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TWN Info Service on WTO and Trade Issues (Nov05/4)

2 Nov 2005


EC DEMANDS CONTRADICT UK MINISTER'S 'NO FORCED LIBERALISATION' PLEDGE


The latest set of proposals by the EU at the WTO seeks to impose extreme levels of liberalisation on developing countries. This is in stark contradiction to a recent speech made by the Trade Minister of the United Kingdom, which presently holds the Presidency of the European Union. This begs the question: Who really speaks for Europe?

"My first priority for Hong Kong is that we must not force liberalisation on developing countries," said Alan Johnson, the UK's Secretary of Trade, in a speech in London on 20 October. "This is a development round. We must make sure that this is true. Developing countries must have flexibility to plan development in line with their own national priorities.

"We can't demand shock treatment liberalisation from them, when we have cherished old fashioned protectionism for ourselves."

But on 28 October, the EU's Trade Commissioner Peter Mandelson, announced the EU's latest WTO proposal. Its offer on agriculture is linked to a condition that the developing countries take on extreme liberalisation commitments in services and non-agricultural market access (NAMA).

If these EU demands are accepted, they would threaten the business and the very survival of local manufacturing and services firms in developing countries.

Below is a report on the implications of the EU proposals, and on how it contradicts the UK Minister's speech.

With best wishes
Martin Khor
TWN

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EC's WTO demands contradict UK Minister's 'no forced liberalisation' pledge

By Martin Khor (TWN), Geneva, 31 Oct 2005


The latest set of proposals by the European Union at the World Trade Organisation which seeks to impose extreme levels of liberalisation on the developing countries is in stark contradiction to a recent speech made by the Trade Minister of the United Kingdom, which presently holds the Presidency of the European Union. This begs the question: Who really speaks for Europe?

"My first priority for Hong Kong is that we must not force liberalisation on developing countries," said Alan Johnson, the UK's Secretary of Trade, in a speech in London on 20 October. "This is a development round. We must make sure that this is true. Developing countries must have flexibility to plan development in line with their own national priorities.

"We can't demand shock treatment liberalisation from them, when we have cherished old fashioned protectionism for ourselves."

Explaining what he meant by rejecting forced liberalisation, Johnson said: "We won't demand concessions from least developed countries" and for other developing countries "we must not prevent them engaging in deals that could offer huge opportunities. Instead, we should pursue policies that require less liberalisation from them than we concede to them; and ensure that they have the flexibility to plan and sequence liberalisation in line with national development plans."

Johnson did not link any EU agriculture offer to liberalisation in the South. On the contrary, he concluded his speech this way: "So, these are the three areas which I think can form the basis of a deal at Hong Kong. No forced liberalisation on the poorest countries. Big steps to cut trade distorting agricultural subsidies in the developed world. And abolishing all developed countries' trade distorting agricultural export support by 2010."

Since the UK holds the EU presidency, Johnson chairs the meetings of Ministers of EU states on trade policy issues.

However, nine days later, on 28 October, the EU's Trade Commissioner Peter Mandelson, who is also British, announced the EU's latest proposal on agriculture, in which he made clear that a condition for its offers is that the developing countries take on extreme liberalisation commitments in services and non-agricultural market access (NAMA). If these EU demands are accepted, even in dilute form, they would threaten the business and the very survival of local manufacturing and services firms in developing countries.

Mandelson's demand for NAMA is that the developing countries slash their industrial tariffs using a Swiss formula with a coefficient of 10, which means that all their tariffs, except for a few, will be reduced to a range of 0-10%.

For example, tariffs that are now 10% would be brought to 5%; tariffs that are 30% would be cut to 7.5%; tariffs that are 60% would now be 8.6% and tariffs above 60% would go down to about 9%.

Some limited "flexibilities" would be available to developing countries to reduce a few of their tariff lines by less than this formula, said the EU paper. But in any event, all tariffs cannot exceed the level of 15%.

The EU also proposed a very harsh treatment of unbound tariffs. At present, countries are allowed not to "bind" in the WTO the tariffs of some of their products (usually sensitive items which need the most protection). Since they are not "bound", these tariffs can be set at or raised to any level.

The EU proposed to remove this flexibility in the harshest way. It wants all tariffs to be bound, and at very low levels. It proposed a system to mark up the applied rates of the unbound tariffs by 10 percentage points and then reduce them by the formula.

