TWN Info Service on WTO and Trade Issues (Sept08/08)
25 September 2008
Third World Network

United Nations: Financial crisis makes Doha deal more vital?
Published in SUNS #6549 dated 17 September 2008

Geneva, 16 Sep (Kanaga Raja) -- Concluding the now-stalled Doha trade negotiations is increasingly critical as the global financial crisis spreads, a meeting of UNCTAD's Trade and Development Board was told on Tuesday. The Board was holding a debate on the "Evolution of the international trading system and of international trade from a development perspective".

Both the UNCTAD head, Dr. Supachai Panitchpakdi and the WTO head Pascal Lamy, highlighted the crisis as the reason to reach agreements in the Doha negotiations, with Lamy claiming that developing countries would gain much from what was on the table. In the same vein, the European Commission said that concluding the negotiations would lock in the trade liberalisation measures (presumably in the developing countries) of the past few years.

However, Martin Khor of the Third World Network struck a note of caution, and noted that while over the last several years trade liberalisation and market access was viewed as a necessarily good goal, there was now a lot more skepticism on trade liberalization because of events in the real world. For example, the deregulation and liberalization of financial services has contributed greatly to the current global economic crisis. In trade also, liberalization has led to growth in some countries but also increased marginalization in many other countries.

UNCTAD Secretary-General Dr Supachai Panitchpakdi and WTO Director-General Pascal Lamy told the Board that reaching agreement on the seven-year-old negotiations was now important not only for the gains it would bring directly but because it would inject confidence and order into shaken economies and financial markets.

(The discussion took place the day after the failure of Lehman Brothers investment bank, and after efforts intensified to save the threatened insurance giant AIG.)

WTO Director-General Lamy told the TDB that "There is now far too much on the table, particularly for developing countries, to give up on these negotiations." He added, however, that "it is clear that we are coping with a fragile situation."

"A multilateral system offers many solid, important benefits which other ways of trade opening do not offer. Trade is one of the necessary conditions for development - this is clear. Because of this clear view, the pressure for concluding the round on the side of developing countries is now very high."

A number of negotiators were "back in the machine room," Lamy told the TDB. "But we know that if this is necessary to reignite the process, building consensus and involving all members takes time and we do not have much of that."

"In the weeks to come, and depending on progress made by the negotiators, I am ready to call Ministers back to Geneva to try and close the issues which remain open so that the scheduling process in both agriculture and NAMA can commence," said Lamy.

Lamy was of the view that a deal is still possible. "I still believe that with yet another push, we could reach our target." Quoting the British novelist Michael Korda, he offered a piece of advice to negotiators - "never walk away from failure. On the contrary, study it carefully - and imaginatively - for its hidden assets."

A failure of the Doha Round agenda would have serious implications on the ongoing efforts by all developing countries to address their challenges and the reasons why we must conclude the Round are visible to all of us and are becoming more critical by the day as the economic and financial outlook continues to deteriorate, said Lamy.

Apart from Lamy, the other panellists in the debate included Ambassador Shree Baboo Chekitan Servansing of Mauritius (coordinator of the ACP Group in the WTO), Ambassador Mothae Anthony Maruping of Lesotho (coordinator of the LDC Group), Ambassador Eckart Guth of the European Commission, Ambassador Bruce Gosper of Australia, Minister Counsellor Paulo Estivallet de Mesquita of Brazil, Deputy Permanent Representative of the United States David Shark, and Martin Khor, Director of the Third World Network.

In his opening statement, Supachai said that the financial slowdown that began a year and a half ago in developed nations is now having a growing impact in developing regions.

"We are witnessing a confluence of different crises this year," Supachai said. "As for Doha, we need this one multilateral effort to be completed successfully. Then we could face these other difficulties with a more optimistic perspective."

Achieving such a multilateral pact would be helpful at a time when bilateral and regional trade agreements - confusing in total and often lacking transparency - are growing in number. And a broader trade agreement might reinforce UNCTAD's regular recommendations that the global financial system needs multilateral regulation similar to WTO trade rules, Supachai said.

"We are told that this is one of the most serious crises we've seen in the last 60 or 70 years. There must be some better rules and regulations to help the financial system as rules help the trading system. Unfettered market mechanisms have led to crises every few years" Supachai told the meeting.

Developing countries "can only do so much" in the face of turmoil that is beginning to affect their exports and their economic growth prospects, Supachai said. "All of these crises" - he mentioned rising food prices, climbing energy costs, damage from climate change, and other issues along with threats to the global financial and banking systems - "can only be dealt with at the multilateral level. We need international predictability and stability in the global financial system."

Concluding the Doha Round would at least give a good foundation for "facing these other crises," he said.

