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TWN Info Service on WTO and Trade Issues (Oct07/18)

23 October 2007


Preparing next stage of the WTO blame game

In the wake of the contentious General Council meeting of 9 October, powerful developed countries are pointing fingers at certain developing countries either to find scapegoats to blame if the Round collapses or to use as a tactic for not making credible offers themselves.

But officials of developing countries should worry about this only to a limited extent, because they also face increasingly knowledgeable and vocal constituencies at home, who are also ready to blame them if they sign on to a bad deal.

There are two aspects to the blame game - the international and the national.

The developing countries are accused of  "lighting a fuse to blow up this round"by the US Trade Representative's office..

The US and EU seem to be orchestrating a media campaign aimed at placing the blame squarely at countries like India, Brazil, South Africa and Argentina for squashing the Round if they continue objecting to the skewed Stephenson paper.

Below is an article published in the South North Development Monitor on 15 Oct 2007.   It is reproduced here with the permission of the SUNS.  Any reproduction or re-circulation requires permission of SUNS (sunstwn@bluewin.ch).

With best wishes
Martin Khor
TWN


Preparing for next stage of the WTO blame game
By Martin Khor (TWN), Geneva, 11 Oct 2007

In the wake of the contentious General Council meeting of 9 October, powerful developed countries seem to be positioning themselves to point fingers at certain developing countries either to find scapegoats to blame if the Round collapses or to use as a tactic for not making credible offers themselves.

But officials of developing countries should worry about this only to a limited extent, because they also face increasingly knowledgeable and vocal constituencies at home, who are also ready to blame them if they sign on to a bad deal.

There are two aspects to the blame game - the international and the national.

At the General Council, four groupings of developing countries presented a joint proposal on non-agricultural market access (NAMA) that in effect was very moderate. Its main message was that the developing countries should undertake lesser tariff-reduction obligations (in percentage cuts) than developed countries.

Such a principle is already in the Doha mandate for NAMA, which explicitly mentions "less than full reciprocity in reduction commitments".

Thus, the surprise is not that developing countries asked for what is obvious, but that they had to ask at all.

And the reason for that is that the draft modalities paper of the NAMA Chair, Ambassador Don Stephenson of Canada, proposes coefficients that result in the opposite of the mandate - with developing countries affected by the formula having to undertake industrial tariff cuts more than double the rates of the US, EU and Japan (about 52-65 per cent versus 21-27 per cent).

For expressing their continued dissatisfaction with (even anger at) with the Stephenson text and formally putting in their paper the principles and modalities they wish to see in the final NAMA outcome, the developing country groupings are now getting a tongue-lashing from the US and EU.

The developing countries are accused of "signaling the end of the Round" and of "lighting a fuse to blow up this round", in the words of a spokesman for the US Trade Representative.

The EU Trade Commissioner's spokesperson said "alternative papers are not needed and we await others to undertake the necessary negotiations."

The US and EU seem to be orchestrating a media campaign aimed at placing the blame squarely at countries like India, Brazil, South Africa and Argentina for squashing the Round if they continue objecting to the skewed Stephenson paper.

In its editorial titled "Doha or Die", the Wall Street Journal on 5 October ended with the paragraph: "The latest US concessions mean that Brazil and India can no longer use farm subsidies as an excuse for their own failure to move. If Doha dies, they will bear a large part of the blame."

The US Trade Representative Susan Schwab herself started the blame game early when in the first half of September she accused countries of being "obstructionist" for not accepting both texts as the basis of negotiations and threatened that "it will be very clear who the spoilers are." She even specified four developing countries.

If the US and EU have planned and built up the premises of their blame game, then the General Council statement of the developing countries would have triggered the next phase of their game.

The US can be expected to re-state at the agriculture Room E talks next week that it can live within the range of $13-16.4 billion as the maximum level of allowed overall trade-distorting support, but in return everyone else will also have to accept the other ranges in both the agriculture and NAMA texts.

And in this plan, when the developing countries re-state their case on why they cannot accept the ranges in Stephenson's NAMA paper, the US joined by the EU are almost certain to call "Foul!" They will state that the developing countries must accept the NAMA text since they are willing to work within the agriculture text.

And they will ignore, and try to hide from the public, that the agriculture text was built up through consultations that try to reflect various views (though it still contains gaps and flaws), while the NAMA text has ignored the positions of a wide range of developing countries, is biased towards the developed countries, and is not in line with the key mandated principle of less than full reciprocity.

Yesterday, Brazil's senior trade official Roberto Azevedo, who is in Geneva, hit back. He described the US comments on the developing countries' NAMA position as "unfair, unreasonable and irrational", according to an Associated Press report. Azevado said the US was threatening the developing countries with a "take it or leave it" ultimatum on eliminating protection for their fledging industries.

The Brazilian official added that the US move in agriculture was ambiguous and it needed to do more, according to the AP report. For example, in cotton, the US has rejected outright a call for a 82% cut in trade-distorting domestic support without even giving a counter-proposal. For subsidies in corn, rice, soyabean and wheat, the US is demanding subsidy limits up to 38% higher than what is entailed in the draft agriculture deal, Azevado told AP.

The developed countries often say that they have to satisfy their constituencies, such as Congress or manufacturers and farmers, and that accordingly the developing countries have to open up their markets or else there is no deal.

However, the developing countries also have active constituencies to satisfy, and thus some of them face pressures from home.

An example of this is the pressure put by Cosatu (Congress of South African Trade Unions) on the government of South Africa, which is the coordinator of the NAMA 11 and which represented the developing country groupings (ACP and Africa groups, small economies and NAMA 11) on NAMA at the General Council meeting.

