing their full potential.

At the LAC Conference in Costa Rica, as I watched and listened to the area’s economists lament the fact that they were not making sufficient progress because of their attachment to low value-added activities, I waited patiently and in vain for some mention of military spending. No speaker followed that line of reasoning, but Costa Rican economists had asked me to speak the following day about the concept of the PEACE DIVIDEND. I was able to show contrasts among the Central American nations who had sizable defense outlays, whereas Costa Rica, our host country, had no standing army, very low defense spending and better economic performance. Costa Rica will have to do more than simply follow its path of negligible military spending, in order to enhance its economic performance, beyond good results from ecotourism and traditional Central American products, in order to gain more striking economic improvement.

A new Asian Miracle has appeared; the central characters are BRIC members, India and China. They have very different specializations in economic performance but are establishing very impressive records. Both have long histories of cooperation with the international research activities in Project LINK, now meeting here at the United Nations in Geneva, and their ascension to the heights of national economic performance in an international setting provides much to watch, study, emulate, admire, and congratulate.

The China Story: By now (2005), many people have been witnesses, scholars, investors in the Chinese economy and have their own interpretations of what has taken place since reform in 1978 and where it is heading at the present time. It does not fit primarily with the concept of import substitution; it has become, in recent years, a case of export-led growth, but it did not become that way immediately. My interpretation is that under the guidance of Deng Xiao Peng, China set out to grow on the concept of market-socialism, with a Chinese flavor. Many observers and participants might say that market-socialism is an oxymoron concept; in fact they have said so. Others have conceded that the logic of mathematical general equilibrium systems could, in principle, be a target, as argued in the economic literature of the 1930s, but without private ownership there would be a lack of innovation and that the logic of such general equilibrium could not be realized in practice because it is too complicated, even in the IT era. My quite different interpretation is that China adopted policies of step-by-step gradualism in a one-party environment by introducing such economic changes as land reform, special economic zones (with important international trade features), and opened academic centers (including elementary primary education) following the cultural revolution. In these early steps they also solved a basic food supply problem. In visits during this period it was judged that if agriculture could be put on a 3% or stronger growth path, the basic food problem could be managed. On top of this approach, there was the very significant demographic policy of one child per family (with some exceptions).

Further steps in the gradualism approach were the freeing-up of small enterprises in manufacturing, retailing, and controlled trade. An important feature of this economic stage was the appearance of Town-and-Village Enterprises (TVEs), which meshed well with off-season activities in a predominantly agricultural economy. All economic trends have not contributed to smooth improvement. There was rising inflationary pressure accompanied by demonstrations in Tiananmen Square, but these disturbances were overcome and, as far as inflation is concerned, turned around, but after an interruption of more than one year, there were new steps forward such as infrastructure investment to put modern facilities in place. During the early expansion in the reform period, structures were not world-class. Even the best looked old in the first stages of use, but within a period of only a few years the highways, bridges, buildings, tourist facilities became world-class. Computers, laboratory equipment, and electronic communication came up to world standards. Reservation systems were installed; aircraft became modern; the fleets of cars and trucks were totally changed; research laboratories got progressively better equipment. In 1994, the system of exchange rates were consolidated into a uniform rate; foreign direct investment was attracted on a large scale for a developing country, and the financial system started to be reformed. China was admitted to WTO membership after having achieved Permanent Normal Trade Relationship (PNTR) with the United States; so the yearly renewal of most Favored Nation Treatment was changed to permanent status.

Economic policy support for growth was diversified towards the western and interior parts of China – mainly away from extreme coastal areas that dominated early expansionary policy. Now, new steps are being taken towards some degree of flexibility in exchange rate policy. This is all a far cry from the economic status and performance of China in the period immediately after reform, in 1978. It is so different, in this step-by-step procedure that China can look back on the elapsed period and see that the growth rate of real GDP has been between 8% and 10%, a remarkable quantitative record for more than 25 years and still going strong.

Some Western economists have argued that this statistical record is exaggerated. I strongly disagree, not only because many advanced and developed economies complain that China is an overly strong competitor, but because I have tried to make adjustments to China’s inflation rate calculations, trying to account for the rapid improvement in quality of life, for the same reasons (but not by the same methods) that were used by the Boskin Committee in the United States to mark down the US rate of inflation in the early part of this century, and estimate that China’s adjusted growth rate has been more than 1.0% above the former official estimates, due to the downward adjustment of the curve of price increase.

At the time of the East Asian financial crisis of 1997-98, there was great concern on the part of many countries that China was capturing a large part of their export market and causing their trade and current account balances to deteriorate to crisis proportions. It is my estimate that China’s exchange rate consolidation, 1994-97, made the Chinese currency cheaper in US dollar terms, while, as noted above, many East Asian countries clung to a dollar peg and priced themselves out of the market. China, however, grew so fast and had such a strong appetite for imported products from the global market place that exports to China have, in due course, helped these countries, and others in Latin America, to look forward now to the great locomotive strength of China’s imports from partner countries, including not only East Asia, but Latin America as well. Maquiladora enterprises on the US/Mexico border, went through the same experience, although later in time, as did the East Asian countries.

On the export side, China has grown fast as a member of WTO and restrained textile exports until the quota was lifted. Many partner members felt the loss of activity when China’s exports overwhelmed the market, starting in January, 2005, and China has shown some renewed restraint but is feared by many other countries in this sector of trade activity.

It is not likely that China’s textile, or other, exports will be adequately restrained by exchange rate pressure to allow their currency to float upward. A basic reason is that the wage differential between China and many other trading partners is so large that this contribution to price advantage in favor of China’s exports, in many sectors, dominates currency movements at this time. The World Bank’s World Development Indicators for 2002, show China’s labor costs (1995-99) to be 1/40 of US values. There is general estimation that this very large advantage has dwindled to a ratio nearer to 1/20, and there is judgment that it will continue to change, in favor of Chinese workers. In addition, China is encouraging and supporting Chinese imports of consumer goods through permission of more foreign tourism of Chinese people, carrying more generous allowances for international currency transfers.

When China started to introduce reforms, and diplomatic relations were started with the US, a group of American economists visited the country in order to establish contact with Chinese economists. I was chairman of the delegation and selected my colleague, Irving Kravis, of the University of Pennsylvania as an important member who had military experience in China during World War II and later specialized in comparing countries, the world over, for their relative positions in the compilation of GDP per capita for many countries.

This was the first step in 1979, in carefully comparing China to the rest of the world and eventually raised extreme interest in China’s relative position. Professor Kravis, in a pioneering effort, stimulated careful discussion of China’s role in the world economy. He put China’s real per capita GDP for 1975 at 12.3% of the US value; just below the Philippines at 13.2% and nearly double India’s position at 6.6%. Resident Chinese economists protested that his estimate for China was too high, but it sparked the start of more and more careful measurement. Among US scholars, it marked the beginning of careful quantitative study of the Chinese macro economy.

While Professor Kravis’ pioneering studies of the quantitative features of China dealt with macroeconomic aspects, a very important distributional achievement has taken place. It can be seen that hundreds of million Chinese citizens have been lifted from POVERTY status – one of the main economic targets of the world’s multinational institutions.

It is noteworthy that China stood, according to Professor Kravis’ figures, at twice the ranking of India on a GDP metric. India had been one of the most studied economies of the world, not only in quantitative economic terms, but on a broad social scale after World War II. In spite of the accumulation of a great deal of knowledge about India, there was not a noticeable spurt in the performance of the Indian economy, until quite recently.

Over the years of Chinese reform, since 1978, economic delegations have traveled in both directions between China and India, learning from one another; now however, India is starting to attract world wide attention to its own form of economic growth and figures in my opinion as a quite different center of Asian economic growth, but in a very positive way.

India has long been a victim of natural forces that imposed periodic fluctuations in economic activity from good and bad monsoons. The time curves of sectoral production in India show that agricultural crises were often associated with poor economic activity throughout the economy, but beginning in the 1990s the services sector became a stabilizing force in the presence of agricultural troubles. India gradually became an offshoring center for software, business services, and eventually medical and health services that are not immediately thrown in into crisis by poor monsoons.

There are well-known reasons why offshoring of services, especially to the United States, but also to other advanced economies, smoothes out the repercussions of fluctuations in agriculture. Industry can maintain more stable activity as a result of some service sector support. It is not only a matter of sustained export of business and software services, but also financial and health sector services. Indian workers excel in such activities because of their command of English language and scientific or engineering training in educational institutions that have built upon their strong British foundations. Also, as in China, the vast overseas Indian population, like overseas Chinese, put resources to work in the lands of their origins.

Indian life is well known for its bureaucratic tendencies. These persist, but sensible reforms have been introduced into Indian life to make the economy more efficient. As in China, there is a significant, but more moderate, wage differential with advanced economies. Where we found Chinese labor costs to be 1/40 of US labor costs in the 1990s, the corresponding Indian ratio was about 1/25. In the expanding software sector the ratio is between 1/20 and 1/10.

The two Asian giants are spectacular because of their huge populations. China’s birth rate is particularly managed, while India’s is not, but they are both over or near 1 billion persons in total population count. It is expected that India will eventually overtake China, and become the largest country in the world.

In this respect, it is instructive to look at demographics in another East Asian country, Japan. By free choice, Japanese families, after World War II, elected to have fewer children. As this attitude persisted, and as immigration was restrictive, Japan became one of the world’s most aged populations. This has brought down the national savings rate in Japan and bears some responsibility for its lost decade of the 1990’s and slow growth in the 21st century.

Will China avoid the Japanese pitfall? Future demographic policy is not yet clear, but India does not seem to be heading in that direction. There is a problem of HIV-AIDS for India and possible exposure to other Asian epidemics, but there is no indication that there will be too few workers to support an expanding group of aged citizens.

There is an economic issue that can be turned into an advantage for India, namely the flow of IT services into the domestic economy. At present, software and related service sectors constitute a growing export sector for India, seeking many billions of US dollars annually and still growing, while protectionist attitudes abroad are built in abeyance.

There is, however, another economic target ahead for India, namely, the turning of IT prowess back into the domestic economy. Indian policy makers are well aware of the contribution of IT-centers in the US to lifting the curve of productivity gains throughout American industry in the 1980s, 90s and in the new century. This is beginning to happen now in India, in a promising way. At the same time the quality of life is visibly improving in India.

The title of this presentation refers to South and East Asia (India and China), but other economies of Southeast Asia and Northeast Asia are also performing well in the economic sphere, after the crisis of 1997-98, and it is likely that they may be able to realize the gains that Raúl Prebisch dreamed about for the periphery, and may be extended eventually to Latin America. As for well-endowed West Asia or North Africa, if those countries manage their natural endowments well, they too will find a sustained better economic life. In the case of most of Africa, however, the route to better living conditions will undoubtedly be more tortuous.

There have been gains in the conquering of poverty in Africa, but not on the impressive scale found in China, but if the good side of globalization can be turned on Africa, there is hope for improved economic conditions – not in the near future, on a massive scale – but eventually it can be done."

[1] Raúl Prebisch, "International Trade and Payments in an Era of Coexistence: Commercial Policy in the Underdeveloped Countries", American Economic Review, 49, May, 1959, 251-73.

SAARC leaders Keen on South Asian Economic Union

Taking the chair of SAARC at the start of the seven-nation forum’s summit here Saturday, Prime Minister Khaleda Zia called for creating an enabling political and economic environment to realize South Asian Economic Union for the shared prosperity of some 1.5 billion people. She reminded the meet of South Asian top leaders that mindsets and perceptions carried over from the past constrained effective regional cooperation.

"Can SAARC construct an economic partnership without first resolving the problems in which some of our countries are locked in today? I believe that we should not opt for an ‘either or’ approach in this regard," she told the inaugural session of the twice-deferred 13th SAARC summit. Striking at the harsh reality of political mindset that impedes the progress of the forum, Khaleda said, "Lessons from other regional organizations show that simultaneous movement was required on all fronts, both political and economic, in ways acceptable to all concerned."

