Global Policy Forum

By Carin Smaller

I. WHAT HAPPENED IN HONG KONG?
II. AGRICULTURE: the art of deception
III. SERVICES: another win for corporations
IV. NAMA: reducing development to a formula
V. DEVELOPMENT PACKAGE: a slap in the face
VI. THE WAY FORWARD: asking the questions
VII. DOCUMENTS

I. WHAT HAPPENED IN HONG KONG?

The 6th WTO Ministerial Conference, held in Hong Kong 13-18 December 2005, ended with an agreed Ministerial Declaration. WTO Director-General, Pascal Lamy, and a number of WTO members celebrated the moment as an important step towards the completion of the Doha Round of trade negotiations. Expectations had steadily been ratcheted down before the conference and there were few surprises in the final outcome.

Developing countries, despite their different interests, displayed impressive solidarity and collaboration when they stood together at a press conference during the Ministerial meeting and let the world know that they wanted to work together to redress the inequalities in the trading system. This collaboration of developing countries was successful in resisting some demands from the developed countries and certainly contributes to a gradual but evident shift in the power balance that dominates trade negotiations. Developing countries were able to tweak some elements of the Draft Ministerial Declaration that was sent to Hong Kong to better reflect some of their offensive and defensive interests. For example, the final Ministerial Declaration contains an end date for agricultural export subsidies (finally!), calls for further disciplines on food aid programs (that if accepted would particularly affect the U.S., which provides roughly 60 percent of global food aid resources), improved language on Special Products (SPs) and the Special Safeguard Mechanism (SSM), and weakened somewhat the attempt by a small number of countries to push the services negotiations into a more one-size-fits all approach through amendments to annex C of the declaration.

Despite these efforts, the end date for export subsidies is a meager offer (it is consistent with the internal E.U. reforms anyway) and was reached only after significant concessions were extracted from developing countries in return. It is clear that the European Commission (E.C.) and the U.S. will not give more in agriculture than what is currently on offer (even though what is on offer will do nothing to address the key problems in agriculture, such as dumping). In return, the U.S. and the E.C. will continue to demand far-reaching market access in agriculture, manufacturing products, natural resources and services.

The big picture is grim. This is a bad deal. The Ministerial Declaration has lost all the development promises that were used to launch the Doha Round in 2001. It continues to move the round further away from its initial objectives, as did the July 2004 Framework.

Before the third WTO Ministerial was held in Seattle in 1999, developing countries demanded that imbalances in the existing WTO agreements be redressed to solve the problems that resulted from the implementation of the Uruguay Round. These issues are referred to collectively as "implementation issues." Developing countries also asked for stronger special and differential treatment (SDT) measures and for the Agreement on Agriculture (AoA) to be reformed to address structural inequities in agricultural trade. When the Doha Round was launched, these concerns were at the forefront.

Six years on, implementation issues have all but disappeared from the agenda, special and differential treatment (SDT) has been reduced to just five proposals for least-developed countries (LDCs) and the current proposals to reform the AoA are set to deepen inequities. Instead of putting development at the core of the Doha Round, development has been reduced to a largely cosmetic "development package" for LDCs only. For the rest of the developing countries, further market access-in particular in agriculture-is said to be the core of the development dimension. In return, developing countries have agreed to important elements that shape the next steps of negotiations in services and non-agricultural market access (NAMA) (see details below). Agreeing to a Swiss formula in NAMA and accepting plurilateral negotiations in services has put developing countries a step closer to far-reaching liberalization commitments.

Farmers groups, trade unions, social movements, developmental and environmental NGOs, consumer groups and many more - both in the South and the North - continue to expose the negative consequences that will result from the current proposals and call on their governments to break out of the existing mould. Yet, an agreement was reached in Hong Kong. Only Cuba and Venezuela expressed reservations (on Annex C on services, described below). The Ministerial Declaration undermines the developing country calls for a fairer trading system and sidelines many of their proposals. In addition, the E.C. and the U.S. have clearly shown they will make no commitments that influence the speed of their internal reforms.

