WTO DRAFT MINISTERIAL TEXT: EMPTY “DEVELOPMENT PACKAGE” IN EXCHANGE FOR TAKEOVER OF DEVELOPING COUNTRIES’ AGRICULTURE, INDUSTRIAL AND SERVICES MARKETS
By Aileen Kwa with contributions from Jacqies Chai Chomthongdi and Joseph Purugganan
Link to draft ministerial text
(GENEVA, 28 November) For the developing world, the draft Ministerial text for Hong Kong is a recipe for creating industrial graveyards, destroying small farmers’ livelihoods and their production capacity, and decimating local services suppliers. It forces open the agricultural, industrial and services markets of the global south, way before these producers and suppliers are able to withstand the rigorous competition from the giant multinationals of the US, EU and others. Indeed, it is a step by step guide to widespread unemployment and eventually, political instability and conflict in the South.
The main thrust of the text is to distract the African and least developed countries (LDCs)with a so-called “development package” whilst extracting onerous commitments through the main issues under negotiations – services, agriculture and industrial tariffs. These liberalisation commitments will completely whittle down the policy space developing countries require to steer their economic development. Without the ability to manage and strategically protect their services, agriculture and industrial sectors (the way the US and EU still do), a development package, no matter its shape, will not be able to deliver on its promises.
The big win for the US and EU in this text is in the services section, where developing countries are being forced into aggressive liberalisation, a major deviation from the GATS architecture of voluntary liberalisation. In the areas of non-agricultural market access (NAMA) and agriculture, the Chair’s reports, although written in a seemingly objective manner, are biased in favour of the positions of the major players – the US and EU. There is silence on some key issues raised by the Africa, Caribbean and Pacific (ACP) countries. Whilst these are draft texts are called “status reports”, they set the framework for the negotiations post Hong Kong.
AN EMPTY “DEVELOPMENT PACKAGE”
The Development package that Lamy is offering African and LDCs include the following components which are devoid of any real value:
1. Special and Differential Treatment (S&D)
Until now, no progress has been made on S&D measures. The text completely waters down S&D negotiations. Paragraph 17 of the draft refers to a “review” of the S&D provisions, rather than S&D negotiations.
If something should emerge by Hong Kong for developing countries (beyond LDCs) they will be those 28 provisions classified under “Category I” which the African Group already rejected two years ago in Cancun. There is no value in these provisions and, if they are agreed, will simply be a public relations exercise by the major players in Hong Kong. The main S&D provisions with any commercial value are those classified in “Category III”, which have not even been specifically mentioned in the draft text. S&D was promised as an “early harvest” (to be completed before the other negotiations) in Doha. But this promise has long been forgotten and does not feature in this draft.
2. S&D for the LDCs
There are five S&D provisions for LDCs. Members were on the verge of agreement in July 2005, but the US and EU retreated at the last minute. Judging from Annex F, they are intending to pull this out of the bag in Hong Kong so that they can make a huge publicity event out of it. But interestingly, whether it happens is still uncertain (Annex F is in brackets in the draft text). Clearly, therefore, the majors are intending to exact a price for these in Hong Kong. That price will probably be the LDCs agreeing to very aggressive frameworks in agriculture, NAMA and services. Of the five provisions, only two have any potential value. They are “bound” duty and quota-free access to other markets, and a grace period before LDCs are required to implement the TRIMS n(trade related investment measures). Whether LDCs finally get “bound” duty free is still uncertain since two options are proposed in paragraph provided for 36a (the alternative is simply quota and duty free access). Given that LDCs have less than one per cent of world trade, providing this costs the developed world nothing. In any case, the extent to which LDCs will be able to avail of even “bound” duty and quota free access is questionable in a highly liberalized environment which will be dominated by the most competitive producers.
AID FOR TRADE / ENHANCED INTEGRATED FRAMEWORK
Quite a lot of space in the draft ministerial is devoted to the enhanced Integrated Framework and Aid for Trade. This is a distraction that will divert many countries’ attention in Hong Kong, whilst the main prize for US and EU – agriculture, services and NAMA – is being wrestled from developing countries.
Since the Gleneagles G8 summit, it has become established amongst donors (developed countries with huge exporting interests that want to a major breakthrough in market access) that Aid for Trade will be offered to developing countries. The intention is to help developing countries agree to commitments in Hong Kong that they would not otherwise have agreed. The actual mechanism of how this aid is channeled is not yet clear, however, it is likely that this will be an “enhanced integrated framework” using the existing integrated framework (IF) mechanism for LDCs and expanding it also to non-LDC developing countries.
