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TWN Info Service on WTO Issues (July04/9)

20 July 2004

Third World Network

 

TWN’S  COMMENTS ON THE JULY GENERAL COUNCIL DRAFT DECISION (16 JULY 2004)

On 16 July, the WTO’s General Council chairperson and the Director General issued a draft of the “July package”, containing a set of decisions to be taken by the WTO General Council meeting to be held on 27-29 July.

The document is entitled “Doha Work Programme:  Draft General Council Decision of [...] July 2004”,  and its document number is JOB(04)/96.

Below is a paper containing the Third World Network’s comments on this July package draft.

In general, the July draft is found to be very disappointing.  It fails to meet the needs and requests of developing countries in many areas, whilst the needs of the developed countries are mainly taken care of.   The text would have damaging effects on developing countries’ economies in agriculture and industry, and it does not advance the “development issues” of special and differential treatment and implementation, but further marginalizes them relative to other issues.  It also decides to launch negotiations on trade facilitation, when the consensus on modalities has yet to be reached.

This week, the WTO members will be discussing the July Package first draft.

It is not known when a second draft will be issued.

With best wishes

Martin Khor

TWN

 

 

COMMENTS ON THE JULY GENERAL COUNCIL DRAFT DECISION (16 JULY 2004)

A paper by the Third World Network

GENERAL

The July draft in general is very disappointing.  It fails to meet the needs, requests and positions of developing countries in many of the areas.  The development concerns are not given priority or even recognition and respect, in many areas (especially in NAMA, S and D, implementation and agriculture) and in overall balance.  On the other hand, the needs of major developed countries are mainly taken account of, especially in NAMA and agriculture.

AGRICULTURE

General:  Annex A on agriculture is imbalanced in favour of the developed countries, especially the US and the EU, and against developing countries.  The text provides definite proposals to cater for many of the defensive and offensive interests of the developed countries, while many of the key concerns of developing countries are ignored or treated in a vague manner. This is significant as the July package will guide future work on the negotiations. Issues which are not addressed will have a hard time being re-introduced after the adoption of the July Package. Issues which are mentioned but in an inappropriate and/or inadequate manner would be picked up in the subsequent negotiations in that manner, downgraded in the negotiations, or simply jettisoned, as it did not feature with sufficient prominence in the July Package.

The fulfillment of the defensive needs of the developed countries of EU and US enables these countries to pursue more aggressively their market access interest vis-à-vis developing countries.  This is not dissimilar in effect to their earlier EU-US proposal submitted last August 2003, which has been roundly rejected by many members of the WTO. On the other hand, the text lacks specifics and is thus ineffective when dealing with the defensive concerns interests of the developing countries (especially those where small farmers comprise a large part of the population).  Rather the text has proposed that the details and nature of these proposals be postponed till after the adoption of the July Package. This is unfair and imbalanced, as well as dangerous for the developing countries: the mechanisms which may be developed to cater for the developing countries’ concerns could be limited by the explicit and concrete measures for the developed countries currently proposed in the draft

Domestic support:         The text gives full recognition to the continuance of blue box and green box subsidies which are generally adopted by the major developed countries. There is no guidance in the text about any possible elimination of these subsidies in future.

In paragraphs 7, 8 (tiret 2), 13 and 14, there should be an alternative formulation for possible elimination of blue box subsidies during a specified period. For example, the G90 countries have asked for “reduction in blue box measures with a view to their being phased out.”

In fact, the July text proposes to modify the Agreement on Agriculture (AoA) in order to expand the scope of the ‘blue box’, by modifying the criteria for blue box support measures.  Article 6.5 of the AoA says direct payments under production-limiting programmes shall not be subject to the commitment to reduce domestic support, if they meet some conditions.  The Blue Box exemption (from reduction commitment) is thus only for programmes that limit production;  the rationale is that the blue box subsidies are to assist farmers to phase out of  trade-distorting production.

The July text however creates a new or additional criterion for domestic subsidies that can be eligible for the Blue Box.  Para 13 of the text allows direct payments unrelated to current production to be placed in the Blue Box (under some conditions), which means they do not have to be subject to reduction commitments.  