The Ministerial Declaration continues to close the policy space developing countries need to determine their own development path, while failing to end the current hypocrisy that allows developed countries (particularly the U.S. and E.U.) to determine just what sectors to liberalize, when and by how much. The opening of developing countries economies as pushed by the developed countries, the WTO Secretariat, the World Bank and the International Monetary Fund (IMF) are simply incommensurate with the development needs of developing countries. Rather than moving towards a pro-development outcome, the Ministerial Declaration moves further away from reform of the structural inequalities within the WTO itself and further curtails national policy space for economic experiment and responsiveness to the need for job creation and wealth creation and redistribution.

II. AGRICULTURE: the art of deception

WTO Members achieved little in agriculture in Hong Kong. Governments were unable to put dates on when final modalities and schedules would be completed. Instead, members set themselves a new deadline, April 30 2006, for agreement on some elements of the modalities. The only date agreed in Hong Kong was for the elimination of export subsidies: 2013, which is within a year of when the E.U. internal reform of the Common Agricultural Policy was set to eliminate the subsidies anyway. The export subsidy date is also contingent on quite a lot of hard negotiating still to come before April 30. (see below, under Export Competition, for further explanation)

DOMESTIC SUPPORT: Members in Hong Kong made no progress on any aspect of domestic support disciplines. Three bands are proposed for reductions to trade-distorting support measured in the so-called Amber Box. The G-20 had asked for four bands (which in practice would make the cuts more biting), but Annex A already suggested that consensus was emerging for only three bands, reflecting the E.U. position and that of the G-10, which is made up of countries that also rely heavily on domestic support in their agriculture. The language on an overall limit, or ceiling, for trade-distorting domestic support is somewhat tighter than some of the proposals that preceded Hong Kong. However, no detail for cuts to domestic support programs is provided, including the de minimis levels, the blue box, final targets for amber box spending or the level of cuts to the amber box. All this means that it is still quite possible that the new rules for agriculture in the Doha Round will require no new reform to domestic support in the U.S. or the E.U.

EXPORT COMPETITION: The key issue in Hong Kong was the end date for export subsidies. Although the overwhelming majority of WTO members were pushing for an end date of 2010, the E.C. only offered 2013 and managed to hold the rest of the WTO to ransom yet again on the issue of setting a date. It is good that export subsidies are now set to expire, but time and again the E.C. has used the issue to distract debate from more urgent WTO business.

The E.C. was able to hedge its commitment with so-called "parallelism," which is a call for reductions in other forms of export support: export credits, food aid and exporting state trading enterprises (STEs). These disciplines are to be negotiated by April 30, 2006, when some kind of Ministerial Conference is expected to reconvene (most probably as a General Council meeting attended by some Ministers, of the type that agreed the July Framework in 2004). The disciplines on export credits, as proposed, would go some way to addressing the subsidy elements of the existing U.S. programs-the U.S. is the main user of export credits. The debate on exporting state-trading enterprises is in practice about the Canadian Wheat Board, the AWB Ltd (formerly the Australian Wheat Board) and the New Zealand dairy company, Fontera, which has its origins in a state marketing agency for dairy farmers. The July Framework agreed to discipline "future use of monopoly powers," language repeated in the Hong Kong declaration. The STEs in question have already been reformed under domestic law and by the Uruguay Round Agreement on Agriculture. The proposal is that future problems be avoided rather than new disciplines introduced. The more critical question of disciplines on the market-distorting behavior of private monopolies and oligopolies remains off the table despite the impact of their market power on agricultural dumping.