There are several problems:
1) If this is not a bribe by the developed world, the timing to offer this aid is highly questionable. The fact that these promises are made in Hong Kong makes it clear that this is being used as a tool to arm-twist developing countries to agree to liberalisation commitments they otherwise would prefer not to.
2) Money offered to help developing countries, even to increase their supply capacity, as stated in paragraph 37 of the draft, will not be effective since countries are being forced, at the same time, to open up their economies. If there is genuine interest in helping developing countries nurture their local producers and suppliers as the draft text seems to imply, it will be necessary to also protect these same suppliers from aggressive competition for a period of time, until they are competitive enough to withstand liberalisation.
3) By almost all accounts, the IF has been a failure. It has not helped countries increase their supply capacity. For most countries, it has been aid to help them implement their Uruguay Round liberalisation commitments. The money offered has been too little, and there have been huge problems around “ownership”. Most recipients have not felt that the programmes which donors put together were in line with their own objectives. Unless the IF is fundamentally changed, an “enhanced” IF will suffer the same plight.
4) There may not be any new money. Developing country trade negotiators in Geneva suspect that “aid for trade” may simply be about shifting money that has already been promised to developing countries under existing channels of support into a new category.
5) Under the section on Aid for Trade, paragraph 37, there seems to be the implication that at least part of this aid will be provided to countries as loans, rather than grants, given the reference to “concessional terms”. It is puzzling why developing countries should accept, for example, reduced revenue because of the NAMA negotiations, in exchange for receiving loans which they will have to find alternative revenue sources to repay.
EXTENDING THE TRIPS FOR LDCS
LDCs have asked for the TRIPS Council to extend the transition period before they implement TRIPS to 15 years. This decision has been placed in brackets (paragraph 28 of the draft text), signaling again that there will be a price to be paid for this in Hong Kong. The US, in Geneva negotiations, has offered LDCs one year and the EU has offered them five years. This is completely unsatisfactory, especially given that the rich industrial countries did not abide by patent laws during their period of economic development, where copying technology was critical for US, Germany, Japan etc.
TRIPS AND HEALTH
The text on this is to be filled in depending on the outcome of the final TRIPS council meeting on 29 November in Geneva. The negotiations are between bad options.
Firstly, the decision adopted on 30 August 2003 has not allowed any country without production capacity to import the necessary generic drugs. The Indian generic industry has found the legal red tape mandated by the decision too onerous to make any export of generic drugs commercially viable. The decision was only endorsed in Geneva in 2003 due to huge amounts of political pressure exerted by Washington on key developing countries such as Kenya, Philippines and Venezuela, that otherwise would not have consented. Worse than the decision is the chairman’s statement which was read out in the General Council at the time the decision was endorsed. The statement was never approved by the Members, containing even more conditions and red tape. After the decision had been adopted, the WTO Secretariat – clearly manipulated by the US and EU – surreptitiously introduced a footnote in the decision to the chair’s statement, elevating the legal status of the chairman’s statement. A large part of the fight in Geneva is now over this footnote. The US wants the entire chair’s statement to be annexed to the decision. The EU, playing good cop, is asking for the footnote to be retained – so that any WTO disputes settlement panel decision will have to take into account the chairman’s statement as the “context” in which the decision will be interpreted. The Africa Group in their proposal of December 2004 would like to open up the decision and improve on it so that it is a workable solution for them. They would also not like to have the reference to the chairman’s statement.
Given the intransigence of the US and EU, it is unlikely that a decision of any real value to poor countries will be taken in Hong Kong. The options on the table are likely to be a choice between bad options, yet there will be huge publicity on this issue – that the developed world will be saving the developing countries from the plight of AIDS, malaria etc. It is better, given this situation, that there is no solution in Hong Kong on this matter and that a decision on a permanent solution is deferred until after Hong Kong. Countries should be fighting for a workable and appropriate solution without lengthy conditions, rather than an expeditious solution that will be unusable and will for forever foreclose countries’ ability to access cheap medicines.
The “development package” – comprising S&D, aid for trade and TRIPS and health – amounts to nothing. But the price extracted is exorbitant.
THE PRICE TAG: AGRICULTURE, INDUSTRIAL AND SERVICES MARKETS
Of the main issues – agriculture, NAMA and services – the draft text in services is the most ambitious in terms of already forcing countries to take decisions that will imply deep liberalisation commitments. In comparison, the texts in agriculture and NAMA, although still dangerous, imply that decisions are still a step or two away.