Describing South Asia as "our common home", the new SAARC Chairperson said the 13th SAARC summit is a window of opportunity for the 1.5 billion people of South Asia to rebuild their common destiny through putting the pledges into action. "This is a summit to consolidate our gains in regional cooperation during the last two decades. This is a summit that enables us to look to the future and forge a blueprint for the next phase of SAARC activities. This is also our opportunity to turn commitment into action."

On the critical issue of combating terrorism in the region, the new SAARC chairperson noted that four member-countries, including Bangladesh, have ratified the Additional Protocol to the SAARC Regional Convention to stop financing terrorism. She urged the remaining two members to expedite their ratification so that the Protocol could enter into force at an early date, if possible by this yearend.

The South Asian Association for Regional Cooperation (SAARC) designated terrorism as a new challenge that caused the postponement of the summit once and now prompted an unprecedented security cover for the leaders attending the meet. Devoting much of her speech to economic and social issues instrumental in achieving the objectives of SAARC - now at twenty since its launch here in Dhaka in 1985--Khaleda asked for executing the SAFTA agreement on schedule, January 1, 2006, to enhance intra-regional trade and investment.

"We must take further concrete steps to make the vision (SAFTA) a reality. I am convinced that given the will to act, we can fulfil our objectives," she told the summit meet of seven South Asian leaders.
Khaleda also suggested early conclusion of a regional agreement on harmonization of standards, measurements and quality control of goods to facilitate the realization of the free trade area they have agreed upon in the SAFTA deal, struck at the last summit.

On the inclusion of trade in service in SAFTA agreement, Khaleda said an immediate study is needed to assess the nature and extent of the market and its underlying dynamics. She welcomed the suggestion for establishing a SAARC Investment Area to generate investment flows from within and outside the region, but said this requires a "common investment strategy" leading to a better coordination of relevant policies and procedures.

Billing poverty alleviation as the forum’s overreaching goal, the Prime Minister proposed the next decade (2006-2015) as the SAARC Decade for Poverty Alleviation. She suggested that SAARC Finance and Planning Ministers meet within April 2006 to formulate recommendations on setting up the SAARC Poverty Alleviation Fund and its operational modalities. On cooperation in energy sector, Khaleda said initiatives should be taken for exploitation of the region’s energy resources, setting up of energy funds and promoting energy trade.

The Prime Minister said that there could be an annual business summit comprising Finance and Trade Ministers, Governors of Central Banks, Investment Boards, business leaders, economic policy institutes and the media preceding each SAARC summit. The SAARC Chamber could take a lead role in organizing such a forum to promote intra-regional trade and investment. On SAARC Social Charter adopted at last Islamabad Summit, Khaleda spelt out five concrete steps to make it operational for the benefit of the common man in the region.

The measures: setting up a regional mechanism with heads of national focal points, implementing regional programmes and projects by collective response, encouraging all stakeholders, including the private sector, the media and the civil-society organizations, to contribute to the objectives of the Charter, midterm review of the progress of SAARC Decade on the Rights of the Child (2001-2010) and ratification of SAARC Convention on Preventing and Combating Trafficking in Women and Children and of the SAARC Convention on Child Welfare.

On another daunting challenge of disaster management, Prime Minister Khaleda put forward her government’s suggestion that a regional response should be developed to face natural calamity like tsunami, floods, earthquakes and cyclones in the region.

The capacity of the SAARC Meteorological Research Centre in Dhaka should be enhanced through networking with other relevant centres to serve as regional institution for early warning. On use of natural resources, the Prime Minister noted that the threat to ecological balance in South Asia is a real one arising out of years of "neglect and pressures on our natural resources". She called for conscious and serious efforts to reinforce regional cooperation for the management and conservation of water resource and environment, population, and prevention and preparedness to deal with natural disasters.

For strengthening the SAARC Secretariat Khaleda suggested that the SAARC Standing Committee of the Foreign Secretaries should hold a special session to undertake a thorough and comprehensive review of all SAARC institutions and mechanisms, including the Secretariat. The new SAARC chairperson concluded her deliberations on a note of optimism that the 21st century "undoubtedly belongs to South Asia" and called for a fresh commitment to rise on the occasion to realize that prospect.

"Despite our high potential, we have remained on the peripheries of the global society for far too long. Let us make a fresh commitment during our present summit to unite our efforts to address the common challenges facing our nations, and to realize the aspirations of our peoples for a peaceful, progressive and prosperous South Asia," she said.

Overcome divisions of history and politics for economic partnership: Indian PM

Indian Prime Minister Dr Manmohan Singh on Saturday called for the South Asians to get over the divisions of history and politics to forge a new economic partnership in the region. "If our region wishes to be a part of the dynamic Asia, which is emerging in our neighbourhood, then we must act, and act speedily," he said delivering his speech at the inaugural session of the 13th SAARC summit at BCFCC in Dhaka.

Singh said if SAARC as a region has to recapture its role as a crossroads of culture and commerce, it is of urgent need "to remove the barriers to the free flow of goods, of peoples and ideas within our region". Analyzing the 20-year history of the South Asian Association for Regional Cooperation (SAARC) the Indian PM made a probing question whether the forum has done justice to the initial blueprint for regional cooperation. "The honest answer is that regional economic cooperation in South Asia has fallen far short of our expectations. It remains far behind the more successful examples in both Asia and other regions of the world," he said, apparently in a candid admission to the lapses on part of the region’s political leaders in delivering the goods pledged to their peoples.

In his seven-page scripted speech the Indian Prime Minister presented a number of proposals about economic integration, poverty alleviation, promoting terrorism and multi-modal connectivity.

"As SAARC we must resolve to become a part of ongoing transformations. The challenge we face as a region and as members of the larger international community are no longer susceptible purely to national solutions," he said, adding that it needs to change and overcome the divisions dictated by history and politics.

On critical issue of terrorism, Singh said, "more liberal movement of people and goods across our borders requires greater sensitivity on the part of all member-countries to pressing concerns. No member-country should allow its territory to be used against the interest of another member." He said,"There should be zero tolerance for cross-border terrorism and for the harbouring of hostile insurgent groups and criminal elements. It is only in an environment of mutual confidence and a collective commitment against the scourge of terrorism that we can register the progress we desire in more intense interaction."

Singh, who blazed a trail in liberalizing the Indian economy, said implementation of SAFTA from January 1 next year would only be a modest beginning in terms of the forum’s goal for regional economic integration. He pointed out that ASEAN is evolving rapidly into a truly integrated economic unity. Parallel to this intra-ASEAN integration is the broader movement towards economic integration in the proposed East Asian Economic Summit.

"My question is if SAARC prepared to be an integral part of this emerging Asian resurgence or is it content to remain marginalized at its periphery?" Calling for multi-modal transport connectivity in the region, Singh made a strong plea that all South Asian countries would provide to each other, reciprocally, transit facilities to third countries.

This transit would not only connect one another but also connect to the larger Asian neighborhood, in the Gulf, Central Asia and Southeast Asia, he said. "We need to recharge and regenerate arteries of transport and communications that bind us together and in turn link our region to the rest of Asia," he said.

Singh announced that India offers to hold South Asian Car Rally which would be run-up to the next summit in India. "It would symbolize vividly our regional identity and also draw attention to the urgent need to improve our SAARC transport infrastructure." On air connectivity, he said India is prepared to offer to all SAARC neighbors on the reciprocal basis and without prejudice, the facility of daily air service by designated airlines.

Stressing regional cooperation in energy sector among the member-states, he proposed a South Asian Energy Dialogue involving experts, academics, environmentalists, officials and NGOs to tap this potential. On poverty alleviation, he welcomed the proposed Umbrella South Asian Development Fund with different windows for different purposes. Singh also proposed establishment of a centre of excellence in the form of South Asian university, Regional Food Bank, SAARC Museum of Textiles and Handicrafts.

SAARC nations must move towards conflict resolution: Pak PM

Pakistan Prime Minister Shaukat Aziz termed political disputes and tensions in the region as well as SAARC’s inward looking, shying away from reaching out to other regional organisations and the world, as two key impediments to the forum’s success. "We’ve remained embroiled with conflict management. We need to move towards conflict resolution," he said in his address to the inaugural session of the 13th SAARC summit in Dhaka on Saturday. He suggested that the SAARC should adopt an inclusive approach and open to interaction especially with the larger Asian neighborhoods.

The Pak PM urged the South Asian leaders to demonstrate political will to sustain the momentum generated of late for last two years since the Islamabad Summit. "We should build on areas of convergence, minimise divergences and, most of all, seek to augment complementarities for the greater good of the peoples of this region," he told the opening session of the two-day meet.

He noted that the Dhaka Summit was taking place under propitious circumstances as the member-nations are witnessing a new ray of hope across the ancient subcontinent. Aziz saw it as a "landmark event" for the prospective inclusion of Afghanistan in the forum as a member and association of China as an observer or dialogue partner.

"The political atmosphere between Pakistan and India has improved, and both countries are engaged in a peace process to resolve all issues, including Jammu and Kashmir," he said about the peace overtures between the two nuclear neighbors being pursued following the last SAARC summit. He expects that the success of the process—which led to occasional unlocking of the Line of Control (LoC) that divides the two countries—would augur well for the region and the forum of SAARC.

The Pakistan Prime Minister, who handed over the SAARC chairmanship to Bangladesh Prime Minister Begum Khaleda Zia at the ceremony, expressed his satisfaction over the enhancement of the regional cooperation and SAARC profile during past two years.

He spoke about the setting up of new markers for regional cooperation in South Asia, including SAFTA, the social charter, poverty alleviation, energy cooperation and the signing of the additional protocol to the SAARC convention on suppression of terrorism. He, however, stressed the need for implementation of the decisions and translating into tangible terms through prioritising, quantifying and evaluating constantly the forum activities.

"We must enable SAARC to deliver on the promise of its charter," he said, suggesting intensified cooperation in economy and trade, energy, environment protection and water and natural resources, poverty alleviation, infrastructure, monetary and fiscal policies and strengthening the SAARC secretariat. He expressed the hope that the negotiations on the outstanding issues of SAFTA would be completed in time for the deal to become operational by January 2006.

The Pakistani leader stressed the need for greater energy cooperation in the region and mentioned that the prospective Iran-Pakistan-India gas Pipeline would be an outstanding example of regional cooperation in the energy sector. He suggested the holding of Summits, Ministerial and Standing Committee meetings having a duration of one-day each while SAARC declarations should be well-focussed and brief documents to make the organisation efficient and effective.

The outgoing SAARC chairperson also suggested establishing closer interactions with extra-regional states and other regional organisations, particularly EU, ASEAN, OECD, ECO, the Gulf Coordination Council and Shanghai Cooperation Organisation.

He expressed his firm belief that the SAARC leaders would be able to transform South Asia into an engine of economic growth for the world while preserving the region’s environment and the civilizational distinction.

United S Asia need of the time: Chandrika

Sri Lankan President Chandrika Bandernaike Kumaratunga, a charismatic politician, envisioned a united South Asia free from inter-state or intra-state conflict and guaranteeing unhindered mobility of people, investments and trade in goods and services.

She mooted her forward-looking idea as duty calls for the leaders to change the destiny of South Asians in the present context, as they began here Saturday a summit meet under the regional grouping SAARC.

"… I dare to envisage a South Asia where the benefits of cooperation will become so compelling and tangible that the specter of inter-state or intra-state conflict will recede into obscurity, releasing resources and human energy for wealth creation," she said.

Kumaratunga, after serving 11 years as Sri Lankan President, spelt out her vision about the seven-nation club launched two decades ago. "I do not want to understate SAARC achievements, nor do I want to overstate the challenges that remain," she said to underline the shortcomings that be, which could be overcome with right political will. "There is a public perception that our many achievements appear small against SAARC’s enormous potential and that we have yet to do enough to keep pace with a rapidly globalizing world where the knowledge economy, technology and unhindered cross-pollination of human creativity have become the driving forces."

