By Aileen Kwa*

Since the director general’s “soft resumption” of the Doha talks on 16 November last year activity in the WTO has again restarted, but all the meetings have been held at an informal level. As yet, no deadlines have been set, but insiders say that, on the quiet, the chairs of the negotiating groups have been asked by Lamy to produce texts based on consultations with the membership. According to one chair, “whilst there are no fixed time lines, we are working on the best case scenario to have a text by the end of March”.

It is now clear that Lamy’s “option A” is out of reach – the “window of opportunity” to seal a deal by the end of March, three months before the expiry of the US trade promotion authority (TPA), has closed. Option B is to have a tempting-enough package on the table for the US as early in the year as possible. Members of the US Congress in support of the round will then have a stronger case should they wish to push for a TPA extension when the issue comes up for discussion, before the current TPA expires on 1 July 2007. The plan is to not let the current TPA lapse since a new TPA could take years to secure.

Most in Geneva believe the TPA extension or renewal is highly unlikely, given the current mood in the US regarding free trade, the political sensitivity of agricultural subsidies and its relation to the upcoming  
2008 presidential elections. However, as one delegate of a G20 country put it:

“It is not impossible. There is always a certain element of uncertainty. What if they (Democrats and Republicans) cut a deal that we don’t know about and the Democrats agree (to TPA extension)? And we will never find out why…  At the moment, the TPA looks like the last thing on their minds. But the US has surprised us in the past on a few things. Whilst it is highly unlikely, it is not impossible that they could come up with something.”

“Besides,” says another delegate, “regardless of what chairs feel about the situation personally, it is their job to be pushing the negotiations.”


No Real Cuts in Domestic Supports:
Being the issue that brought talks to a halt in July, much of the current activity in Geneva is centered on agriculture. The breakdown in July was due to the refusal of the US to move on domestic supports whilst demanding very high market access opening of the membership. They had asked for tariff cuts of slightly less than 60% (of developing countries) and slightly less than 90% of developed countries. Yet they had not offered any real cuts in their actual spending on overall trade distorting domestic supports (OTDS). Their current level of OTDS spending is 19.7 billion. (This does not factor in US’s spending of about 50 billion a year on supports categorized under the WTO legal “green box”.) The US’ offer was to bind its OTDS at 22.3 billion, hence not requiring it to cut real spending, but still allowing itself the “water” or possibility to increase actual subsidies by 2-3 billion. The only accomplishment of the US was that it removed the “water” (money they are allowed to spend but do not) from their Uruguay Round bound OTDS which provided them spending room of up to about 48 billion.

Whilst the EU has managed to portray itself as the good cop, they are not cutting domestic supports either. The EU’s 2003 CAP reform did not reduce overall subsidies given to EU producers, but simply recategorised the bulk of their subsidies to the WTO compatible “green box”. The bulk of EU’s approximately 89 billion euro supports are now WTO legal, even though such huge sums provided to farmers inevitably contribute to overproduction and the driving down of world prices. The EU’s current level of OTDS spending is 26 billion. They have offered to cap this OTDS at 33 billion. Again, no real subsidy cuts are taking place, and their offer allows them to increase OTDS subsidies by 6-7 billion.

US’ Market Access Interests: Objections to the G33:

In exchange for doing nothing, the US in particular, has come down very hard on the G33’s request for flexibility in tariff reduction. Jason Hafemeister, Deputy Assistant USTR for WTO agriculture negotiations  
explained the breakdown in July and the USTR position:

“We have been very generous in our existing agriculture offer. We are cutting trade distorting domestic supports by 60%, as compared to the 20% in the Uruguay Round. However, domestic supports were not really  
discussed in July. Market access was the real focus and here is where talks floundered. We need new trade flows and this is not currently on the table.”

He went on to say that there are differences between the US and the EU. “But the bigger gap is with the developing countries. The G33 is suggesting broad loopholes that would take away any effect of the tariff cuts”. (1)

He gave several examples: India has an average bound tariff rate of 114%. The G20 tariff cutting formula would lower the bound rate to 70%. But India’s average applied tariff rate is 35%. Indonesia has a bound rate of 48%. The G20 formula would bring it down to 33%, whilst their average applied rate is 9%. According to Hefemeister, only 3% of Indonesian tariff levels would fall below the current applied rates.

On top of this, he said, the G33 (the Group of 43 developing countries) is still proposing the Special Products (20% of tariff lines) and the Special Safeguard Mechanism (SSM). He concluded that there would therefore be no tariff cuts in agriculture. Referring to a study by WTO secretariat, he said that 20% can cover up to 98% of trade in one country and 93% of trade in another. Whilst he conceded that there are cases where tariff reductions could force farmers in poor countries to compete with subsidized cheap imports, he said that countries could nevertheless offer market access through quotas.

What are US’ interests? According to Hafemeister, “We are looking at developing country market access. This is where the gains will accrue from the round”. Large percentages of US agricultural exports, he said, fall only under a few tariff lines – eg. soya and cotton – making it unacceptable for the US if no market opening is forthcoming on these tariff lines. He gave the example of cotton, soya and soya oil, where the Chinese market is the prime target, and the 20% SP would mean no new exports into China.

