Global Policy Forum

By Alan Boyd

Cambodia and Nepal have become uncomfortable symbols of the failure of international trade negotiations after their acceptance as the newest and poorest members of the World Trade Organization (WTO). They don't really want to be there, and can barely afford to meet their membership commitments. But being marginalized would entail an even greater sacrifice," maintained Cambodian Commerce Minister Cham Prasidh. "For the sake of national reconciliation and peace in Cambodia, we paid heavy prices and now, for the sake of world integration, we had to pay another before we could join the WTO." But, he added: "If we are kept outside, we are likely to suffer."

The immediate price being paid is a package of tariff concessions and liberalization obligations so binding that they threaten to stifle the same development strategies that were designed to benefit from membership of the elite trading family. It wasn't supposed to be that way when the world community met in the Qatari capital Doha in November 2001 and pledged to link the next round of trade talks directly to the plight of the globe's poorest nations. A reworking of the WTO's rules, with ostensibly more lenient eligibility criteria, was needed before Nepal and Cambodia could win acceptance as the inaugural members under this new era of tolerance.

The Nepalese had been waiting 14 years for their chance, after lodging an application with the General Agreement on Tariffs and Trade (GATT), the WTO's predecessor. Cambodia needed eight years of hard talking to win its endorsement. In the process they became the first least-developed countries to join since the WTO was established in 1995, although 29 other LDCs, including Bangladesh and Myanmar, were transferred automatically from the GATT after it was eclipsed by the WTO.

Unattached LDCs, whose response will have a critical bearing on the success on the three-year Doha poverty plan, have understandably followed the accession ordeals of Nepal and Cambodia with keen interest. Central Asian states Armenia and Kazakhstan have already applied, while United Nations development agencies are busy coaching seven LDCs for membership, including Bhutan and Laos. Applications are also in the pipeline from Uzbekistan and Vietnam, which are no longer classed as LDCs.

Acceptance of Nepal and Cambodia was intended to serve as an inspiration for these applicants. Within hours of Cambodia's approval, Vietnam had made an official request for Phnom Penh's help in raising its own qualification standards, and Bhutan is reportedly talking with Nepal. "LDCs are needed so the United States and Western Europe can say Doha is working, and the forum is not only about the interests of farmers in rich countries. But it could just as easily unravel if they don't get it right," said an Asian diplomat.

Getting it right means convincing the poorest nations that they will not be ambushed by WTO membership. Third World delegates successfully campaigned in Doha for a more structured reforms process that would take account of varying stages of development by deferring reform commitments when necessary. Doha's ministerial declaration recognized "the particular vulnerability of the least-developed countries and the special structural difficulties they face in the global economy", while pledging to promote their "effective participation in the multilateral trading system".

The most crucial element of this commitment was an understanding that LDCs would not be pushed into offering the same market access as their richer counterparts before they were ready - the declaration spoke in glowing terms of the need to give LDCs "a share in the growth of world trade commensurate with the needs of their economic development". Yet when it came to the litmus test of negotiations for the Cambodian and Nepalese memberships, Doha failed miserably, offering a raw deal on market access, the protection of agricultural goods and adherence to patent rules.

Nepal, 40 percent of whose 23 million population live below the poverty line and with a per capita annual income of only US$240, had to agree to sweeping cuts in import duties that will add only 10-20 percent to the cost of most incoming goods. Industrial products, predominantly carpets, textiles and garments that are manufactured in back-street shophouses and small cooperatives, will attract a modest tariff of about 24 percent, while the levy on agricultural imports will be 42 percent.

Cambodia is already obligated through its membership of the ASEAN Free Trade Area (AFTA) to remove most import tariffs by 2015, but will have to implement much of this package earlier to meet the WTO requirements. It will be unable to levy duty on agricultural goods, the main income source for 80 percent of the population, above 60 percent. In contrast, European Union farm tariffs range up to 252 percent, the US levies a maximum of 121 percent and Canada 120 percent.

Additionally, neither applicant was able to take advantage of the Doha concession on intellectual property rights, under which LDCs were to be allowed to wait until 2016 before complying with aspects of the Trade Related to Intellectual Property Rights (TRIPS) protocol. Both will have to comply by 2007. But in practical terms, some elements of TRIPS - especially those relating to data protection and generic forms of pharmaceuticals - will take effect immediately after Cambodia and Nepal take up their seats. Even existing members were allowed a 10-year wait. "The scandal is that the powerful members of WTO have asked more concessions from Cambodia than they have asked from themselves," charged Phil Bloomer of the British-based charitable group Oxfam, which released a scathing report on the negotiations.

So how did Doha's focus on the poor go so badly awry? Diplomats discount talk of a conspiracy by rich nations and point instead at the WTO's flawed vetting framework, which in effect leaves applicants at the mercy of their peers, and these countries' vested trade interests. A seat is not offered until an applicant has satisfied the demands of every existing member, and especially the grouping's power brokers, a practice that encourages backroom deals on market access in return for votes.

Despite the Doha promise that LDCs would not be pressured, Phnom Penh had to renegotiate an offer of market access for agricultural and industrial products after it was rejected as too restrictive by some WTO signatories. "Without the support of key WTO members, there is no chance that any country would enter the WTO. This is why acceding countries are forced into negotiating bilateral agreements with all key players," the Oxfam report on Cambodia noted. "In short, the big players call the shots."

China also went through the gauntlet during its laborious WTO negotiations, agreeing to deep tariff reductions in return for access to Western markets. But the impact will be more far-reaching for LDCs such as Cambodia and Nepal that lack China's economic muscle. Nepal, for instance, gets 80 percent of its foreign-exchange earnings from shipments of textiles and other industrial exports, and is in no position to quibble. More than 100,000 are employed in the garments industry alone. Export revenues fell by 13 percent last year after political unrest and a series of attacks on factories by Maoist insurgents. Tourism arrivals, responsible for 12 percent of foreign exchange, have also plummeted.

In Cambodia, which is still rebuilding from the economic and social devastation wrought by two decades of civil war, the premature opening of agricultural markets and dilution of barriers against industrial imports will probably outweigh the likely benefits from increased foreign investment, at least in the short term. Garment manufacturers, who earn 80 percent of Cambodia's exports income, will not be able to match the Chinese economies of scale. Farmers, constituting most of the workforce, will have to contend with imports of cheap Vietnamese rice and Thai consumer goods. Political leaders still have to sell the agreements to their own people. The WTO's accession process requires formal ratification within 30 days for membership to become effective in early 2004.

But both governments appear resigned to their fate, even expressing surprising confidence that Doha's act of faith will eventually be realized through a more accountable and equitable trade bloc. "It is our conviction that joining this organization would not only enhance our effectiveness and efficiency in trading capacity but would also result in the expansion of trade, leading to a higher level of growth and enhancement of quality of life of our people," Hari Bahadur Basnet, Nepal's trade and industry minister, said after his country's membership had been accepted.

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