For example, a product with an applied tariff of 40% that is not bound would have 10 percentage points added to give it a base value of 50%. This would then be slashed by the formula, giving the result of the new tariff (now bound) of 8.3%.

Although many countries have liberalised their imports in recent years, they still keep moderate to high tariffs (some exceeding 50% or even 100%) for sensitive products to protect local industries. If all tariffs have to be brought down to the low levels demanded by the EU, many local firms would lose a large part of their business, or close down.

The EU demand in services is equally extreme. The present WTO rules on services allow developing countries the right to commit to open up various sub-sectors to the extent they consider appropriate, according to their national policies and interests.

Using this flexibility, developing countries have been cautious and have not opened up in many sectors in which local firms are unable to compete. Also, they have committed to open up only partially in some sectors, retaining some controls such as limits on foreign ownership.

Recently, the EU launched a campaign to establish a new "benchmarking" system in which developing countries must compulsorily commit to open up at least a certain number of services sub-sectors. Last Friday, it revealed the extent of its demands. It wants developing countries to increase liberalisation in 93 out of the 163 services sub-sectors (or 57%) classified in the WTO.

Further, it wants the WTO to launch "sectoral negotiations in key sectors to achieve quality offers for critical masses of WTO Members." By this it means that there will be additional efforts by (and thus pressures on) countries to open up in the most important sectors.

The EU mentions financial services, telecommunications, distribution services, construction, computer and related services, environmental services, financial, maritime transport plus certain sub-sectors of professional and business services.

According to the EU proposal, developing countries have to participate in sectoral negotiations in 8 out of 16 selected sub-sectors.

At a WTO meeting last week, 14 developing countries issued a joint statement opposing any attempts to include the "benchmarking approach" (or the setting of targets) in the Ministerial Declaration that will be adopted at the WTO's Hong Kong meeting. Many others spoke in support of the 14 countries (see SUNS #5905).

Despite this, the EU is insisting that its demands on services as well as on industrial tariffs be accepted, otherwise it will not keep to its agriculture offers.

The EU move is seen by many observers as deliberately asking for a "package", in which other partners have to accept its extreme demands in other areas (especially services and NAMA) so that it can shift the blame to them if its agriculture offers are rejected for being inadequate.

The scene is thus set for continuing the "blame game" in which each party uses public relations to try to shift responsibility to the other parties in the event that the Hong Kong Ministerial meeting does not succeed.

It is an extremely dangerous game, because the future development of the developing countries is being used as pawns in a high-level bargaining process that at the moment involves only a few countries.

The Doha talks have gone a long way down the hill from the high rhetoric of the Doha Declaration that launched them in 2001, when the Trade Ministers declared that the needs and interests of developing countries would be at the centre of the negotiations.

The developed countries keep talking about how this is a Development Round to benefit the developing countries. But in their concrete proposals and demands, they are cynically doing the opposite, as the EU's latest paper revealed.

It could be that the UK Minister meant what he said. If so, the EU Trade Commissioner and his negotiators are doing the direct opposite of what the Minister, who chairs the EU Presidency on trade, is advocating.

In his remarkable speech entitled "The Wall of Shame", presented at the Foreign Policy Centre, Alan Johnson said the kind of deal he wanted to see at the WTO's Hong Kong Ministerial is "one that sweeps away protectionism in the richest countries; whilst protecting the poorest."

He first reminded his audience of how in 1785 the then Prime Minister Pitt the Younger tried to reverse the protectionist measures imposed by Britain on Ireland, banning Irish ships from carrying exports; forbidding the import of Irish cattle; and levying huge duties on Irish wool.

Johnson recounted how Pitt tried to persuade Parliament to bring these trade barriers down, describing Ireland's treatment as "a system of cruel and abominable restraint" and called for a "system of equality and fairness". But his proposals were voted down by protectionist forces, Ireland descended further into abject poverty and "the rest is history."

Turning to the WTO's Ministerial Conference in Hong Kong, Johnson said it is a meeting of historic importance.

"Today's trade barriers run like a huge wall across the world," he said. "On one side of the wall, we have unprecedented change and prosperity; new technologies and products; text messages, emails and DVDs. On the other, a billion people living on less than a dollar a day; millions with AIDS; hundreds of thousands of mothers dying in pregnancy and childbirth every year.

"On one side, politicians discuss the challenges of our age - globalisation, climate change and energy. On the other, African farmers retreat into isolation: hoping for rain; trying to find the energy to carry water three miles back from the nearest well.

