Global Policy Forum

By Carin Smaller

A Time for Reflection

The July General Council passed without WTO Members agreeing to the "July Approximations" that would prepare them for the Hong Kong Ministerial Conference. With only 12 weeks on the negotiating calendar before the conference, it is time for reflection and stocktaking: what happened? Where do things stand? Where are the negotiators headed? There is increased discussion about where to set the level of ambition for the conclusion of the Doha Round. WTO Members must decide whether to conclude the Round quickly by settling for less or take the risk of delaying a conclusion by several years to get more significant reforms. The E.C. is looking increasingly uncomfortable with the direction of the negotiations and may decide they want a quick end with less ambition. The U.S. position is still unclear but likely to be a determining factor in the direction the negotiations take. But let us not forget whose ambitions we are talking about: exporters. Even though no concrete decisions have been made, the shape of the final outcome is becoming clear. The core of the negotiations is market access: for agricultural products, for industrial products, for raw materials and for service providers. That much we knew. What was less clear until now, perhaps, was an account of exactly who will benefit, who will lose and by how much. Given the outline of the agreement decided last year in the 2004 July Framework, the scope for significant new market access or big cuts to domestic support in OECD member countries is limited. A number of developing countries will also be able to avoid real increased market opening in some agricultural sectors, because of the gap between their bound and applied tariffs (they use a lower tariff than they are entitled to). Therefore, it is only the exporters from a small number of countries that look likely to gain new market opportunities from the reforms on the table; exporters from smaller economies, especially those that depend on preferences, will see their opportunities narrow.

In agriculture, a handful of countries' exporters will gain. Some will gain more, especially stronger Cairns' members (Australia, New Zealand, and Brazil) and the U.S. Other Cairns members could gain, but not as much. The rest can expect losses: some big and some small. Many G20 member countries will lose. The G33 member countries as well. The biggest losers will be the Africa, Caribbean and Pacific (ACP) countries.

In NAMA, the U.S., E.C., Japan, Canada, Norway, Switzerland, Australia, New Zealand, China and Hong Kong all have export industries poised to make gains. In Services, it is firms based in the E.C. and the U.S. that will be the major winners. Other developed countries will win as well. There are speculations for some gains for developing countries in Mode 4 (the temporary movement of persons), but stricter immigration laws and increased security measures around the world will severely restrict further movement of people. For the rest of the membership, overwhelmingly developing countries, it is losses, bigger losses and future losses.

The reality is that increased market access is futile for too many WTO members who lack the capacity to produce and export their products. This is not to say that trade in itself is a bad thing. Market access can be a vital stimulant to investment and development. Imports can complement local production and exports can offer new markets and opportunities for employment and income. But not everyone benefits from the opportunities of increased trade. The Uruguay Round has shown that without the right policies in place, more open markets means more imports without exports and deeper levels of debt with lost economic opportunities. In the current framework of multilateral trade negotiations we seem set to repeat the mistakes of history. Those who need the most actually stand to lose the most. It is time for the majority to rule. It is time for the WTO negotiations to start producing trade rules that reflect the interest of the majority of the membership. The world urgently needs a just and sustainable multilateral trading system that contributes to development and poverty reduction. Countries must not be allowed to use trade measures that harm others, for example, measures that contribute to dumping. At the same time, countries must have the possibility to use trade as part of their strategy to improve people's standard of living. When this happens we can truly start to talk about a Development Round.

