February 15, 2008: AN ASSESSMENT OF WHERE THINGS STAND: what happened to the political momentum?

Geneva Update 15th February 2008

AN ASSESSMENT OF WHERE THINGS STAND: what happened to the political momentum? By Carin Smaller, TIP/IATP

CONTENTS I. AN ASSESSMENT OF WHERE THINGS STAND II. THE CHANGING GLOBAL CONTEXT FOR TRADE III. A SUMMARY OF THE DETAILS: agriculture, NAMA and services IV. IMPORTANT DATES TO REMEMBER V. DOCUMENTS

I. AN ASSESSMENT OF WHERE THINGS STAND

The WTO machinery keeps turning. Trade negotiators and the Chairs of the negotiations continue to focus on the Doha Agenda, refusing to join the growing chorus of voices that have pronounced the Agenda beyond hope. Another set of negotiating texts-one for agriculture and the other for manufactured goods-were released on 8th February in yet another attempt to build political momentum for a deeply unpopular Doha Agenda. The two texts set out as best the Chairs can where things stand in the negotiations.

The agriculture text gives an accurate albeit complicated and at times contradictory account. The text on non-agricultural market access (NAMA) has barely changed from the previous version and was quickly criticized by a few developing countries for failing to accurately reflect their positions (see section III for further details). A text setting guidelines for how to conclude negotiations in services is also expected. The U.S. and EU are wary of making commitments in agriculture and NAMA without securing gains for their services industries. However, due to insurmountable divergences among members on what the new proposed guidelines for services should look like (again, see section III for details), the Chair was not able to propose compromise language and on February 12th, circulated a "report" instead, which highlighted both areas of agreement and disagreement.

The agriculture text keeps growing longer, but it is unclear whether WTO members are getting any closer to resolving their differences. This is the 10th attempt to achieve convergence between members on a draft agriculture text since the Doha negotiations started. The drafts have been accompanied by over 20 reference papers and 16 working documents on specific agriculture issues. This latest attempt from the Agriculture Chair, Ambassador Falconer, numbers 120 pages. The text is becoming more and more complicated as each member seeks out its own special flexibility or loophole. (see links below)

Trade Ministers met at the sidelines of the World Economic Forum in Davos in late January at the invitation of the Trade Minister of Switzerland. As has become customary at this now-annual meeting of trade officials, new deadlines for ending negotiations were set (they are seldom honored) and discussion on substance were put to one side. This year Trade Ministers set Easter (March 23) as a period for Ministers to come to Geneva to agree to modalities (concrete commitments in all areas, including numbers for subsidy and tariff cuts). Almost no-one in Geneva believes this will actually happen. At the last General Council meeting (4-5 February), even the WTO Director-General, Pascal Lamy, left the question open as to whether or not Ministers will be invited to Geneva around Easter time.

Negotiations on the revised agriculture and NAMA texts will begin 18th February. It is unclear how long the new set of negotiations will continue and whether further revised texts will be issued. Mr. Lamy will decide if and when WTO members are prepared to enter into a "horizontal" negotiation with senior officials. Mr Lamy and most developing countries want this initial horizontal process to focus on agriculture and NAMA. However, not all members agree that this will be sufficient: as things stand now, it would be quite a challenge to have the EU, U.S., Japan and India, among others, accept to leave services and rules out of whatever agreement might be reached around Easter. Depending on the outcome of this horizontal process, Mr. Lamy will decide how to deal with the proposed March Ministerial. Mr. Lamy has made it clear that he will only invite Ministers to Geneva if a few issues remain to be resolved. The current agriculture text still contains hundreds of brackets, indicating this condition is still far from being met.

II. THE CHANGING GLOBAL CONTEXT FOR TRADE

The looming threat of economic recession in the U.S., which in turn threatens the global economy, is turning popular opinion against trade. Some people, like Pascal Lamy, argue that a Doha deal could be an insurance policy against the current economic turbulence. But public opinion and many politicians all over the world disagree. They are raising serious questions about the benefits of free trade, and many blame free trade and deregulated capital flows directly for the problems. Below are just a few examples of how times are changing.

