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TWN Info Service on WTO and Trade Issues (Oct06/03)

10 October 2006


Report 2 of UNCTAD meetings

Supachai and Lamy give views on Doha suspension at TDB
By Martin Khor (TWN):  Geneva, 28 Sept 2006

The suspension of the World Trade Organisation's Doha negotiations should not lower the expectations for the development dimension of the Doha Round.

Stating this at the Trade and Development Board (TDB), the UNCTAD Secretary-General Dr Supachai Panitchpakdi said development had not yet been effectively integrated into the core areas of market access negotiations.

Supachai was speaking at a session on the WTO's post-Doha work programme at the opening day of the TDB on 27 September. At the same session, the WTO Director-General Pascal Lamy said a resumption of the talks would depend maninly on whether there could be successful work in the capitals, which he called "heavy political lifting."

The leaders of the two organizations did not provide any new information on progress since the suspension of the Doha negotiations at the end of July, nor on when they expect the talks to resume. In fact, Lamy in his official statement, said very little about the current WTO situation, preferring to make a critique of UNCTAD's Trade and Development Report 2006. He only made more detailed comments on the current state of negotiations in answer to the comments of some diplomats who spoke after the two officials.

Supachai said that the suspension need not lead to a lowering of ambitions with regard to the Doha Round's development dimension, recalling that the 2005 World Summit Outcome committed to work expeditiously towards implementing that dimension.

"Achieving meaningful and substantial development content remains indispensable for a successful outcome of the negotiations in all areas and would also give a major boost to the world economy," said Supachai.

"Development has been set at the heart of the negotiations but has yet to be fully and effectively integrated into the core areas of market access negotiations. This is where most of the commercial benefits would arise.

"It requires improved effective market access and entry for exports of developing countries, as well as improved donor support in building their supply capacities, competitiveness and trade-related infrastructure.

"It also requires helping developing countries to benefit more fully from the opportunities generated by multilateral trade liberalization, including through effective Aid-for-Trade. Such objectives must be vigorously pursued if the Round is to deliver its development promise."

Supachai said a successful, balanced, and development-focused conclusion of the Round is a common global good. The Round was also meant to contribute to the MDGs, which includes halving poverty and creating the kind of trading system that best promotes development.

Experience teaches us that trade works for development, but only under the right conditions. Rules must be fair, clear and balanced; an enabling policy environment must be assured; and market access and entry opportunities must be provided to all participants.

Supachai added that countries' prospects for export-led growth and development have diminished with the suspension of the Doha Round. Recent failures to advance in the negotiations have even lowered countries' confidence in the multilateral trading system itself.

The current suspension of the Round risks detracting from any significant development yields expected from progress achieved in the negotiations thus far. Many development-related areas of the agenda have been "put on hold". For example, LDC exporters are still deprived of opportunities to export goods duty- and quota-free to their principal export markets under transparent and simplified rules of origin.

Agricultural exporters in developing countries must continue to wait for a reduction of export subsidies in agriculture. And cotton growers and exporters in West Africa see no immediate action for cotton subsidies to be addressed ambitiously, expeditiously and specifically, as had previously been expected to occur in 2006. Unfortunately, the suspension of the talks hurts the world's poorest most acutely.

But aside from missing a historic opportunity to provide immediate and direct gains to spur development worldwide, there are many long-term systemic implications of the suspension.

First, the suspension is undeniably a temporary setback to the multilateral trading system. The current round of negotiations, if concluded with a substantial development-oriented outcome, could bring gains for economic growth and poverty alleviation.

Second, the suspension sends a negative signal on the future of the world economy and might encourage a resurgence of protectionism. Third, countries might risk intensifying their pursuit of bilateral and regional trade initiatives with deeper commitments; such agreements are already proliferating.

Fourth, the distortions caused by subsidies in world agricultural trade will persist at the current level, thereby jeopardizing the prospects of developing countries to generate additional export revenue and income from agricultural exports. This is because agricultural subsidies can only be addressed in multilateral forums, and no single RTA can possibly replace such an important function of the MTS.

Fifth, countries are likely to have increasing recourse to dispute settlement. The inability to find negotiated solutions to trade concerns will lead only to more formal and judicial solutions, which are more confrontational and could damage bilateral trade relations. These negative consequences of suspending the Round point clearly to the need to resume the negotiations sooner rather than later.

Supachai said that arguably, the suspension of the Round has cast uncertainty on the overall negotiating process and its eventual conclusion, particularly in terms of the timing, quality and ambition of a possible final package. And prospects for resumption are subject to developments in domestic electoral processes and political decisions.