Ambassador Servansing of Mauritius, referring to Lamy's remarks on never walking away from failure, said that the group that he represents as well as his colleagues from the African Group and the LDCs, "unfortunately, we were led away from failure in this round in those negotiations (in the July Mini-Ministerial)".

"When we came to Geneva to negotiate the final round, we were not part of the problem; we simply wanted to be part of the solution."

He said that we are facing rapid liberalization and globalization, greater South-South trade, a proliferation of RTAs and FTAs, and the emergence of many developing countries who are becoming very important traders, which poses opportunities but also challenges for the small economies. There are also the problems of migration. He also pointed to a new generation of issues that the small economies will be facing - environment and climate change, standards, labour practices and so on.

All these could pose serious trade barriers for us, he said, adding that in this context, a proper global trade governance regime is important. He said that "many of us depend on trade preferences to obtain export earnings, and many of our countries are net-food importing developing countries..."

Referring to Supachai's remarks on the looming food, financial and economic crises, he said that a successful trading system becomes even more important because the failure compounds the effect of the crises. He believed that if the negotiations, which had a very important development dimension, succeeded, it would have been a good signal and provided a boost to trade and economic production.

"Many believed that we came to Geneva only to protect preferences, from the ACP side. If we don't have the broader picture, then even preferences will not allow us to survive." he said.

He also pointed to a number of systemic and development objectives in which the G90, the LDCs, the ACP and the African Group melted down in the broad alliance of developing countries, where these were serious and important development issues for them, and which provided us with a chance to make important progress on these issues. He also said that tackling the issue of OTDS was important because it provided the benchmark to move to cotton, ultimately.

There were a number of specific G90 issues on which we wanted a solution, he said. He pointed to defensive interests such as S&D requirements, which he said we were able to achieve. "We had a lesser than formula cut to protect our borders in agriculture. We were able not to have important obligation in terms of cuts in the NAMA sector because we were either paragraph 6 countries or SVEs."

He also said that they had offensive interests in terms of trying to work out a solution for preference erosion. "We were on the right track," he said, adding that quite substantial progress was made in the consultations on how the preference issue should be tackled. It was pitting developing countries against developing countries, and if we continued on that track in which we were, that round would have enabled us to solve an important issue that was dodging the trading system and that was pitting developing countries against developing countries in the WTO, he said.

"We were also on track to address the issue of bananas, which was also an important development issue, which was pitting again, developing countries against developing countries," he said, adding that unfortunately, the collapse prevented them from making further progress on this issue. He said that the ACP, the African Group and the LDCs are not walking away from failure. "We are right here and we are waiting."

Ambassador Maruping of Lesotho elaborated on the evolution of trade, saying that in the 1970s immediately after the big independence movement, a call was made for a new international economic order, but the call was not taken on board by the developed countries. He said that years later, the Uruguay Round had to be started, but the Round was more developed country focussed and did not pay much attention to developing countries.

When everybody talks about the Doha Development Agenda and the LDCs, they think of duty-free, quota-free market access (DFQF). He said that what is forgotten is that the DFQF must go with rules of origin that are friendly and simple. He added that non-trade measures are now becoming a new barrier. As tariffs go down, non-tariff barriers are going up.

He also said that he did not see the talks as a collapse but just a stalemate "to pull the car out of the mud or out of the sand" and continue towards its destination.

Ambassador Eckhart Guth of the European Commission said that the multilateral trade agenda for development remains valid. On the setback in July, he said that a deal was within reach. After a week of engagement by all players, we had reached an agreement of about 90-95% of the issues that needed to be sorted out to conclude modalities and move the round to the final stage. He said that the EU had come to the meeting to negotiate and reach a deal. It had tabled offers in agriculture and NAMA that went further than any previous EU trade liberalization offers.

A deal in July would have delivered unprecedented reform, he said, pointing to new market access for developing countries, a clear commitment to DFQF for LDCs, and an end to trade distortions created by export subsidies, a substantial reduction of domestic subsidies in agriculture including cotton, new South-South trade, a solution to longstanding issues of bananas and an outcome on preference erosion.

He said that according to all economic estimates, the biggest beneficiaries of the Doha round in terms of growing GDP would be developing countries. The conclusion of the round would have allowed the locking in of the huge amount of economic liberalization that has taken place across the board in the last ten years. A new global trading deal would have injected some confidence into the global economy at a time of great uncertainty. He said that there is a lot of good reasons why we should not let the Doha Round slip from our grasp, adding that July has brought about a lot of progress, but also setback at the same time. But the round has not collapsed. "I deplore the use of this expression."