A poll released this month by the BBC World Service found that in 22 of 34 countries a majority of people felt that "economic globalization, including trade and investment" was growing too quickly. And 64 percent in the 34 countries felt that the economic benefits and burdens of globalization were not fairly distributed (see link below).

As Geneva Update has repeatedly said, a wealth of economic reports by institutions such as the World Bank, the United Nations, the Carnegie Endowment for Peace, and Tufts University, have found that the Doha Round will increase inequities between rich and poor, both among countries and within countries.

Progress on WTO negotiations is hindered by the weakness of President Bush's Administration, which has lost fast track negotiating authority and is at historically low popularity levels. The U.S. Congress has no appetite for trade deals and presidential candidates are cautious about what they say on trade. The emerging Democratic candidate for President, Barack Obama, recently gave his strongest speech yet on trade issues, saying: "... when I am President, I will not sign another trade agreement unless it has protections for our environment and protections for American workers." Hillary Clinton, the other candidate still in the race for the Democratic Party's nomination, has called for a "time-out" on trade deals, to better assess their implications for the U.S. economy. It is not trade itself that is in question, but trade regulated by an ideological obsession with low tariffs and by a standard-setting process that gives less value to human health and environmental protection and more value to commercial gain.

At the international level, climate change has become the key global issue and international efforts are heavily focused on reaching agreement for further reductions in greenhouse gas emissions, action for mitigation and adaption to climate change, and to provide finances and technology transfer to fund climate policies in developing countries. New findings are pointing the finger at trade as an important source of the problem: a recent UN report, cited in the British newspaper, the Guardian, claims that rather than the current Integovernmental Panel on Climate Change (IPCC) figure, which ascribes 1.8 percent of global emissions to the shipping industry, the actual figure is 4.5 percent, and is expected to climb to 6 percent by 2020 (see link below).

Finally, the rise in food and agriculture prices could have a bearing on the Doha negotiations. Some Geneva-based trade negotiators say the major agricultural exporting countries are no longer so hungry for a Doha deal, since their agricultural export earnings are increasing anyway. On the other hand, higher agricultural commodity prices make it easier for the U.S. to commit to current proposals on domestic support cuts and could therefore re-entice the U.S. towards a deal. U.S. domestic support payments are linked to world prices so when world prices decline, payments increase, and vice versa.

III. A SUMMARY OF THE DETAILS: agriculture, NAMA and services

AGRICULTURE

Many of the issues remain unchanged from previous negotiating texts. For example, the proposed range of overall trade-distorting domestic support that the U.S. will be allowed to spend is still US$13-16.4 billion.

The market access pillar contains some important developments. The tiered tariff reduction formula remains in place, but an average tariff cut target has been added. The minimum average tariff cut for developed countries will be 54 percent. The maximum average tariff cut for developing countries will be 36 percent. This reflects the position by the G20 group of developing countries for average tariff cuts. A category of small vulnerable economies (defined in Annex I plus the Republic of Congo, Cote d'Ivoire and Nigeria) can opt for a 24 percent average tariff cut. The numbers remain in brackets which means they are not yet agreed.

A series of options for the selection and treatment of Special Products (a proposal that addresses food and livelihood security and rural development) leaves many questions unanswered. There are thirteen sets of brackets in the main paragraph dealing with Special Products (paragraph 123). On the selection, developing countries would be allowed to designate between 8 and 20 percent of tariff lines as Special Products. On the treatment, developing countries could be cutting half their Special Product tariffs by 15 percent and the other half by 25 percent. Or, developing countries could exempt 8 percent of tariff lines from any cut and subject the remaining tariff lines to cuts of 8 and 12 percent. The various proposals show that there is still no acceptance of the G33 position (the group of countries that has advocated the creation of Special Products) with some members making proposals that would give significantly less than the G33 are seeking.

