Third World Economics No. 521 (16-31 May 2012)

WTO General Council takes up global value chains, Lamy’s panel

At the WTO General Council meeting on 1 May, member states looked at the trade implications of global value chains and gave their views on a new panel set up by the WTO head to examine “the future of trade”. They also discussed the state of play in the Doha Round negotiations, where little fresh progress was reported.

by Kanaga Raja

GENEVA: The issues of global value chains and the WTO Director-General Pascal Lamy’s consultative panel of stakeholders on 21st-century global trade issues figured at the meeting of the WTO General Council on 1 May, with several key developing countries expressing reservations about the panel, making clear that the panel and its outcome would be on the Director-General’s own responsibility.

The future course of the Doha Round, they made clear, would be a path charted by the members.

Lamy had announced the constitution of the panel on 13 April, and the panellists have been asked to examine and analyze challenges to global trade opening in the 21st century (see TWE No. 519).

The General Council also heard a report from Lamy, in his capacity as Chair of the Trade Negotiations Committee (TNC), which said, amongst others, that the Doha Round situation had not evolved much since his last report in February (see below).

On the Doha Round negotiations, trade officials pointed to issues that are prominent and feasible, the so-called “low-hanging fruit” where agreements can be reached, namely, the issues relating to least developed countries (LDCs) that were decided at the WTO’s eighth Ministerial Conference (MC8) in December and that pertain to streamlining accession procedures for LDCs, an LDC waiver from services commitments, and extending the transition period vis-a-vis the TRIPS Agreement.

They noted that these issues need to be implemented, adding that members are of the view that this could be achieved this year. In addition to that, trade officials said, a number of members said that the issue of trade facilitation needs to be focused on and that work should be stepped up on this.

According to trade officials, while no one spoke out against the LDC issues and on trade facilitation, a number of countries raised concerns on the resource constraints that developing countries, in particular the LDCs, would face in implementing any agreements.

Trade officials also pointed to the notion of global value chains, which had been a major topic of discussion at the 19-20 April meeting of trade ministers from the G20 major economies in Puerto Vallarta, Mexico. This issue was taken up to a large extent at the General Council meeting, they added.

Trade officials said that some members pointed out that there are specific sectors and industries that are not part of a global value chain, and that there are some countries that do not participate to a large extent in these value chains. Thus, there needs to be an assessment done of these value chains and what they mean for development.

Pragmatic and realistic

In his report at the General Council, Lamy, in his capacity as Chair of the TNC, said that at the February General Council meeting, “we agreed that the task before us was to implement decisions and to operationalize the elements for political guidance resulting from MC8 in a pragmatic and realistic manner. The most realistic and practical way forward was to take small steps, gradually moving forward the parts of the Doha Round which were mature, and rethinking those where greater differences remained. I encouraged all Chairs [of the negotiating bodies under the Doha Round] to informally consult on this basis. Trade Facilitation and Dispute Settlement were exceptions. In these areas, Members had agreed on detailed work plans which they had already started implementing.”

Reporting on international meetings in which he had recently participated, starting with the spring meetings of the World Bank and the International Monetary Fund in Washington and the G20 trade ministers’ meeting in Puerto Vallarta, Lamy said that at both of these meetings, he cautioned that world trade was growing much slower than in the past – with a trade forecast for this year at around 4% growth in volume, compared to an average of 6% in the past 15 years and 5% last year.

“So, a clear deceleration. This 2012 forecast is mostly a consequence of sluggish growth in advanced economies particularly in the eurozone. The contribution of trade to growth in emerging and developing countries is also decreasing and is forecast to further decline. I warned that the prevailing deteriorating situation could get worse if trade protectionism increased. So far, as you know, although protectionist pressures have been reasonably contained, recent worrying slippages in the form of trade restrictive measures have been registered and we will publish this on the occasion of our next monitoring report. So, we have to continue and help you all in redoubling vigilance on this front.”

“A new trade narrative”

At the Puerto Vallarta ministerial meeting, Lamy said, the discussion focused on global value chains and the impact that this new pattern of trade has on trade policies and trade politics.