Agriculture: The Real Sticking Point

Agriculture remains at the heart of the negotiations. Without progress in agriculture it remains unlikely that there will be movement in the other negotiating areas. On the flip side though, once agriculture moves the rest is likely to follow. The status of the agriculture negotiations was laid out by Tim Groser, Chair of the Agriculture negotiations in a report submitted to the Trade Negotiations Committee (TNC) at the end of July. It was widely accepted as an accurate reflection of the status of the agriculture negotiations. Tim Groser admits "the agriculture negotiations are stalled," and says, "a set of clear political decisions" must be made to restart the negotiations. (see www.wto.org TN/AG/19)

On the export competition pillar, the commitment by the E.C. to agree to a credible end date for the elimination for export subsidies remains an important step. Parallel commitments in export credits area likely to follow but outstanding issues remain in relation to State Trade Enterprises (STEs) and food aid. On food aid, the U.S. is proving the major stumbling block to reform and in particular to disciplining the commercial displacement that results from some food aid imports. The U.S. is joined in this position by some of the recipients of U.S. food aid, such as Mongolia, who fear that without food aid they will lack access to food on concessional terms, food on which they are now dependent to meet their food security needs.

On the domestic support pillar, the U.S. and the E.C. rotate between stalling and playing a game of tit-for-tat. In the amber box, where the most trade-distorting support is classified, the questions remains where to place the three largest contributors - the U.S., E.C. and Japan - in relation to each other, before agreeing the percentage cut to their subsidies. In the blue box, where WTO members agreed to broaden the criteria to accommodate certain U.S. subsidies, the U.S. has resisted negotiating additional disciplines which will determine just how broad the new blue box will be. In the green box, it is unlikely that any tighter disciplines will be put on developed country spending, although a number of programs eligible for green box status have been shown to encourage production (and thereby distort trade).

For developing countries, there is discussion about introducing new provisions in the green box to take account of the types of programmes suited to the realities of developing country agriculture. On de minimis - the minimum threshold of spending on domestic support which does not have to be included in the amber box calculations - there are questions concerning if and by how much developing countries should have to reduce this amount in light of the fact that it is one of the only mechanisms available to them to provide support to their agriculture sectors.

On the market access pillar, the proposal for a tariff reduction formula, submitted by the G20 at the mini-Ministerial in Dalian, China will form the basis for ongoing negotiations (see http://www.tradeobservatory.org/library.cfm?refID=73410). The G20 proposes five bands for developed countries and four bands for developing countries. Tariffs will be grouped according to the tariff levels and put into the bands (say tariffs less than 20%, between 20% and 40 %, etc.). The G20 proposes to use a linear formula, which would involve cutting each tariff line, or each product, by an agreed percentage within each given band. Their proposal is seen as the middle ground between the two polarized camps in the market access negotiations. The E.C. and G10 favour the more flexible Uruguay Round formula while the U.S., Australia and New Zealand favour the more draconian Swiss formula (see the Formula Glossary below). The issue of sensitive products will become clearer when the formula to be applied to tariffs becomes clearer. The G33 countries, who first proposed both Special Products (SPs) and the Special Safeguard Mechanism, have been asked to develop further criteria for the selection of SPs on the basis of food and livelihood security and rural development. A major change to the agriculture negotiations is the departure of the chair Tim Groser and the arrival of New Zealand's new Ambassador, Crawford Falconer, who will become the new chair. It is also likely that the Five Interested Parties (FIPS) group, made up of the U.S., the E.C., Australia, Brazil and India, perhaps with the involvement of a few other countries will continue to play a crucial role in the negotiations. During the past few months variations of the FIPS have met: FIPS minus Australia, FIPS plus Switzerland, Japan, Malaysia, China, Argentina and Mexico. There are also rumours that the FIPS might extend their discussions to other areas of the negotiations, including NAMA and services. Agriculture negotiations will resume 13th September 2005.

