Free Trade vs. Fair Trade –– Economic Security of Developing Countries at Stake

Dr. Alok Kumar Gupta & Pratyush Kumar


New Delhi, 18 January 2006

The Trade Ministers of 149 nation-states met at Hong Kong to complete Doha Round of Trade Negotiations which began in November 2001. The Hong Kong round began on December 13, 2005 amidst number of speculations and expectations. The erstwhile trade negotiations have come as a bane for the third world countries. Even in the Uruguay Round (1986-1994) the developed nations got what they wanted and the developing world and the less developed nations were left empty handed with just ‘hollow promises’. Hence there is an imperative to analyze the outcomes of recently concluded Hong Kong round.

Agriculture: The Bone of Contention

Agriculture is being considered the most flawed sectors owing to following reasons: 

  • Huge subsidies given to farmers by United States, European Union and Japan. Consequently, developing countries have been subjected to depression in commodity prices in international markets.

  • Developed countries see nations like India as export markets. Hence, only defence mechanism left for developing countries is to impose import duties on heavily subsidized products.

  • Apart from export subsidies, a high level of domestic support given by developed countries to their farmers has induced trade distortions in agricultural products.

  • Misuse and abuse of anti-dumping laws by Developed countries.

  • Another stumbling block is the imposition of Tariff and Non-tariff barriers by Developed countries.

G-110: The Key to Success

A new alliance of 110 countries was formed on the fourth day of the trade negotiations. India and Brazil played a leading role to bring the countries of third world on one platform to enhance and sharpen their bargaining power. The alliance was named as G-110 comprising the countries of G-20 and G-90 (countries of African Union, Least Developed Countries (LDC’s), Africa, Caribbean, and Pacific (ACP)). Agriculture is the main base of economy of the countries of G-110 (India alone has the interests of 650 million farmers to be protected). Hence to protect the interests of the agricultural community the newly formed alliance played a major role, at times being aggressive. The developing world has also backed the African initiative on cotton to protect the livelihood of their farmers. (For example, India imports US $ 500 million cotton annually from US. India is not in a position to import cotton from West Africa owing to subsidies worth US $ 3.5 billion doled out by Bush administration to its own cotton producers annually thereby depressing the cotton prices worldwide). Other such interests which the G-110 has to safeguard are as follows:

  • A ‘level playing field’ should be provided to benefit from liberalization.

  • Trade distortion in agriculture followed by other medium technology products such as textiles, clothing, leather products, footwear, and a host of other similar products, which provide for maximum amount of jobs in the developing world, requires to be contained.

  • To stop the misuse and abuse of food-for-aid program (which US more often resorts to offload its farm-surpluses.

  • Hong Kong Declarations (December 18, 2005)

  • Farm export subsidies of rich nations would be phased out in stages by 2013, and reduce the same substantially by 2010;

  • Developing countries accepted the ‘Swiss Formula’ for import duty reduction bindings for industrial goods. (The formula was originally proposed by, key players like the European Union, for cut in import duty on industrial goods).

  • The agreement protected domestic farmers in developing countries against a surge in imports through the provisions of Special Products (SPs) and Special Safeguard Mechanism (SSM). (Under SPs India and other developing countries would not have to cut tariffs on a specific number of products, while SSM incorporates both price and volume triggers to check a surge in cheap imports).

  • The Developed countries would have to reduce tariff peaks and tariff escalations on products from developing countries. (This would result in greater market access as developed countries would not be able to put higher duty for value added products such as leather and textiles).

  • Principle of ‘less than full reciprocity,’ as a provision, which will govern all market access commitments has been accepted in principle.

India’s dominant role at Hong Kong

India’s strongly worded letter of December 17, 2005 to the meeting, which said of dissociating itself with the meeting, sent panic alarms ringing, and it made the developed world come to terms with the reality that their indifference to the needs of the developing world has now come to a passé. India, thus, made it clear right in the beginning that it was not going to budge an inch if its demands were not met regarding agriculture. It was India and its 650 million farmers’ day, when the declaration envisaged that the developed countries would eliminate their export subsidies to agriculture in the next eight years and reduce it substantially in the next five years. The agreement also promised to protect domestic farmers against a surge in imports through the provisions of Special Products (SPs) and Special Safeguard Mechanism (SSM).