The sections on tropical products and preferences are in contradiction with one another. The proposal that would provide for the fullest liberalization of tropical products proposes to eliminate tariffs on some tropical products and to cut others by 85 percent. (A list of tropical products is provided in Annex G). The text then proposes no tariff cuts for a period of ten years on products that receive long-standing preferences. Tariff cuts on those products are to commence after ten years and to be implemented over a five year period. A list of these products is provided in Annex H. Almost half the products listed in Annex H are also listed in Annex G. Both lists remain in brackets and are therefore subject to further negotiations, however the two approaches are incompatible.

The tropical products that some countries would like to see liberalized, are in many cases the same products that receive long-standing preferences, including bananas and sugar. This is not surprising: Central American banana growers, for example, resent the advantage that preference-receiving banana growers get in their access to European markets. The strong push to liberalize tropical products is exactly the result of such resentment at the use of preferences. Tariffs are often high on preference-receiving commodities and as a result domestic prices within the tariff wall are usually much higher than world prices. Those countries that receive preferential access to the protected domestic markets benefit from the higher prices, while, those excluded often receive lower prices than would prevail in a market without the tariff walls.

In many cases, preferences are important as they create an opportunity for trade that some of the poorest countries would otherwise be unlikely to secure. In the draft text, Ambassador Falconer acknowledges the problem of overlap between the products, and says that in general the tropical products list should prevail, except in some special cases. The issue is left to be resolved in the negotiations.

Finally, the section on the blue box for domestic support, adds a whole new layer of complexity. The text has few brackets, but shows just how far WTO members are from creating a set of rules that apply to all members, with a few exceptions. At this point, exceptionalism is the new rule. The text proposes that WTO members choose which type of blue box they want (either the old blue box, or the new blue box established under the July 2005 Framework Agreement, which allowed the U.S. to include its countercyclical payments). Further exceptions would be allowed, but would need to be approved by other members. Countries, such as Norway, that use a lot of blue box support would be allowed higher spending limits than other countries. The text also contains greater detail than previous drafts on how spending limits will be imposed on individual products. The U.S. is given extra flexibility for particular commodities. The level of complexity in this section, including the various extra flexibilities proposed for some members (mostly accommodating developed countries' "special" needs), only add to the likelihood that members with larger bureaucracies will be able to circumvent the intended disciplines and that smaller members will find it next to impossible to challenge spending under this box. NAMA: manufactured goods and natural resources

The key area of contention in the NAMA negotiations is the tariff reduction formula and the flexibilities for developing countries to deviate from the main formula.

WTO members agreed to use a Swiss formula to reduce tariffs (with a Swiss formula, steeper cuts are made to higher tariffs so as to bring all the final tariffs closer to the same level). A number, otherwise known as the coefficient, is applied to the tariffs in the formula to calculate the final tariff reduction. The choice of coefficients remains highly contested. In July 2007, the Chair of the NAMA negotiations, Ambassador Stephenson, suggested coefficients in the range of 8-9 for developed countries and 19-23 for developing countries. This would mean that developed countries would have to reduce their industrial tariffs by around 30 percent and developing countries like India, Argentina, Brazil and South Africa, would have to reduce their tariffs by around 60 percent. The text angered a number of WTO members. Some developing countries, such as Argentina and Bolivia, refused to use the text as a basis for further negotiations.

Developing countries from the NAMA-11 group call for coefficients for developing countries that are 25 percentage points different from developed countries. So for example, if developed countries have a coefficient of 5, then developing countries would have a coefficient of 30. Developed countries want to see the numbers closer together and are calling for coefficients of 10 for developed countries and 15 for developing countries.

The latest text has kept the same ranges for the coefficients in the text and has already been met with anger by some developing country members. The flexibilities for developing countries to deviate from the main formula are also strongly contested. In earlier versions of the draft modalities text, the number of tariff lines that developing countries could protect by applying a lower formula cut (10 percent) or shield from any cut at all (5 percent), were included in brackets in the text. Ambassador Stephenson has now left the numbers blank and opened the possibility for higher or lower numbers. The NAMA-11 countries are calling for the possibility to include more tariff lines and developed countries are calling for fewer.

