TWN Info Service on WTO and Trade Issues (Dec11/05)
20 December 2011
Third World Network

WTO D-G issues report for ministers at MC8
Published in SUNS #7266 dated 23 November 2011

Geneva, 22 Nov (Kanaga Raja) - The Director-General of the World Trade Organisation (WTO), Pascal Lamy, has issued a report to trade ministers who will be attending the eighth Ministerial Conference (MC8) taking place in Geneva on 15-17 December.

In a cover note addressed to trade ministers, Lamy said that the report, prepared under his own responsibility, provides the ministers with an overview of work across the WTO, focusing on those areas which he believed deserves the ministers' particular attention.

According to the Director-General's report, these are not ordinary times and the ministerial conference will not be "business as usual".

"The world is experiencing the worst economic crisis since WWII. Developed economies have been buffeted by strong headwinds. Disappointing output, employment data and turmoil in financial markets have damaged business and consumer confidence," Lamy said.

He added: "While the outlook is more positive for developing countries, even those economies with strong fundamentals are finding themselves under strain as the global economy continues to show signs of weakness. Economies are not de-coupled. As long as growth remains sluggish and unemployment at unacceptably high levels, the risks of turning inward will be on the rise."

"In times of global economic uncertainty, the WTO's role is ever more important: not only as an insurance policy against protectionism, but also as an active instrument of international cooperation to create confidence by promoting growth and development."

Lamy said that "Ministers gathered for MC8 can contribute to the improvement of the global economic outlook to the benefit of all, provided you are ready to invest in the strengthening of the multilateral trading system, and provided you are prepared to see this as an opportunity. As the Director-General of the WTO, I am proposing to you that we work to ensure the WTO is seen as an organisation which moves forward."

"At MC8 we will need to review how the WTO has performed across the entire breadth of its work since we last met two years ago. Inputs for this will come from the regular reporting of WTO bodies, and from the preparatory consultations. Most importantly, MC8 will be the opportunity to chart a pathway for our work over the next two years," the Director-General added.

Noting that the WTO is often seen in a segmented way, focusing on one or other aspect of its mandate, to the detriment of others, Lamy said that his aim is to restore a holistic view of the WTO as an integrated system where negotiations, implementation of agreements, dispute settlement, monitoring and surveillance, capacity building, accessions and other activities all have their mutually supportive place.

"The WTO has a significant role in contributing to greater coherence in a world where economic integration is not matched by the same level of policy cooperation. To live up to this role, it must itself function in a coordinated way, bearing in mind that coherence begins at home," said Lamy, adding that Ministers are uniquely placed to contribute to this integrated perspective, which is all too easily lost in the more narrowly-focused concerns of the day-to-day in Geneva.

On the Doha Development Agenda (DDA) negotiations, Lamy said: "There is no beating around the bush: the Doha negotiations are at an impasse. Despite numerous pronouncements and commitments, Members have not been able to finalise the negotiations as originally envisaged."

Noting that on 21 April 2011, that he and the Chairs of the Negotiating Groups had unveiled the "Easter Package", Lamy said that in sum, the documents leave no-one in doubt about the value of what is on the table, but also reveals the issues that still divide Members.

He stressed that the area where this divide is most evident is market access for industrial products. "There are fundamentally different views on the ambition provided by the cuts to these tariffs under the agreed formula, on whether the contributions amongst different Members are proportionate and balanced."

Without specifying other areas of major differences such as in Agriculture, Rules and Services, Lamy said that although "there are other issues than industrial tariffs which are outstanding, and the Round cannot be completed without these being resolved, the key differences which have blocked progress in the Round are at present in the industrial area."

"Following the realization that the full DDA would not be possible by the end of the year", Lamy reported to ministers that "we embarked on a process aimed at delivering a smaller package by the Eighth Ministerial Conference."

It was understood that this was not going to be the final package, but rather a step forward to demonstrate with facts that "we could deliver on the entire DDA at a later stage."

From the start, he said, it was clear that Least-Developed Countries (LDCs) issues were a priority. But some Members felt that this component alone would not address their constituencies' requirements and that there had to be a "plus" element.

"We therefore explored the possibility of building an ‘LDC Plus' package which could include trade facilitation, a special and differential treatment monitoring mechanism, export competition in agriculture, a step forward on environmental goods and services, and a step forward on fisheries subsidies."

In July, Lamy said, it became clear that the "LDC Plus" package as Members had framed it was not taking shape.

