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TWN
Info Service on WTO and Trade Issues
Geneva, 30 Jul (D. Ravi Kanth) — The major industrialized countries – the United States, the European Union, the United Kingdom, and Japan, among others – appeared trapped in a quagmire of their own creation during discussions at the World Trade Organization on 29 July on the “level playing field” (LPF) issues track of the controversial WTO reform talks, said people familiar with the development. A large majority of developing countries, including China, India, Pakistan, Brazil, Namibia (on behalf of the African Group), the ACP (African, Caribbean, and Pacific) Group, and the least-developed countries (LDCs) coalition, seemingly addressed numerous sharp questions to the above proponents of the LPF issues, which they could not answer, said people familiar with the development. During the day-long meeting on LPF issues on 29 July, the two sides presented their respective proposals, followed by a rigorous question-and-answer session. The facilitator, Ambassador Elmer Jose German Gonzalo Schialer Salcedo of Peru, acknowledged that the mapping exercises demanded by several developing countries – such as Brazil, India, and the African Group – of all their concerns, if carried out by the Secretariat, would take a long time. However, he informed members that he will issue a summary report in due course before the next round of meetings, scheduled to begin in September, said people familiar with the development. AFRICAN GROUP CHALLENGE Namibia, on behalf of the African Group, is understood to have challenged the very definition of LPF issues, suggesting that it “revealed significant divergences regarding the definition, scope and coverage of this concept.” The Group underscored the need for “a preliminary clarification exercise to establish a common understanding, define the parameters of the discussions and create the conditions for a constructive and productive process” – an observation that apparently rankled the powerful countries that are insisting on “regime change” in the rules, said people familiar with the discussions. The African Group noted that the appropriate approach to LPF must be aimed at “a genuinely fair-trading environment” and, more importantly, “must be comprehensive and inclusive and must take into account the concerns of all Members.” It also said special and differential treatment (S&DT) “must remain as the essential pillar of the system” and that “policy space for industrialization” is a sine qua non in the LPF agenda. More crucially, in its intervention, the African Group demanded that “agriculture must form an integral part of the horizontal discussions under the level playing field pillar, since the reform mandate set out in Article 20 of the Agreement on Agriculture is itself rooted in the absence of a level playing field.” It said priority must remain on correcting the structural imbalances in the agricultural rules, as the continued imbalances “undermine the development, industrialization and food security prospects of African countries and other developing countries.” “They have also eroded developing Members’ confidence in the system and may have contributed to the impasse from which we are now seeking to emerge,” the African Group said. More importantly, the African Group demanded “the implementation of existing mandates,” including “ministerial mandates that remain unimplemented and that have contributed to imbalances in the system and to the trust deficit among Members.” Furthermore, it underscored the need for a “mapping exercise of these mandates, undertaken with the support of the Secretariat based on ministerial decisions and Members’ communications.” Significantly, the ACP, the LDC group, India, Brazil, Pakistan, and several other countries also emphasized similar points in their statements. OVERALL PICTURE The discussion on LPF issues reflected greater and more articulate participation from groups of developing countries, said people familiar with the discussions. Many developing countries – such as India, Brazil, Pakistan, Colombia, and coalitions of developing countries – stressed that without WTO reform and restoration of the Appellate Body, the reforms will remain in a void, said people familiar with the development. While some developed members were a bit more balanced in small ways – like the United Kingdom, which mentioned the need to pursue DSB reform (surprisingly, a significant number of members mentioned and supported this) – Australia emphasized agriculture as important for the LPF discussions, said people familiar with the discussions. A South American country appears to have emphasized that to level the playing field, first rules and commitments must apply to all, and a functional dispute settlement system must be reestablished to ensure observance, said people familiar with the development. Under the guiding principles of fairness, equity, and balance, it would not be possible to level the playing field for members at hugely uneven levels of development based on a “cherry-picked” single sector, said another member, who asked not to be quoted. Consequently, “LPF requires a balancing of commitments, rights and obligations, and flexibilities, across sectors,” said an African trade envoy, arguing that “members could not support focusing LPF exclusively on industrial subsidies and certain non-market support measures to manufacturing, to the exclusion of agriculture, which is of existential relevance to a majority of the membership.” US POSITION However, during the LPF discussion, the United States apparently tended to “focus attention on transparency, graduation of developing countries, and industrial subsidies, leaving aside other issues such as agriculture and policy space for development,” said an Asian trade envoy, who asked not to be identified. The US also expressed a certain dissatisfaction with the methodology of work, with everyone speaking to written submissions and making oral interventions inordinately, the Asian trade envoy said, preferring not to be quoted. The US apparently noted that open discussions covering all proposals at once are too burdensome, pointing out that in the “foundational issues” track, the facilitator limited engagement to just two papers (both US proposals), which allowed for deeper and better discussion. As regards the issues in the LPF track, some members made interesting interventions, such as Singapore, the Philippines, Peru, Paraguay, Hong Kong-China, Australia and the UK, as mentioned above, the Asian trade envoy said. Apparently, the statements/interventions made by India and Pakistan, according to an African trade envoy, appear to be excellent. In a similar vein, statements from Mozambique for the ACP Group and Gambia for the LDC group