Pointing her finger at the potential of South Asia, Kumaratunga, who retires from politics after next week’s presidential elections in Colombo, said this region is endowed with the essential resources--both human and natural--to undertake the task of producing fruition of SAARC for the commoners.
"I had asked myself the question whether SAARC tree had yielded worthy fruit or was it more verbiage and foliage. We also wondered whether some pruning was necessary to those activities which do not bring any significant yield, while we nurture productive branches," the western-educated politician of Sri Lanka said in a metaphorical term.

Kumaratunga, a scion of a respectable political family, said: "if we provide political leadership and chart a way forward using the complementary that are abundant in our region, we must admit that SAARC can be no more active than its members and their leaderships." Reminding the task ahead for the summit leaders, the Sri Lankan leader said, "We must make this summit outcome a bold statement of our commitment to build a South Asia in which political harmony and economic integration would form the cornerstone of development, prosperity and peace."

This can be done not merely announcing a ‘roadmap’ for South Asia’s economic integration. "We must ask the next meeting of our Finance Ministers to look at modalities of having a common market in our sub-region that can consolidate the existing FTA’s and agree on a course of action that will eventually take us towards South Asian Economic Union."

"I have always believed in SAARC. I have belief in its tremendous potential to ensure the wellbeing of our citizens and to guarantee their freedoms-- freedom from poverty, from ignorance, disease and fear." Kumaratunga noted that the challenge may seem great at times, but "it bodes well for all of us, if we, together are to weave this great South Asian tapestry, that we call SAARC".

On the pressing issue of natural disaster management, Kumaratuna welcomed the regional programme and projects for early warning, preparedness and management of tsunami and other natural disasters as recommended by special meeting of the SAARC Environment Ministers in Male in June this year.
"We also need to promote better environment policies that safeguard and conserve our environment and ecosystems," she told the opening session of the 2-day 13th SAARC summit.

On SAFTA, which is scheduled to come into force on January 1 next year to set up free-trade area in the region, Kumaratunga hoped that a consensus would emerge on the few remaining issues on SAFTA agenda. In social spheres, the Sri Lankan leader said member-states should continue to take steps to implement goals envisaged in the Social Charter adopted at the last Islamabad summit.

Nepalese King finds South Asia mired in terrorism

Nepalese King Gyanendra Bir Bikram Shah Dev Saturday noted the ‘stark reality’ that South Asia region has been ‘mired in terrorism’ which, he said, has emerged as a serious threat to international peace, security, stability and democracy.

"The growing menace of terrorism, both at home and abroad, concerns us all. Terrorism has metamorphosed our world," said the king while delivering his speech at the inaugural ceremony of 13th SAARC Summit. He said his country has been the victim of senseless terrorism for nearly a decade. The terrorists want to replace the constitutional order of the country with a one-party communist dictatorship, the King alleged.

Gyanendra said, "As terrorism knows no geographical boundary, terrorism in Nepal is certain to affect the whole of South Asia. South Asia must send (out) a clear message that violence cannot be an instrument to further political objectives." Explaining the reasons of his decision to assume power in February last, the King said the step was necessitated mainly by the failure of successive governments to contain ever-emboldening terrorists and maintain law and order.

He, however, said, "It has not come at the cost of democracy, as some tend to project." Prior to February 1, Nepal’s friends and well-wishers were warning of the danger of Nepal turning into a failed state, the monarch reminded. He said the security situation in Nepal is improving slowly but surely and there is no place today in the kingdom where security personnel cannot go at will.

Owing to the improved security situation, municipal elections have been scheduled for February 8 next year and the Election Commission has been asked to prepare to hold general election by April 2007. "We believe that there cannot be a meaningful exercise in democracy without elections," said the King.
On global war, Gyanendra said the global war on terrorism is not matched by global actions against it.
He observed the global war on terrorism has failed to reach every nook and corner of the world, especially in weak and vulnerable countries, as if they do not deserve justice and protection.

"It is this double standard and selective approach that is assuming a dangerous character rather than terrorism itself," observed the monarch, adding, "We cannot make a distinction between good and bad terrorism; terrorism is terrorism."

Mentioning the declaration of the 11th SAARC summit in Kathmandu that categorically identified terrorism in any form is a challenge to all states, he urged the member states to forge a strong partnership to eliminate terrorism from the region.

Regarding SAARC, the Nepalese King said this regional organisation is not meant for economic cooperation alone, rather an embodiment of South Asian identity. "We believe the South Asian leaders assembled here have both the vision and courage to define a trajectory to achieve this goal," he hoped, adding, "Central to this idea is increased contacts amongst our people to create a strong basis for greater cohesion and solidarity in the region."

He suggested that in order to promote people-to-people contacts on a larger scale leaders must think of a visa-free regime in South Asia along with a free trade regime. Desiring a South Asia free from troubles and tensions, the King said peace and stability in the region is indispensable for the association to grow and develop.

Referring to the recent attempts by both India and Pakistan to normalise relationship, he commented, "The recent thaw witnessed in relations between our two great neighbours, India and Pakistan, has given us great comfort, rekindling our hope for a peaceful and prosperous South Asia."

Citing the natural calamities that recently hit the subcontinent, the Nepalese monarch called for a strong and well-coordinated regional mechanism to deal with natural calamities and disasters. "We hope our meeting here in Dhaka will give a serious thought to it," he said.

He said owing to contemporary trends in international geo-economics it is the time to take bold initiatives and concrete measures to realise SAARC goals and objectives to satisfy the expectations of the people of the region. "Regional cooperation today is not merely a simple political aspiration; it has rather become an economic necessity accentuated by the forces of globalisation," Gyanendra pointed out.

He said the responsibility of the present leaders of the region is to hand over SAARC to future generations in a much better shape than now. Terming the region as a potential one to be a vibrant force in the international arena, he said, "We must learn to create success stories strengthened by glorious inspirations that fortify South Asian values and ethos." He said the SAARC by enhancing coordination among the member states the leaders have the daunting challenge to address the issues like drug and human trafficking, and environmental catastrophes.

On poverty, the King said poverty remains the most daunting challenge and the leaders have to go a long way before this ‘social evil’ is completely eliminated. "Programmes and activities of regional cooperation must contain poverty reduction elements," he observed. Regarding South Asian Free Trade Agreement (SAFTA), Gyanendra said that the success of SAFTA would depend on judicious sharing of benefits by all partners. "SAFTA should serve as a forerunner of a more ambitious and deeper economic integration to eventually realise the goal of South Asian Economic Union."

The Nepalese King said road, air, waterways and railway links across the region are vital for economic integration. He noted that South Asia has a great potential for tourism development. "The establishment of direct air links connecting major South Asian cities will give a powerful boost to our tourism industry, said Gyanendra, adding, "Promotion of tourism will have a salutary impact on our poverty reduction efforts through a distribution of income among the poor, including those living in rural areas.

Member countries must act to strengthen SAARC: Bhutanese PM

Bhutanese Prime Minister Lyonpo Sangay Ngedup Saturday called on South Asian leaders to act holistically for realising the dreams of "Founding Fathers" of SAARC to strengthen the two-decade old regional body. "The dream of oue Founding Fathers can only be realized with commensurate strengthening of the institution of SAARC," the Bhutanese premier said at the grand opening of the 13th SAARC summit in Dhaka.

"We have in place a well-structured decision making process. But there remains much to be desired in translating our decisions to tangible actions on the ground," Lyonpo Sangay Ngedup reminded his colleagues from six other SAARC countries. He called on the seven member countries "to act holistically to strengthen the SAARC process itself, by building capacities for coordination and a culture of teamwork among the Secretariat, National and Sectoral Focal Points."

"Our resources are limited and ground realities hard. We need to sharpen our focus on clear priority and refrain from spreading ourselves too thinly over a large number of activities," he said. The Bhutanese Premier asked for concentrating on "tangible projects" that have a clearly regional bearing, and said "This is a strategic choice that well enable SAARC to emerge as a viable and effective regional enterprise in the new millennium."

He reiterated Bhutan’s commitment to make South Asia, where one-fifth of world population lives, a place of peace and happiness. He lauded the signing of SAFTA and termed it as a bright milestone in the history of SAARC. He hoped the implementation of SAFTA would go a long way in realizing the future envisioned by SAARC’s Founding Fathers. "As SAARC enters its third decade, it is an opportune time to consolidate our gains and make it more relevant for the common man," he said, adding It was time to renew our joint commitment for action. The Bhutanese leader also called for a high-performance teamwork among the member countries with an acute sense of urgency to tackle natural catastrophes like devastating tsunami and earthquake, which ravaged the region this year.

SAARC success needs civil society engagement: Gayoom

Maldives President Maumoon Abdul Gayoom has underscored the need for achieving the SAARC’s principal objective of higher levels of economic and social development in order to improve the quality of life of the peoples of the region. "As we cross another milestone in the history of our Association, it is vital that we focus our energies on attaining this supreme objective. This is the only guarantee to ensure peace, stability and progress in our region," he said while addressing the inaugural session of the 13th SAARC Summit here Saturday. President Gayoom, who has the rare honour of attending all the SAARC summits since its launching in 1985 in Dhaka, said: "South Asia is home to one-fifth of world’s population. Our human resources are a great blessing that should make us one of the most vibrant and dynamic regions in the world."

"For that we need to invest in education and human resource development," he said. "SAARC countries have many excellent institutions of higher learning. So, greater collaboration in this area can, therefore, release tremendous energies in taking our region forward in leaps and bounds."

Listing the progress made by the SAARC over the past two decades, the Maldives president referred to the instruments like SAARC Preferential Trading Arrangement (SAPTA), South Asian Free Trade Agreement (SAFTA), SAARC Social Charter, SAARC Convention on Suppression of Terrorism and Suppression of Drug Trafficking. He said it has made considerable progress in promoting friendship, peace and prosperity in the region and contributed significantly to the development in social and cultural sectors.

"We should not, however, allow our successes to lull us into complacency," he said. "We should always keep in mind the challenges that lie ahead and preserve in our endeavours to achieve greater regional cooperation." Pleading the involvement of civil society members in promoting and working towards achieving the aims and objectives of SAARC, President Gayoom said the success of the Association in all its identified areas largely depends on them. "Their role must be recognised, synergies built and their energies tapped," he said. "We should work harder on strengthening the mutual understanding and goodwill among the peoples of South Asia."

Stressing the need for cooperation with the other regional and international bodies, he said: "International developments are increasingly impinging on our lives, as the world grows more interdependent. The forces of globalization make it imperative to look for ways in which SAARC could intensify cooperation with other regional and international organisations."

SAFTA First step in South Asia’s Economic Union – Manmohan

The Prime Minister of India, Dr. Manmohan Singh seemed pleased with the outcome of the 13th SAARC Summit in Dhaka. "The Declaration we have adopted is a forward-looking document that will add new vigour to the SAARC process," he said. A number of very substantive proposals included aim to bring about greater interaction and integration between the people of region. "We have planned several measures to develop our most valuable asset, our human resources," Dr. Singh noted. He said the leaders have also agreed to find new ways of cooperating in exploiting the opportunities of the future, ranging from information and communication technology to evolving a collective energy strategy. Following are extracts from Dr. Manmohan Singh’s address on 9 November, 2005 in Chandigarh, India, to the Haksar Memorial Conference at the Centre for Research in Rural and Industrial Development (CRRID). He talked of South Asian Free Trade Area (SAFTA) as the forerunner of deeper economic integration in the region.

"I hope CRRID will devote itself to a comprehensive research project on how we can take forward the process of development and regional cooperation within South Asia. The history of the 20th Century is behind us, and its consequences are with us. We have all come to live with the reality of the new political, economic and social realities of South Asia. Positioned as we are, geographically and economically, India has a pivotal role in the region. This position brings with it both privileges and responsibilities.

It has often been said that one can choose one’s friends but not one’s neighbours. That, in itself, is not a satisfactory proposition. One must endeavour to ensure that our neighbours are also our friends. But, as they say, it takes two hands to clap. I do sincerely hope that this region shows the wisdom and foresight required for all of us to work together to reclaim for it the glory that makes us all proud of our inheritance.