He added that since September, he has been consulting with Members on "what next" for the DDA during and after MC8.

So far, Lamy said that his consultations have shown that while no Member is ready to give up on the objectives in the Doha mandate, "there is a collective sense that we need to explore different approaches from the ones already used."

In particular, Lamy said that Members wish to advance negotiations pragmatically in areas where progress can be achieved whether on a provisional or definitive basis, as a step towards delivering the entire Doha agenda. This possibility is already provided in paragraph 47 of the Doha Declaration. In addition, Members believe efforts need to be intensified to address areas where substantial differences remain.

"What is needed now is to operationalise these principles. Ministerial guidance is therefore essential to ensure that real progress can be achieved in 2012," Lamy said.

"In doing so, Ministers need to address the essential question behind the current impasse: different views as to what constitutes a fair distribution of rights and obligations within the trading system, among Members with different levels of development. For some, emerging economies have attained a level of competitiveness and efficiency in key sectors that warrants treating reciprocity as parity in obligations."

Others, said Lamy, emphasize that emerging economies still face formidable development challenges in many areas of their economies and are still far from enjoying the per capita income levels and standard of living of those in industrialised economies. In this world, it is argued, treating reciprocity as equality of obligations is not appropriate.

"It is clear that progress in multilateral trade negotiations, as is the case in climate change negotiations, will require a political response to this political question."

In addressing this question, Lamy said that it would be important to verify that all Members remain committed to the objectives enshrined in the Doha Development Agenda and more broadly in the World Trade Organisation.

Lamy went on to summarize these objectives as he saw them: keep opening trade; keep trade open; keep updating the rules that govern global trade to ensure these remain relevant to evolving trading patterns; and take measures to facilitate the integration of the world's poorest countries into the world economy.

"These global objectives stem from one belief that binds all WTO Members, namely that a more open and rules-based multilateral trading system is a useful tool in the hands of countries to generate growth, to help maintain and create jobs, reduce poverty and ultimately to help countries develop sustainably."

The Director-General also mentioned four other negotiating areas that are not part of the DDA, which in his view, deserve Ministerial attention: the Dispute Settlement Understanding (DSU) negotiations, Rules of Origin, the Information Technology Agreement (ITA) and the Plurilateral Agreement on Government Procurement (GPA).

On the DSU negotiations, noting that since the Seventh Ministerial Conference in 2009, Members have continued negotiations to improve and clarify the DSU, Lamy said that his sense is that Members are satisfied with the overall functioning of the dispute settlement system and recognise that the system is widely regarded as an example to follow elsewhere.

According to the Director-General, Members are not looking to make fundamental changes to the DSU; rather, they are seeking to make discrete improvements to the existing system.

His sense is also that the experts have worked long and hard to identify possible landing zones to the questions that remain open.

"The question in front of Ministers today is whether you believe the time has come for ringing the bell signalling the final lap in these negotiations, i.e. if Ministers wish to call now for a prompt conclusion of these negotiations."

On Rules of Origin, Lamy said that negotiations to harmonize non-preferential Rules of Origin for around 2,700 products in the nomenclature were launched 16 years ago, based on the belief that simple and clear rules of origin can help to improve the international trade environment and reduce costs for trade and economic operators.

So far, Members have reached an understanding on rules for some 1,500 products. Completion of the remaining ones is closely linked to the issue of whether these rules apply to trade remedies or whether trade remedies will follow a different set of rules.

"The question in front of Ministers is whether they believe that, after 16 years of negotiations, the time has come to reach agreement on the non-preferential rules of origin for the remaining products."

Beyond the non-preferential rules of origin also lie those applied to preferential trade. "We have seen some progress in the simplification of rules relating to preferential schemes for LDCs. But despite this positive sign, the proliferation and complication of different regimes - national, bilateral, regional or unilateral - need, in my view, to be seriously examined."

In recent months, Lamy noted, some ITA participants have begun reflecting on a possible new ITA negotiation to inter-alia expand the current product coverage and membership and to address non-tariff barriers. In parallel, there has been suggestion to transform the ITA into an International Digital Economy Agreement.

"These are interesting developments aimed at keeping the ITA rule book up to date with rapidly developing technological developments. This is in my view a promising area for future work. The question ahead of Ministers is whether the ITA can serve as an example to be emulated in other sectors."