“There was a shared sense that global value chains today require a new trade narrative, where imports matter as much as exports; where both imports and exports contribute to job creation and to growth. Trade as the expression of value addition along global production chains, requires us to take a fresh look at the way we measure trade.”

Lamy added: “It also requires that we reflect about the value of interpreting as we have done traditionally, bilateral trade balances which in this new pattern become much less relevant at least for policy and action. The discussion focused on the systemic conditions under which global value chains can work better, including the importance of trade facilitation measures, the blurring frontier between goods and services and adequate and affordable trade finance. I stressed, and I re-stress today, that this is not about ‘new issues’ versus ‘old issues’ or a new selection of priorities. It is about how to ensure that global value chains, whether on industrial products, on agriculture or on services, are oiled through the proper trade policies.”

According to Lamy, ministers expressed a strong encouragement for the WTO to keep cooperating with other organizations such as the Organization for Economic Cooperation and Development (OECD) and the United Nations Conference on Trade and Development (UNCTAD) to better understand the functioning and trade policy implications of global value chains. “There was also support to give fresh impetus to the Doha negotiations towards results in areas with potential for prompt resolution – such as trade facilitation – while intensifying efforts to find creative ways and approaches to overcome the most critical and fundamental stalemates in specially challenging areas.”

On trade facilitation, the TNC Chair said there was a collective acknowledge-ment of its win-win potential for all members, with work here in Geneva moving forward and of course provided technical assistance and capacity building for developing countries and in particular the least developed countries is adequately provided.

Lamy said that at the UNCTAD XIII conference in Doha on 21-26 April, “I emphasized much of the same points, stressing the importance of Aid for Trade to assist developing countries, and in particular the poorest, participate in global value chains and moving into value addition. I also cautioned that the current fiscal difficulties in donor countries should not lead to a drying up of support for Aid for Trade, which so far has not happened as the first numbers for 2010, which we now have, show.”

He also spoke of his continued coordination meetings with the chairs of negotiating bodies in the Doha Round, and with the General Council Chair and his meetings individually with a number of delegations. Lamy also highlighted activities in the negotiating groups since the 14 February General Council meeting.

“Clearly, overall the situation has not evolved much since my last report. But at the same time, my conversations over the past few weeks with Ministers and delegations have provided me with a sense that Members wish to continue to explore any opportunities to gain the necessary traction and try to make tangible progress as soon as possible.”

Lamy also recalled that at the February General Council, he had announced, as he had done at MC8, his intention to convene a “WTO Panel on Defining the Future of Trade” in order to analyze the drivers of today’s and tomorrow’s world trade, to take a fresh look at trade patterns and what it means to open global trade in this 21st century, bearing in mind the role of trade in contributing to sustainable development, growth, jobs and poverty alleviation.

“I also repeated that this panel is under my responsibility ... Its first meeting will be here in Geneva on 16 May. In the autumn, it will have an opportunity to hear the views of Members, a crucial step in ensuring that its findings are relevant to today’s realities. The expectation is that the panel’s analysis will be finalized in early 2013.”

Understanding value chains

A number of delegations spoke following Lamy’s report.

According to trade officials, Mexico, referring to the recent G20 trade ministers’ meeting, mentioned that one of the issues taken up was global value chains. It said that this will change the way that members look at trade, and an analysis of this will give a better understanding of how trade works today. The majority of world trade in goods and services is of an intermediate variety; the mercantilist view tends to give value to exports but the importance of imports should be appreciated as well, particularly in these value chains. There is a need to keep markets open and for a recognition that trade facilitation is one of the most important actions that can be undertaken and where progress needs to be made here in Geneva, said Mexico.

Lesotho, on behalf of the African Group of countries, stressed the call from the Group to adhere to multilateral principles. It is a cornerstone on which developing countries are able to participate meaningfully in international trade negotiations. This is an approach that must be maintained, Lesotho said, noting that there has been some progress in some areas based on decisions taken at MC8. There has been an open and far-reaching discussion on LDC accession, but there is a need for more action and a greater willingness to consider the LDC concerns.