I have often said that we have, in South Asia, not just shared boundaries and shared civilisational roots, but also a shared destiny. It is not just our past that binds us together, but our future too. As the two recent natural disasters - the tsunami of last year and the recent earthquake - have proved, even nature has ordained it so.

Given all these links and inter-connections, I do believe we need to invest more time and energy in working together to deal with the great challenges of our time. Be it the challenge of eliminating poverty or the challenge of fighting terrorism. The fight against poverty and terrorism in South Asia is an indivisible fight. These are threats to the life, peace and security of all our peoples and we must deal with them as such. No country can any longer pretend that some one’s terrorists could be some one else’s freedom fighters. No government can any longer pretend that what happens across the border is not going to hurt it internally. Be it poverty, be it disease, be it natural disasters or be it terrorism, the destiny of South Asia is inter-linked and we must learn to work together to deal with these challenges.

I hope we can all approach the SAARC Summit later this week with this perspective in mind, a perspective of inter-dependency that strengthens our collective security and secures our collective prosperity. I am aware that we in India will be expected to take the lead in many areas. This is the privilege and responsibility I referred to earlier. I do believe that we must work with our neighbours to ensure that all nations benefit from the growth process in the region. Our neighbours must see us as a land of opportunity. Be it in education, in health care, in tourism, in trade and investment opportunities, India has the capacity and the tradition to be welcoming of its neighbours. Provided, of course, that those who visit us come as our friends and our well wishers and bear no ill will towards our people and our Nation.

I am happy that the South Asian Free Trade Area, SAFTA, is on the anvil. This SAFTA is the first step in the evolution of SAARC as a regional trade bloc and an economic union. Most of the discussion on SAFTA centers around its favourable effect on intra-regional trade. Regional economic integration, however, is more about finding an engine of growth rather than just for promoting trade. Countries – developed as well as developing - have looked to regional economic integration as a means of strengthening their international competitiveness and as an engine of economic growth in recent years.

Thus, European countries began with a single Common Market that keeps expanding and has gone as far as to give up their national currencies. North American countries have formed NAFTA and are moving ahead with plans for a larger Free Trade Area of Americas (FTAA). Nearer home in Asia, we have ASEAN that is emerging as an important regional grouping with the implementation of the ASEAN Free Trade Area (AFTA). In fact, ASEAN expedited the implementation of AFTA in the wake of the East Asian Crisis of 1997 and have now set before themselves a goal of creating an ASEAN Economic Community in the coming decades. The ASEAN countries are also getting integrated with the economies of countries in the neighbourhood, namely, Japan, Korea and China and also India, through free trade agreements.

The new-found interest in such regional arrangements is based not just on trade promotion but on exploiting the potential of efficiency-seeking restructuring of industry on a pan-regional basis. This would have income and efficiency effects and hence could be valuable drivers of growth. The experience of European Union suggests that the formation of the single European market led to a substantial restructuring of industry on a pan-European basis and hence enabled it to exploit economies of scale, scope and specialization. The efficiency-seeking restructuring unleashed by the process of economic integration has helped in convergence of income levels between richer EU members (e.g. Germany) and poorer ones (Spain, Portugal and Greece).

Given the strong trends towards economic integration which go far beyond tariff reductions to gradual economic convergence, any region can ignore the formation of its own scheme of regional integration only at its peril. By removing trade policy barriers, SAFTA would lead to an estimated trebling of intra-regional trade on a conservative estimate. This would make South Asian internal trade more respectable compared to a marginal 4-5 % share as of now. By making it possible to trade directly rather than through third countries, it would also lead to cost savings for the region.

However, we must see SAFTA as the forerunner of deeper economic integration in the region. The limited experience with trade liberalization that South Asia has had so far in the framework of SAFTA or bilateral FTAs, has already had a beneficial impact. The Indo-Sri Lanka bilateral FTA, for instance, even within a short period of less than three years of implementation, has led to a lot of dynamism in bilateral trade and investment flows. Thus an Indian tyre company set up a large export-oriented tyre plant in Sri Lanka to cater to its growing markets in Pakistan, Middle East and other countries taking advantage of abundant supply of natural rubber in the country. UNCTAD’s World Investment Report 2003 has highlighted how Sri Lanka attracted Indian investments of US$ 145 million in a very short period making India the third largest source of investments for the island. Similarly, the India-Nepal FTA of 1996 spurred many Indian companies to shift production of common consumer goods for the north-Indian market to Nepal. As a result, these items emerged as some of the most important items of Nepal’s exports to India.

The other lesson that comes out of recent experiences of regional economic integration in South Asia, as elsewhere, is that the smaller and poorer countries benefit more from RTAs as their trade becomes more balanced. An example is the India-Sri Lanka FTA which has benefited Sri Lanka. This success has prompted Sri Lanka to seek to expand the scope of the India-Sri Lanka FTA to cover investments and services in a comprehensive economic partnership agreement.

Regional economic integration will also make member countries especially the smaller ones more attractive destinations for third country investments by obviating the constraint imposed by a small domestic market. Studies have shown that the opportunity cost of non-cooperation for South Asian countries has been substantial. Regional economic integration in South Asia could generate billions of dollars of new income, employment, trade and could help the region in its fight against poverty.

Thus, SAFTA may help in evolving a horizontal specialization across the region to enable the most optimal utilization of the synergies between member countries for their mutual advantage. SAFTA is a step in the right direction. However, to exploit its full potential we need to complete the process of SAFTA expeditiously, complement it by a SAARC Investment Area and move on to deepen it further by forming a SAARC Customs Union and then gradually to an economic union.

SAARC could also evolve a forum for annual meetings of economic or industry ministers to facilitate discussion on exploitation of complementarities in their economies for mutual advantage.

SAARC should also take steps to improve physical connectivity by road, railways, inland waterways and shipping and air links to exploit the advantages of geographical proximity. They could evolve a common SAARC Transport Policy to facilitate movement of goods across the region.

Energy co-operation presents immense potential. To promote regional co-operation in the area of energy a South Asian Energy Dialogue comprising experts, academics, environmentalists, bureaucrats and NGOs could examine the potential for energy co-operation and suggest measures to exploit this potential. These are just some of the ideas that are worth pursuing. There are many more, especially in the sphere of education, health care, tourism and disaster management.

Institutes like yours must do the required research to work out the costs and benefits of such projects and programmes so that policy makers can take more informed decisions. More importantly, your professional research can help create the required public opinion, and convince skeptics, so that Governments are better empowered in pursuing new initiatives.

The time has come for a new vision, a new commitment and a new sense of purpose in South Asia and I hope we have the political will and wisdom to seize the moment. I hope your conference will discuss some of these issues freely and frankly, bringing professional opinion to bear on the deliberations".

The Helsinki Process Enters Second Phase

The first phase of the Helsinki Process, a joint collaborative effort taken up by the Presidents of Finland and Tanzania, has drawn to a close after two years. The two Presidents have pointed out that efforts such as the Helsinki Process are needed to offer an action-oriented bridge across different opinions and between various stakeholders. Last month, at the Helsinki Conference to mark the close of the first phase, 13 governments (Algeria, Brazil, Canada, Egypt, Hungary, Malaysia, Mexico, South Africa, Spain, Thailand and the United Kingdom together with Finland and Tanzania) announced their commitment to focus on issues such as anti-corruption, effective global governance, gender equality, small arms and human trafficking, poverty and development, information and communication technology, and migration. The plan is to invite more governments to join the effort. A snapshot of the achievements and the work ahead was provided is provided in the following statement of the Co-Chairs, by Erkki Tuomioja, Minister of Foreign Affairs of Finland and Abdulkader Shareef, Tanzania’s Deputy Minister of Foreign Affairs and International Co-operation.

"We have gathered in the past days for the Helsinki Conference in order to build a shared future, inspire each other with our commitment, ensure that our actions provoke change and that our shared future has the potential to make the world safer, more equal, more just and more sustainable. The deliberations from this conference have the ability to mobilise political will for change and to forge new coalitions for action. At its best the inclusive, action-oriented and empowering Helsinki Process allows us to move beyond dead-locks and combine the strengths of different stakeholders in order to focus on practical steps forward. This Helsinki Conference sends a strong appeal to the High Level Meeting to open more space for multistakeholder dialogue and action within the United Nations.

Friends of the Helsinki Process

We have invited governments and other stakeholders to join us in building upon the work of the Helsinki Process to inspire the political will needed to address some of the pressing global concerns while co-operating with other stakeholders.

Today, the Friends of the Helsinki Process governments met here at the Finlandia Hall and adopted a statement to commit themselves to the support of the multistakeholder approach to global problem solving as proposed by the Helsinki Process. The Friends of the Helsinki Process governments include Algeria, Brazil, Canada, Egypt, Hungary, Malaysia, Mexico, South Africa, Spain, Thailand and the United Kingdom together with Finland and Tanzania.

In the coming months, these governments have volunteered themselves to advance a number of issues within the international system with the full engagement and collaboration of civil society, the business community, international organizations, academia, faith communities and the media.

At our meeting this morning, we decided to start to work together for furthering concrete action on issues such as anti-corruption, effective global governance, gender equality, small arms and human trafficking, poverty and development, information and communication technology, and migration. In addition, we have agreed to take the message of the benefits of the Helsinki Process to the United Nations High Level Meeting.

The Friends of the Helsinki Process will not be an exclusive group. We intend to work in close coordination with and among other stakeholders and plan to invite other governments to join our efforts.

Conclusions from the Helsinki Conference

In the Helsinki Conference, we have been inspired by your call for a new and bold vision for promoting global security and development in a way that addresses the root causes of poverty, violence and despair. Similarly, we have been impressed by the public interest in this conference as well as the explicit contributions of various organisations and conference participants to the conference, its many side events and the follow up to the Helsinki Process with oral and written input and inspiration, including the letters from civil society, which have been published. The conference has offered us constructive critique and advice on the way forward, in the spirit of the Helsinki Process.

During the conference, a new global social compact has been suggested. This compact would recognize the responsibilities of different societal actors. It would also allow us to unleash the development potential of marginalised communities and challenge all stakeholders to work together. In our view the Helsinki Process could contribute to drawing up and implementing such a global compact.

Many conference participants have voiced their concerns and their sense of frustration that many compelling reports and innovative proposals have not been able to generate the required political momentum and outcome that would allow the international community to move from recommendations to implementation. Additionally, it has been highlighted that political will strongly needs to be mobilised, not only among politicians and other decision makers, but through greater public awareness.

The coming weeks and months are crucial in making tangible progress. It has been clear to conference participants that in order to generate political momentum many concrete actions must be taken and many new actors must be cooperatively engaged.

During the dialogues and roundtables of the conference many participants have called for strategic and creative alliances and partnerships to bring about this change. They have highlighted the need for the Helsinki Process to become a force reinforcing local, national and regional processes of change. In addition, many participants have encouraged us to continue the Process by involving as diverse a range of stakeholders as possible, in a coordinated, strategic manner. It has been also proposed, that any continuing action should clearly link the efforts to existing international organisations and other processes. In this way the Helsinki Process could continue playing a unique role in the years to come to compliment such past and current activities.

After two years of the Helsinki Process there is still a great deal that needs to be done. As President’s Halonen and Mkapa highlighted in their statements yesterday, efforts such as the Helsinki Process are needed to offer an action-oriented bridge across different opinions and between various stakeholders. The work needs to continue.

During this conference, participants have voiced their commitment to the Millennium Declaration and the Millennium Development Goals. It is clear that those involved in the Helsinki Process are motivated to contribute to all efforts needed to make the achievement of the Millennium Declaration and the MDGs a reality. As we all know, missing the opportunity to deliver these commitments would be disastrous for the credibility of the multilateral system, said many.

Ensuring the inclusiveness of global processes will entail opening new opportunities for those marginalised from the current political processes. In particular, access of marginalised people to the political process and oversight of our elected representatives is needed.