Analysis Of Paragraph 9 And Annex C
Annex C is highly controversial and there is widespread opposition to virtually all parts of the text. However, WTO director general Pascal Lamy and the Chair seem determined to force this non-consensual text down the throats of delegations. Unlike in agriculture and NAMA, where the draft text makes reference to the Chairman’s reports which Members are to “take note of”, the services text (Annex C) is not a report, but a mandate to “intensify the negotiations” in ways which are completely at odds with the GATS flexibilities.
If the draft text is endorsed as is, services liberalisation will be the trophy the developed countries will bring home from Hong Kong. Paragraph 9 of the draft ministerial declaration will be the entry point for sectoral negotiations – such as those of basic telecoms and financial services (in 1997) – to take place, stretching even after the Doha Round has concluded. The US would like up to 15 such sectoral negotiations to commence.
The numerical targets the EU has been flagging, whilst dangerous, is a red herring and a distraction from US’s and EU’s real objectives – sectoral negotiations. Sectoral negotiations require much deeper liberalisation commitments. They go right to the heart of disciplining countries’ regulation – enforcing legislation that give foreign companies equal rights to local suppliers. This will see the back-door entry of investment and competition agreements in the WTO.
Paragraphs 2 and 7 of Annex C are also entry points for sectoral negotiations. Paragraph 2 states that “in order to provide guidance for the request-offer negotiations, the sectoral and modal objectives as identified by members may be considered”. There is a footnote at the end of that sentence making reference to a controversial report by the Chairman of the Council for Trade in Services (TN/S/23). This report contains a list of liberalisation objectives of the exporting countries (mainly developed countries) across a whole range of sectors – legal services, telecoms, financial services, distribution, transport, environmental services etc. If this reference in Annex C is maintained, these liberalisation objectives will be the yardstick by which a country’s GATS offers will be measured. This will provide developed countries the platform they want to exert a lot of pressure in the negotiations.
Paragraph 7 in Annex C under “approaches” elaborates on the plurilateral request-offer approach. This paragraph is an ambush for countries. While many think of the plurilateral request-offer as informal negotiations between several countries mandated by the negotiating guidelines, 7b goes way beyond the language in the negotiating guidelines. It says that those that receive requests “shall enter into plurilateral negotiations”. The US and EU would like a critical mass (80-90% of world trade in a sector) to enter into these negotiations, and thereby change the nature of negotiations into formal sectoral negotiations along the lines of telecoms and financial services. The objective is to have a framework of regulatory commitments which all those involved would sign on to in part or whole, such as the Telecoms Reference Paper. Once this baseline of commitment in each sector is enshrined in the WTO, it affects all WTO members, even those outside these sectoral negotiations, since foreign investors will judge countries according to their endorsement of what will be seen as a basic liberalisation / regulatory framework. Paragraph 2 of Annex C should be deleted, as should paragraphs 7a-c.
“Modal” coverage or modal targets in paragraph 9 of the draft text and paragraph 2 of Annex C complements the sectoral negotiation. Within each sector, countries are asked to remove limitations in the cross border (mode 1) and commercial presence (mode 3) modes of supply. Deep liberalisation in mode 3 is equivalent to a competition and investment agreement in GATS. India has been asking for the expansion of “modal coverage” in the hope of getting a better deal especially in mode 4 (for their information technology professionals). Perhaps they may be in some position to obtain this. However, other developing countries are more interested in the opening up of mode 4 categories which include low to mid-level skills. This is not adequately reflected in paragraph 1d of Annex C dealing with Modal objectives. Paragraph 1 of Annex C prescribing modal objectives should be deleted.
An Agreement on Government Procurement in the GATS
The third Singapore issue that will creep back into the WTO through the backdoor is in paragraph 4b of Annex C. 4b says that “on government procurement, Members should engage in more focused discussions and in this context put greater emphasis on proposals by Members, including on proposals for a possible framework for government procurement.” Currently, the proposal on the table is the EC proposal advocating market access in government procurement in the GATS. If this language is not removed, post Hong Kong, exporting countries will push for such a framework based on the EC’s position. All government purchases in the services sector will then have to be bided for internationally, and countries will not be able to give contracts for national projects to local firms over foreign companies.
In short, this text completely undermines the current GATS flexible architecture and will radically open up developing countries’ services sectors before they are ready to compete with the services multinationals of the developed world. The potential for developing countries to develop their services sectors, as the new area of economic growth will be obliterated. In fact, unemployment will be on the rise as existing service providers come under threat. Access to services for all will also be in question since the liberalisation / privatization process will not prioritise universal provision.