There has been less progress on the LDC services waiver, and members, in particular the industrialized countries, need to be more aware of the need for special and differential treatment (SDT) with respect to LDCs, said Lesotho, which added that it would like to see more focused work in the WTO Committee on Trade and Development. It is important that this committee be given the authority to deal with a wide range of issues that are affecting developing countries today.

There is also a need to ensure that development remains the key core element for the WTO’s future work programme, it said, adding that it would like to see the resources at the WTO’s Global Trust Fund enhanced. This needs to happen so that developing countries can benefit more fully from technical assistance and capacity building. It is very important to consider the fact that the weaker players in the global services market, especially African countries, do not want to be cut off from international services markets, and this is what would happen if a non-most-favoured-nation services agreement is reached in the WTO.

The African Group noted that one of the ideas being floated in the NAMA (non-agricultural market access) negotiations under the Doha Round is the request-offer approach, saying that whichever way members go forward, it is important to have a process that is transparent and inclusive.

Moving forward

Cambodia, on behalf of the Association of South-East Asian Nations (ASEAN), said that it supported the need for the Doha Round negotiations to move forward and to find areas for progress and convergence. It is important to adhere to the development mandate and there is a need to explore different negotiating options. It is also important to benefit all members and that the multilateral trading system be strengthened. In looking at areas where progress can be made, Cambodia mentioned trade facilitation, an LDC services waiver and streamlining LDC accession procedures.

Kenya, in supporting Lesotho, said that it is concerned by the fact that in the nearly half a year that has passed since MC8, there has been very little tangible progress that members can point to.

There is a need to ensure that progress is made and that low-hanging fruit is targeted. It sees the LDC issues as being the most likely to bear fruit. There is a need to take smaller steps and to ensure a bottom-up approach that is transparent and inclusive, as well as the need to see that SDT is applied and that the role of the Committee on Trade and Development is strengthened.

On the areas for “early harvest” in the Doha Round, Kenya pointed to the LDC issues, agriculture, trade facilitation, services and development issues, saying that there is a need to try and push for provisional or early agreements in these areas.

India, referring to the G20 trade ministers’ meeting at Puerto Vallarta, said that a statement was issued there by the trade ministers from the BRICS grouping (which comprises Brazil, Russia, India, China and South Africa) on 19 April.

The discussions in Mexico, India said, had helped in underscoring the well-established fact that global value chains do not cover the entire gamut of global trade. They cover neither all sectors nor all industries within the same country, and several countries are indeed excluded from value chains in large measure. Developing countries in particular are at a disadvantage with their low levels of skill and technological development, generally ending up at the lower end of such value chains supplying basic raw materials or cheap labour.

India said it had pointed out that it would be useful first and foremost to evolve a better understanding of the developmental impact of global value chains and the conditions under which they can be used to achieve long-term socioeconomic gains for all countries, especially the developing and least developed countries. In this context, it was suggested that a member-driven process in the WTO, UNCTAD and other intergovernmental agencies would be helpful in examining this issue.

With regard to the call for liberalization in services, India said it was underlined that the opening up of services markets had to be correctly sequenced, corresponding to a country’s level of development, its strength in particular sectors and regulatory capacity. All countries, particularly developing ones, should be able to benefit from balanced and equitable services liberalization, by gaining additional market access opportunities in sectors and modes of supply where they have a competitive edge.

On trade facilitation, India said it had reiterated its stand at the G20 meeting that while it can have a dynamic effect on competitiveness and economic integration, the costs of implementing trade facilitation measures can be a huge challenge for many developing countries which has to be met through firm prior commitments for financial and technical assistance from developed countries. Due attention also has to be paid simultaneously to the development of export-related infrastructure, including transit infrastructure, especially in LDCs, to obtain a win-win result.