Nama: The Hard Reality

In some respects the non-agricultural market access (NAMA) negotiations take place in the shadow of the agriculture negotiations, yet in terms of actual status NAMA is far more advanced. Annex B of the July Framework, which deals with NAMA, is close to full modalities. The opening paragraph, stating that Annex B contains initial elements that require additional negotiations, has largely been forgotten. The only tariff reduction formulae being proposed by both developed and developing countries is a Swiss formula with different variations. The Swiss formula cuts the highest tariffs by a larger percentage than lower, tending to bring all tariffs closer to the same level (in the jargon, it harmonizes the tariffs). Since developing countries have higher average tariffs than developed countries the tariff reductions will be bigger for them in absolute terms. Cutting tariffs so drastically will remove the flexibility and space developing countries need to use tariffs as an instrument for development. In addition, informal negotiations are taking place in nine key sectors based on what has been dubbed "the critical mass" approach - where a certain number of countries representing a certain percentage of world production in a sector are required to participate in order to create a sectoral initiative. These sectors include electronics, bicycles and sporting goods, chemicals, fish, footwear, forest products, gems and jewellery, pharmaceuticals and medical devices, and raw materials. The process is entirely member-driven without involvement by the WTO Secretariat or the chair of the NAMA negotiations, Ambassador Stefan Johannesson. There is a complete lack of transparency and these negotiations exclude the majority of the membership. Nevertheless it seems likely that the outcome of these discussions, once completed, will be incorporated into the formal negotiations. Confusion and complication plague the discussions on non-tariff barriers (ntbs) and this is likely to continue. While many ntbs have been notified under the NAMA negotiations, it is unlikely that existing agreements like the Agreement on Sanitary and Phyto-Sanitary Measures (SPS) and the Agreement on Technical Barriers to Trade (TBT) will be reopened. Nevertheless, it is still very unclear what the purpose of the notifications is and how the membership intends to address the question of ntbs. Ambassador Johannesson is likely to continue as the chair of the NAMA negotiations until the Hong Kong Ministerial Conference and will resume negotiation on the 19th September.

Services: Drawing the Line

The chair of the Services negotiations, Ambassador Alejandro Jara submitted a progress report 12 July, 2005 (see link below). No further reports were submitted at the July General Council. Services negotiators plan to intensify negotiations in the run up to the Hong Kong Ministerial Conference. There is still concern by many developed countries that the request-offer method is not producing the desired results and the proposal to set out benchmarks for a minimum quantity and quality of offers will be high on the agenda. The E.C. in particular is pushing hard and has already submitted a non-paper on Benchmarks (see link below to EU non-paper on Benchmarks). In the area of rules, the negotiations on Domestic Regulation and Emergency Safeguard Measures (ESMs) are of central importance. The chair hopes to have some elements for disciplines agreed prior to the Hong Kong Ministerial Conference.

Development: Not Even for Ldcs

The Committee on Trade and Development (CTD) remains paralyzed by the strong differences between developed and developing countries. On the one hand, developing countries are insisting that a range of proposals on strengthening Special and Differential Treatment (SDT) be addressed. On the other hand, developed countries refuse to discuss these proposals unless the issue of graduation or differentiation among developing countries is tackled first. (see Geneva Update 13th May 2005) In early July, members made a slight breakthrough and agreed to address the five proposals from least developed countries (LDCs). However, despite intensive consultations in the run up to the July General Council by the chair Faizel Ismail, WTO members failed to reach an agreement on the LDC proposals. Some developed country members are concerned that LDCs are being granted too many exemptions and flexibilities. The divisions within the CTD are potentially explosive. Developing countries urgently need stronger SDT mechanisms. Yet developed countries seem unwilling to budge, even for LDCs. Instead of being obsessed with restricting flexibilities and graduating some larger developing countries from the rest, WTO members should actually take steps towards creating more effective and meaningful SDT that really address the disadvantage faced by developing countries in the multilateral trading system. If developed countries do not focus on building confidence for the most vulnerable WTO members, the more ambitious agenda of the Doha Round is likely to founder.

The Lamy Factor

The membership is eagerly awaiting the arrival of new WTO Director-General Pascal Lamy who will take up his post on 1st September, 2005. WTO members anticipate that he will inject momentum into the Doha Round and help take the negotiations forward. The October General Council will be the next key moment. Pascal Lamy has appointed four Deputy Directors.

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