The food aid disciplines proposed would likely force some changes in U.S. food aid practices. The U.S. provides some 60 percent of global food aid resources, but much of its food aid is wasted (as much as 50 percent in value terms) on unnecessary expenses incurred because of programs designed to serve domestic interests rather than the interests of recipients. Several U.S. food aid practices, particularly untargeted monetization of food aid (where the food aid is sold in the open market) can disrupt local markets, depress prices for local producers and commercial importers, and interfere with market signals on demand and supply. The Hong Kong text proposes a "safe box" for so-called bona fide food aid going to emergencies (this food aid would not be subject to new disciplines). This means some 60 percent of food aid would not be affected by the proposed new disciplines. WTO members then claim in the declaration that they will, "ensure elimination of commercial displacement;" an impossibly high standard (all food aid, in practice, causes some displacement; however some displacement is worth it, because it saves lives). A better objective would be to insist on targeting to ensure that food aid reaches its intended recipients and as few others as possible. The disciplines as outlined in the Hong Kong declaration will precipitate a big fight from the U.S. before the dust settles on an agreement in April.

MARKET ACCESS: Before arriving in Hong Kong, WTO members had more or less agreed on four bands for tariff reduction in agriculture. This was confirmed in the Hong Kong text. The more bands, the greater the likelihood of realizing real market access from the reductions; it is harder to hide high tariffs behind lesser ones when the bands are more narrowly defined. Developing country groupings such as the Africa, Caribbean and Pacific (ACP) Group also supported four bands for tariff reduction, but with higher percentage cuts and a lower maximum threshold for developed countries. On sensitive products, the only proposal from Hong Kong- which is already agreed, if not liked by all members - is that the greater the deviation from the formula (still to be agreed) for cuts within the four bands, the greater the tariff rate quota will have to be (which makes it possible to force more imports than would otherwise occur).

The text on Special Products and the Special Safeguard Mechanism has improved somewhat. There is now agreement that developing countries can self-designate the products, up to a still undetermined percentage of all tariff lines, to be "guided by indicators based on the criteria of food security, livelihood security and rural development". The issue of criteria is likely to be a sticking point for WTO members (such as the U.S.) that wish to aggressively liberalize Southern markets and therefore will resist criteria that are permissive. The price trigger, in addition to a volume trigger, for the SSM is also now accepted, a victory for the developing country alliance on SP/SSM, also known as the G-33.

COTTON: Little has been achieved on the cotton agenda. The declaration calls for the elimination of export subsidies on cotton in developed countries by 2006, yet the U.S. export subsidies have already been ruled illegal under the WTO Cotton Panel ruling, and the U.S. government is now obliged (and is trying in the face of strong Congressional resistance) to comply. Governments repeat their commitment to reduce domestic support for cotton more quickly and ambitiously than the general formula (which is still to be agreed). Duty-free, quota-free market access for cotton from LDCs is agreed. For the West African cotton-exporting countries however, it is the domestic support that results in cotton dumping, which depresses world prices, that is the highest concern. Cotton producer associations from West Africa have repeatedly said they do not export cotton to the U.S. Cotton producers want U.S. exporters to stop dumping cotton, not to increase market access into the U.S.

III. SERVICES: corporations win another round

Developed countries, in particular the E.C. and the U.S., were successful in their attempt to get closer to their objective of far-reaching market access commitments in services. Services sectors of interest to developed countries include energy, retailing, water, telecommunication, financial services and transport; all sectors that in large part are crucial for agricultural and industrial production and trade. Developed countries were unsatisfied with progress in services negotiations (the GATS) and consequently have been trying, since early 2005, to include numerical targets and changes to the bilateral request and offer process. A few developing countries such as India, Chile and Mexico supported these proposals.

In Hong Kong, developing countries opposing this agenda were successful in eliminating the reference to numerical targets. However, Annex C of the Ministerial Declaration explicitly sets the stage for plurilateral negotiations. This will allow groups of countries-known as "friends"-who are interested in a particular sector (for example energy or retailing services), to collectively table requests towards individual WTO members. This will increase the power imbalance, already visible in the bilateral request and offer process, since developing countries could now face market access negotiations, for example, with ten or more developed countries. The negotiating deadlines in the Ministerial Declaration-that plurilateral requests shall be presented to WTO Members by February 2006 and revised offers by the end of June-are not only unrealistic and overly burdensome, but also further enhance the existing power imbalance.

