The Sorry Saga of Bhutan's North

The Sorry Saga of Bhutan's North
Click over the map to know the differences

Wednesday, April 8, 2009

Who is afraid of WTO?: Achyut Bhandari

Check Prime Minister's View here: HERE

Part I


When a Bhutanese delegation was in Geneva in June for negotiations on accession to the World Trade Organization, a debate went on in the Bhutanese media about the benefits of joining WTO. The timing of the debate could not have come at the worst time for the delegation which could not have negotiated from a position of strength. An uncertainty on the government position on accession not only undermines our delegation’s credibility to negotiate but more importantly it destroys the morale of the negotiating team some of whom have been engaged in the process for almost ten years. It is not easy to complete all the needed documentations and conduct negotiations with global trade experts. The job is more difficult when we have only a handful of officers conversant with WTO and its technicalities. Moreover, the government has spent a lot of time and resources in undertaking the preparatory work. The new Government must take a firm decision soon on the membership taking into account the long-term interests of the Bhutanese people.

It is good to know that in a recent press conference, the prime minister said that he was not against Bhutan joining the WTO as such; but he saw the need for more debate and better understanding on its full implications before taking the final decision. He particularly mentioned his apprehension on WTO’s impact on the policy of GNH and on lives of our farmers. I agree that there has not been enough public discussion on the effects of WTO. We need to do more on this front.

The fear of WTO arises from general misunderstanding of its role and impact on a small developing country like Bhutan. Put simply, WTO’s mandate is to promote free and fair trade amongst its members who themselves are responsible for devising the trade rules. Free trade however does not mean a complete absence of tariffs; it implies that trade creates optimum benefits when tariffs are low. Regional Free Trade Agreements (FTA) within SAARC and BIMSTEC are aimed at progressive reduction or elimination of tariffs within an agreed time frame. In contrast, the bilateral Trade Agreement with India is truly free as no tariffs are levied on trade between the two countries. Fair trade on the other hand means that trade is conducted within a framework of globally agreed rules so that no country is discriminated or unfairly treated by its trading partners except provided for in bilateral or regional FTAs that are allowed under WTO.

There are five main areas of concern for those who question the benefit of WTO for Bhutan. These are WTO’s perceived incompatibility with the concept of GNH, opening of Bhutanese economy to foreign participation, our small volume of trade, circumspection in policy flexibility and exogenous factors.

GNH is an evolving philosophy. Even as efforts are being made to define it more objectively, it still remains an ephemeral concept. If economic growth measured by GDP is a reflection on the quest of excessive materialism, then how can we justify that a poor Bhutanese family living in a remote village is contend with their bare income and material possession? Would Bhutan’s GDP per capita be around US$1,400 today without economic growth generated by domestic investments and foreign aid? Without a certain level of personal comfort that can only arise from economic growth, there can be no happiness and peace of mind unless one denounces everything from this world and chooses to live a hermit’s life. On the other hand, it is accepted and known that materialism does not give personal happiness. Within Bhutan’s small and predominantly Buddhist society that is supposed to shun greed, the drive for material gains is only too apparent. So, we have to find a middle path in the true Buddhist sense between a holistic approach to development which takes into account our socio-cultural values and needs on the one hand and traditional approach to development based on sheer economic growth.

GNH is generally explained in Bhutan through four pillars – sustainable and equitable development, environmental protection, cultural preservation and promotion and good governance. How does WTO interface with each of these pillars? WTO per se has no authority to impose any trade and investment policy or rule unless a member country is a party to the relevant WTO Agreements. Hence, it is entirely up to us as to the type and extent of dispensation that we want to seek during the accession negotiations.

Sustainable and equitable development is being promoted universally today. The only difference is that some countries have been more successful than others. There is a complete national consensus in Bhutan for the judicious exploitation and use of its natural resources (forests, minerals and water). It will be difficult for any future government to alter this policy substantively. WTO will have hardly any impact on this matter.

The same is true for environmental protection. In fact, there is a Committee in WTO addressing trade and environmental issues to which Bhutan as a member could make meaningful contributions to its work. Our membership will also enable us to produce, manufacture and trade in environmental and other niche products without compromising our policies. Bhutan is best placed to take an active and leading part in all global fora on the environmental front. Our membership in WTO will equip us better to assume this role.

