TWN Info Service on WTO and Trade Issues (Sept08/06)
24 September 2008
Third World Network

Trade: Many issues besides SSM remain unresolved in the Doha talks
Published in SUNS #6547 dated 15 September 2008

Penang, 9 Sep (Martin Khor) -- When the Mini-Ministerial talks collapsed at the WTO at the end of July, media attention had focused on the deadlock on special safeguard mechanism (SSM) and to some extent on the cotton issue which was never discussed at all. But these were by no means the only outstanding issues when the talks came to an end.

In particular, the issue of non-agricultural market access (NAMA) was far from being settled, with at least four major contentious elements still outstanding and ready to boil over. These were the coefficients in the "Swiss formula" for cutting tariffs, the flexibilities from the full application of the formula for developing countries, the "anti-concentration clause" that would further constrain the already meager degree of flexibilities, and the "sectoral initiatives".

Argentina, South Africa and Venezuela were the leading countries objecting to the coefficients in the Swiss formula for developed and developing countries, proposed by Lamy in his 25 July draft. The proposed coefficients would translate into very steep tariff cuts on industrial products for developing countries while the reduction rates are milder for developed countries. This would turn the principle of "less than full reciprocity (LTFR) for developing countries" on its head, becoming a reverse special and differential treatment for the developed countries.

The Lamy draft basically uses the coefficients and flexibilities of the Chair's 10 July text. This text is extremely imbalanced and violates the LTFR principle, which was mandated in the Doha Ministerial Declaration. It requires the developing countries to undertake tariff reductions by more than developed countries. It also cuts the developing countries' bound tariffs very deeply, thus reducing many applied tariffs, and/or seriously reducing policy space to make use of tariffs for industrial development.

The Lamy draft proposed coefficient 8 for developed countries, which would mean that the average bound tariff of the three major developed countries would be reduced by about 28% (i. e. EU by 33%, US by 29%, Japan by 22%).

It proposed that developing countries could choose between three options in coefficients, each coefficient being linked to a particular set of "flexibilities" (i. e. that a percentage of tariff lines be excluded from tariff cuts, or that another and higher percentage of tariff lines be cut by half of the formula cut).

In this scheme, coefficient 22 is the central coefficient in the Lamy draft; it would reduce the average tariff of developing countries like India, Brazil, Indonesia, and Venezuela by about 60%. Thus, these developing countries would have double the tariff reduction rates as the three major developed countries.

For this central coefficient, the flexibility is very little: either (i) 10% of NAMA tariff lines be cut by half of the normal formula cuts, but restricted to 10% of the value of NAMA imports; or (ii) 5% of NAMA tariff lines are exempted from any tariff cut, but this is also restricted to 5% of the total NAMA import value.

Another contentious issue was the "anti-concentration clause". This issue arose very late in the negotiations, appearing only in the NAMA Chair's report of July 10. Developed countries (the US, EU, Japan) insisted that the already restricted flexibilities for developing countries would be further limited so that developing countries could not exclude a sector or too much of a sector from the full force of the formula cut.

The Lamy draft of 25 July proposed that 20% of tariff lines with at least 9% of the total import value in any sector or HS chapter must be subjected to the full formula cuts. Within the G7, India and China was objecting to the figures, and outside the G7 there was also a lot of resentment.

"Sectorals" was another controversial and unresolved NAMA issue. The developed countries have been pressing for "sectoral initiatives" in which a "critical mass" of countries agree to reduce their tariffs to zero in various sectors. It is not mandatory for developing countries to participate in these initiatives.

However, the developed countries were particularly pressurising large-sized developing countries like China, India and Brazil to take part and thus open their markets in the auto, chemicals, electrical/electronic sectors.

In the preceeding months' negotiations, developed countries were pressing for the linking of participation in sectorals to the degree of flexibilities or even to extra points in the coefficients. This was objected to by India, among others.

However, this linkage was maintained in the Lamy draft. But an even greater sticking point was that the Lamy draft for the first time also includes the new obligation that certain countries (listed in an Annex Z) have committed to participate in negotiations in at least 2 sectoral tariff initiatives. This seems to contradict the "non mandatory nature of sectoral initiative", which is also stated in the paragraph of the draft. In the G7 meeting, India and China were being pressurised to agree to participate in key sectors in the sectoral initiatives.

CONTROVERSY ON US' AGRICULTURAL SUBSIDY REDUCTION

Another big issue was the level of commitment of the developed countries, particularly the United States, to cut their agricultural domestic subsidies, and particularly their overall trade distorting domestic support (OTDS).