The new ‘blue box’ criteria will enable the US to move some of its domestic subsidies now provided under the Green Box to the new Blue Box. This includes the counter-cyclical payments that the US has in relation to products like cotton.  Under the US Farm Bill, the US is domestically committed to make these payments to farmers (into future years as well) to offset the adverse effects of price fluctuations. The ability of the US to continue doing so under the Green Box is threatened by the findings of the recent panel decision that some of these payments are trade-distorting and thus cannot be provided under the Green Box.   Shifting such payments to the proposed new expanded Blue Box would allow the US to continue with the practice, without having to face the pressures of having to eliminate or reducing the payments. 

Hence, the July package proposal to expand the scope of the Blue Box will allow the continuation of some trade-distorting domestic support which should otherwise be eliminated or phased out. This has a particularly negative implication for the sectoral initiative on cotton meant to address the disastrous effects of US subsidies on the poor West African producers. (See comment on cotton, below). 

Furthermore, to justify another flexibility for the developed countries, the text introduces language to the effect that ‘blue box’ measures have a role in promoting agriculture reform. Thus, from an inequitable measure that is frowned upon and should be phased out, the ‘blue box’ is being newly legitimized.  In this new guise, the blue box is given added protection, the effect that “members which have recently used the Blue Box as an essential reform tool will need to be sure that such a review would not have the perverse effect of undoing their reforms.”

The proposed expansion of the Blue Box should not be accepted.  The existing blue box domestic support should be reduced with the view to phasing them out within a specified period.

This could cushion the extent to which the call for “substantial reductions in trade distorting domestic support” in the Doha Ministerial Declaration is being met by the developed countries.

On green box subsidies, para 16 wants to ensure continuance of the basic concepts, principles and effectiveness of these subsidies. This entrenches these subsidies deeper in the WTO system. In the part on green box subsidies, there should be an alternative formulation for working out a time schedule for elimination of these subsidies, particularly those that are direct payment to the farmers except in special and grave circumstances like natural calamities, retirement of area and resources from agriculture, etc. For payment in such special and grave circumstances, there should be well defined criteria and ceilings.

Market Access:    In market access, the text advocates “a single approach for developed and developing countries” and proposes that there should be a “tiered formula”.  This binds down the developing countries to follow a common “formula” along with the developed countries. This is dangerous for developing countries, especially those with a large rural population made up of poor, small farmers.  There should be an alternative formulation saying that the formula followed by the developing countries and the developed countries will be different, keeping in view the special situation of the developing countries in agriculture.

The mention of “tiered formula”, “bands”, and “the type of tariff reduction in each band”  (para 28) gives the impression that the Swiss formula or such similar formula will be worked out at least for some products. This doubt gets further confirmed by para 40 which talks of “lesser tariff reduction” in developing countries in “each band of the tiered approach”.  It should be clarified that no such formula approach/ tiered approach/band approach will be applicable to the developing countries. 

The developing countries have been arguing that they be given the policy space to protect their small farmers from import surges, and that their special products (SPs) not be subjected to tariff reduction.  Thus, instead of the tiered formula proposed in the text, an alternative to be applied for developing countries could be a two-category approach:   category 1:  special products, with no tariff reduction;  category 2:  other products, with reduction on the basis of an overall target (as in the Uruguay Round).  

The defensive interests of the developed countries are taken care of in the text by the proposal on “sensitive products” of developed countries.  Paras 29-35 of the text gives full recognition to these “sensitive products” which is demanded by the developed countries. With the supposed reason that developed countries have primary obligations of reform under the export competition and domestic support pillars, the text proposes concrete mechanisms to allow them to deal with their sensitive products.  In particular, there is a selection criterion, i.e. tariff lines which now incorporate out-of-quota tariff rates will be considered a “very close approximation” of the maximum permissible number of tariff lines for sensitive products. 

The concrete proposals have resolved the issues of the identification and treatment of sensitive products in accordance to the demands of the developed countries. Developed country members will be able to designate their sensitive products by reference to existing products on which tariff rate quotas apply. According to some estimates, in the case of the EU, this may have the effect of bringing between 15 and 20% of  products within the protection of sensitive products.  The text does not set any limit to the scope of selection done by this method, which means countries with a high number of tariff lines with out of quota tariff rates will be able to enjoy a larger coverage of sensitive products. While the text proposes the principle of “substantial improvement”, it also provides several qualifications and significant latitude in the treatment of sensitive products. The upshot is that the developed countries would be provided the space and flexibility to meet their defensive interests.

Furthermore, with this provision for their sensitive products, developed countries can afford to be more aggressive in the market access pillar, given that sensitive products can protect their tariff lines containing their tariff peaks and high tariffs, and that developed countries have relatively lower tariff profiles in general than developing countries in agriculture.