WTO has no direct bearing on culture except through commitments that Bhutan will have to make in opening some service sectors such as media and broadcasting and the notion that WTO members will push for excessive exports to Bhutan. Again, culture is not static; it evolves as a nation makes socio-economic progress. It is inevitable that in this process the good aspects of culture will remain or transform while the not so good parts get discarded. What is important for us is to protect and preserve the real essence of the Bhutanese culture. As for our fear of the market being flooded with imports, the small size of the market will be the limiting factor combined with the rates at which Bhutan will bind its tariffs on agricultural and manufactured products. Here too, it is still in our hands to negotiate the necessary safeguards.

For promoting good governance, WTO will have a positive impact as we have to make our policies consistent and transparent and introduce the needed legislations.

Given our historically cautious approach in dealing with the outside world, one can understand some apprehension on the consequences of our membership. This fear is about foreign participation in and ownership of business and commerce with its ramifications on Bhutanese entrepreneurship, infant industries and employment. The fear also arises out of the “small country syndrome” whereby we sometime become over sensitive and emotional about our sovereignty. While national sovereignty is indivisible, we must also accept the fact that we live in a highly inter-dependent world characterized by globalization, liberalization and competition. Our productive capacity is limited; the domestic market is not only weak and small but there is very little purchasing power amongst the Bhutanese. The traditional objective of economic self-sufficiency is unattainable. Whether we like it or not, our dependence on imports is inevitable. Within the limit set by our small domestic market, strong competition will reduce prices of imports and benefit the Bhutanese consumer in many ways. Bhutanese export products will become more competitive in the long run as the producers will be forced to improve the standard and quality to conform to WTO rules, though they have to adjust and adapt to the new situation in the short run. Many other countries have gone through this phase but they have eventually gained by way of higher incomes and wealth.

To reduce our heavy dependence on foreign aid, we have to mobilize investments from abroad. The DPT’s Manifesto also talks on FDI that has to be made attractive through a stable and transparent FDI policy. Otherwise, with our small market and high transportation and labor costs, foreign investment may not flow in except in hydropower, tourism and a few service sectors. The parliament has already laid down the rules on foreign ownership of assets in Bhutan that can only be registered through a Bhutanese partner. Foreign investment has to be regulated through a well defined FDI Act that protects our vital national interests. We should select the economic sectors for foreign participation carefully during the negotiations and should not exceed the commitments made by other new least developed members like Nepal, Cambodia and Cape Verde.

Part II

What about WTO’s impact on national entrepreneurship, infant industries and employment? Here, it is the Bhutanese business community that fears from outside competition. Their fear is misplaced. Membership in WTO would mean that the government has to accord the same treatment to a foreign participant as given to a Bhutanese entrepreneur though some temporary concessions can be negotiated to encourage the growth of infant industries. We can also control the number of expatriates to be employed in Bhutan. We all know that the Bhutanese private sector is stagnating for a long time. It is only in the recent past that some new industries have come up, a few with foreign collaboration (hotels, for example). A number of them are no longer viable as they were set up purely on duty and tax differentials between India and Bhutan. If the processes in production, products quality and standard, managerial and labor skills and marketing are to improve and become more competitive in the region and the world at large, and if we want to induct new technology for economic efficiency, WTO will bring about a positive change in the private sector.

As Bhutan’s share in world trade is negligible, it is said that Bhutan will not gain from joining WTO. It is indeed our sovereign right to decide whether to join or not, and we do not necessarily have to join the waiting line for membership. The point is that we are already required to apply WTO rules even in honoring our bilateral (India and Bangladesh) and regional (SAARC and BIMSTEC) commitments as these trading partners are all WTO members except Afghanistan. Five years back, our exports to India and Bangladesh were disrupted temporarily as we did not have a proper mechanism for export certification on health and quality standards. We had to negotiate bridging arrangements with them till such measures are developed in Bhutan. This was possible only because of our close relations with the two countries. In regard to regional trade agreements, the principles and rules are the same as those of WTO. So we have no alternative but to follow them. Further, even smaller and economically more vulnerable countries such as the Maldives, Solomon Islands, Tonga, and Tuvalu have joined WTO. Others like Afghanistan, Seychelles, and Samoa are negotiating for accession. I do not know of any major problem that new members like Nepal, Cambodia, and Vietnam have faced. Bhutan can learn from their experiences if desired before joining.

The main obligation of membership is that we have to arrange a WTO review of our trade policy once in two years, an exercise that would itself provide an opportunity for us to articulate and clarify the policy. In addition, there are some costs associated with instituting a legislative framework and attending major meetings in Geneva where we already have an official presence. The cost would partly be offset by the technical and financial assistance that we can get as an LDC. The required national measures and focal points some of which are already in place or are being developed (intellectual property rights, sanitary and phyto-sanitary measures, technical barriers to trade and customs valuation) would rather help us to build our internal capacity on trade which is required in any case in meeting our bilateral and regional commitments.