raised several mandated and unfulfilled issues, the envoy said. EU ON INDUSTRIAL SUBSIDIES The European Union apparently chose to focus the LPF discussions solely on industrial subsidies leading to overcapacity, state-owned enterprises, and non-market trade-distorting practices, said people familiar with the development. Several members seemingly supported Brazil for emphasizing a comprehensive review of measures and policies that distort the playing field, including “response measures” taken by certain members purportedly to correct other members’ distortive practices or in retaliation thereof. “This could be done through a mapping of these measures based on a listing of concerns to be raised by members,” the Asian trade envoy said, who preferred not to be quoted. Interestingly, the facilitator (and others, like the EU) appeared to have noted that given the breadth of ideas – ranging from technology transfer to agriculture – this will be a long-term engagement. The facilitator also expressed concerns that the widely requested “mapping exercise” could become unmanageable if applied to the whole universe of LPF issues rather than just industrial subsidies, said people familiar with the discussions. JAPAN’S PROPOSAL Japan proposed a new concept to incentivize subsidy notifications and penalize members who fail to notify. However, developing countries pushed back strongly, raising four core concerns: 1. Capacity constraints: Developing nations fail to notify not out of reluctance, but due to a lack of capacity. Notification was originally tied to promised technical assistance, which was never delivered. 2. Legal ambiguity: Who determines if an un-notified subsidy is trade-distortive, prohibited, or actionable under current ASCM disciplines? 3. “Weaponization” and unilateralism: The US and Japan appear to be “weaponizing” the issue of non- notification. Allowing a member to counter-notify and immediately apply a countermeasure (like a tariff) bypasses the WTO dispute settlement system. Pakistan noted that this makes the proponent the “judge, jury, and executioner.” 4. Dispute settlement (DS) link: These ideas on penalization assume that the Appellate Body will not resume functioning anytime soon. Developing countries stressed that DS reform must progress in parallel with LPF reform, as the “broken” Appellate Body is what incentivizes unilateral measures in the first place. Defending transparency, the US argued that technical assistance for notifications has been provided for years, yet notification rates from developing countries have not improved. They questioned the efficacy of future technical assistance. Meanwhile, the EU and the UK apparently floated some “vague concepts” – such as “commercial concentration” – which were subjected to grilling by members over what Brussels would actually define as “commercial concentration” in its paper, said people familiar with the development. Apparently, the UK proposed the notion of “cumulative impact of industrial policy” for assessing the cumulative, national-level impact of multiple micro-interventions (firm-level, regional, and sectoral), even if individual interventions are not distortive. When pressed for specifics, the UK admitted that this was merely a “brainstorming” idea with no concrete methodology yet. If members are not interested, they will drop it, said people familiar with the discussions. Furthermore, several members asked the major industrialized countries, particularly the EU, to clarify the allowable scope of state intervention, reminding them that state entities often handle legitimate public policy mandates, said people familiar with the discussions. The Russian Federation appears to have questioned why agriculture and fisheries subsidies are being discussed in the LPF group when dedicated bodies (Negotiating Group on Rules and the Committee on Agriculture) already exist. Australia, Brazil, Argentina, and Paraguay defended keeping the issue of agriculture in the LPF discussions, arguing that they cannot sit back and wait if progress on domestic subsidies stalls in the Committee on Agriculture. They pointed out that “emerging agriculture and trade issues” were already flagged at the WTO’s 14th ministerial conference (MC14) in Yaounde, Cameroon, said people familiar with the development. On the issue of overcapacity, China appears to have severely questioned the use of the term “overcapacity” in the discussion, referencing a recent white paper by its Ministry of Commerce that suggested that the term “overcapacity” does not exist anywhere in the WTO’s subsidy rules. Furthermore, China appears to have noted that economists globally have failed to agree on a definition of “overcapacity”, making it imprudent for the WTO to try and define or regulate it. The discussions on WTO reform issues – comprising foundational issues, decision-making, development, and level playing field issues – are being pursued without any prior ministerial consensus until now. The chair of the WTO’s General Council, Ambassador Clare Kelly of New Zealand, had informed members that the issues were only discussed at MC14. However, there was no consensus at the Yaounde meeting to accelerate the discussions, except based on the report issued by the Cameroonian chair of the meeting. Under WTO rules and conventions, the chair’s report has always been treated “as irrelevant and not worth the paper on which it is written,” said people familiar with the discussions. Highlighting some procedural irregularities, Colombia apparently said that with all the proposals and changes being sought by members, it should be acknowledged that members are on the brink of new negotiations touching on all issues that would come to the table – from agriculture to TRIPS, technical barriers to trade, subsidies, and various other issues, said people familiar with the development. Bogota appears to have cautioned that members are approaching a scenario of crossed interests and grand bargains, said people familiar with the development. OVERALL MOOD The discussions on WTO reform issues – foundational issues, decision-making, development, and level playing field issues – have been apparently illegally foisted onto the developing and least developed countries without securing a ministerial consensus to launch these discussions or negotiations, said people familiar with the development. The overall mood seemed to reflect that the developing countries scrutinized the developed countries’ proposals closely, asking probing, granular questions. Rather than the outright rejection of the proposals from the US, the EU, the UK and Japan, developing members focused on exposing the operational gaps and legal flaws in these proposals, said people familiar with the development. +
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