Participants noted that if you want to make poverty history, you have to commit yourself to make corruption history by making the price of corruption too high. Many participants noted the need for transparency and accountability, well functioning institutions, access to public information and the need to raise the visibility of government and corporate commitments. They also called for multi-stakeholder action to monitor the proposed UN Convention on Corruption. Naming and shaming governments which do not abide to this call through an independent evaluation has proved a useful tool to battle corruption. The record of transnational corporations on corruption should be evaluated in a similar way.

If poverty eradication is a serious priority, job creation and the advancement of entrepreneurial opportunities should be a key priority. Many participants expressed their interest and commitment to offer job creation as a vital element of the follow up for the Helsinki Process.

The importance of justice and the rule and law in achieving human security is critical to progress. Peace, security, human rights and development form an interconnected nexus. Many participants raised the importance of creating opportunities for youth as an essential ingredient of human security. Additionally, access to health was recognized as a critical precondition to achieving sustainable economic development. Possibilities of new methods of international development finance should be also considered seriously in order to mobile adequate resources to meet these challenges.

There was general agreement on the need for the Arms Trade Treaty. Participants suggested that particular attention should be placed on arms transfer controls, and quantifying the human and economic costs associated with small arms violence. While the global agreement on arms trade is needed, the importance of grassroots action was equally highlighted. Success requires local, national, and regional efforts.

Currently, gender issues receive second-class status on the international agenda. Conference participants have called for multistakeholder collaboration to streamline gender issues. The issues of land- and property rights, access to education and health and security concerns such as violence against women were, in particular, highlighted. Empowerment of women and their access to decision making as well as the active engagement and commitment of men play a vital role in addressing these concerns. It was suggested that the Helsinki Process can work to fill the gaps in the UN resolution 1325 on violence against women.

Finally, participants raised the need to alter core values, recognizing that a move from individualistic values to more sustainable, communal values will be incremental. In addition, it was suggested that the Helsinki Process play a role in developing incentives and strategies for multistakeholder collaboration. The discussions have shown that the Helsinki Process still has work to do to reach the point where concrete actions can be taken.

My fellow Co-Chair and I would like to thank all of you who have prepared and participated in the Helsinki Conference. It has allowed us to explore joint commitments and open new windows of opportunity for renewed co-operation. We would also like to thank those of you – in particular the members of the Helsinki Group and the Tracks as well as the two Secretariats – who have helped us to reach this moment. We hope that you have the interest and opportunity to be involved in the process in the future.

Implementation of the Promise of the Helsinki Process

We would like to invite you to continue the Helsinki Process with us. The five transparent Round Tables– on issues of peace and security, poverty and development, governance, environment and human rights— will build upon the recommendations of the Helsinki Process Proposals and the advice given by this Conference. The Round Tables will be challenged by the requirements of the global agenda to reach beyond the Millennium Declaration and 2015. The Friends of the Helsinki Process will actively engage with the Round Tables among others through the facilitator governments on different issue areas, as chosen by the Friends of the Helsinki Process.

Our ambition is to see the Round Tables become focal points for change and inspiration that will provoke further dialogue, action and engagement in various regions, countries and localities. They will also link to other ongoing processes and global institutions. Streams of action, at their best, build movement for change. It is our hope that the Round Tables will highlight the urgency of the global agenda and motivate different, even conflicting, perspectives to work together for a better future by generating effective policies together with the will and inspiration to implement them.

In a few months the Finnish and Tanzanian governments will bring together a Helsinki Process Consultative Group, chaired by the Foreign Ministers of Finland and Tanzania. The Consultative Group is going to be broad in membership and will act as a high-level political network providing political support and guidance for the follow up. This Consultative Group will consist of representatives of governments as well as all other stakeholder groups in order to provide a broad tent for the entire follow-up process. The composition of the Consultative Group will allow the Friends of the Helsinki Process to link up with other stakeholders in an agenda advancing manner.

In order to work efficiently, a Steering Group will be gathered in order to provide coordination and coherence to the work of the Round Tables and the Friends of the Helsinki Process. The structure and terms of reference for our next steps, including the identification of facilitator organisations and members of the working bodies, will be concluded in the coming months through discussions in the Consultative Group and the Steering Group. The selection of such as group will be open basing on their willingness and readiness to implement the Helsinki Process.

The Finnish and Tanzanian governments have agreed to continue facilitating the second phase of the Helsinki Process. It is our intention that the work carried out can be evaluated in Tanzania in 2007.

We want to challenge all of you to marshal your inspiration and talents to join this process. Thank you."

Africa Concerned with Direction of WTO Negotiations

"The African Group would like to recall the commitments undertaken by Members to place the interests and needs of developing countries at the heart of the WTO Work Program. African Members have made substantial contributions since Doha. The political mandate of the African Group is contained in the Cairo Declaration and its Annex the Cairo Road Map on the Doha Work Program (WT/L/612).

However, we are concerned that negotiations to date are not moving to a direction that will lead to any meaningful progress on issues of concern to African Countries.

The following elements should be fully reflected in the draft Ministerial Text:

I. Agriculture:

The African Group has appropriately identified the level of flexibility and need for S&D in all three pillars of negotiations. We emphasize that necessary flexibilities, including special and differential treatment provisions must be incorporated in all the three pillars of negotiations.

Market access: we reiterate the importance of full operationalization of the principle of proportionality in the reduction of tariffs, and the need to take into account the different tariff structures of Members.

We stress that the level of specificity on SPs and SSM should be the same as that of other elements of the negotiations.

Specific and concrete mechanisms and solutions to the problems of preference erosion must be devised within the WTO context to fully address the concerns of African countries in accordance with paragraph 44 of the August, 1st, 2004 General Council Decision. The consideration of this issue should be paramount when designating the list of sensitive products by developed countries.

Domestic support: the proposals presented by developed Members will not achieve real reductions in trade distorting domestic support. We stress that modalities should include disciplines to avoid box shifting.

As part of the special and differential treatment, we emphasize that African countries must be exempted from De Minimis reductions commitments.

Export Competition: we stress the need for the draft Ministerial Text to fully take into account the interests of food aid recipients in developing disciplines on this issue.

The implementation of the Marrakech Decision on NFIDCs and LDCs is long overdue. There should be a clear reflection of the special and differential treatment component of any disciplines to be developed on export credits, in accordance with Paragraph 4 of this Decision.

STEs in Africa play an important developmental role. In this regard, African countries’ STEs should be exempted from the application of any disciplines

Cotton: we stress the importance of cotton for African countries and the need to achieve concrete results at the Hong Kong Ministerial Conference. These results should take into account commitments made by Members in the August 1st, 2004 General Council Decision and the requests contained in the Cairo Roadmap regarding Cotton issue.

Commodities: we stress the need to establish modalities on addressing the issue of volatility of commodity prices, including the problems faced by Banana countries of Africa.

The Group reiterates that the modalities should take into account the need for appropriate policy space that would allow African countries to pursue agricultural policies that are supportive of their development goals, poverty reduction strategies, food security and livelihood concerns.

II- NAMA:

African Ministers have given clear political directions on the treatment of industrial tariffs in the WTO negotiations, in a manner that is sensitive to the developmental needs of the diverse range of African countries and promotes the industrial development of these countries. These are contained in various Ministerial Declarations, the Cairo Declaration and road map being the latest and most specific. In this regard, we propose that the draft Text should fully take into account the following:

III. Services:

The African Group has strong concerns on the issue of complementary approaches, and opposes the inclusion of any such approaches that are incompatible with the spirit and structure of the GATS.

In this context, we reiterate that the establishment of any quantitative individual or collective targets would clearly and profoundly undermine the flexibilities provided for developing countries in the GATS provisions and the existing negotiating guidelines and procedures. Furthermore, the Group has strong reservations on the prescriptive nature of the proposed language on the issue of qualitative targets and parameters.

Despite the repeated calls by the African Group for the effective implementation of the provisions of Article IV of the GATS, the Group is concerned with the continued disregard of this issue in both the negotiating process and the draft Ministerial text.

The Ministerial text must therefore ensure that members make commercially meaningful commitments in sectors and modes of supply of export interest to developing countries, particularly in Mode IV.

IV-Development:

The African countries stress that development means adequate policy space and flexibilities to achieve their legitimate development goals and increase their share of trade. In this respect, the African Group would like development to be addressed in a broader perspective as required by the August 1st, 2004 General Council Decision.

The development Dimension should permeate all areas of the negotiations; we are also willing to give our perspective in which we would like other issues to be dealt with.

We express our disappointment that there has been lack of progress in all development related issues, as contained in the August, 1st, 2004 General Council Decision. We are equally disappointed in the manner in which work on paragraph 44 of the Doha Ministerial Declaration relating to Special and Differential Treatment has been dealt with.

The African Group has been confronted at this late stage of the negotiations by an extremely large number of questions on its S&D proposals that have been on the table since early 2002, Whereas it took four years for some Members to raise those questions, the African Group has been pressured to answer those questions immediately without having enough time to study them.

LDCs: The African Group reiterates incorporating the issues of importance to LDCs in all areas of the negotiations, including the duty free and quota free access for products of interest to LDCs

V- Trade Facilitation:

The African Group attaches great importance to the issue of trade facilitation and remains engaged in work in this area. We reaffirm the importance of the S&D and TACB components of the Annex D in the August 1st, 2004 General Council Decision.

We are concerned by the report circulated by the Chair of the NGTF as it shifts the work on this area towards a text-based negotiating mode without specifying the commensurate TACB commitments, which is in contradiction to the mandate contained in Annex D. In this regard, we propose the following:

VI – TRIPS:

The issue of TRIPS and Public Health is of crucial importance for African Countries. We urge that a permanent solution be found before the Hong Kong Ministerial Conference.

VII- Rules:

The African Group reiterates its position that the S&D and development concerns are fully incorporated in the draft Text with regard to the Regional Trade Agreements (RTAs).

VIII- Accessions:

It is worth mentioning that no African State has acceded the WTO since its establishment in 1995. In order to facilitate the accession of African LDCs, Members should fully implement the "Guidelines on WTO accession procedures for LDCs" adopted by the General Council in December 2002 without seeking excessive and strenuous commitments. We request Members to respond rapidly to African countries that have applied to commence their accession process by not using non-trade considerations that delay accessions and also to refrain from making excessive onerous demands on the applications of African countries during the accession negotiations.

The African Group underscores that it is paramount to see in the outcome a balanced package as elaborated above, in order to lift Africa from its present level of development. In what is supposed to be a development round, this is the least that Africa can accept.

This letter covers at this stage a set of issues which are of critical importance to Africa. The Group reserves the right to provide further submissions on the issues mentioned therein and other issues.

We wish to assure you of our continuous collaboration."

Agriculture: Subsidy Superpowers Give little Away – Oxfam

The European Union and the United States are making ‘massive and potentially devastating demands’ on developing countries in exchange for minimal concessions, according to Oxfam. "Both blocks need to re-think their market access offers to guarantee that they promote rather than undermine development," says Celine Charveriat, Head of Oxfam International’s Make Trade Fair Campaign. "Under the current proposals, very little will change in real world and developing countries will continue to be harmed by unfair competition." An Oxfam media brief on WTO agricultural proposals published this month assesses the value of the US and EU proposals and make suggestions on better options. Following are extracts from the brief.

The current world trading system is rigged against the interest of the world’s poorest farmers. In spite of higher costs of production, the north captures 85% of agricultural trade while its farm population only represents 8%, according to the OECD. Over the last ten years, drastic agricultural reforms have taken place in most developing countries, with adverse impact on fragile economies and families living in extreme poverty. Average applied tariffs on agricultural products have been reduced by 50%. At the same time, developed countries have kept enormous amounts of subsidies and have not lowered tariffs on their most sensitive sectors in agriculture. The result is that the poor are getting poorer. The Doha Development round was meant to correct these stark imbalances. But OXFAM analysis shows that the round is unlikely to achieve such results.

Domestic support

Europe and the USA claim to have cut their subsidies over the years but, to date, there has been no substantial reduction, merely a relabelling of existing support. Since the Uruguay Round started in 1986, overall farm support in developed countries has virtually remained the same (more than $250bn per year in real terms, according to the OECD). Despite the lack of reduction in actual levels of support, developed countries benefit from enormous flexibilities within the current Agreement on Agriculture because of the way rules were designed in 1994. Europe, for example, could increase its expenditure on export subsidies for wheat by more than ten times, and still be within the allowable limits.