SERVICES

There is no agreement on the level of ambition for negotiating services liberalization; this is the conclusion that can be drawn from the report of the Chair of the Services negotiations, Ambassador de Mateo, issued on 12th February.

As Chair of the services negotiations, he started active consultations last September, with a view to putting together guidelines to revive services negotiations. This was pushed in particular by countries that have specific interests in this sector (EU, U.S., among others) and are frustrated at what they see as "lack of progress" in the negotiations. These countries wanted a "services text" to be issued in parallel to the new agriculture and NAMA modalities.

Two main disagreements are bogging down the process in services. First, although WTO negotiations take place under a "single undertaking," negotiators in Hong Kong specified that they would "ensure that there is a comparably high level of ambition in market access for Agriculture and NAMA" (paragraph 24 of the Hong Kong Ministerial Declaration). Thus a number of members, and now also Pascal Lamy, argue that agriculture and NAMA should be resolved first, and other issues brought to the fore only after that. Other members have been trying hard to ensure that whatever concession they make in agriculture are matched by gains in services: thus the call for a "services text", or a "signaling conference" to accompany progress on agriculture and NAMA.

Second, WTO members also disagree on the aim of the current negotiations. The E.C. and U.S. would like members to bind their existing level of market access and national treatment. But most developing countries resist this demand, arguing that they need to retain flexibilities to deal with their development needs. Industrialized countries' inability to take this argument on board and their relentless push for new "benchmarks," despite the rejection of benchmarks in Hong Kong, is quite remarkable.

Prospects for the services negotiations remain unclear. The latest document circulated by the Chair has no clear legal status. Some members consider it as a mere report, while others want it to be the basis for further negotiations leading "to a text containing (...) political guidance" (EU) for the future of the talks. Ambassador de Mateo will be convening a meeting next week that should clarify the way forward. But as positions remain extremely polarized, it is hard to see convergence happening in the next few weeks.

IV. IMPORTANT DATES TO REMEMBER

18 February 2008: Negotiations on agriculture and NAMA resume in Room E

20 - 25 April 2008: XIIth United Nations Conference on Trade and Development, Accra, Ghana

V. DOCUMENTS

New draft agriculture modalities, 8 February 2008: http://www.tradeobservatory.org/library.cfm?refID=101529

New draft NAMA modalities, 8 February 2008: http://www.tradeobservatory.org/library.cfm?refID=101538

Chairman's report on services negotiations, 12 February 2008 http://www.tradeobservatory.org/library.cfm?refID=101604

New draft disciplines on domestic regulation, 23 January 2008 http://www.tradeobservatory.org/library.cfm?refID=101417

Analysis of the new proposed disciplines of domestic regulation by the Harrison Institute, 12 February 2008 http://www.tradeobservatory.org/library.cfm?refID=101603

Different drafts of the agriculture text can be seen at: http://www.wto.org/english/tratop_e/agric_e/chair_texts08_e.htm; and http://www.wto.org/english/news_e/news05_e/agric_28july05_e.htm The thirteen different drafts include overview papers, comprehensive reports to the TNC, draft modalities texts and revisions to the texts.

Global Poll : Globalisation and Fairness http://click.icptrack.com/icp/relay.php?r=435211&msgid=5027509&act=95CE&c=35611&admin=0&destination=http%3A%2F%2Fwww.worldpublicopinion.org%2Fpipa%2Farticles%2Fhome_page%2F446.php%3Flb%3Dhmpg1%26pnt%3D446%26nid%3D%26id%3D

Guardian Article on Maritime Transport and Climate Change http://www.guardian.co.uk/environment/2008/feb/13/climatechange.pollution

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Carin Smaller Trade Information Project Institute for Agriculture and Trade Policy, Geneva Office 15 rue des Savoises Geneva 1205 ph: +41 22 789 0734 fax: +41 22 789 0733 csmaller@iatp.org www.iatp.org www.tradeobservatory.org