"On one side, that wall means security. On the other, it is a symbol of opportunity denied and prosperity withheld. It represents an uncrossable barrier between what you aspire to achieve and what you're able to achieve.

"The history books tell us how these walls grew - sometimes at the behest of vested interests, the same vested interests that stopped Pitt's reforms. Whether it was right or wrong, they were sometimes created to try and foster new industries.

"In Britain, we used barriers in the Industrial Revolution. America did too. In the 19th Century, President Ulysses Grant responded to British lectures on free trade by saying that, 'within 200 years, when America has gotten out of protection all that it can offer, it too will adopt free trade.'"

"Europe has protected extensively since the war. Particularly in agriculture. And the South East Asian tigers have too. Japan and South Korea were protectionist in the 60s.

"Protectionism has been ubiquitous. It's not clear whether these walls actually supported development. But what is clear is that much development did occur behind them. So when some say that all countries have to do is liberalise, tear down barriers and remove regulation to become an overnight economic success - I reject that view.

"We have seen all too often before how the World Bank/IMF 'one size fits all' shock therapy prescription has produced macroeconomic instability, rising unemployment and profound inequality. Societies and economies have been left dislocated.

"We must proceed with sensitivity. Developing countries must have flexibility to plan development in line with their own national priorities.

"We can't demand shock treatment liberalisation from them, when we have cherished old fashioned protectionism for ourselves.

"So, my first priority for Hong Kong is that we must not force liberalisation on developing countries. This is a development round. We must make sure that this is true - not just in name, but in intent and outcome as well.

"We reject forced liberalisation. By this I mean: We won't demand concessions from least developed countries who often lack capacity to trade and sometimes depend on tariffs for their revenue base. Instead, we must leave it for them to decide the 'what, when and how' of their market openings.

"And for other developing countries we must not prevent them engaging in deals that could offer huge opportunities. Instead, we should pursue policies that require less liberalisation from them than we concede to them; and ensure that they have the flexibility to plan and sequence liberalisation in line with national development plans.

"Some might say this is fundamentally unbalanced. But we can't demand a balanced settlement to a system that is so fundamentally unbalanced to begin with.

"To quote another US President - Lyndon Johnson, speaking in a different context: 'You do not take a man who, for years, has been hobbled by chains, liberate him, bring him to the starting line of a race, saying 'you are free to compete with all the others,' and still justly believe you have been completely fair.'

"My second priority is for us in the rich world. Now we have developed, now we have grown our wealth, we must cut our trade distorting agricultural subsidies and remove our barriers. In Europe, we spend half our budget on agriculture. This money supports 4% of the European workforce, at the expense of more than half the workforce in many sub-Saharan economies.

"In Japan, they subsidise their rice to 5 times market value. But it's not five times tastier than Vietnamese rice. The American cotton industries receive $4 billion a year in subsidies - more than the entire GDP of Benin - a country where the cotton industry accounts for more than three quarters of exports and is, incidentally, in deep crisis.

"We can't preach liberalisation abroad and practice protectionism at home. We must show a lead. Too many times, the rich world talks big, then delivers small. At Hong Kong, we need more political will and less political will not.

"The third priority is to commit to abolish developed countries' trade distorting agricultural export support by 2010. Some say we can't put a date to this. But without a date, the developing world will fear that this will drag on and on. And, given the history, who can blame them? So we must make a firm date.

"These are complex issues. It is hard to do them justice in a speech. As Tuesday's meeting in Luxembourg showed, it is going to be hard to ensure a progressive European position at Hong Kong.

"But it was our 2004 White Paper that raised the hypocrisy of developed countries lecturing poor countries about opening their markets whilst protecting their own. And it is tackling this hypocrisy, above all, which holds the key to success at Hong Kong.

"So, these are the three areas which I think can form the basis of a deal at Hong Kong. No forced liberalisation on the poorest countries. Big steps to cut trade distorting agricultural subsidies in the developed world. And abolishing all developed countries' trade distorting agricultural export support by 2010.

"This is an ambitious agenda. But big problems need big solutions. We have still failed to address the other problem that was on our television screens and in our living rooms twenty years ago. Despite all the goodwill, all the good intentions, all the good work - poverty, malnutrition and disease are still tearing across the continent of Africa with the same relentless savagery.

"We must bring this wall of shame crashing down once and for all. If we do this - by demonstrating that when we said this was a development round, we meant it - we will lift millions of the world's poorest out of poverty for good and entrench prosperity and security across the world. It's worth fighting for."

 


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