In addition, Annex C sets guidelines for the quality of offers to be made and paragraph 5 calls on WTO members to develop disciplines on domestic regulation. This creates a framework that will restrict government powers to regulate, undermining government's ability to implement regulations that respect and promote domestic policy objectives above the interests of foreign investors and service providers.

Overall, Annex C weakens the original GATS flexibilities, among others the freedom for each country to ignore requests for services liberalization. The Ministerial Declaration states that "countries requested to enter plurilateral negotiations shall consider such requests." Developed countries will use this language to push developing countries into negotiations. Yet the declaration remains clear that no such obligation exists and developing countries can continue reject the plurilateral negotiations.

Besides changes that will be made to the GATS, it has to be remembered, that the GATS is essentially an investment agreement. Deregulating services sectors under the GATS puts domestic laws and regulation under the scrutiny of the WTO and severely reduces the ability of countries to regulate their services sector. The U.S.-Barbados gambling case demonstrates this issue.

Moreover, services liberalization, especially in developing countries, has rarely materialized the desired impacts for development. For example, access to rural credit for farmers, or access to health care, education, water or transportation, particularly for remote areas, has in many cases worsened with liberalization. Private service providers, foreign or local, often only offer better quality services to consumers who can pay. The more government tries to insist on meeting the needs of all citizens or users of a service, the less likely the private sector is to invest. Making such liberalization a part of WTO rules means that a commitment to services liberalization will be extremely difficult to rescind if experience shows that privatization and foreign investment are having undesirable effects.

IV. NAMA: reducing development to a formula

The Ministerial Declaration agrees on a mandate to further liberalize trade in manufactured goods and natural resources, known as the non-agricultural market access (NAMA) negotiations. The NAMA framework is contentious and plagued with disagreement and divisions. Developing countries, particularly the African and Caribbean Groups, have rejected the text for years and yet the same details keep reappearing and are aggressively pushed; most often by developed countries. The Ministerial Declaration continues to promote the contentious NAMA framework. The elements adopted in the Ministerial Declaration reaffirm that WTO Members are unduly curtailing countries' rights to decide how to structure and set tariffs on manufactured goods and natural resources.

The Ministerial Declaration adopts a Swiss formula to cut tariffs in manufactured goods and natural resources. This is the most drastic way to cut tariffs and was rejected as an approach in the agriculture negotiations. The Swiss formula is designed principally to make steeper cuts on higher tariffs, so as to bring all the final tariffs closer to the same level. The approach prevents governments from using tariffs as a tool to protect chosen industries or natural resources-a tool used by every developed country in its past, and by most until the present day. The extent of commitment will depend on negotiations on the coefficients (the number that will be applied to the formula), which will determine the extent of the tariff cut.

The Ministerial Declaration also adopts a drastic approach to binding and reducing those tariffs that have not yet been bound. While binding tariffs can be useful because it provides a degree of transparency and reliability for exporters it ultimately gives export interests priority over others such as securing jobs or the environement. Countries that already have low tariffs as a result of pressure from bilateral or multilateral donors will lose even further the possibility to raise tariffs if they want to build up an industry or merely to protect jobs at home in sectors that might not aim to compete at the global level. Binding tariffs in the manner specified in the Ministerial Declaration is a major concession from developing countries. Developing countries will be deprived of an important tool to implement industrial policies and a source of revenue they badly need for public investment. It will be workers in the South and also in the North who will be the losers if the proposed liberalization of manufacturing goes through.

The Ministerial Declaration also recognizes that some members, predominantly developed country Members, are pursuing negotiations on different sectors with the objective of complete tariff elimination. The sectors include, forests, fish, electronics, chemicals, and raw materials. To date, sectoral negotiations have taken place outside the NAMA negotiations. They completely lack transparency and exclude the majority of the membership, many of who reject the inclusion of such initiatives in the negotiations. Yet, the Ministerial Declaration legitimizes the sectoral negotiations and accepts them as a fait accompli. This is unacceptable and adds fuel to an already blazing fire.