In bilaterals with the leaders of the G33 — Indonesia and the Philippines — before the July breakdown, Hafemeister was reported to have presented these countries with a long list of products which US wanted market access in. He asked these countries to take the list into consideration when deciding on their SPs.

Since the breakdown, the World Bank has also jumped onto the anti-SP/SSM campaign bandwagon. A recent Bank study says that developing countries protecting their markets through SPs will see a  
rise in the price of staples. Since the poor are consumers too, poverty will increase, setting development back, in some cases, by up to 30 years! Their findings have been disputed by the G33. Nevertheless, the Bank is still charging ahead with its campaign.

Australia’s Proposals:
Since the “soft resumption”, the Australians, leading the Cairns Group, have been at the forefront of trying to create new solutions to unhinge the gridlock. Australia, of course, is a competitive agriculture exporter and it benefits them to push the US market access agenda. The ideas Australia has informally floated include:

“The ‘5 plus 5’ proposal” (2): The US cuts its overall trade distorting supports by 5 billion, from its offer of 22 billion to 17 billion. In turn, the “exchange  rate” (another Geneva jargon) will require developed countries to increase their market opening further by 5 percent above the G20 proposal – from 54 percent to 59 percent. Developing countries would have to open up their markets by two-thirds the requirement for developed countries, that is, nearly 40% cut in their bound rate.

Thus far, the proposal has been rejected by both the EU and developing countries. As Peter Young of the European Commission explains,

“The problem is that it (the Australian proposal) is structurally imbalanced. It goes beyond what the G20 has proposed in market access and undershoots in domestic supports. It gives the US an easy ride.”

Speaking on the EU’s space for maneuver with regards to market access, Young said

“Before the summer, we floated readiness to move a little short of what the G20 had asked for. But it was part of a package for cuts in US domestic supports. Since the US was not prepared to move in domestic  
supports, that offer was not confirmed. But it is still there, though it is conditional. As an average, we can stretch to the maximum of flexibility just short of the overall average (cuts) of the G20 (proposal).”

“The Cumulative approach to SPs / Sensitive Products”: In order for the US to even accept the Australian proposal though, it has been made clear to the G33 that the SP and SSM mechanisms must provide “genuine market access”. As such, a “cumulative approach” has been floated by Australia and others. Lamy is reported also to have been mentioning this proposal:

– Developed countries designate 4% tariff lines as sensitive products (EU had asked for 8%, and for sensitive products to have a combination of lower tariff cuts and tariff rate quota (TRQ) expansion)
– Developing countries designate 6% tariff lines as sensitive and 2% tariff lines for SPs, hence providing developing countries flexibility on 2 -8% of tariff lines.

This is a case of pushing onto developing countries something they are not even interested in, and using that as justification to limit the type of flexibility they are actually asking for. One G33 country delegate said “We are not demandeurs of sensitive products. We want SPs.”

It is difficult to detect any “special treatment” for developing countries in the supposed “sensitive products” flexibility -a provision suggested by the EU in Cancun to meet its own needs. In fact, it would bind developing countries to provide market access to others!  The treatment for sensitive products for developed countries (as proposed by the EU) is a combination of lower than normal tariff cuts, and expansion of their tariff rate quota by 3-5%. (3) Exporting countries are suggesting that developing countries expand their tariff rate quotas by 2-4%. Many developing countries do not have tariff rate quotas in their schedules, or have very few of these. If this is the case, Australia has suggested that they undertake the normal tariff reduction required for tariff lines categorized as sensitive, but with a longer transition period eg. two more years!

Other SP/ SSM Discussions:

The US remains unable to negotiate numbers, so in Geneva since the “soft resumption”, no real discussions have taken place with regards to the 20% for SPs. Australia and others though have criticized the list  
of “indicators” the G33 has developed to identify the products that could be covered by the SP. The 23 indicators were submitted to the WTO membership on 22 November 2005 (JOB(05)/304).

There has been a lot of debate also on the G33’s SSM proposal. The SSM would allow developing countries to increase their tariff levels in response to sudden import surges or price drops. The opponents of the SSM include countries Costa Rica, Argentina and Chile, but also developed country exporters. They do not want product coverage to cover all tariff lines as the G33 has proposed, and have suggested that any price increases should not go beyond the current Uruguay Round bound rate. Canada, EU and the US currently avail of the protection provided by the Uruguay Round’s Special Safeguard Provision (SSG). (4)  They would like the SSG to be maintained, and hence are slightly more willing to provide flexibility than the opponents.

– Falconer’s Fireside Chats:
A series of ambassador-only “fireside chats” (meetings) have been convened by the New Zealand ambassador and chair of the agriculture negotiations, Crawford Falconer. Only 23 countries have been invited to these closed door meetings. These include:
Argentina, Australia, Bangladesh, Benin, Brazil, Canada, Chad, Chile, China, Costa Rica, Croatia, EC, India, Korea, Indonesia, Japan, Malaysia, Norway, Paraguay, Switzerland, Thailand, US and Uruguay.