“Trade facilitation has to be viewed in the overall context of the delicate balance of trade-offs negotiated during the Doha Round. It cannot be viewed in isolation as it is a part of a full package and must form part of the single undertaking. There has to be both an internal as well as external balance to ensure that the negotiations on issues of interest to developing countries, and especially LDCs, like the LDC package (DFQF [duty-free, quota-free market access], cotton and fleshing out of the waiver on services), export competition in agriculture, which is a done deal waiting to be implemented, S&D monitoring mechanism, the 28 agreement-specific proposals etc., are given equal priority and concluded simultaneously,” said India.

The other message that came out of the Puerto Vallarta meeting was that trade must be viewed in the broader context of development gains it generates, and not merely as a source of global growth. “Our delegation believes that while trade can create growth opportunities, trade openness by itself would not lead to growth, development and social inclusiveness or employment in a particular country. Other complementary policies and an enabling environment are necessary for this purpose. A level playing field addressing the current inequities in global trade would also be required to be addressed so that developing countries can take advantage of the opportunities created.”

India said it continues to underline the importance of concluding the Doha Development Round to restore the credibility of the multilateral trading system. While members may seek results in specific areas where progress is possible, such efforts must not lose sight of the centrality of development in the Doha mandate.

“Being the first and only development round so far, we all have a high stake in its early and balanced conclusion as a means of demonstrating the WTO’s commitment and credibility. It would also not be appropriate to cherry-pick topics of interest from within the areas covered under the DDA [Doha Development Agenda] without adhering to the principle of single undertaking.”

On the Director-General’s panel of WTO stakeholders to identify 21st-century trade challenges, India said that since the panel has been constituted under his own responsibility by the Director-General, “we do not wish to make any substantive comments on it at this stage.”

“While some of the persons named on the panel are well-known persons in their own fields and it is not our intention to level any criticism aimed at an individual, we would like to mention that overall the panel appears to lack balance and leaves out several important sections of the WTO stakeholders from its purview.”

Just to mention a few of these stakeholders, said India, while the panel has a number of representatives of large corporations from different countries, it does not have an adequate number of representatives of the SME (small and medium-sized enterprise) sector, or representatives who are experts in the field of trade and development or from civil society.

“Furthermore, the WTO is a member-driven organization and a report of a panel constituted by the DG can be construed as a WTO report only after it has been accepted by consensus by the members.”

In this context, India said its attention has been drawn to the Leutwiler Report of March 1985, which had its origins in November 1983, when the Director-General of the General Agreement on Tariffs and Trade (GATT), the predecessor to the WTO, constituted a panel of seven eminent persons led by Dr. Fritz Leutwiler.

India said: “We also note that the expenses of the group’s meeting were met by the Ford Foundation, the Foreign Trade Association, Cologne, the Japan Institute of Foreign Affairs, the Chase Manhattan Bank, the Ford Motor Company, the Xerox Foundation and a few other organizations. The Leutwiler Report is not an official GATT publication and its first edition was made possible by the financial contribution of a number of sponsors. To the best of our knowledge, the Leutwiler Report was never adopted by the members as a GATT document.”

“I would like to state that the WTO is poised at a very difficult stage in its short history of 17 years. At this juncture, the foremost need is to build trust and confidence among the WTO members, so that all of us can move forward on the path of growth and development,” the Indian delegate stressed.

According to trade officials, South Africa said, with respect to the panel of stakeholders, that it would like to recall the objectives and terms of reference of the panel, and the selection of members to the panel. It said it would like to thank the Director-General for his reassurance that this would be under his responsibility, but the future course for the Doha Development Round will be a path charted by members.

It noted that the BRICS  group issued a statement at Puerto Vallarta saying that global value chains can be important, but the question is how the WTO and the Doha Development Agenda can advance the interests of developing countries in these value chains, and how these advances will help development, trade and poverty alleviation. It can be a tool for industrial and economic development, but it needs to be looked at in its totality.

South Africa said that trade opening should not be seen as a one-size-fits-all policy. If the objectives are to enhance the efficiency of global value chains without respect for development outcomes, then this is not something that South Africa would endorse.