The current round poses a unique opportunity to reverse this situation. Developing countries are expecting true cuts in the level of agricultural spending of developed countries. Yet, despite the ‘spectacular’ announcements made by Northern negotiators in the last weeks, evidence suggests that the bulk of the cuts will be made on the so called ‘water’ of the boxes (the difference between the bound, or permitted, and the applied, or actual, levels of subsidisation).

The Doha Round, launched in 2001, must end dumping if it is to have a positive impact on development. The new agreement on agriculture must make meaningful cuts in the current levels of spending and severe revisions of trade-distorting criteria. Cutting WTO ceilings is a good measure because it reduces the possibility of enlarging agricultural budgets and enhances predictability in the system, but it has no tangible impact on poor farmers currently suffering from the unfair competition of dumping, like cotton farmers in West Africa. Two important caveats need to be taken into consideration in the analysis of the figures:

• Numbers are old: Most of our estimates are based on 2001/2002 spending levels. Regrettably, this is the last year of spending notified by the US and the EU. The lack of notifications for the last four years introduces a considerable level of uncertainty and opacity in the negotiating process, since both the US and the EU have recently reformed their agricultural support policies (2002 and 2003, respectively). When possible, we have tried to avoid this inconvenience by estimating more recent levels.

• Not all the subsidies are the same: There is a hierarchy in the level of distortion of different farm payments, therefore, overall spending is not necessarily a good measure of the ambition and scope of the current proposals. Both cuts in overall spending and the types of programs must be disciplined. Some self-nominated ‘non or minimally’ trade distorting green box payments can and do cause harm to developing countries. While decoupling subsidies from price and production – a central aim of domestic support disciplines – has reduced production in some sectors, it has not stopped dumping. This is partly because decoupling has not worked in the way in which economists initially predicted, and partly because payments still go to the farms that have always received the bulk of the subsidies — meaning that most of the support is concentrated on a small number of producers, thus increasing its impact.

Will the US and the EU cut their agricultural spending as much as they claim?

Overall, OXFAM’s assessment of subsidy superpowers’ offer is very negative. There is no reason to think that structural unfair competition through subsidised overproduction and exports will be tackled with the proposals made by the EU and the US:

• According to our calculations, neither the US nor the EU would be forced to make any relevant cut in their current level of spending. Thanks to the huge flexibility that both economic countries have enjoyed during the Uruguay Round, very little will take place behind the fanfare of these spectacular cuts.

• According to their latest notifications to the WTO, the US proposal for overall cuts in trade distorting support (53.5%) would not bring the Doha ceiling below their current level of spending. Under the US proposal, the US payment ceiling would be lowered to $22.1bn, while their real spending in 2001 was $21.4bn

It’s worth acknowledging that the US has established in its proposal a long-term plan to achieve a zero-zero objective on tariffs and trade-distorting support by 2023. While the ambition set in this proposal must be welcomed, the credibility of this proposal is seriously undermined by US’ current position, which favours modest reform in the short term and leaves real reform to wait a decade. At the same time, the complete elimination of tariffs in developing countries (and, perhaps even in developed countries) is a highly questionable objective if food security and rural livelihoods are to be guaranteed.

• The analysis of the EU proposal shows very similar conclusions: current proposed reforms would have very little impact on overall spending, the trade-distorting nature of farm payments and EU notifications, likewise, have not been updated since 2001.

A meaningful reform of the distorting nature of subsidies?

• Apart from the debate on the size of cuts, there is a crucial discussion taking place around the revision of the green and the blue box criteria, and the revival of the so-called peace clause. Given that economic outlays will not change substantially, the other only way to tackle the distorting effect of these subsidies is to guarantee that they fulfil the condition of being ‘non or minimally’ trade distorting. There are two main elements to be considered here:

As the July framework stated, it is critical that certain measures are taken in order to guarantee that are these payments are effectively less distorting than amber box payments (see OXFAM proposals below). However, both the US and the EU have strongly rejected any effective review of the green box criteria. With regards to the blue box, only the EU has made a vague reference.

• Finally, the US note includes a proposal to revive the peace clause. Contained in Article 13 of the Agreement on Agriculture, the Peace Clause restricts members’ rights to retaliate against other members’ subsidies as long as those subsidies remain within committed levels. As the AoA already provided significant advantageous treatment for developed countries, the peace clause protected big subsidy users from most retaliatory actions by other members against their practices during the AoA’s implementation period to the end of 2003. In practice, this has allowed the EU and the US to circumvent many of their obligations under the AoA without fear of legal challenges from their trading partners. The US’ attempt to revive it is an unacceptable move that should be strongly rejected.

What do developing countries say?

Not surprisingly, developing countries (in particular the G20) have clearly stated that these proposals are not enough. The level of cuts should provoke substantial cuts in US spending and reduce the EU’s flexibility to increase trade-distorting support. According to their proposal, the overall distorting support of the US and the EU would be limited to $12bn and $27bn, respectively. The G20 also incorporates in its proposal a number of complementary measures, including a revision of the green and blue box criteria.

Cotton is still here

The July framework agreement of 2004 pledged that the cotton subsidies, an issue of enormous importance to several developing countries, would "be addressed ambitiously, expeditiously, and specifically, within the agriculture negotiations. Yet negotiations have hardly moved since then. In addition, the Special Session of the Committee on Agriculture was instructed to "ensure appropriate prioritisation of the cotton issue". Yet, when looking at the treatment of cotton, the current proposal from the US on agriculture clearly fails to live by the standards set in the July framework:

‘Expeditious’ treatment:

‘Ambitious’ treatment:

‘Specific’ treatment:

All of the following elements are needed to ensure substantial reductions in trade-distorting support and put an end to dumping of subsidized products onto international markets. Some of them have already been considered in one or more negotiating proposals, but none of the developed countries have included a consistent package that addresses real cuts and disciplines:

Market access

Using trade policy and domestic interventions to get the right balance between production, exports and imports is crucial for rural development. Imports help to keep food affordable for low-income consumers who depend on it, but imports can also undermine prices for domestic farmers. This can be due to dumping, premature cuts in import tariffs, and depressed or volatile world market prices. Given both the volatility and the decline of many commodity prices, many countries’ export earnings fluctuate significantly, and a strategy of relying on imports to meet national food needs would leave them deeply vulnerable to crisis.

On the other hand, exports of agricultural products can play a crucial role in generating revenues and opportunities for developing countries’ economies, and could help to reduce poverty levels if these take place under the right conditions.

However, rich countries have side-stepped this development agenda to pursue an agenda of their own: maintaining heavy subsidies and tariffs for their own producers and disposing of the resulting surplus production by pushing developing countries to open up their markets, irrespective of the costs to development. Rich countries have, through the IMF and World Bank and by negotiating free trade agreements, pushed developing countries to cut their agricultural import tariffs. As a result, between 1990 and 2000, developing countries cut their average applied tariffs on agricultural imports from 30 per cent to 18 per cent4. Now rich countries are aiming to secure more market openings with the binding rules of the WTO, so that they can continue to dump their surplus production.

WTO negotiations on market access focus on lowering "bound tariffs". These are the ceiling levels to which countries can raise their "applied tariffs", those actually enforced at the border by customs. [5] But the concrete impact on trade flows comes from the resulting impact on applied duties, because this will determine the entry price of imported agricultural goods, and hence the extent to which local production is protected against cheap imports. When the resulting bound tariff after reduction is lower than the current applied tariff, this will force the country to reduce the applied tariff.

The main outcome of the market access negotiations will be the tariff reduction formula, but there are other complementary measures (such as special and sensitive products and the Special Safeguard Mechanism) which can determine the gains of developing countries from this round.

Economists and rich country negotiators sometimes raise concerns that such policy tools could be captured by vested interests and agribusiness lobbies in developing countries. But the same happens in the North. Businesses – agricultural and industrial - lean on governments to protect their profits by keeping tariffs high. Consumers and small producers lose out. These are genuine risks, and how governments manage them will depend on their accountability and competence in dealing with the kinds of lobby that any government faces. However, Oxfam’s view is that WTO rules should not attempt to substitute for good government by reducing policy flexibility and that developing countries will not benefit from this round of negotiations unless they are granted flexibility and policy space to protect fledgling farm sectors and industries.

The basis of all current proposals is the G20 proposal of June 2005, revisited on October 13th, based on different bands and thresholds for developed and developing countries, with a linear cut reduction within each band, and special and differential treatment for developing countries. The most recent proposal is the EU 28th October gets the closest to the G20 proposal, especially with regards to the space it gives to developing countries. However, the EU still has to deal on the one hand with the internal fierce opposition from France against significant agricultural reform, and on the other with pressure from the US and others to make deeper cuts. But the EU proposal on sensitive products should not be dismissed. Classifying 8% of all tariff lines as sensitive products threatens to undermine any benefit on market access to the developing countries.

Development concerns in the market access pillar

There are four main elements to be considered in order to assess the development impact of the market access proposals described above:

Oxfam’s assessment of the current market access proposals

OXFAM considers that an optimum development impact of this round should combine two main factors: meaningful recognition of the right of developing countries to preserve enough policy space in the agricultural sector and substantial increase in their access to Northern markets. A real Development Round means the achievement of one of these objectives should never be made at the expense of the other.

That said, two important caveats need to be taken into consideration when looking at the proposals:

• ‘Average’ tariff cuts are usually meaningless: Focusing on the average tariff reduction does not provide an accurate sense of what is involved in a specific proposal. An apparently generous average reduction in tariffs could be hampered by exceptionally high tariff peaks on certain products in rich countries and very low tariffs on less sensitive products, which prevent imports of these products from developing countries from entering rich country markets.

In practice, this means that the US would be able to continue protecting sugar and orange juice, while the EU has made clear its intention to include the beef, poultry, fruits and vegetables, and sugar sectors under a special safeguard clause to allow continuing its protection. These sectors are crucial for developing countries exports, and developing countries will not benefit from market access liberalization if they cannot export these products.

• Tariffs are not the only way to protect markets: Even when tariffs are not extraordinary high, non-tariff barriers such as rules of origin and health and sanitary requirements act as an effective barrier against imports from developing countries that cannot comply with extensive regulation. None of the proposals mention any provision to ameliorate the effect of these barriers.

How to evaluate the impact on development

In order to evaluate the development impact of the different proposals, the following set of objectives for developing countries have been considered:

Does this mean poor countries will get increased market access and the chance to implement pro-development agricultural policies?

Overall, OXFAM’s assessment of developed countries’ offers is negative. For different reasons, neither the US nor the EU (or G10 countries’) proposals properly combine the two factors (policy space plus increased market access) described above:

• The US proposal violates the principle of less than proportionality, because it keeps the same bands and thresholds for developed and developing countries. It does not comply with the G20 request to ensure SDT by allowing developing countries to reduce their tariffs by two thirds as much as rich countries. The maximum tariff for proposed for developing countries (100%) is far lower than the G20 and EU proposal of 150%.

• The EU proposal on market access is not far from the G20, but the combination of tariff reduction flexibility in the lowest band, and the provision of sensitive products and a protection mechanism for key agricultural sectors may hamper the apparent progress and close market access opportunities to developing countries. Despite the explicit intention of the EU to respect the needs of developing countries over commercial objectives, and the right of these countries to designate their own number of sensitive products, neither the EU nor the US proposals are specific about SP and SSM details, leaving developing countries with no guarantee that these will be meaningfully addressed.

Even though the EU proposal contains many provisions for continued protection of farmers, a number of EU Member States lead by France have criticised it, claiming that it would put the Common Agricultural Policy at risk. In OXFAM’s view, these protests are unjustified and pose serious threats to the credibility of the EU negotiating mandate. Put simply, France is stating the obvious: certain cuts in tariffs will have to be made. However, the effect of these cuts is considerably exaggerated by France, given the number of exceptionalities and ‘sensitivities’ claimed by the EU countries for themselves.