V. DEVELOPMENT PACKAGE: a slap in the face

The development package agreed in Hong Kong consists in a partial offer from developed countries, and those developing countries "in a position to do so," to provide duty-free and quota-free market access for LDC exports (the three percent of tariff lines excluded will allow rich countries to continue to protect much of what is already protected from poor country exporters). Also included in the package is an ambiguous statement from the U.S. about addressing cotton subsidies ahead of the wider agriculture commitments (something the U.S. Trade Representative has no political support for at home). Finally, Aid for Trade is promised, which mostly repackages already promised aid money to support trade-related capacity building initiatives.

The development package is insulting for several reasons. First, developing countries want meaningful reforms to trade rules to address the profound inequities in the existing global trade system-not a meager aid package. Sadly, this package was used as a major distraction in Hong Kong, while proposals in the interest of African, Caribbean and Pacific country members were ignored (a number of ACP countries are not LDCs, and so were excluded from the development package in any event). As a parliamentarian from the East African Community put it, "Aid has not been helpful to us in Africa. It has been misused and abused to put all kinds of conditionalities on us. And it certainly does not belong in the WTO. We want a development outcome out of the trade agenda."

Second, many civil society organizations have already exposed that there is not much new money available and that most is in the form of loans, which would further indebt countries. Third, while aid is not without merit, it is not a substitute for strong multilateral trade rules that prevent dumping (the sale of products at below the cost of production prices) and protect countries' right to design domestic policies according to their people's needs, whilst ensuring they do not harm other countries. The money being pledged from developed countries would be better spent assessing the impacts of trade liberalization and its ability to create jobs, foster industrial and agricultural development, to end dumping, and to redistribute wealth from developed to developing countries. Fourth, the need for a meaningful development round extends far beyond LDCs - for instance, among the most vulnerable economies in the world trading system are the islands of the Caribbean, only one of which is an LDC (Haiti), and both India and Brazil, despite being a large country, faces serious challenges in addressing poverty too.

VI. THE WAY FORWARD: asking the questions

The outcome on the table raises several questions. Why are we moving further away from the objective of a Development Round? Why did developing countries agree to this text? Why do governments continue to craft trade rules only in the interests of exporters? Why do governments accept trade deals that do not reflect the interests of their people? The answers are complex and varied and require further discussion. Below are some initial reflections.

Part of the problem lies in the fact that the most powerful WTO members, the WTO secretariat, the World Bank and the IMF, all continue to conflate trade liberalization with trade policy, insisting that only deeper liberalization can benefit countries. Most WTO Members work under this assumption and seek to carve out exemptions or flexibilities in certain sensitive sectors when they negotiate. This leads to a situation where developing countries often end up spending disproportionate negotiating muscle on one or two issues. For example, the G-33 fought hard for the gains they obtained on SPs and the SSM (although G-33 members were also active in other areas) and the ACP countries have had to spend a lot of energy fighting for preferences, although they too have a number of other concerns in the talks.

The fact that most developing countries got something small out of the Ministerial meeting, either in the form of a development package, an end date for export subsidies or improvements in SPs and the SSM, made it extremely difficult to reject the deal, even when the other elements where inimical to their interests. The process of seeking exemptions or pursuing single issues, rather than breaking out of the existing trade model, creates divisions among developing countries and allows the most powerful countries to continue dominating the overall agenda.