In contrast to the detailed treatment of “sensitive products” of developed countries, the text is general about the demands of developing countries for flexibility to deal with their “special products” (SPs) and the for a “special safeguard mechanism” (SSM) to guard against import surges. The SP/SSM alliance of countries have long requested that developing countries be allowed to self-designate their SPs, which would not be subjected to tariff reduction.  They have asked that a SSM be established for developing countries that can apply to all agricultural products.  These demands have also been backed by the African, ACP and G90 countries. 

However, the text merely states that developing countries will have the flexibility to designate, under conditions to be agreed in the negotiations, a certain number of tariff lines as SPs.   And regarding SSM, it only states that a SSM will be established for use by developing members under conditions to be agreed.   Thus, the text does not provide concrete proposals or mechanisms for developing countries to deal with their ‘special products’ and with establishing the SSM;  these issues are to be negotiated later.  Thus, how many tariff lines will be accepted as SPs is not indicated, and will have to be determined later.  The concrete proposals of the developing countries have not been recognized in the text.  The text should be revised to the effect that developing countries should be able to self designate these special products which should not be subject to tariff reductions, and not subject to new commitments regarding TRQs.

In para 43 on Special Safeguard Mechanism for the developing countries, there is a mention at the end of “under conditions to be agreed”.  This may give the impression that the SSM will not be applicable to all products by the developing countries, but only to some selected products. SSM should be available to the developing countries for all agricultural products. Hence the phrase “under conditions to be agreed” should be deleted.

COTTON

The main document “reaffirms the importance’ of the cotton initiative and refers to the references on cotton in Annex A on agriculture.  Paras 4 and 5 of Annex A refer to cotton.  But it only says that the cotton issue will be addressed “ambitiously and expeditiously.”  It then only refers to how the three pillars (domestic support, market access, export competition) will deal operate generally regarding agricultural commodities.  There is no special provision for cotton. 

Thus, while the text “re-affirms the importance” of the cotton issue and the related initiative, the specific proposals made by the poor cotton producing countries of West Africa are not reflected.  In addition, neither the demand by the G-90 and the ACP that the initiative on cotton should be treated on a stand-alone basis, nor of the African Union that the proposals on cotton should be resolved on a ‘fast track’ basis has been reflected.

Instead, the cotton issue is subsumed into the main agricultural negotiations, and in the agriculture text, cotton is only given a mention and not given any special treatment.  It is likely that the cotton initiative will wither under such conditions.

The possibility of a satisfactory outcome on this issue would also be undermined by the proposed introduction of the new ‘blue box’ to cater for the counter-cyclical payments by the US in support of their farmers, including cotton producers.  This would allow the US to move the current payments declared illegal under the green box to the ‘blue box’ in order to avoid taking action in compliance with the Brazil panel ruling on US cotton subsidies.  By this measure, the US is creating space for itself to be able, by the end of the negotiations, to move these subsidies into a new box, which does not require a reduction commitment. Whatever measures could be agreed in the negotiations to address trade-related aspects of the cotton initiative may therefore be undermined by such an action. 

The cotton issue and initiative should be accorded a stand-alone treatment.  The demands by the African cotton producing countries, that the cotton subsidies be eliminated within a specified period, and that a mechanism be set up to compensate cotton producers in the meanwhile, should be adopted.   Moreover, the proposal to expand the Blue Box criteria should not be accepted.  

NAMA

The main text says Annex B is adopted.   Annex B is merely a reproduction of the NAMA annex to the Derbez text.  This Annex had already been heavily criticized by many developing countries, including most recently by the ACP and G90 Ministers in Mauritius, which says it contradicts the Doha principle of less than full reciprocity and would further deepen the de-industrialisation crisis and accelerate unemployment and poverty.  The G90 also stated it is “disappointed by the decision of the Chairman of NAMA to transmit Annex B of the Derbez text as a basis for the preparation of the Framework without incorporating our concerns.”

Despite these explicit criticisms, Annex B of Derbez text now becomes Annex B of the draft July decision. 

