Small Nations, Rum And The WTO

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By David Jessop

News Americas, LONDON, England, Tues. July 31, 2012: The idea of a comprehensive global trade round of the kind envisaged when Governments met in Doha in November 2001 is dead for the foreseeable future.

Despite this, there are a growing number of reasons why the Caribbean should be looking very closely at how best to use the World Trade Organisation’s (WTO) dispute resolution procedures to guard against larger more powerful nations discriminating against or damaging its economic interests; particularly in relation to rum but also, for instance, in the case of the UK’s Air Passenger Duty.

In the decade since the decision to launch the Doha Round was made, the world has undergone a period of fundamental change, making impossible the idea of achieving a global consensus on trade liberalization. Over that time the balance of economic forces has been reshaped by the rapid and continuing growth of the emerging economies. This has meant that the flexibility and reciprocity necessary to achieve an all embracing trade agreement has disappeared. Emerging economies and developing nations, quite understandably, will no longer accept the earlier simple model of global governance based on the questionable premise of wealthy nations agreeing and poorer nations eventually benefiting.

Since the heady days of the Doha meeting, the world economy has slowed. Most of the statesmen and women who participated have left the world stage. Developed and developing economies alike have experienced banking and financial crises, most major economies have been through or are in a recession, and the emerging nations that have powered the world economy have been undergoing a period of much slower growth.

The consequence is that a consensus on a multilateral agreement is now all but impossible until a new global balance of power emerges. If as seems likely, the probable driver of any new approach will be an eventual stable relationship between China and the United States and a consequential new economic balance that provides a matrix of advantage that other emerging and developing countries find acceptable, any comprehensive WTO agreement is many years away.

In recognition of this, there is now an emphasis on nations and regional groupings establishing bilateral and bi-regional trade relationships.

For example, Europe is pursuing the creation of a free trade arrangement with India, is hoping to liberalise its trade with Mercosur, and has decided to place emphasis free trade agreements with the fast growing nations in the ASEAN region such as Indonesia, the Philippines and Thailand. It is an approach that Caribbean in its own way is also pursuing. Individual members of Caricom are involved more and more in establishing partial scope trade agreements of the kind that St Kitts signed when it recently acceded to the Guyana-Brazil agreement, or that Trinidad has established with Panama. There is also an interest in broadening long standing regional arrangements such as that with Canada while individual nations are considering increasing their trade coverage in ways that may be challenging for Caricom.

As these smaller needs-based trade deals emerge, the WTO has begun to take on a less glamorous, but arguably in many respects a more fundamental and important role for small countries such as those in the Caribbean.

This has the effect of placing more emphasis on the WTO’s rules and its day to day work in areas such as disputes settlement and the monitoring of international trade issues that are discriminatory or protectionist through committees such as those dealing with technical barriers to trade or subsidies. It also provides the opportunity for there to be a new focus on sectoral approaches in fast changing areas such as information technology.

This is potentially important for the Caribbean as a lesser concentration on the big issues offers the time, resource and opportunity to address violations or rules in ways that can start to address trade imbalances with significant trading nations.

In this respect, the Caribbean currently has three potentially important cases that it can bring to the WTO: one is on rum against the US, and on which there is a consensus at the level of Caribbean Heads of Government; another is being mounted by the Dominican Republic against Australia over its tobacco packaging laws; and there is also a possible case that still has some way to go, on the UK’s Air Passenger Duty.

In the matter of rum, a WTO case has been developed with the advice of counsel and is at an advanced stage. The Dominican Republic is completing its due diligence and is preparing to proceed while the Caricom Secretariat is anxious to move forwards, not least because technical meetings with the United States indicate an acceptance that there is a case to answer.

At risk are many tens of thousands of jobs and for the region, and the loss of considerable sums in foreign exchange and tax revenues at a time when governments are having difficulty funding pensions, education, health care and other social programs.

There is already evidence that the subsidies and marketing support offered by the USVI and Puerto Rico have driven down pricing to levels at which Cariforum rum distilleries cannot compete in the US market.

It is also apparent that unless the nature of the support is addressed rapidly it will damage, eventually irretrievably, the Caricom rum industry and the regional economy, irrespective of the economic interests that some of the cover over beneficiaries are trying to use as leverage in Caricom.

Importantly, there are also first indications that other nations concerned about US subsidies may also take an interest.

The rum issue with the US and the Dominican Republic’s case against Australia make the point that irrespective of the failure to date to achieve a new round, WTO can provide a forum and a structure that can lead to the resolution of trade issues that discriminate against small nations and small producers.

There are therefore clear and sound reasons why Cariforum Governments, in the case of rum should proceed rapidly to make the best use of the opportunities for redress that the WTO offers, making the fullest use of the WTO’s disputes settlement procedures.

David Jessop is the Director of the Caribbean Council and can be contacted at [email protected] Previous columns can be found at www.caribbean-council.org.