He added that many have expressed concerns that the scheduled expiry of the US Trade Promotion Authority on 30 June 2007 will make the negotiating prospects less clear unless negotiations are resumed soon.

Since an open, non-discriminatory and rule-based system should be deemed as a public good that provides a fair share of benefits to all, it is the common responsibility of all countries to demonstrate the renewed political will and additional flexibilities needed to facilitate the resumption of work with a leadership role for the key players.

UNCTAD's commitment to the multilateral trading system, and to assuring development gains from the international trading system and trade negotiations, remains part of our central mission and vocation, Supachai concluded.

Lamy spent almost all his presentation time on a critique of Trade and Development Report. On the suspension, he said serious political reflection has been taking place since the suspension in July. He was convinced that the process will result in acknowledgement that there is no acceptable alternative to the successful conclusion of the Round.

He added that resumption of talks would make sense only if the major countries make a change in their positions. This won't happen unless there is "heavy political lifting" back home, and most of the negotiations now have to take place at home.

Hopefully, this will take place and meanwhile there should be a focus on the aid-for-trade initiative. Lamy said his position is that aid-for-trade is not part of the single undertaking and therefore should continue on its track. This view is reinforced by the political messages from many members restating their commitment to a comprehensive aid for trade package.

In later comments, Lamy said the suspension had created a shock in many capitals which made them face the consequences and costs of failure to the political bosses. The cost of failure, he said, is unfairly distributed with much higher costs to smaller countries.

He added that there is a consensus among members that "if we re-boot, we should re-boot from the previous page." To re-start before Hong Kong or the July 2004 package would not be possible.

On substance, he said the problem is less one of ambition level and more of the issue of proportion (between the commitments on domestic subsidy and market access in agriculture).

Where we now are, said Lamy, he was less worried about ambition as there was a major step forward compared to the Uruguay Round, on both tariff reduction and subsidy reduction.

According to him, the Uruguay Round reduced domestic subsidy by 20-25% and now the reduction rates are three times more. Yes, there is "water" (between the ceiling and applied levels), he said, but reducing the ceiling and water contribute to the system's stability.

It was the same with tariffs. The proposed reductions are two to three times more than the Uruguay Round as "we switched technology from the average approach to the banded approach", in which the high tariffs had to be lowered by more.

In terms of impact on trade, said Lamy, if you reduce tariffs from 7% to 5% the impact on trade is not much, whereas if you reduce tariffs from 60% to 25% it is huge. The impact on trade growth is important.

Lamy said there was no agreement in July because of the proportion issue, or who has to pay to get what, or the "exchange rate between the reduction of subsidy and market access." Both an increase in market access and a reduction in subsidy are mandated. It is a matter of proportion.

Lamy said he was often puzzled how much attention is paid to the proportion issue and how little on ambition. In domestic politics, how much you get vis-a-vis your trading partner gets is stressed. Marginal issues are not important, concluded Lamy, if you look at the global picture we'll have more hope.

Earlier, Lamy commented on the Trade and Development Report's treatment on policy space. "It is often argued that international commitments in the finance or trade fields are preventing developing countries from realizing their true development potential, in that governments are prevented from intervening in the economy in ways that are essential to progress.

"When using this argument, I believe it is important to make the case not just for policy space but for "good policy" space. We need to make a convincing case as to why a particular policy is needed, basing ourselves on the facts."

Taking the example of the WTO's TRIMs agreement, he said it is more than debatable that the domestic value-added content of exports would increase if performance requirements were permitted. He asked if the aims of TRIMs could not be better achieved through the tariff structure.

On the WTO subsidies agreement, which is accused of impinging on national rule-making authority, "do we want to argue that the best contribution the WTO can make to development is to ensure that developing countries have no obligation in this area or that export subsidies should be allowed?"

Lamy said that regarding policy space and industrial tariffs, the report argues for flexibility on account of revenue needs and the desirability of high variance in tariff levels in order to tailor protection levels in the context of an industrial policy.

Developing countries could thus subscribe to a fairly low overall average tariff level, with plenty of autonomy to raise and lower individual rates.

"These recommendations go to the heart of the issue of what role governments can play in industrial development and diversification. Honest people may disagree, especially when it comes to the question of the degree of protection to be granted and the ability of governments to manage such policies effectively.

"This is fertile ground for debate, a debate which I believe must be engaged, looking at the facts."

Following the statements by Supachai and Lamy, several delegations spoke on the issue of post-Doha developments.

 


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