Analysis of Annex A
Both the NAMA and agriculture texts purport to be part of a “bottom up” process, and claim to be “factual” reports of the negotiations. However, both lean towards the positions of the developed countries.
The agriculture report is particularly cleverly drafted. The Chair puts various options on the table without reference to which countries these options are from nor the weight behind certain positions. For example, it puts the position held by 50-60 ACP countries on par with the position held by one country (e.g. the US). As such, the balance in the negotiation is tilted in favour of the one country since there is an implicit expectation in the Chair’s report that the solution must be found in some sacred middle ground. For many developing countries, agriculture is not an issue where there can be compromise, since it involves livelihoods and employment. The parameters of the negotiations post Hong Kong are thus being redrawn in a direction that is not favourable to developing countries.
The provisions and options in domestic supports are highly disappointing and will not rebalance the current distortions in agricultural trade. In fact, cuts in de minimis and aggregate measure of support (AMS) will hit developing countries hard. For the most part, the cuts offered by the developed countries are only about cutting “water” in their subsidies i.e. cutting what is between their bound and applied levels of support.
In overall domestic support cuts (paragraph 8 of Annex A), it is the developing countries providing AMS supports that will be in danger of trimming drastically their supports. The EU (which falls under Band 3) is already moving their supports out of the “trade distorting” support categories as a result of their common agricultural policy (CAP) reform, and will be unscathed by even 70-80% of cuts. Their supports will migrate to the untouched Green Box. The US will fall under Band 2. It was the US that offered to cut overall supports by 53%. Unless these cuts move upwards – for example, up to 70%, there will be no change for the US in terms of their current applied levels of support.
The text endorses the expanded blue box enshrined in the July 2004 Framework. Whilst the US will cut “trade-distorting subsidies”, this new blue Box (even if capped at 2.5% of the value of production) will allow the US to house an addition five billion dollars of supports, mainly its distorting counter-cyclical payments in its Farm Bill, nullifying to a large degree the cuts in AMS. In fact, this new Blue Box is the equivalent of another trade distorting amber (AMS) box.
Under AMS (paragraph 9 Annex A), the US falls under Band 2, since their AMS is bound at $19.1 billion and the EU under Band 3, with bound AMS at $67 billion. For both, the cuts entailed will again be about cutting “water” and there will be no effect on applied levels of supports.
Under the AMS section, there is also a critical omission. In bilateral discussions, the US has promised to cut product-specific domestic supports by 50%. This will be key if there are to be real cuts in domestic supports in certain critical products such as cotton. However, this US promise is not reflected in the Chair’s report. The text merely suggests that there may be some kind of product specific caps. And the issue it highlights is the base periods to be used for calculation of these caps, 1995 – 2000 or 1999-2001. The former has been suggested by the G20 and the latter the US. 1999-2001 is the period where prices were low and supports were one of the highest in recent years.
On the green box (paragraph 10, Annex A), there is no language on the need to tighten it, only to “review” it. Even the language on the “review” amounts to nothing since it says that the review should be carried out “without undermining ongoing reform” – referring to protecting the EU CAP reform and the US Farm Bill. This is very disappointing. It means that the results from the cotton and sugar WTO dispute panels and the gains for developing countries from those panels have not been translated into gains in the main agricultural negotiations. These panels found certain subsidies housed under the Green Box trade distorting, for example market loan assistance, market loss programmes and counter cyclical payments.
With the CAP, the EU is moving the bulk of its overall supports into the green box – from 25 – 90%. The US has about 75% of its supports in the green box. The US provides about 50 billion in the Green Box, as opposed to about 21 billion under the “trade distorting” boxes – AMS, Blue and de minimis. Therefore, whilst export subsidies are decreasing, hidden export subsidies are on the increase through the Green Box and New Blue Box. Unless the Green Box is tightened, disciplined and capped, a large part of the imbalance in agricultural trade and dumping will be retained.
On export competition, no dates have been provided – not even a range of dates! This is clearly uneven treatment as compared to the range of numbers given in tariff reduction.
In market access, a critical proposal made by the ACP Group has been omitted. A number of ACP countries have harmonized tariffs at high levels (i.e. about 100% of their tariff lines have been bound at the same level). For example, Kenya has all its bound tariff lines at 100% and Nigeria at 150%. These countries have taken the position that they would distribute their tariff lines across the lower tiers of the formula on the basis of their own sensitivities and that, irrespective of the tiers to be agreed, they would not be expected to undertake the level of cuts required in the highest tiers. Their tariffs cuts instead would be guided by an overall average tariff reduction, which the ACP proposed to be 24% for developing countries. The chair failed to include this in his report.