Perhaps the biggest fear among the decision-makers today is that they would no longer be able to exercise flexibility in taking policy decisions on economic and trade issues because these have to conform to WTO rules. But in reality, this has most often been the case after we became a member of the United Nations, International Monetary Fund, World Bank, Asian Development Bank and other international and regional organizations. We have never compromised our vital interests and it would be the same with WTO. Further, with the introduction of parliamentary democracy, the government will be required to make its policies clear, consistent and transparent for the benefit of the electorate. This is what WTO requires and so our membership will be consistent with the new system of government.

The last concern may arise from the negative publicity and image of WTO projected by civil societies registered mostly in developed countries. They see WTO as being synonymous with globalization. Though there is a close relation between globalization and world trade, the former is a far broader phenomenon involving, among others, cross border location and movement of factors of production for economic efficiency. Their main complaint is on losses of jobs and impact of trade on agriculture and environment. Anti-WTO lobbies in developing countries on the other hand are concerned about the stiff competition from imports from developed countries on the price of their agricultural and manufacturing products due to market liberalization, high production incentives and tariffs maintained by industrialized countries on their agricultural products, and increase in the cost of medicines and its effect on public health due to patent protection by multinational pharmaceutical companies. As Bhutan’s share in world trade is negligible, these issues will not affect us adversely. Rather, these should alert and sensitize us for taking proactive action where needed.

Addressing specifically the prime minister’s concern on the impact of WTO on our farmers, I see no reason for us to worry. Yes, agriculture has been by far the most controversial and sensitive issue in WTO. This has to do with major agricultural producing and exporting countries. Most industrialized countries have high tariffs against agricultural imports; for example, Japan on rice as it wants to protect its rice farmers. A major agricultural exporter like Australia is fighting for greater market access to both developed and developing countries. Cotton and banana producing developing countries on the other hand are worried at the low prices of and export barriers to their products, and have received special considerations at different times. So, if the WTO Doha Development Agenda has stalled once again as seen last week, it is due to the difficulty in finding a common position on major issues affecting the members on global agricultural trade.

Bhutan is neither a significant agricultural exporting country nor it is likely to be so due to limited available land for commercial agriculture and our commitment to protect the forests. It can export only a few niche agricultural products (fruits, vegetables and spices), the bulk of it to the neighboring countries with which we have preferential trading arrangements. The only point that we remember is monitor the volume of agricultural imports that compete directly with our niche agricultural exports. We should not however forget that our agricultural exports and imports are seasonal in nature with imports completely outweighing the exports. With the proposed binding of tariff on agricultural products at about 49% and the principle of differential treatment for developing countries as a cushion for Bhutan, there is no room for us to be alarmed.

We have completed about 90% of the work for accession during the last five years. The work so painstakingly done for a decade will go in vain if we were to abort the plan to accede. If a future government were to reconsider the decision, the whole preparatory process has to start again. The longer the wait, the more costly and onerous the accession process will become, especially as Bhutan may graduate from the LDC status in the near future.

In sum, apart from trade and economic reasons that I have given, the accession will be yet another step in our gradual steps to strengthen our sovereignty and play a constructive role in international relations. The WTO is by no means perfect; it is young and evolving. The developing countries today have a stronger position in promoting their national interests in WTO compared to the period of its predecessor, the GATT. An observer does not have any weight in the corridors of power in WTO. Bhutan’s voice will be heard only if it becomes a member. The prime minister and three senior ministers have sufficient knowledge on WTO. I am sure that they and their colleagues in the cabinet will have the vision and wisdom in taking the right decision for the benefit of the Bhutanese people.

Achyut Bhandari:was the Director-General of Trade from 2000 to 2004

Check the Prime Minister's View: HERE


  1. Anonymous7:54 AM

    achyut bhndari is a pig

  2. Anonymous4:26 PM

    Its liκe you rеad mу minԁ!
    You appear to κnow sο much about this, likе
    уou wгote the boоk in it
    or somеthing. I think that you could do wіth a
    few pіcs to drіve the mеssage home
    a bit, but other than that, thіs іѕ magnifiсent blοg.
    An excellent reaԁ. I'll definitely be back.

    Also visit my web blog; Online Payday Loan
    My webpage: Online Payday Loan

  3. Anonymous11:41 AM

    Hello i am kavin, its my first time to commenting anyplace, when i read this paragraph i
    thought i could also create comment due to this sensible article.

    Check out my website forex trading