It further said that at the moment, with the situation of job creation being rather grim in many parts of the world, it is going to be very difficult to try and get countries that have experienced intense job losses to support further trade opening. So, the way to consider this is to focus on selected opening with accompanying social policies. According to recent reports, Europe will not see job creation in any meaningful way until 2016.

It is important obviously for the WTO to look at issues that are coming up in the future, such as trade opening and reducing carbon emissions. For South Africa specifically, the question of food security is key, but the old issues have not gone away. These must be addressed before the so-called 21st-century issues are dealt with. For South Africa and Africa, this means agriculture – specifically, trade-distorting subsidies from rich countries continue to be very problematic.

Japan said that it would like to see the Information Technology Agreement (ITA) expanded and supports a deal on trade facilitation as well as agreement on LDC accession. It expressed concern about rising protectionism, and said the monitoring mechanism on trade-restrictive measures needs to be strengthened. The importance of the WTO’s dispute settlement mechanism is also increasing and rules that would make the Dispute Settlement Understanding (DSU) more effective would be welcomed as well.

It welcomed the Director-General’s panel for identifying future obstacles to trade and said that it had high expectations of this panel.

The European Union said that most of the focus of the first four months of 2012 had been on small steps. While progress is being made and guidelines are being formed, the progress has been too slow. There is a need to focus on the parts of the DDA where progress is feasible and to deliver in those areas that are most important to the most vulnerable members. The members should engage constructively on issues such as SDT and the 28 agreement-specific proposals, and the monitoring mechanism (for SDT). There is a need as well for improving the DSU. There has been encouraging progress made in this area in recent months.

As for trade facilitation, the discussions are moving forward at a technical level, it said, adding that it wants to build on the good work that has been done under the guidance of the chair. There is no doubting the win-win nature of this and its development potential. The G20 recognized its importance but also that there need to be some contributions to developing countries, especially the LDCs, on their capacity to implement an agreement.

More can also be done on non-tariff barriers (NTBs). There is a need to go beyond the technical work and begin to find ways where agreement will be possible, it said, adding that it would also like to expand the ITA to include NTBs as well as tariff reductions.

Locating the value added

Brazil said that it was glad that the Director-General had made clear that the findings and conclusions of the stakeholder panel will not reflect the views of the membership. On global value chains, it recognized the need for them. It is important to have access to this but it needs to be seen where the value added rests. Is it simply a case of benefiting multinational corporations largely, it asked.

Brazil is ready to support initiatives aimed at studying the impact of global value chains and this must be produced in a member-driven context with the WTO and UNCTAD. Claims that global value chains build a new narrative on trade may or may not be true, but it is important to understand that the DDA is an old narrative and agriculture is part of this old narrative and it is important to Brazil and all developing countries that there must be a way to energize the old issues as well as new issues.

Saudi Arabia expressed regret over the delay in concluding the DDA. In terms of economic growth and job creation, this agreement will be very important and members should allow economic concerns rather than political considerations to drive the debate.

The United States said that it agreed with the Director-General in that small steps and pragmatism are important. One of the reasons that MC8 was important was honesty, and the second reason was the call for different approaches. With the paint not even being dry on the MC8 decisions, it is troubling to see people reverting to some past practices. The importance of trade facilitation and services was discussed at the G20 and this should help to give some momentum to the discussions in Geneva.

In terms of the follow-up to Puerto Vallarta, the US said that it needs to be seen if talk can be translated into action. Blocking is always easier than engaging and already the US is hearing the issue of linkages being raised, it said. It would like to see the ITA being taken up.

China said that as the Director-General mentioned, the recent trade statistics and forecast are not encouraging, and neither is the macroeconomic situation. “In the context of an international crisis in which protectionism is a strong temptation, it is crucial that the Doha Round should be concluded as quickly as possible.”

Although it had been recognized that this is not likely to happen this year, China said it is encouraging that ministers at MC8 still made decisions on seven important issues as well as provided political guidance on the importance of the multilateral trading system, trade and development and the DDA.