It is surprising that the NAMA chairman has communicated his conclusion that “the only practical option was to forward the so-called Derbez Annex B” ..”not as an agreed text but as a platform for further negotiations”.   It is not known if he had the authority of the NAMA group to send such a communication. If not, then it is improper. It prejudices the position of a large number of the developing countries that have expressed themselves repeatedly against this Annex B. It is perhaps forgotten that the chairmen of various groups/ committees etc in the WTO do not have any authority of their own; they work only under the authority of the group/committee etc. They may express an opinion in the group/committee in order to facilitate the working; but when they express an opinion formally outside, it should be done only with the authorisation of the group/committee. Of course, he as the representative of his country is free to express his opinion which will then be taken as the opinion of his country, but for him to be quoted as chairman of the group/committee he should have the authorisation of the group/committee. Bringing forth Annex B to 16 July text appears to throw the clear objections of a large number of the developing countries totally off board.

The most serious problems in Annex B are:

·        Para 3 directs that work continue on a non-linear formula applied on a line-by-line basis.  This formula dictates that there be steeper percentage tariff cuts, the higher the tariffs.  Many developing countries have and require higher tariffs to protect their small industries,  The non-linear formula will drastically reduce their tariffs and threaten their local industries.

The words “should continue its work on a non-liner formula applied on a line-by-line basis which” should be deleted.

·        Para 4 tiret 2 implies that unbound tariff lines shall also be subjected to the non-linear approach, after they are bound (at twice) the applied rate.    This would have very serious adverse implications for developing countries.  Firstly, the applied rates have not been and should not be used as the basis for calculating tariff reductions.  Secondly,  there is the implication that all unbound tariffs should now be bound;  previously in GATT and WTO, developing countries have had the flexibility to choose the scope and levelk of tariff bindings;  thus this mandatory binding of industrial tariffs is a new and onerous obligation, reducing policy flexibility.  Third, after the exercise. (a) the presently unbound tareiff lines will be bound; and (b) the new tariff rates would be drastically cut as they are subject to the non-linear formula;  in many cases the new rates would be below the present applied rate.  The flexibility for raising applied rates would be eroded.     

The second part of the second tiret of para 4 (i.e. that states that for unbound tariff lines, the basis for commencing tariff reductions shall be two times the applied rate) should be deleted.

·        Para 6 on the sectoral tariff component (i.e. accelerated tariff reduction to zero) has the controversial line that “participation by all participants will be important”, implying it will be mandatory.  This is against the demand by most developing countries that such a scheme should only be voluntary.  If adopted, the Draft would commit developing countries toi eliminate tariffs on seven sectors or more, many of which contain local industries whose survival would be threatened.  (Annex B does not states which sectoirs are involved and thus the door is open to cover more than the seven sectors originally mentioned by the NAMA Group chairman in Geneva in 2003).

The text should be changed so that any sectoral scheme is voluntary, or that developing countries are exempted.

GENERAL COMMENT:   In the history of GATT, developing countries have not been subjected to a formula approach, let alone the drastic non-linear formula.  They have had the flexibility to generally choose the rate of tariff reduction, the sectors, and level of tariff bindings.  In the Uruguay Round, developing countries were given the target for an overall reduction of about 28% for bound tariffs.   The present proposals have very drastic adverse development implications, especially compared to the flexibility of the previous Rounds.  This flexibility should be retained, especially since the Doha work programme is supposed to be pro-development.   

“DEVELOPMENT ISSUES”

There is a comparatively long section on ‘development’ in the main text, but this only tries to hide the fact that (a) there is no annex on S and D or implementation, and (b) there is no operational or substantive content in the text.  Implementation and SDT became big issues insisted upon by developing countries ever since the 2nd Ministerial in Geneva and 3rd Ministerial in Seattle, and the developing countries’ persistence led to the high priority accorded to these issues in the Doha Declaration.

However after Doha, there has been little or no commercially significant decisions on SDT, and abysmal results on implementation.  Since Cancun, there has been no progress on these issues and the mechanisms for working on them have been ineffective.

There has not been satisfactory progress on SDT in the current agriculture negotiations.  As for NAMA, the present text as explained above is profoundly anti-development in nature.

The second para on development in the text is long on rhetoric on how the concerns of preference dependent, commodity dependent, net food importing, small, vulnerable developing economies, shall appropriately addressed or be taken into account.  However there are no details, substantively or operationally, on how these concerns are to be addressed.

For SDT, there are proposals to set new deadlines for the Committee on Trade and Development to review outstanding agreement-specific proposals, and Category II proposals and come up with recommendations.  But so many deadlines have passed, and there has been so little progress since Doha and Cancun.

