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TWN Info Service on WTO and Trade Issues (Dec05/09)

8 December 2005


Reassessing risks and dangers, on the eve of Hong Kong


As delegates from Geneva prepared to leave for Hong Kong, many were uncertain how the WTO's Ministerial meeting would be run, and how much negotiations are to be expected on the key issues, as against stock-taking and planning the post-Hong Kong schedule.

One thing is certain - there will be intense negotiations in Hong Kong over services. The WTO's General Council could not agree on the draft Ministerial declaration's Annex C on services and agreed to place square brackets around the reference to Annex C in paragraph 21 of the main body of the draft Declaration.

On agriculture and non-agricultural market access (NAMA), the expectation is that there will not be intense negotiations on these two topics, but more of a brainstorming exercise, guided by a set of questions for each subject.

However, a shift in this expectation may be taking place. Reports from the meeting of the Group of 7 finance ministers in London last Sunday indicate that India and Brazil were willing to make offers on NAMA and services as a contribution to break the deadlock.

The news from London, which reached Geneva on Monday, caught many WTO diplomats off guard, as it seemed to be at tangent with reports of another meeting involving six WTO members held in Geneva on 2-3 December.

Below is a report on the situation in Geneva on the eve of the Hongkong Ministerial. It includes comments on the "development package", a Japanese proposal for a negotiating timeframe for services and the implications of the reported willingness by India and Brazil of make offers on industrial tariffs and services.

With best wishes
Martin Khor
TWN

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Reassessing risks and dangers, on the eve of Hong Kong

By Martin Khor (TWN), Geneva 6 December 2005

As delegates from Geneva prepared to leave for Hong Kong (some of them via their own capitals), many were uncertain how the WTO's Ministerial meeting would be run, and how much negotiations are to be expected on the key issues, as against stock-taking and planning the post-Hong Kong schedule.

One thing is certain - there will be intense negotiations in Hong Kong over services. The WTO's General Council could not agree on the draft Ministerial declaration's controversial Annex C, which contains text on services for the Ministers to commit to.

At its meeting on 2 December, the General Council thus agreed to place square brackets around the reference to Annex C in paragraph 21 of the main body of the draft Declaration.

Since the services text in Annex C contains new commitments, and its acceptance would imply a basic change in the way the services negotiations are to be conducted in future, there will be very intense negotiations on how to handle the services issue (both in para 21 and in Annex C) in Hong Kong.

A lot of negotiating energy will be spent in Hong Kong on whether to remove the brackets (and accept Annex C unchanged) or to amend Annex C, and if so how.

By contrast, the draft text does not involve such new basic commitments in the other two market access issues of agriculture and non-agricultural market access (NAMA), either in the main body of the draft, or in the respective Annexes, which contain only reports by the Chairmen of the negotiating groups on the status of the negotiations.

The expectation is that there will not be intense negotiations on these two topics, but more of a brainstorming exercise, guided by a set of questions for each subject that was circulated by Director-General Pascal Lamy at the General Council meeting.

However, a shift in this expectation may be taking place. Reports from the meeting of the Group of 7 finance ministers in London last Sunday indicate that two major developing countries, India and Brazil (whose finance ministers were also invited to be present), were willing to make offers on NAMA and services as a contribution to break the deadlock in the Doha negotiations.

The news from London, which reached Geneva on Monday, caught many WTO diplomats off guard, as it seemed to be at tangent with reports of another meeting involving six WTO members held in Geneva on 2-3 December.

The Geneva meeting, attended by the Trade Ministers of the US, EC, Brazil, India, Japan and Australia as well as the Agriculture Ministers of the US, EC and Japan, apparently did not produce any breakthrough on either agriculture, NAMA or services.

At a press conference attended by Ministers of all the six WTO members, the emphasis was rather on how the Hong Kong conference should produce some specific outcomes for least developed countries, tackle the effects of preference erosion, and define an "aid for trade" programme (See SUNS #5930).

This prompted a journalist to enquire whether the Ministers were trying to come up with a "development package" containing nothing of great significance, as a face saving device for Hong Kong, to cover up the expected failure of not achieving results in agriculture.

This has in fact become almost the conventional wisdom in many Geneva diplomatic circles and among NGOs: that there will not be any outcome on modalities in agriculture and NAMA in Hong Kong, and that Lamy and the developed countries will try to escape the embarrassment by spinning to the world media that there is instead a breakthrough for poor countries in the form of a "development package."

At the African Ministers' conference in Arusha a fortnight ago, Lamy as well as the Hong Kong Trade Secretary John Tsang (who will chair the Ministerial) and a USTR official all proclaimed that Hong Kong will produce a "development package." The elements spelled out include specific special and differential treatment (SDT) decisions for LDCs; possibly another 28 SDT decisions as an "early harvest"; an extension of the TRIPS Agreement transition period for LDCs; and the star of the package - an aid-for-trade initiative.