“They instructed us to keep the ball rolling, make advances where possible and get better prepared for a full-fledged engagement once the time is ripe again. We should spare no efforts to implement ministers’ instructions so as to live up to their expectations.”

In so doing, said China, “we should place the concerns of developing members, especially LDCs, high on the agenda. LDCs are the poorest among us. Both developed members and other developing members have the moral obligation to help them reap more benefits from trade liberalization.”

To this end, China added, the seven areas where ministers made decisions at MC8 already encompass LDCs’ services waiver, LDCs’ accession and the extension of their transition period under Article 66.1 of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). “What remains to be done is to double our efforts to complete the work on LDCs’ accession by July this year as well as on substantiating the LDCs’ services waiver.”

Regarding the Doha Round as a whole, China noted that “ministers instructed us to take a pragmatic approach and try, as a step to conclude the single undertaking, to build consensus around Paragraph 47 [of the Doha Ministerial Declaration, which provides for early agreements within the single undertaking]. China reiterates its openness to topics to be chosen, including on which it might have difficulties. That being said, China stresses again its support to give priority to LDC issues.”

According to trade officials, Argentina said it shared some of the concerns about the stakeholders’ panel, and said it will wait till autumn to hear what the panellists have to say. The G20 has an important role to play in policy coordination but there is a need to be careful about transferring any discussions there to the WTO because the G20 is only a subset of the wider WTO membership. It pointed to the need for a bottom-up approach and a transparent and inclusive process.

Linkages to development

Mauritius, on behalf of the African, Caribbean and Pacific (ACP) Group, said that the G20 meeting would have benefited more had there been more ministers from the small, vulnerable economies there. It agrees to taking a step-by-step approach and focusing on those areas where agreement can be reached. It mentioned the fact that a member had spoken of linkages. It is true that members are no longer operating under the broader framework of a singe undertaking but it would be naive to assume that there are no linkages at all.

“We cannot allow cherry-picking and think that members will endorse this approach,” said Mauritius. Without linkages to development, many members will question whether it is even worth it. Among those areas where there could be some kind of progress would be the LDC issue of accession. It also wanted to see progress made on the LDC services waiver and on the 28 agreement-specific proposals, as well as the role of the Committee on Trade and Development being enhanced.

On trade facilitation, Mauritius said that the ACP Group is agreeable to negotiations and is engaged in this. It is not making linkages in trade facilitation but there are a number of issues on the table that require attention. These include the problem of legal configuration, in which commitments are made by members even though the mandate says specifically that only those commitments that are capable of being implemented should be scheduled. That means that there needs to be some understanding of the limits that countries may have in terms of their ability to put in place these new commitments.

Along these same lines, needs and requirements on the one hand should be matched with resources on the other, said Mauritius. There needs to be some way of monitoring needs and requirements with resources, it added.

Australia said that what Mauritius said was very interesting because it is clear that the ACP Group are keen to find solutions to existing problems. There is a need to move faster on the LDC accession issue and to get the issue of benchmarks for goods and services resolved.

On trade facilitation, it said that some of the comments from Mauritius were very interesting. “We need to be prepared to listen, rather than just lecture,” said Australia (speaking of the developed countries), adding perhaps “we have not been listening as well as we could and that might help us move forward on the trade negotiations if we were to do so.”

Australia underlined the need to focus on those areas that seem to be intractable, principally the market access issues. For Australia, this is particularly the case with agriculture. There is a need to see other countries engaging.

Singapore said participating in global value chains is extremely important. The global value chains are not a North-South phenomenon and there is healthy South-South trade in this regard as well. The new narrative that is being talked about is not one that would displace or sideline any work that is being done at the WTO.

Haiti said it agrees that trade facilitation can be a win-win proposal as long as there is a clear commitment to provide technical assistance and capacity building.

Chinese Taipei said that there is a need to look for issues that can be resolved. It is concerned about the existing global economic climate. Global value chains are key and in Chinese Taipei one can see small and medium-sized enterprises participating regularly in these. (SUNS7362)