For implementation, the text renews Members’ determination to find solutions.  However, there has been little or no such determination on the part of the major countries since Doha.  The old mechanisms that have not worked, i.e. the TNC, the negotiating bodies and other WTO bodies are asked to “redouble their efforts”;  this only tries to hide the fact that the status of implementation issues has plunged since Doha and even more after Cancun.  The DG is asked to continue consultations on certain implementation issues, but the only one mentioned is geographical indications, which is a significant issue for some developed countries, whilst the urgent implementation issues of developing countries continue to languish.

The implementation issues should negotiated within an effective mechanism and in a coordinated way (unlike at present) and a solution to these issues should be found before the finalization of the agreements (including agriculture and NAMA) being negotiated under the Doha work programme.  The rationale is that the current negotiations are about new commitments whereas the implementation issues are about the deficient implementation and malfunctioning of the existing agreements.  Prior substantive treatment of the implementation issues is necessary also because several of these issues are intimately linked with the subjects under the new negotiations.

TRADE FACILITATION

The main text “decides to commence negotiations” on the basis of modalities in Annex D.   According to the Doha mandate, such a decision to launch negotiations can only be taken on the basis of an explicit consensus on the modalities of negotiations.  However, the discussions to date have not yet produced such a consensus.  There are several issues where differences of views still exist, including the rationale or desirability of a binding agreement within WTO,  the costs of implementation and who will pay for these costs, and the applicability or otherwise of binding rules and the WTO dispute settlement system.   A document was also issued by a group of developing countries on the need to clarify a list of several issues before a discussion on modalities can give rise to consensus.  

The “modalities” on trade facilitation in Annex D do not deal with substantive aspects of how Articles V, VIII and X of GATT 1994 are to be “clarified and improved”.  Several of the points in the Annex are  presumably aimed at assuring developing countries which have raised many concerns about the desirability and lack of ability to implement legally binding new obligations under trade facilitation.  However this is inadequately dealt with.  For instance, para 3 says members “shall discuss and consider relevant costs to any proposed measures”, but it does not give assurance that the costs will be met through financial aid.   There is also only general assurance about ensuring technical assistamnce and capacity building.

There should be a common understanding first on the issues that require clarification before a full-scale discussion on the modalities, and only after an explicit consensus on the modalities should negotiations be started, if so decided.  There should not be a rush to launch negotiations when the so-called “modalities” in Annex D are so substantively weak or non-existent.  The weakness of modalities here (and the speed with which negotiations are sought to be launched) is especially stark when they are compared with the difficulties of reaching frameworks for establishing modalities in agriculture and NAMA.

INVESTMENT, COMPETITION AND TRANSPARENCY IN GOVERNMENT PROCUREMENT

The text says these three issues will not form part of the work programme set out in the Doha Declaration and therefore no work towards negotiations on any of these issues will take place within the WTO during the Doha Round.

The wording is such that the implications are that:  (a) though they fall outside the Doha work programme, they are still covered by the Singapore work programme or the WTO’s regular work programme, i.e. in the respective working groups on these issues; 

(b) although there will be no work “towards negotiations”, there would still be regular work or discussions even during the period of the Doha work programme.

[The term “Doha Round” is also used for the first time.   The proper technical term should be Doha work programme.]

The position in the text is different from the offer made in Cancun in the Green Room meeting, that the three issues be dropped from the WTO work programme, and not just from the Doha work programme.

The Cancun Green-Room position should be maintained, so that there should not be further work (either negotiations or discussions) in the WTO on these three Singapore issues.   At the least, there should not be any further work (including discussion) on these issues during the period of the Doha work programme.  Thus the words in the text “towards negotiations” and “during the Doha Round” can be removed.  The following line can also be added:  “Any further work on these subjects will be initiated in the WTO only with the explicit consensus of Members”.

CONCLUSION

It is unfortunate that the WTO has continued with the recent practice of the Chairman giving a text without reflecting the main concerns of a large number of members. Any such text at this stage, when basic differences continue on several issues, should reasonably contain alternative formulations in order to give fair chance to the parties to proceed with negotiations. It should not prejudge the possible converging points that may emerge in future negotiations on these issues. The positions of parties are gravely compromised and weakened by such subjective personal prejudgment. Instead of helping the progress of negotiations, such texts can aggravate the atmosphere of suspicion and frustration, as has happened since the Doha meeting.

This text advances the positions of the major developed countries on certain important points while it is, at best, keeping a status quo on the points of vital interest to the developing countries. Thus the text involves a lot of “give” by the developing countries without any significant “take” by them. Consequently the text is unbalanced and unfair.

 


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