He also noted that an interesting development in the DDA has been the evolving of the "advanced developing countries" during the negotiations. Despite historic opposition by developing countries to differentiation and graduation, and despite members pledging not to create new sub-categories of developing countries, he said that during this round we have seen that developing countries have themselves created de facto different groupings and sought different treatments based on their situation at development level. He referred to the G20, the G90, the SVEs, the Paragraph 8 countries (in NAMA), and the RAMs. "This is de facto differentiation and it has logic since it allows each participant in the multilateral trading system to contribute based on its capacity and based on the benefit it expects to receive from this system."

He said that the EC is now taking stock internally and sounding out its partners on how to proceed next.

Ambassador Bruce Gosper of Australia said that all members are quite deeply disappointed at the failure of the talks in Geneva to reach agreement. He said that this was not a collapse of the round. "Far from it. It was a failure. We have to reflect on that. But there is no doubt it was a setback, but it was not a collapse of the round." He said that this does emphasize the need to work hard internationally to build support for re-engagement and conclusion. "We are far too close to an outcome to let this opportunity pass now."

Paulo Estivallet de Mesquita of Brazil said that failure of the Doha Round is not the end of the multilateral trading system. Its not the end of the WTO. But it does imply a weaker WTO. He added that there is a big opportunity cost in the failure of the round and in the weakening of the WTO. He also noted that developed countries have sometimes attached too much value to their policy space in the negotiations, demanding a very high price in actual market access from developing countries.

David Shark of the US said that the US remains fully committed to advancing multilateral trade liberalization, and continuing to work to advance the Doha Round negotiations this year. Although a breakthrough was not achieved in July, he agreed with others that the WTO members made tremendous progress in moving the Doha negotiations forward on multiple fronts during the July meetings.

Martin Khor of Third World Network said when talking about the evolution of the trade system, there are trade policies and rules. The trade rules affect trade policies and trade policies affect the performance of trade. The negotiations in the WTO affect trading rules, which affect policies and trade. The last ten years there has been a sea change in thinking on policy and trade performance. It used to be thought that trade liberalization was the goal and was almost necessarily good and that is what we should aim for.

But today, he said, there is a lot more skepticism on trade liberalization because of events in the real world, for example, the deregulation and liberalization of financial services has contributed greatly to the global economic crisis. In trade also, liberalization has led to growth in some countries but also increased marginalization in many other countries that were unable to compete because they have weak production capacity. That is why we now stress the need for boosting the productive capacities of developing countries, he said.

Even the developed countries fear trade liberalization, he said, adding that the developed countries themselves want their policy space especially in agriculture. He said that trade and the trading system should encourage and not discourage or prevent development. If trade policies and rules contradict development interests, then development interests should be given the higher priority, and trading rules and principles should be amended to fit into development and not the other way around.

He also said that principles for trade and the trading system may not be appropriate for other areas such as finance, intellectual property and services. The principles of deregulation, liberalization and national treatment may be suitable in many cases for trade and trade policy but in most cases may not be suitable for these other areas. He also pointed to a major fight since the Doha Round began as to whether the "Singapore issues" belong to the multilateral trading system.

In July 2008, Khor said, the clash of paradigm of development versus market access for the strong to the markets of the weak was seen at the WTO where the developing countries wanted real cuts in agricultural subsidies particularly in the US, the EU and Japan. Hopes of this have vanished, he added. He also said that most developing countries have put a very high premium on having agricultural safeguards for themselves. He said that in the last 15 years, developing countries have been suffering from many import surges and the collapse or near collapse of many of their agricultural sectors, and this has now been pinpointed as one of the causes of the food crisis.

Khor said that "the WTO is more and is less than the multilateral trading system." He agreed with the previous speakers that we need not only a multilateral trading system but a very strong and sustainable one; one that is fair for all countries, particularly for the developing countries. The WTO is part of that multilateral trading system. It is more than the multilateral trading system because it has intellectual property in it and many components of services that are not trade. On the other hand, there are many aspects of trade that are not part of the WTO, for example, a fair price for commodities, diversification and so on.

He said that UNCTAD is just as part of the multilateral trading system as the WTO. We have to boost those "WTO-plus" aspects of trade - finance, technology transfer, productive capacity and so on - in order for the multilateral trading system to work in favour of development.

This is something that needs to be thought about as the talks restart at the WTO, he said, adding that he was one of those who feels that "getting the results right is far more important than getting the results within this year." Pointing out that the modalities are the most important part of the negotiations, he said that if we are not able to finish the modalities by this year, "I agree with other speakers, it cannot be considered a collapse or even a failure."

"This year just marks another part of the calendar. The talks can continue next year and the year after. There is nothing sacred about finishing the modalities this year," he said, adding that artificial deadlines are not so important. Noting Lamy's previous remarks about missing the boat, Khor said that "if we miss the boat, there will be another boat, and that other boat may be a better one." +