Another possible explanation for developing countries agreeing to the text is the fear that if there is no agreement at the WTO, developing countries will face more pressure to join bilateral and regional trade agreements where they are less able to resist the demands of the developed countries. Other countries' bilateral and regional deals also have an impact on third countries, of course, as trade can be displaced away from the countries that are not part of the bilateral or regional deal. There is of course some truth in these arguments but some misnomers as well. First, the fact is that the number of bilateral and regional trade agreements ratified has tremendously increased since the establishment of the WTO. Second, bilateral and regional trade agreements are used in addition to the WTO. When developed countries don't get what they want at the WTO level-such as the Singapore Issues or more stringent intellectual property rights-these are introduced into bilateral or regional trade negotiations.

In addition, many trade matters including the question of agricultural subsidies and dumping are firmly anchored in the WTO and cannot be dealt with bilaterally or regionally. At the same time it becomes more apparent that achieving meaningful reforms in agriculture are almost impossible to achieve in the current WTO framework. Small achievements, like the elimination of export subsidies, come at a very high price.

That negotiations are conducted as part of a single undertaking creates further distractions from the development objective. For example, the Ministerial Declaration calls for balance between market access in agriculture and NAMA. To start, there is clearly no balance in the Ministerial Declaration. There is no agreement on the formula for reducing tariffs in agriculture and yet Members adopt a Swiss formula in NAMA. But this is beside the point. The culture of trading one sector for another that pervades WTO negotiations is simply inappropriate. A country shouldn't have to trade off its industrial sector (or its services sector) for its agriculture sector. Strong economic policies are not built on trade-offs. A healthy mix and diversity across all the sectors-agriculture, manufacturing and services-is essential to a vibrant economy. A vibrant economy cannot be built up and maintained without the possibility to protect it; something developed countries know better than anybody else. Depriving developing countries of these instruments, at a moment where they are clearly in most need of it, exposes the hypocrisies and contradictions in the current system. It reflects the utter disconnect between what happens at the WTO and the true development needs of people.

The limits of the existing trade model are becoming apparent. Political realities (no country with sovereign control of its economy and finances is interested in a pure version of trade liberalization) and empirical experience shows that trade liberalization as pushed by the most powerful players does not achieve the desired results. Even the World Bank has dramatically reduced its estimates of what gains can be expected from trade liberalization. A closer look at some numbers show that for some poor countries, tariff revenue represents 60 percent or more of government revenue. Until this problem is addressed, simply cutting tariffs will impoverish the government and leave fewer resources to pay for development.

Concluding the Doha Round in order to save the multilateral trading system or to ensure that nobody can be blamed for the failure seems a disproportionate concern against the limited development outcomes and the potential negative consequences that could result from continuing on this path.

It is time to break out of the current mould and pave the way for an alternative approach to crafting trade rules that will unite countries in a positive way forward. The trade model currently promoted in the WTO is in direct conflict with the trade rules needed to promote development, increase employment and reduce poverty. Rather than continuing the promotion of a model that does not deliver and that is increasingly rejected by people both in the South and the North, governments need to start crafting international trade rules that take on board concerns of all stakeholders, that don't trade-off one sector for another and that can create the desired environment for sound development policies.

Achieving a change of this magnitude may require new approaches to the ones currently in operation. Alliances among developing countries are vital and have been successful in changing the power dynamic in the negotiations, but these alliances may not be sufficient to change the nature of the current agreement or the existing trade model.

Visionary leadership is needed to build a more just and sustainable trading system. Alternatives approaches exist and are widely promoted by civil society groups and constituencies around the world. Convincing governments to adopt these approaches will require a more concerted effort at the national and regional level to build support for these alternatives and for a new international trading system.

For all their many and important differences, a wide range of constituencies, in developed and developing countries both, including farmers, workers, consumers, environmentalists and development organizations, voice similar concerns with the current trade model and its impact on people's quality of life. The common thread in the concerns raised by different constituencies is also reflected in the wary and even hostile response governments receive from national parliaments when trade agreements are brought forward for ratification. The Doha Round survived in Hong Kong, but a number of governments should be far from sanguine that national decision-makers are going to buy into the vision, when so many organized constituencies are hostile to the direction and breadth of the Doha Agenda.

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