The panel of speakers promising this were in for a surprise because some of the African leaders present denounced what they called an attempt to define for the poor countries what their development priorities were, instead of seriously addressing the real development issues as the Africans saw it.

These included the problems of preference erosion, the lack of solution to the substantial SDT and implementation proposals, the cotton issue, and the erosion of policy space caused by pressures during the present negotiations to get the developing countries to liberalise in all three sectors at an excessive pace that will adversely affect their development.

Since then, many potential elements of the "development package" that the WTO establishment was trying to cobble together have become wobbly or looking less promising.

There has been little progress on cotton (leading to angry words from a cotton-producing country in the Geneva Green Room); still no solution to the most important of the SDT proposals for LDCs; not that much to celebrate in the 7.5 year extension of the TRIPS transition period for LDCs (since conditions attached to it significantly offset its value).

As for the TRIPS and Health "permanent solution" adopted on Tuesday, it does not signify any progress, being only the "temporary solution" of August 2003 transformed into an amendment of the TRIPS agreement. That same system has been criticised by health authorities, generic drug producers, development NGOs and patients' organisations for being cumbersome in procedure and unworkable in practice.

And the preference erosion problem seems as intractable as ever. The Ministerial meeting of the six members discussed this issue at some length, and spoke about it at their press conference. But they did not come up with anything new or concrete, and it would be a miracle if they can do so in the short time remaining. This problem can be expected to loom quite large in Hong Kong.

That leaves "aid for trade". At the Arusha meeting, the African Ministers and officials were suspicious that this would be just a public relations gimmick lacking in substance or benefit. Worse, it would be used as a carrot to lure poor countries to commit to reduce their tariffs with the promise that there would be aid for them to tide over "adjustment costs."

The aid-for-trade initiative would, the Africans feared, be donor-driven rather than meet the recipients' needs. There would not be new funds, only the shifting of existing funds from other baskets to "trade." And much of the funds for trade would not be to assist the countries develop their supply capacity (which is what is ultimately required if they are to benefit from trade) but to get them to implement their new trade facilitation obligations, which would be to facilitate imports, not exports, and thus benefit the producers of other countries.

The African Ministers placed their own understanding of "aid for trade" in their Arusha declaration. But the section on aid for trade in the draft Ministerial text has nothing concrete, its only commitment being to convene a meeting at the WTO before July 2006 to consider how aid for trade might contribute to concluding the Doha negotiations.

At the Geneva Ministerial meeting of six members, there was no breakthrough on agriculture or NAMA, according to diplomatic sources.

An interesting development was a proposal by the Japanese Trade Minister for a post-Hong Kong "timeframe" for plurilateral negotiations in services. This early tabling of a schedule shows how keen the Japanese are to get mandatory plurilateral negotiations adopted in Hong Kong as a major negotiating method, and how far they have already planned to get the maximum results from it - the opening up of the services markets of the developing countries.

According to the "timeframe", in February 2006, groups of members would submit plurilateral requests to other members. The Services Council in special session would take note of sectoral and modal plurilateral requests and the names of participating Members in each requested item.

[Presumably, the Japanese are expecting Annex C of the Ministerial text to be adopted in Hong Kong, and their "timeframe" is a schedule to implement it. Paragraph 7(b) of the annex states that members making requests and members to whom such requests are made shall enter into plurilateral negotiations to consider such requests. This is being opposed by many countries, including the ACP and African Groups.]

According to the timeframe, in March the first round of plurilateral negotiations would be held, through plurilateral meetings of sectoral and modal experts. In April, the Services Council would hold a stock taking of progress of the negotiations. In June there would be a second round of plurilateral negotiations, and at the end of June another stock taking at the Services Council.

The proposed timeframe also calls for submission of second revised offers at the end of July. Further negotiations would take place in September and October, with another stock taking by the Council at the end of October. Finally, in December, there would be submission of final draft schedules of commitments.

An interesting feature of the Japanese document is that it places sectoral/modal and plurilateral negotiations together in a single cluster of activity. In Annex C, they are separate, with sectoral/modal objectives placed in paragraph 2 while plurilateral negotiations are in paragraph 7.

The Japanese document confirms that for the main services demandeurs, the two categories are really so closely related that they are part and parcel of one another.

The connection between paras 2 and 7 thus become clearer. If participation in plurilateral negotiations is on a compulsory basis (at least for members to whom requests are made), then participation in plurilateral negotiations on a sectoral/modal basis is also compulsory.

There are already groups of demandeurs known as "Friends" of particular services in more than ten sub-sectors. At present, the demandeurs can approach a targeted country for discussion, but it is up to the country whether to respond.