• Opportunities coming from increased market access are likely to be lost: The World Bank has recently expressed that developed countries must cut their highest farm tariffs by 75 percent in order to benefit the world’s poorest nations from the WTO liberalization of agricultural trade. Both the EU and the US proposals are far from reaching this 75% reduction of their tariffs. However, the danger is that they may use their own reduction proposals and the pro-liberalisation arguments of the World Bank to force developing countries to further open their markets and reduce their policy space to deal with agricultural trade and policies. This would be dangerous and anti-development.

• The ACP response reveals the importance of the negotiations at stake, highlighting that the market access pillar is the only one about which developing countries can negotiate, and the consequences of the outcome on the lives of millions of poor people cannot be underestimated. A group that comprises 81 developing countries has put forward a proposal that has been welcome by the G10, with a realistic proposal for developing countries, and in line with the G20 and G33 proposals on SPs and SSM.

The exceptions: Why sensitive and special products are not the same Both developed and developing countries have claimed exceptions from liberalization commitments on certain products of particular importance for them. However, the reasons that would justify market protection – and the complementary financial resources available in each case— are very different in one case and the other, and therefore should have different nonreciprocal consideration:

The G33 has made a proposal on Special Products to be presented together with the G20, stressing maximum flexibility in its use and recalling that no concessions should be asked for in return. Rich countries have so far neglected the importance of Special Products for developing countries, which seriously undermines their credibility: the G10 has not made any mention of Special Products, the US limits its use to a transitional measure against import surges, forgetting the food security and the rural development needs, and the EU recognises the right of developing countries to decide upon the number of products to be designated as Special, but the lack of details leaves the actual mechanism very vague.

The impact on agricultural protection in developing countries

Developing countries need to be able to set their applied tariffs high enough to deal with dumping and protect the incomes of small farmers. But they also need additional space (known as ‘water’) between their applied tariffs and the bound ceiling level in order to offset big changes in international commodity prices, to preserve future policy options and to negotiate future rounds.

In order to assess the likely impact of the round on the protection of vulnerable agricultural sectors in developing countries, Oxfam has considered the effect of the maximum tariff proposed on a group of agricultural commodities that are relevant to developing countries economies and food security:

• The commodities analysed are: poultry, sugar, sorghum, oil seeds, vegetable oils, wheat, and rice.

• The analysis is done for 60 developing countries that are members of the WTO and that are subject to tariff reductions (therefore non Least Developed Countries). Because specific tariff cuts for developing countries have not been designated in the US proposal, the analysis is done estimating for developing countries a cut of 2/3 the cut proposed for developed countries.

The tariff reduction formula the US is proposing would mean cuts for an important number of developing countries in some development-sensitive sectors. For example, the US proposal would force fourteen developing countries to cut their current tariffs on poultry, while the G20 and the EU proposals would do so on four developing countries. This could lead to the destruction of fledgling or vital agricultural sectors, and threaten food security and livelihoods.

The case of Africa

• There are 20 million rice farmers in Africa, where rice is a strategic crop. Rice production and consumption rose sharply in the 70s and 80s, driven by change in habits and increasing urban populations. In Ghana, conditionality loans imposed by the Word Bank and the IMF forced the reduction of rice import tariffs in 1983. The consequent floods of rice imports displaced local production, pushing small producers out of the sector and giving consumers a preference for cleaner, white, processed rice. Today, rice production in other African countries is threatened again by proposed reduction on import tariffs.

• The rice sector in several African countries is threatened by the EU and the US proposals on market access. For example, Kenya would be forced to reduce its current bound tariff of 100 percent to 60 and 40 percent according to the EU and the US proposals, respectively. In both cases this would mean an actual cut in the real or ‘applied’ tariff of 75 percent in Kenya and would lead to an increase in rice imports.

Rice is not the only food staple sector which is at stake. Several African countries, some of the poorest in the world, would be forced to reduce their recently applied tariffs in sectors that are crucial for small farmers, such as poultry and maize. This reduction threatens local production of these goods in Africa because the lower tariffs will lead to increased imports of these goods from rich countries. Note that poultry and sugar are sectors that the EU intends to continue protecting.

The impact on agricultural protection in developed countries

There are not many reasons to think that the market access proposals made by rich countries will help to boost export opportunities for developing countries. While some tariff cuts (particularly the US one) look ambitious, rich countries will still be able to maintain considerable levels of protection in a number of key agricultural sectors. This wariness is based on one essential concern already mentioned before: average tariff cut is not an appropriate way to measure real market liberalisation, since its effects could be easily overridden by non tariff barriers, tariff escalation and the number of exceptionalities included in the current proposals.

What’s in a number?

Despite having considerable lower average bound tariffs, many developed countries have extremely high tariffs (so called peaks) on specific products.[6] The following table illustrates the relevance of tariff peaks in the main developed markets.

There are important deviation of these peaks from the average tariff, as well as the number and percentage of tariff lines that enjoy peak tariffs. For example, the highest EU tariff is 506 percent, more than 26 times the EU’s average ad valorem rate of 19 percent. In the EU, almost half of all products (46 percent) enjoy tariff peaks, high enough to shut off trade of the products in question, except for limited trade within quotas.

• For developing countries, the key is not the average agricultural tariff, but the tariffs their specific exports will face. This brings us to the relevance of sensitive products, particularly when these involve products as meat, poultry, dairy, cereals (including maize, wheat and rice), cocoa, sugar, tobacco and bananas.

• The G10 proposal to treat sensitive products separately from the rest, not being subject to tariff reduction, would allow developed countries to keep peak tariff and/or TRQ for current sensitive products. But even if subject to tariff reduction, products that currently have extremely high tariffs in developed countries could keep them under the G10 proposal. This is because they reject having a maximum tariff. Therefore, products with a tariff over 210%, for example, after a 54% cut would still have tariffs of over 100% (greater than the maximum tariff common in developed countries).

• Developed countries’ agricultural markets are also effectively protected by other mechanisms that discourage both developing countries’ exports and industrialisation:

The problem of preference erosion

Preferential trade agreements give more favourable access to certain products from some developing countries into rich countries’ markets, often at lower or zero tariffs and higher prices than the ones they get elsewhere. For example, the Everything But Arms (EBA) initiative has given duty and quota free access to the EU market for Least Developed Countries since 2001 (with some exceptions, including sugar). The US African Growth and Opportunity Act (AGOA) gives preferential access to US markets for several products, including textiles and clothing. These agreements, while imperfect, have provided an opportunity for some African exports. Multilateral tariff reductions threaten to erode these preferences, resulting in significant loses for least developed and Africa and Caribbean and Pacific (ACP) countries. For example, the average tariff faced by US exports of beverages and tobacco into the EU is 23,5%, and the tariff faced by African countries is 2,2%. If a change in the WTO tariff structure meant a reduction of the US tariff to 7,7% with almost no change to the tariff faced by African exports, this would reduce the preference margin for Africa from 21,3% to 6,7%. As a result, African countries would be squeezed out of the EU market.

Any new Agreement on Agriculture needs to take into account the potential effects of preference erosion and find a way to help the countries affected.

Assessing the Development Gains in the Doha Round

A background note prepared last week by the South Centre and SEATINI (Southern and Eastern African Trade Information and Negotiations Institute) looks at a possible framework to assess the Development Dimension and to identify Development Benchmarks for the WTO Doha Round as well as the Hong Kong Ministerial Conference. The note is intended to help developing country delegates develop effective development benchmarks that adequately reflect their needs and interests, which have been affirmed many times in recent years.

All agree that trade is not an end in itself but rather a means to achieve human development that raises standards of living and ensures full and adequately remunerated employment. Ministers of all WTO Members also agreed at Doha that development should be at the centre of the multilateral trading system as embodied in the WTO agreements and negotiations. This they sought to achieve by placing the needs and interests of developing countries at the heart of the Doha Work Programme (dubbed as nothing less than "Doha Development Agenda by the then Director General of the WTO). Three main instruments identified for this purpose included:

These clear commitments and pronouncements by the Ministers can provide a framework to assess whether the promise of development in the Doha Round is being delivered.

A general developmental assessment of the progress thus far in the Doha Round paints a bleak picture. This assessment is shared by all developing countries as well as their development partners in the North and the South. The forthcoming 6^th Ministerial Conference of the WTO to be held in Hong Kong, China from 13 till 18 December 2005 provides a unique opportunity to bring specificity to this general assessment. Identifying a framework or development benchmarks should facilitate to focus the Hong Kong Ministerial on development dimension so that the achievement of 2/3^rd mark in the Doha Round (an objective set by the present Director General of the WTO) contributes at least that much to development. This note attempts to provide elements and rationale for such a framework. It is hoped that this will generate further discussion among the proponents of development and assist developing countries in the preparations for Hong Kong.

I. Setting the Context – Four General Points

Before further developing the three elements mentioned above (based on Doha Ministerial Declaration), it is important to make some general points. One, developing countries are not free riders in the multilateral trading system. In fact they have offered more concessions than their developed country partners in the Uruguay Round and the WTO. Their concessions are not limited to only bindings themselves to stringent multilateral rules in new areas such as TRIPS, TRIMS and Services. Even in the area of market access, their commitments go far beyond those of the developed countries. [1] Hence developing countries should not be on the defensive. They have contributed and continue to contribute to the multilateral trading system, often more than their developed country partners.

Two, economic development and prosperity of developing countries is in the interest of all. Alleviation of poverty, increased and better employment opportunities, economic growth and sustainable development of these countries will facilitate their integration into the international economy in a way that will benefit all. This will increase economic opportunities for developed countries as well who will be able to trade with richer and stable partners. And the shared economic prosperity will significantly contribute to peace. Hence, developing countries by demanding the right and means to develop are in fact doing a service to all WTO members, developed and developing.

Three, emphasizing the development dimension should be the agenda of all developing countries. Doha Round negotiations and outcomes will have profound impact on all of them and no developing country will have a "Round for Free". This is a myth. Even the LDCs who are being promised no further reduction commitments in agriculture and NAMA, will be paying in several other ways.

These include: increasing tariff bindings; offering commitments in services; impact on their market access through the commitments of other developing and developed countries; being subject to the same rules, etc. Moreover, exemptions from tariff reductions in the WTO do not save them from undertaking even greater reductions either through the World Bank/IMF/Regional Bank conditionalities or the RTA negotiations (e.g., EPAs) with developed countries. Finally, a limited and time bound exemption from rules for the LDCs is no guaranteed that they will continue to benefit from such exemptions in future as well. In fact, they will be subjected to the same set of rules in the next Round and or when they graduate from the LDC status. Hence, all developing countries including the LDCs have a critical stake in the Doha Round negotiations and an agreement on effective development benchmarks is in the interest of all of them.

Four, a transparent and fully participatory process is the best means to get the development dimension reflected in the negotiations. A process that does not allow timely flow of information to all members nor recognize their right of equal participation can not lead to a fair, equitable and acceptable outcome. No Quad, old or new has the right or the capacity to negotiate on behalf of the rest. Similarly, the chairs of various bodies must not rely on a few – no matter how big or powerful – to craft their so called "compromises". Hence, developing countries must demand an immediate and fundamental improvement in the process and indicate that their acceptance of the outcome is contingent upon their full and equal participation.

II. Elements of a Development Framework

Doha Ministerial Declarations do contain clear elements that can and should be used to elaborate development benchmarks in each area of the negotiations. These can be presented in four sets of issues, first being the horizontal foundation to identify development needs and interests that then fall into three broad categories.

This is the most important reference for any debate on the development dimension in Doha Round. These are the needs and interests of developing countries as expressed by them that constitute development dimension. The role of identifying development needs has not been assigned to either developed countries or to any other institution be it the WTO Secretariat including its D.G. or the Bretton Woods institutions. The combined ideological pedagoguery supported by fluctuating estimates of welfare gains and the mercantalistic interests thinly veiled as sound advice by these actors can not substitute for the articulation of real problems as identified by developing countries. Therefore, any assessment tool or development yardstick has to be based on the proposals and statements of developing countries. And there is no dearth of that. Despite their extremely limited resources, developing countries have elaborated their needs and interests in every area of the negotiations. This is the base on which the three pillars of enhanced market access, balanced rules and capacity building initiatives have to be judged.