Nine developing nations including India, Argentina, Brazil, Indonesia, South Africa, the Philippines, Venezuela, Namibia and Egypt formed a core group on Non- Agricultural Market Access (NAMA) chaired by India and co-chaired by South Africa to placate the interests of the marginal-technology based industries. Such industries employ the maximum amount of people in the developing world, after agriculture. They stressed commitment towards the principle of less than full reciprocity in tariff reduction.

Challenges before Developing Countries

  • To protect the export interests of farmers in Developing countries. (Specially because EU offers support equivalent to around 90 billion Euros under the Green, Blue and Amber Boxes, whilst trade distorting export subsidies amount only to around three billion Euros. In any case, a substantial reduction in these export subsidies had been envisaged as integral part of the current phase of reform of EU’s common agricultural policy, which was to be completed by 2013.)

  • The declaration is still a framework and leaves most of the modalities for determining the extent of trade liberalization by various members in the different areas largely unspecified.

  • The Developing World’s interests in agriculture are not aggressive, or focused on expanding export but defensive in the form of domestic producers from international competition. (Currently India exports over $7 billion worth of agricultural products to a range of countries and with this agreement hopes to ‘increase’ it substantially.)

  • Developing countries have committed to provide greater market access for agricultural commodities in return for minor concessions from the EU and the US.

  • The declaration signals an agreement on a non-linear ‘Swiss Formula’ that would harmonize tariff level by ensuring larger cuts in the case of higher tariffs, which would be a death knell for the industrial sector in the developing world.

  • They want developing countries to open domestic services market with foreign investors having the same rights as local suppliers.


Global trade liberalization process is surging forward but getting increasingly cumbersome and becoming an economic charter of bondage. With each successive round of trade negotiations the conditions of the developing countries is changing from hope to despair. However, Hong Kong could be considered as a mixed bag for both India and developing countries especially the last one which ended in a stalemate (Cancun, 2003). Failure would have enabled the rich nations to buy more time to phase out subsidies. The completion of Doha round by the end of 2006 is essential since the US fast-track authority expires in the middle of 2007. Moreover, US and EU would have mounted more pressure on the poor nations if the last opportunity was missed. Undoubtedly, elimination of farm subsidies should not be linked to progress in non-agricultural market access (NAMA). G-110 (formed recently) has been able to make a dent but they have to traverse a tortuous trek to fulfill the long cherished dream of New International Economic Order (NIEO). The WTO must evolve as a forum not only for ‘free trade’ but also for ‘fair trade’.


1. K.A. Badrinath, “The poor of the world unite at WTO” The Hindustan Times, New Delhi, December 17, 2005.

 2. “CEOs want meet to succeed” The Economic Times, New Delhi, December 18, 2005.

3. N. Ravi Kumar, “India forms core group on non-agricultural market access” The Hindu, New Delhi, December 14, 2005.

4. Ganapathy Subramaniam, “WTO cuts deal on farm subsidies” The Economic Times, December 19, 2005.

5. Ganapathy Subramaniam, “India threatened to dissociate from declaration”, The Economic Times, New Delhi, December 18, 2005.

6. P.K. Bhardwaj, “India’s concerns fully addressed: “Grand Coalition” helped clinch deal at WTO”, The Hindu, December 20, 2005.

7. “Keeping the Doha round alive” The Hindu, December 22, 2005.

8. C.P. Chandashekhar, “India at Hong Kong: more give and take”, The Hindu, December 24, 2005.

(Dr. Alok Kumar Gupta is an Asst. Professor at School of Policy Sciences, National Law University, Jodhpur and Mr. Pratyush Kumar is a student at the same University.)

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