If Annex C is adopted without change, then the "Friends" of a particular sub-sector can approach a number of countries, and ask to negotiate with each of them individually, or all of them in a plurilateral negotiating group, and their participation is mandatory.

Within a short time - in a matter of a few months, according to the Japanese timeframe - the plurilateral approach will overtake the present main bilateral request-offer approach, as the main negotiating method. And the pressures will be much more intense on the targeted countries than previously, while the GATS flexibilities available to developing countries would be eroded.

Meanwhile, the statements made by Brazil and India at the London G7 Finance Ministers' meeting have caused ripples in Geneva and probably in quite a few capitals.

According to a Reuters report dated 3 December, Brazil and India offered concessions on industrial goods and services to break the impasse in trade talks but made clear that developed countries must at least match their moves.

India was reported to have offered to lower its industrial tariffs by more than the 50% it has already proposed, if there is a proper response. A statement issued by India after the meeting said: "We have offered a 50% cut in tariffs. This has not been matched. India is willing to undertake higher cuts provided developed countries can match or take higher cuts. As far as services are concerned, we have made a number of offers and depending on the response, are prepared to move forward."

Brazil's Finance Minister, Antonio Palocci, said: "Brazil is ready to move their position about industrial tariffs provided the US and EU move too in agriculture." In a statement, Brazil said: "In an effort to contribute to the success of the WTO Doha round, Brazil is also willing to actively participate in the services negotiations." Palocci added that he would like to open Brazil's re-insurance sector. But he said at this moment the US and EU proposals on agriculture are clearly insufficient.

The developed countries were cheered by the India and Brazil statements. The German finance minister Peer Steinbrueck said they gave the impression that "a window is going to open" in Hong Kong.

A senior Geneva-based diplomat from the Group of ACP countries, commenting on the London reports, said that he was concerned that the major developing countries might be willing to engage in serious negotiations on NAMA and services and could offer concessions that surprise other developing countries.

If this happens, it would make it much more difficult for the smaller developing countries to fight off pressures from the developed countries to cut their industrial tariffs steeply through a simple Swiss formula with a low coefficient, said the Ambassador.

And on services, India has already indicated that it is in favour of Annex C, while Brazil did not seem to have any real objections after the reference to "quantitative targets" was dropped in the draft text, said the diplomat.

"Our Ministers and senior officials have to take the possibility seriously that real negotiations will take place in Hong Kong," he said. "They must be prepared to fight their own battles themselves, and not think they can rely on others fighting it for them."

It should be noted, however, that while the Indian and Brazilian finance ministers (both of whom are well known to be champions of liberalization within their respective governments) seemed to be signaling concessions on NAMA and services, they made it clear that these were conditional on there being adequate offers in agriculture from the US and especially the EU.

The possibility of an agriculture breakthrough from the EU faded in the past few days as a well-publicised effort by the UK leaders, Tony Blair and Gordon Brown, to change the terms of the Common Agriculture Policy through a reform of the EU budget, collapsed spectacularly as a result of opposition from France's President Jacques Chirac.

The UK government had even issued a massive 70-page document criticizing the EU's agricultural subsidies in the CAP, and campaigned to reduce the level of subsidies. It even offered to cut the budget rebate that the UK receives as a quid pro quo for France and others to accept a cut in agricultural subsidies. In the end, there was no agreement to cut the subsidies.

With French opposition seemingly so strong and effective, there is little room, if any, for the EU to provide significantly improved offers on subsidies or market access in agriculture.

In such a scenario, it would be premature for developing countries to make concessions on NAMA and services, especially since they are also not getting anything of substance on the "development issues" of SDT and implementation issues.

In fact, as trade experts from developing countries point out, even if the developed countries make commitments to end their export subsidies and really cut their applied levels of domestic support, the developing countries are not obliged to "pay" for this through NAMA and services concessions.

The developed countries should have ended their subsidies many decades ago, but managed to get agriculture out of the system of GATT rules, as a big special and differential treatment for themselves, paid for by the developing countries.

And then they had promised to reduce their protectionism during the Uruguay Round, but escaped from their meeting their obligations in subsidies because of the loopholes in the Agreement on Agriculture. Yet, the developing countries paid a heavy price for this unfulfilled promise, by accepting the TRIPS and services agreements in the WTO system.

Now the developed countries are making some offers in agriculture again, but independent experts agree that they do not amount to anything significant. Yet they are demanding from the developing countries real and deep cuts in industrial tariffs and wide market openings in services, which could well foreclose their development options and prospects.

It is quite the fool's bargain that the developing countries are being pressed to accept in Hong Kong or after Hong Kong. They should not feel obliged to agree to it.

 


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