The history of development experience – both of today’s industrialized countries and the emerging economies of the developing world – teach us only one lesson: one-size-does-not-fit-all. [2]Countries at lower levels of development were able to develop through experimentation. They had the flexibility to design combination of industrial, trade, technological and social policies unique to their situations. This policy space was critical for their development. Unfortunately, many WTO agreements have curtailed this space considerably. Worse still, there are efforts to go even further in the Doha Round, particularly in the area of services. This is contrary to the development promise of Doha Round. Hence an important development benchmark will be the availability of guaranteed policy space by maintaining and expanding policy options for developing countries to pursue a set of policies that is most conducive to their development. The development of balanced rules in the Doha Round should be judged against this yardstick. This pertains to all areas of negotiations with a clear understanding that policy space can be constrained by market access commitments as well, e.g., in services and NAMA.

The following indicators can be used to assess whether the rules framework is in line with policy space objectives.

Second Pillar: Enhanced Market Access

Many developing countries are interested in increasing their market access opportunities. This will be important for them so that they can export their way to growth and development. This is also one of the main promises of Doha Round that developing countries will get enhanced market access on a stable and predictable basis. But for this promise to materialize, following conditions have to be fulfilled:

Admittedly, South-South trade can and should be an important means for developing countries to increase their trading opportunities for development. However, this should best be done through their RTAs and GSTP and not through the WTO where their markets will be opened to all including developed countries.

Third Pillar: Capacity Building

A major constraint on developing countries is their lack of capacity in almost all areas related to international trade. This includes lack of capacity to fully analyse the implications of trade agenda and effectively negotiate; to implement the results of these negotiations while fully utilizing the flexibilities; and to take advantage of the potential and new trading opportunities. This lack of capacity relates to human, financial, technical and institutional resources of developing countries. Building this capacity requires substantial resources over a long period of time. But there is nothing unusual about this situation. All countries have required injections of massive resources to build their capacities to profit from closer integration with the world outside their borders. Most recent example is that of the European Union where new members needed external assistance for capacity building at all levels and where such assistance was provided generously. This is not charity either as ultimately all stand to benefit – again something that can be shown in the experience of EU enlargement.

The views about the relationship between trade and aid (for capacity building) seem to have come a full circle from "aid and trade" to "trade not aid" to the mantra of "aid for trade" today. This is not a question of either and or. But capacity is a pre-requisite to take advantage of market access and policy space opportunities. Hence even if Doha Round delivers on the development promise in the areas of market access and policy space, development potential will not be realized without delivering on the capacity building part. This package on capacity building should be judged on the following indicators to assess its compatibility with development needs.

The three key instruments to provide and measure development dimension in the Doha Round as mentioned above are equally important. There is no trade-off among them. For example, the trade-off between market access and policy space during the Uruguay Round was not beneficial for development. [3] Similarly, any trade-off in the Doha Round between commitments on market access and policy space (where many developing countries fear to lose) with promises of capacity building assistance will be harmful for development.

It is also recognized that smaller developing countries will be particularly under pressure to agree to some trade-off. These countries can use the following principles to determine whether the potential trade-off is worth considering.

Market access: What are the losses and gains in market access? Is there any net additional market access? Is there domestic capacity to take advantage of the additional market access? Is there any erosion of their own access to their domestic and regional markets?

Policy Space: What are the additional constraints on policy space options? Are there any additional flexibilities? Is there domestic capacity to utilize the available policy space options?

Capacity building: What are the commitments on capacity building? Do they provide needed resources to actualize potential market access opportunities/compensate for market access losses through building capacity in other sectors? Do they remove domestic constraints on exercising hitherto unutilized policy space options?

The final outcome of negotiations will be development-friendly if it provides increased and well paid employment opportunities to the people and leads to a positive balance-of-payments situation for developing countries. African countries should be particularly careful that they do not end up paying for the gains of other countries.

Notes:

[1] Several studies have proved this including by the Michael Finger, former Lead Trade Economist of the World Bank.

[2] There is robust, respectable and growing economic literature on this, for example by Joseph Stiglitz, Dani Rodrik and Ha-Joon Chang, among others.

[3] Dani Rodrik has described this as a trade-off where developing countries gave up real policy space (e.g., under TRIPS, TRIMS, etc) in exchange for promises of better market access (e.g., agriculture and textiles) that did not materialize.

Benchmarking - Changing the GATS Architecture?

At the services negotiations in the WTO, the Chairman’s revised draft text appears to be intent on seeing through on ‘complementary and plurilateral approaches’ in market access – an idea initially flagged by the Europeans and supported by others including the US, but opposed by most developing countries. According to an assessment below done by the South Centre Trade and Development Services Team, by veering off the current bilateral request-offer process, there is a risk that the current GATS architecture will be torn apart.

When we talk about development benchmarks in services it is important to know why services are important to development. The services sector serves a strategic and critical role in economic development. For example, on the economic development front, it provides those backward and forward linkages with the agricultural and manufacturing sectors through the provision of backbone or infrastructure related services. In terms of its human development role, the provision of essential services ensures it has direct links with poverty reduction and the fulfilment of the Millennium Development Goals.

What is the fuss all about?

Current discussions in the negotiations on services at the WTO have been focused on changing existing modalities of negotiations based on the bilateral request-offer process, with a view to introducing modal parameters, numerical targets which would set a minimum level of commitments – this is often referred to as ‘benchmarking’, from when the idea was first floated by the EC in the earlier part of the year. The idea has since opened the door for numerous other proposals which support the idea of increasing the level of ambition in services to, for example, to put it on par with agriculture and NAMA.

Currently, under the existing GATS architecture, there is a positive listing approach which enables individual countries to undertake commitments in however many sectors they wish, based on their individual situation, national policy objectives and provides additional flexibilities for developing countries to undertake fewer commitments. Whilst the GATS is by no means a perfect development-friendly agreement, it can be considered as one of the better ones from a development perspective and what is good about it is now under serious threat by the recent push to take a benchmarking approach to GATS.

In addition to benchmarking, as a way in which to intensify the request-offer process, the plurilateral approach is also being pushed so as to ensure deeper and more ambitious levels of commitments on a sectoral basis.

Clearly, all these approaches seriously undermine the existing flexibilities for developing countries and would drastically change the GATS architecture once and for all. Importantly, such approaches would in fact place more pressure and burden on developing countries to undertake heavy commitments whilst the developed country membership benefit from having to do very little. Is this what is meant by putting development at the heart of the Doha Development Agenda?

Despite rejection from developing countries – the majority of the WTO membership - the reference to such approaches continues in what stands as the Chairman’s revised draft text on services.

Agreed development benchmarks/ objectives in services

The odd thing about the discussions on benchmarking is that very little attention has been paid to the agreed and existing benchmarks in GATS and other related instruments, including:

Milestones for Hong Kong Ministerial

When one talks about benchmarks or objectives – there are milestones or incremental steps which are important contributions in achieving or realizing such benchmarks or objectives. These milestones serve to ensure things are on track and are therefore effectively action points which are required to contribute towards meeting the ultimate benchmark or objective.

So what would such milestones look like for Hong Kong for developing countries (keeping in mind the above benchmarks)? They should include:

What has to be done to achieve them?

Currently, however, the direction set by the Chairman’s revised draft text on services seems intent on seeing through on complementary and plurilateral approaches in market access negotiations. Clearly, the drive to make services the sacrificial offering of the round may be driven by the failure of the EC and US to deliver a meaningful package in Agriculture. And developing countries could be asked to pay the price for it in Services. Such hasty moves can only be termed as short-sighted, given the benchmarks universally agreed by all while crafting the Services Agreement.

South Centre News

Executive Director

Prof. Yash Tandon, the Executive Director of the South Centre, took part in a Congress in Berlin on ‘Capitalism Reloaded: Imperialism, Empire and Hegemony’ (11-13 November, 2005). He spoke in a panel on ‘World Market and State: Waves of Globalisation,’ and participated in a workshop ‘Gléobal Cracks – Africa and the US Empire.’

Trade and Development Programme

1. Recent research and publications:

2. Participation in conferences and in meetings outside the centre

3. Program of work with delegations in Geneva

4. Meetings in the Centre

Editorial

‘Recalibrating’ Ambitions for Hong Kong

The difficulties of moving ahead in a so-called ‘Development’ Round in the international trade talks at the World Trade Organization (WTO) have been underlined once again. Four years after the Doha (Development) Agenda was adopted by member governments, and barely a month to go before the Hong Kong Ministerial meeting, there is open admission of the fact that expectations will have to be tempered. Despite several mini-Ministerials, which by definition keep a lot of WTO members out of those parleys, positions are still far apart. The state of play was well captured by the WTO DG, Pascal Lamy, himself a veteran negotiator, in his address to the Heads of Delegation meeting on 10 November, 2005.

"There is not a sufficient level of convergence among Members on the level of ambition in the key areas of the negotiations, which would allow the Chairs to draft "Full Modalities", meaning by that a text with number or parameters on all elements of the July 2004 framework." Lamy described the differences in the major areas like agriculture, NAMA and Services as adding up to ‘some very wide gulfs.’ "And it is only part of the picture. On horizontal issues of particular importance to developing countries, like preference erosion, which remains very divisive; small economies, or on less controversial issues such as the treatment of LDCs; not forgetting tropical products, cotton and the Aid for Trade package, consultations and negotiations are not advanced enough."

However, on the brighter side, Lamy observed that ‘nobody wants to reduce the level of ambition for the Round.’ "This, in itself, is proof that there is a will - and where there is a will there is a way. We just have to find that way." He also saw what was already on the table – which a number of civil society organizations have been critical of, for not being sufficiently development-friendly – as having its own significance. "If you look in a dispassionate way at what is already on the table, you will see that what is already there is not negligible. I am not saying we have enough on the table. All I am saying is that we are all better off being realistic - and this means recognising that the material on the table is such that if it disappears you will all have a problem. You all surely have an interest in preserving what has been achieved until now."

What it comes down to, in practical terms, says the WTO DG: "If we all agree that we cannot reach "Full Modalities" by Hong Kong, we must necessarily recalibrate our expectations for our Conference. We must carefully reflect on what we want to achieve at and after Hong Kong, in order not to reduce the level of ambition of the whole Round. This probably means we are looking at having a range of numbers – the outer parameters - in the July 2004 Frameworks, and corresponding texts in the rule-making parts of the negotiations. This would still have to make up an overall package, and would have to be, by definition, balanced."

But Pascal Lamy, in his assessment of the state of play, also touched on perhaps the most critical element in the WTO negotiations – a steady erosion of trust among the negotiators! "We need to do this (looking at substance in a cross-cutting way) because for many of you the single undertaking is not enough of an insurance policy against uneven results. The reality is that there is a trust deficit among Members, which handicaps the whole negotiation." That is a serious issue that needs to be addressed carefully if the organization is going to be effective in what it does. In the past, developing countries have often gone ahead with making a deal in the light of promises made to them. But with time, a number of promises made to them have seemed empty shells.

For a large number of civil society networks, there is already a large deficit in trusting the WTO. Almost each of its Ministerials in the last ten years has attracted large demonstrations of public outcry against some decision or another taken in the organization. In fact, a growing number of NGOs are arguing that no deal is better than a bad deal which increases the burden of unfair trade on developing countries. The Friends of the Earth International actually applauded on 11 November the current standstill in WTO talks as being ‘good for people and the planet’. They have pointed out that developing countries have argued that aspects of the deal on the table could lead to unemployment and increased poverty as well as increased use of already seriously depleted natural resources. "Even though the current trade negotiations were supposed to focus on development, the European Union (EU) and the US have been aggressively using them to insist that poorer countries open their markets in a wide range of service, industrial and raw material sectors, including forests and fisheries. Meanwhile, the EU and the US are only willing, in return, to offer superficial concessions in agriculture."