At the start of the week, the US announced that it would offer to cut its allowable OTDS to $15 billion. This was dismissed by many developing countries including India and Brazil as being inadequate, because the actual applied OTDS of the US had already dropped to about $7-8 billion in 2007. A ceiling of $15 billion would allow the US the "policy space" or "water" to double its current OTDS. Kamal Nath had famously called on the US to effectively cut its domestic subsidies by agreeing to reduce its OTDS to $7 billion minus one dollar.

Susan Schwab angered the developing countries by conditioning her "offer" of $15 billion with the acceptance of the other WTO members of a kind of "peace clause" whereby the US application of its domestic support cannot be challenged through litigation in the WTO.

This appeared to be a demand not only for a revival of an earlier "peace clause" (which has expired, thus opening US subsidies to legal challenge at the WTO) but to even have an expand scope in the new peace clause. Critics pointed out that this would have allowed the US to manipulate its subsidies and the placement of them in various boxes or categories with impunity.

Lamy responded to the US offer of $15 billion by basically accepting it. His 25 July draft said that the allowable OTDS for the US is to be cut by 70%. This is mid-point within the range in the Agriculture Chair's paper of a 66-73% cut. Thus, the present $48.3 billion level would be cut to $14.5 billion (which is mid-point between the Chair's range of $13-16.4 billion).

The $14.5 billion level was just a little below the $15 billion US offer, and still far below the estimated 2007 actual OTDS of $7-8 billion. The US actual or applied OTDS level in 1996-97 was also $7 billion before rising to $19 billion in 2005 (according to the US date notified to the WTO) before dropping to $11 billion in 2006 and $8 billion in 2007 (according to G20 estimates).

Thus, the Lamy-proposed $14.5 billion allowable level is double the 2007 level, allowing the US to have a lot of "water" to increase from the present $7-8 billion.

However, Brazil agreed in the G7 to the $14.5 billion figure. Since it is the leader of the G20, the group of developing countries that has championed the cutting of agricultural subsidies, that took the wind out of the sails of potential opposition to this part of the Lamy draft.

India originally signalled that it could accept this figure. However, in later statements to the TNC, both India and China criticized the US for practising double standards, when it insisted on having a bound level that is twice its actual spending on agricultural domestic subsidies, while insisting that developing countries cut their bound tariffs in NAMA or agriculture until they go below the applied levels.

The allowable OTDS for the EU is to be cut by 80%. This is in line with what the EU has said it would do (i. e. to be 10 points higher than the US). This is also mid-point in the 75-85% range in the Chair's paper. The EU's present allowable OTDS is Euro 110.3 billion. A cut of 80% would bring it to Euro 22 billion. (This is mid-point between the Chair's range of Euro 16.5-27.6 billion).

In 2004, the EU's applied level was Euro 57.8 billion (according to simulations in a WTO paper). The CAP reform of the EU is already scheduling to drastically reduce its OTDS within a few years (through changing the nature of subsidies and expanding the Green Box category of subsidies. During the Geneva week of negotiations, EC negotiators indicated that the Lamy proposal of an 80% cut would be in line with what the EC had planned under the CAP reform. Thus, the EU would not have to make an additional effort. Thus, the cut to Euro 22 billion, though it appears to be large, would be comfortable for the EU.

The lowering of the allowable and applied OTDS is also accompanied by a rise in the Green Box support (which is not part of the OTDS). A large part of the domestic support of the US and EU has shifted to the "Green Box", which is supposed to be non-trade distorting and on which there is no limit placed. The EU subsidies are rapidly shifting from OTDS to Green Box in the CAP reform.

While actual OTDS is cut, subsidies are shifted to the Green Box and total domestic support may not decline. Recent studies (e. g by UNCTAD India) have shown that the Green Box support can also be trade and production distorting.

As international trade expert Bhagirath Lal Das has pointed out: "The really significant escape route is the Green Box which amounts to US$50 billion and Euro 22 billion in 2000 respectively in the US and EU and the possibility of unlimited increase in future... Thus, the Green Box, particularly its window of decoupled income support' (paragraph 6 of Annex 2 of the Agreement on Agriculture) will continue to be the route to give farmers unlimited amounts as subsidies."

The Lamy draft did not even mention the Green Box, while in the Agriculture Chair's text of 10 July, there is no limit proposed on the amount of Green Box support.

Thus, the cuts in allowable OTDS for US and EU may appear large (70%, 80%) but in fact will not reduce applied or planned reductions in OTDS and moreover these will be offset by an increase (in the case of the EU) in the Green Box. The subsidies should not be there in the first place due to the distortions they cause, and their reduction should not be "paid for" by developing countries through the high price in market access in NAMA and agriculture and services being demanded of them. In particular, the $14.5 billion level should not have been used as a "trigger" to demand such high obligations from developing countries in agriculture, services and NAMA.

