Global Trends by Martin Khor

Monday 1 August 2005

New battles ahead as WTO talks falter

Blurb:  Last week’s meeting at the World Trade Organisation ended on Friday without any results.  There will thus be more intense talks from September, and developing countries should prepare to face great pressures from the developed countries determined to pry open their markets.

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The World Trade Organisation held its end-of-July General Council meeting last week in an atmosphere of anti-climax and general gloom as it failed to meet its well-publicised aim of coming up with half-way agreements on key issues.

Indeed, several Trade Ministers (from the United States, the European Union, Japan, India, Hong Kong) turned up at a meeting which is usually attended by Ambassadors. But there wasn’t much for them to do, as it was too late to cobble together any kind of deal.

“The situation is disappointing but not disastrous,” said the WTO’s outgoing Director-General, Supachai Panitchpakdi.   He was making the best of a bad situation. 

Just a week ago, he had tried to cajole the WTO members to get a last-minute deal, by saying he had pressed the alarm button and “these talks are in trouble.”

Actually, there is not really a crisis, or not yet at least.  What the WTO is aiming at is to get agreements done before the Ministerial Conference in Hong Kong in mid-December.

In the WTO tradition, deals are made only at the last minute, and at the Ministerial meeting itself.  But two out of the last three Ministerial conferences (in Seattle and Cancun) ended in disaster as the bickering among countries went on to the last minute and the talks collapsed in front of the world media.

To avoid a repeat, the WTO leadership wanted to pace the preparations better, so that the deals (represented by drafts and texts) are done even before the Hong Kong meeting, which would then be mainly ceremonial.

Last week’s meetings were to have produced “first approximations” of the Hong Kong texts.  But in the end there were no texts on nothing was produced on agriculture, industrial tariffs, services or special treatment for developing countries.

This just means that there will be more work to be done in the remaining months before the Hong Kong meeting. 

This time around, the blame was at least not put on the developing countries.  Indeed, the Group of 20 developing countries were praised by both the EU and US for coming up with drafts on agriculture that is perceived as the “middle ground” on which progress can be made.

Developing countries wanted the developed countries to cut their farm subsidies and high tariffs, so that their agricultural products can get into the rich countries’ markets.  But the rich countries (influenced by the lobby of their big farmers) are still not willing to do enough, thus resulting in the impasse.

The rich countries on their part are pressing the developing nations to drastically cut their import duties on industrial goods and to open up their services (such as banking, wholesale and retail trade, telecommunications, energy, legal and architectural services) to foreign investment.

Most developing countries are alarmed at these pressures, as they have already liberalised, and the local firms are already struggling to compete on their home ground.  Further opening up on the scale being proposed might just knock many local enterprises into closure.

Thus, the formula used to cut the industrial tariffs was not agreed to last week.  Neither was there agreement to use new methods (proposed by the EU) to get developing countries to open up more services sectors using a “benchmarking approach.”

On another issue, trade facilitation, most countries were happy that there was progress on the talks, and credit was given to Malaysia’s Ambassador to the WTO, Muhamad Noor Yacob, who chairs the negotiating group on this issue.

The developed countries are pressing poorer countries to upgrade their import facilities and cut the red-tape on trade procedures.  Developing countries say they need aid to pay for expensive technical upgrading, and that some regulations are necessary and should not be scrapped.

On special treatment for developing countries, 88 proposals had been put forward, but hardly any progress was made on most since 2001.  An attempt to finalise just five proposals relating to the poorest countries failed last week as well. 

With lack of any outcome in last week’s talks, the main event as the General Council closed on Friday were the farewell speeches to Dr Supachai, who leaves the WTO to join the United Nations Conference on Trade and Development as its new Secretary General on 1 September.

His successor, Pascal Lamy, the former EU Trade Commissioner, made a brief appearance to announce the appointment of four new deputy directors-general, who come from Chile, India, Rwanda and the US.

The WTO takes a one-month summer break in August.  From September, there will be the usual intense pressures building up.  The developing countries can expect to be put under great stress to agree to cut their agricultural and industrial tariffs very significantly, and will need a lot of skill and will to negotiate properly.

As recent examples in almost every country have shown, when duties are slashed too fast or too steeply on imported products, this can adversely affect the market share or even survival of local companies and farmers.

Unfortunately, the companies in developing countries are not even aware of the WTO negotiations and the effects these may have on their future.  They are thus unable to lobby their governments, unlike the farmers and industrial conglomerates of the rich countries, that lobby so well that they practically drive their governments’ trade policies.