With regards to the GPA negotiations, the Director-General said that for over 10 years the Members of the GPA have been negotiating an improvement in its rules, as well as an expansion in the market access it provides. A "GPA Package" is now within reach.

He added that a conclusion to the on-going negotiations would also facilitate a further round of accessions to the Agreement, including by Members currently negotiating joining the GPA such as China.

"In my view, the question ahead is whether you believe this is the time to step up efforts to conclude all aspects of the on-going negotiations and to turn the focus to the pending accession negotiations."

Lamy also addressed the issue of Regional Trade Agreements (RTAs), saying that RTAs are an increasing feature of Members' trade policies and it is therefore important that the multilateral trading system improves its understanding of these agreements.

For the moment, Members have pragmatically put aside the question of the legal relationship between multilateral and preferential trading systems and instead have focused on using the WTO Transparency Mechanism to seek to better understand the features of RTAs notified to the WTO.

"Overall, I believe that the transparency mechanism has allowed us to gain useful insights into each agreement. I nevertheless believe that there is much scope for a more in-depth look into issues across Regional Trade Agreements. This would help us further understand the extent of regulatory convergence and divergence in these agreements, as well as the scope for market segmentation. The question for Ministers is whether MC8 could be a good occasion to launch an enhanced dialogue about Regional Trade Agreements."

Lamy also went on to report in the areas of building trade capacity in developing and least-developed countries, accessions to the WTO, WTO outreach, coherence in global economic policy-making, and the work of the Secretariat.

Meanwhile, in a separate annual report on developments in the international trading environment, released on Monday, the Director-General said that the outlook for the global economy has worsened considerably in recent months. Risks and uncertainties are increasing, after the encouraging signals of recovery seen at the end of 2010.

"Global activity is slowing down, economic performance continues to be uneven across countries, debt levels and financial volatility are rising, high unemployment levels persist in many countries, and confidence has recently fallen sharply. These risks are aggravated by perceptions in markets that governments' responses to these challenges have so far been inadequate."

The report, which reviews trade and trade-related developments during the period mid-October 2010 to mid-October 2011, said that world trade has grown more slowly than expected in recent months. Developed economies have been hit by a number of problems ranging from shrinking global demand, to the impact of natural disasters, to issues related to national budgets, credit conditions, and the sovereign debt crisis.

Trade growth in developing countries has also been adversely affected by global developments, including signs of overheating in some major emerging markets. In light of the deteriorating economic situation, the forecast for world export growth in 2011 was revised to 5.8%, down from the earlier estimate of 6.5%. Developed economies' exports are expected to rise by 3.7% and those from developing countries by 8.5%.

The Trade Policy Review Body (TPRB) monitoring exercise and individual Trade Policy Reviews undertaken in 2011 show that on the whole governments have largely continued to resist protectionist pressures, although an upward trend was observed this year in the imposition of new trade restrictions, said the report.

During the period under review, 339 new trade restrictive measures (and those that have the potential to restrict or distort trade) were recorded, which is 53% more than in the previous period. In particular, the number of new export restrictions has increased sharply; although accounting for only 19% of total restrictions during the monitoring period, export measures were the fastest-growing component.

Moreover, said the report, there is a growing perception that trade protectionism is gaining ground in some parts of the world as a political reaction to current local economic difficulties - difficulties that trade restrictions are very poorly equipped to resolve.

"There are various signs of a revival in the use of industrial policy to promote national champions and of import substitution measures to back up that policy. Unilateral actions to shield domestic industries, although appealing from a narrow short-term perspective, will not solve global problems; on the contrary, they may make things worse by triggering a spiral of tit-for-tat reactions in which every country will lose. These developments are adding to the downside risks to the global economy."

The report said that the multilateral trading system has been instrumental in maintaining trade openness during the global financial and economic crisis. "WTO Members need to preserve and strengthen this system so that it keeps performing this vital function in the future. The best way to further open trade in a global, predictable and transparent manner remains the multilateral route. The multilateral trading system has helped countries navigate the crisis so far and resist protectionism."

According to the report, in a context of greater economic uncertainty and rising global risks, it is all the more important that the process of global trade opening continues; not only by WTO Members showing pragmatism and determination to find a way out of the current impasse in the Doha Round, but also through accession to the WTO of the Russian Federation, Samoa, Vanuatu, and other acceding countries, as well as through the prompt conclusion of the Government Procurement Agreement negotiations.

The forthcoming eighth Ministerial Conference provides a possibility to find a way forward, the report said.