On “proportionality” the chair has said that there is a proposal for developing countries to consider 2/3 the cuts made by developed countries. The G20 proposal in fact states that developing countries should undertake less than 2/3 the cuts made by developed countries. Even so, when proportional cuts are applied to developing countries, the results are not proportional. Since developing countries have much higher tariffs than developed countries, even the 2/3 cuts they make would in effect be a steeper tariff cut than developed countries. For example, cutting 90% tariff to 30% for developing countries whilst developed countries may be cutting a 4% tariff to 0%.
SENSITIVE PRODUCTS, SPECIAL PRODUCTS (SP) AND SPECIAL SAFEGUARD MECHANISM (SSM).
There is blatantly unequal treatment between the sensitive products and the special products. There is almost no discussion on how sensitive products will be designated. It is assumed that developed countries will decide this themselves. On the contrary, for the special products, there is a big debate on how they will be designated and reference is made (page A-5 of Annex A) to the need for a “non-exhaustive and illustrative criteria-based indicators” to be established.
On the SSM, the more useful “price-based” trigger for developing countries is said to be controversial. A volume based trigger, though less controversial will not be of much practical use.
Cotton. Even though it was promised in the July Framework that cotton will be addressed “ambitiously, expeditiously and specifically”, there is nothing offered to countries producing cotton in this chair’s report.
In sum, the text reflects negotiations that are pushing in a direction favourable for the US and EU – no real cuts in domestic supports, and in fact, they have a ticket to legitimize their huge supports and dumping. The domestic support provisions for the US and EU amount to nothing more than a box-shifting exercise. At the same time, there are mandatory cuts in tariffs, even for developing countries. (No mention is made of making cuts in tariffs by developing countries conditional upon cuts in domestic supports in developed countries.) In the context of continued dumping, forced tariff reduction in developing countries will eliminate the only tool countries can use to protect their small farmers from this unfair competition. Rural unemployment and poverty are the likely outcome.
NON AGRICULTURAL MARKET ACCESS (NAMA)
The NAMA text (Annex B) has been widely criticized for not capturing fairly the status of the negotiations for developing countries. The chairs’ report attempts to reduce the wide debate on NAMA to a mere numbers game when in fact the debate is over a more fundamental issue between the aggressive push for liberalization by highly industrialized countries on the one hand and the defensive position of developing countries who fear the spectre of de-industrialization on the other hand.
First, the chair makes claims that there is increasing convergence on the Swiss formula and that there are two main options. By doing so, he has eliminated the formula the Caribbean countries have put forward. The Caribbean formula provides developing countries with an additional coefficient to take into account economic vulnerabilities.
Second, unlike what has been suggested by the chair, there is no increasing convergence that the coefficients for developing countries should be between the 15-30 range. Many countries have said that should they be forced into a Swiss formula (rather than a Swiss type formula such as the Caribbean one), they would need a much higher coefficient (over a hundred). This picture painted by the chair is therefore highly misleading and dangerous since it could severely narrow down countries’ negotiating options post-Hong Kong.
Third, the chair gives a completely one-sided report when he says that there is “good progress” on the sectoral negotiations. In fact, the Africa Group position is that these negotiations should not be taking place and that African countries have never agreed to sectoral negotiations.
Instead, the Chair says that some have questioned the rationale of engaging in sectoral negotiations before having the formula finalized, completely misrepresenting the level of objection and resistance.
Finally, the LDCs have requested “bound” duty free and quota free market access. This has not been reflected in the LDC paragraph, which only refers to duty free and quota free access.
The negotiations in NAMA have been extremely controversial. Many developing countries have expressed concerns regarding the drastic formula presented, as well as the across the board bindings they have been asked to commit to. Most negotiators are worried that their industries will be wiped out completely with such a formula, and provisions stipulating tariff bindings at very low tariff rates, possibly at rates which are even lower than their current applied levels. No one-size-fits-all formula can deal with the concerns of a large number of countries. Countries require policy space – the US and EU have claimed that for textiles with their over 50-year transition period. Limiting this policy space for developing countries and disallowing the nurturing of fledging industries is a sure road to unemployment and deindustrialization.
* Aileen Kwa, with contributions from Jacqies Chai Chomthongdi and Joseph Purugganan.