Cosatu is a partner of the ruling African National Congress, and is recognized as perhaps the most powerful of the African region's trade union movements.

On 9 October, the same day that South Africa's Ambassador Faizel Ismail was presenting the NAMA proposal at the WTO, the Cosatu Secretary-General Zwelinzima Vavi addressed the South African Institute of International Relations on the topic: "Is South Africa risking its industrial policy space in the WTO and NAMA negotiations?"

He started by criticizing the negotiations for putting implementation issues and special and differential treatment at the bottom of the agenda although they had started at the top when the Round was launched.

"We are absolutely convinced that a number of governments, particularly from the European Union, together with the United States, are paying lip service to a development commitment," said Vavi.

"Instead, a terrible trade-off is being offered to developing countries -- increased access to the markets of developed countries for agricultural products in return for significant market liberalisation, particularly in industrial products.

"What this means for a country like South Africa is that we will be seriously de-industrialised, lose a significant part of our manufacturing sector, and become simply a producer of primary products and a destination for tourism. The proposed tariff cuts will cut very heavily into our labour-intensive sectors."

Vavi dismissed the developed countries' argument that developing countries should not be concerned about the tariff cuts as they will be allowed some flexibility, through excluding 5% of their tariff lines from tariff reduction or allowing 10% of tariff lines to take a smaller reduction than proposed by the formula.

"The reality is that these flexibilities will not sufficiently protect workers and light industry in South Africa and many other developing countries," he stressed.

"To take a South African example, we will see a substantial decrease in 255 tariff lines affecting clothing. If we calculate how many of these we could protect through the provisions for exclusions, we find that they are already 4.63% of all tariff lines.

"If you include the wider range of clothing, textiles footwear and leather, 15.3% of tariff lines are affected. This means that clothing, textiles, footwear and leather alone would not be protected by a 5% exclusion. There would be no space to even think of including automotive and components, plastics, furniture, downstream metals and a range of other labour intensive sectors.

"Using the formula to reduce our tariffs will also not allow South Africa to industrialise in the future, as we will not be allowed to raise tariffs to a sufficient level to protect developing, or labour-intensive, sectors. This will condemn us to being providers of raw materials for exports."

Vavi said the developed countries' agricultural subsidies are very harmful to developing country producers, and can only be addressed multilaterally, through the Doha round, as no developed country will reduce subsidies in a bilateral agreement or unilaterally.

However, a very high price is being asked for reduction of subsidies that are prohibited in the first place. The proposals for reductions in domestic support will only reduce the maximum spending levels, but not the actual spending. In other words, the US will be able to even increase its domestic support spending still further.

In Agriculture, the tariff reductions by the developed countries might be much less in the end than proposals might assume because of the lenient treatment of "sensitive products," so the gains for South Africa are questionable. At the same time, South Africa will also be obliged to open up its own market for agricultural products.

"The Agriculture commitments by developed countries need to be compensated for in other areas of negotiations as well, namely NAMA and Services, where demands on developing countries including South Africa are disproportionate," said Vavi.

"The demands in fact violate the Doha mandate and the principle of less than full reciprocity, and the NAMA draft modalities of July 2007 would require developing countries to make higher tariff reductions than developed countries.

"Not only are these modalities unfair and against the Doha mandate; they will also have a devastating effect on employment in South Africa and will seriously restrict South Africa's capacity and policy space to be able to industrialise and move up the value chain.

"Moreover, developed countries have used the very trade tools that they now wish to restrict developing countries from using.

"Coefficients between 19 and 23 as included in the draft modalities, will bring the average bound level in South Africa from 18.6% down to 9.4%. This is a very low level for any serious industrial policy strategy to succeed. Reductions in the applied rates can be up to 66%, depending on the sector.

"Furthermore, a study by the Carnegie Endowment on the Doha Round estimates that the liberalisation of manufactured goods for unskilled labour will further drive down wages of workers. It will lead to job losses in unskilled jobs in manufacturing in countries such as South Africa, with most significant changes in metals, motor vehicles, electronics and machinery.

"South Africa will be particularly affected by reductions in tariffs in NAMA, given the tariff structure, which is different from most other developing countries, which will lead to reductions in applied rates in many sectors with potential job losses in many sectors. Therefore, even the possibility to exempt some tariff lines from tariff reductions will not help South Africa to shield labour-intensive and strategic sectors."

The trade union leader also gave details of how South Africa is liberalizing many services sectors as part of the Doha Round, and pointed out possible problems associated with this, especially for access to health care services.

"All in all the balance is quite un-favourable for South Africa. The losses are going to be substantial and serious, whereas the gains will be rather minimal and uncertain."

It is evident from this speech that leaders of social movements in at least some developing countries are following the Doha negotiations intensely and have made their own detailed assessments of proposals on the table.

If South Africa has its trade unions keeping track of what its government is doing at the WTO, India has its farmers' movements and Brazil has its industrialists.

It is not possible anymore for the developing countries' governments to negotiate a bad deal and "get away with it" because the level of knowledge and activism is much higher today than at the time of the Uruguay Round, when the developing countries indeed had the bad end of an unequal deal.

Thus, in the blame game that is inevitably going to unfurl further in the WTO, the developing countries' diplomats and officials have to keep an eye not only on what the officials and media in the developed countries are saying, but even more so on the responses among their own people.

For them, being accurately blamed at home would be worse than being blamed, unfairly, in the Western media.

 


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