SERVICES AND TRIPS

While the G7 and the Green Room only focussed on agriculture and NAMA modalities, there were also the side shows of services and TRIPS during the Geneva talks.

A half day "services signalling conference" took place on 26 July, attended by about 30 countries. Developed countries insisted on this conference for them to gauge the level of commitment of selected developing countries (whose markets they were interested in) to give better offers, especially in Mode 3 (commercial presence).

India was also eager to have this conference so that it could gauge the developed countries' commitments on Mode 1 (supply of service from territory of a member into the territory of another member) and Mode 4 (movement of natural persons).

The major countries came out of the services meeting with satisfaction, with the US, EU and India stating that there had been "positive signals" in areas they were interested in. Thus, services was not used by any side as a reason not to provide offers or compromises in agriculture or NAMA.

The Minister of Norway was asked to coordinate negotiations on three issues relating to the WTO's agreement on trade-related intellectual property rights (TRIPS): the register for geographical indications for wines and spirits; proposed extension for geographical indications; and the relation between TRIPS and the Convention on Biological Diversity.

There was not much progress in these areas. In the TRIPS/CBD issue, about a hundred developing countries, led by India and Brazil, had proposed a system of disclosure of country of origin, and evidence of prior informed consent and benefit sharing, to accompany applications involving genetic resources and associated traditional knowledge.

Textual language was provided for all three issues on how to move the negotiations forward. The language for the disclosure issue had been watered down considerably in an attempt to get the support of the EU while in return the countries advocating the disclosure proposal would support the EU to have textual language on negotiations on the geographical indications issues.

The possible outcome was always uncertain as the US made clear it was opposed to advancing negotiations on the GI and disclosure issues. With the present cloud over the agriculture and NAMA modalities, there is unlikely to be any progress on the TRIPS issues for the foreseeable future.

BRIEF CONCLUSION

While India, Brazil and China was in the spotlight by virtue of their membership in the exclusive G7, other developing countries also played significant roles. Indonesia, which coordinates the G33, held the group together as its issue, the SSM, took centre stage. The developing country groupings - the African, ACP and SVE (small vulnerable economies) groups - played a pivotal role at a crucial turning point of the negotiations.

As the heat increased on India and Indonesia over the SSM issue, these groupings joined the G33 to issue a joint statement criticising the Lamy draft on SSM and providing their own proposals. With this statement of about a hundred developing countries, the Indian Minister strengthened his hand in the G7 and with the media, dispelling the portrayal of India as the only country blocking the talks.

Brazil showed that its priority was in getting a deal done. Its acceptance of the Lamy figure of $14.5 billion for the United States' OTDS deflated the movement for the US to go down to at least $13 billion or below. Its acceptance of the Lamy draft on SSM dismayed India while its acceptance of the NAMA portion reduced the strength of its allies in the NAMA-11 developing countries, with countries like Argentina and Venezuela feeling let down.

After the talks collapsed, the Brazilian Minister and the European Trade Commissioner said it was incredulous that the negotiations could have got stuck on an issue like the SSM, while such progress had been made on more complex and important issues like NAMA and agricultural subsidies.

This reveals an under-estimation of the importance that a majority of developing countries places on their defensive interests, since they also have little or nothing to gain from having increased market access to others' markets.

In recent years, there has been an upsurge in the interest of these developing countries to defend and promote their food security and farmers' livelihoods. For India, as for China, Indonesia, Kenya and many other countries, the defence of the concepts of special products and SSM, and the effective use of these, were of paramount priority.

The immediate future of the negotiations has come under a cloud. Many WTO members called for an early resumption of the talks, after the August summer break. Yet it was thought unlikely that serious negotiations on key issues would take place until after the new US administration settles in.

However, sufficiently successful efforts have been made during the WTO August break to get a few of the key parties to agree to meet again at the senior-official level. The talks starting this week is the result of that.

It remains to be seen whether this will become another failed attempt, or whether a breakthrough will result. The WTO's Doha negotiations have suffered a serious setback, but these talks have a habit of springing back to life, sometime or other. It is too early to write off the Doha Round.

In the meanwhile, developing countries would do well to review the key proposals on the table. The deal, as proposed in the two Chairs' texts of 10 July, and in the Lamy draft of 25 July, contains many imbalances that work against the developing countries' interests. The rate of exchange between what the developing countries will get and what they have to give up, is unequal. There is still time to change the equation.

(* This is the second part of a two-part article analysing the issues and factors that led to the failure of the "Mini-Ministerial" Doha talks at the WTO at the end of July. The first part was published in SUNS #6546 dated 10 September 2008.) +