These have been termed the “3 for 3” meetings – three meetings with three issues covered in each session.

For example, the 27 November 2006 session was an exploration of the “exchange rate” between domestic supports and market access. Falconer was exploring members’ level of comfort with a proposal not so different from the Australian one, and which uses the G20 proposal (US  
cuts overall trade distorting domestic supports till 12 billion and market access opening of 54% for developed countries) as the departure point.

He suggested bringing down US’ overall trade distorting domestic  
supports (OTDS) from the US proposal of 22 billion, to 15 billion. That is, the OTDS for the US would be a cut of 70% and the OTDS cut for the EU would be about 75%. In exchange, in market access, the tariff cut  
would be 60% for developed countries and 40% for developing countries.

The US was apparently very silent during that “chat”. The EU did not agree, and some developing countries were opposed on the grounds that the chair should not be making the “exchange rate” between market access and domestic supports comparable.

The fireside chats and other consultations on the side continue. Falconer has said that based on these consultations, he might redraft the reference papers on a variety of issuesset, it is possible that some text by the chair may be presented in the spring. One G33 member, however, observed, “It seems that Falconer himself is personally quite pessimistic”.

– Stephenson’s “room” chats:
Once agriculture talks move (or at least once consultations are held), NAMA talks also grind into gear since members evaluate the package as a whole. However, it is unlikely that much can happen in NAMA on the “core issues” until the “core issues” in agriculture have been settled. Prior to the breakdown in July, the developed countries had asked for very drastic market access openings – with Swiss formula coefficients  
of 15 for developing countries, and 10 for developed countries. [The coefficient is the final tariff level, to be achieved over a fixed number of years.] This was not acceptable to most developing countries.  
Whilst NAMA is intended to increase trade flows, developing countries foresee that such a drastic opening of their markets would instead annihilate their industries.

An open-ended informal meeting for the whole membership was held on 1 December.
Donald Stephenson, the Canadian ambassador chairing NAMA explored with the membership a “road map” for the coming weeks. There was agreement that the July 2006 text that Stephenson had issued would be the basis  
for further consultations and work Members at the meeting apparently did not agree on the way forward in  
terms of tackling the most contentious or core issues i.e. the coefficients for the tariff cutting formula. But there was agreement that the chair should hold consultations on the “flexibilities” for developing countries ie. SVEs (small and vulnerable economies), para 8, para 6 and RAMS (recently acceded members).

The services market access talks have also began with small group consultations. As of late 2006, no timelines have been set, but the chairs of the services committees are working on the “best case scenario” where negotiations conclude by March 31 2007.

In the open-ended meeting that Mateo held on 27 November, the US portrayed market access in services as a make or break issue, causing consternation amongst certain developing country negotiators, given US’ reluctance in moving on agriculture.

Domestic regulation (DR) negotiations are also moving apace, with the Singapore chair Peter Govindasamy conducting consultations. These negotiations are basically about putting in place disciplines to ensure that qualification and licensing requirements and procedures and the use of technical standards on foreign  service providers facilitate trade flows.

GATS Article VI:4 mandates WTO Members to develop disciplines in domestic regulation. These disciplines are “horizontal”, cutting across all sectors and modes of supply. Once agreed upon, all sectors which countries had committed for liberalization in the Uruguay Round and in the current round, would be subject to these new horizontal regulations. This would mean considerably deepening the market access commitments that countries have bound in the WTO. Domestic regulations in the area of services, is similar to non-tariff barriers in the area of goods. A country can make a commitment in the WTO, but use regulation to side-step these commitments. Developing countries are split on this issue. Some services exporters, such as the Caribbean economies, want a certain amount of these disciplines because they have been locked out of the US market. India is a major demandeur. But the disciplines cut both ways by also disallowing developing countries protect their domestic markets.

Apart from India, other aggressive demandeurs include Australia and Switzerland, Chile, Columbia, Korea, Chinese Taipei, Hong Kong, Mexico, Thailand and New Zealand. They are asking for a “high ambition” outcome  
in the negotiations.

The bulk of developing countries are apprehensive, yet they have not said an outright no, for reasons explained above. Most are pushing for a low ambition outcome, aware of their weak regulatory capacity. They  
are wary that tying their hands in the WTO could limit their ability to provide universal services, or regulate according to national objectives in the future.

The Necessity Test:
The most controversial issue in these negotiations in the necessity test. (5) The necessity test already exists in GATS Article VI:4 b. Countries such as Brazil and the Philippines are leading the call for  
dropping this necessity test on the grounds that it may prevent them from fulfilling their universal service obligation. The US is also a strong opponent of the necessity test.  Its domestic regulators are objecting to the idea of having multilateral rules constrain their ability to regulate at home. The EU has not taken a vocal position – it is likely that their position varies according to the sector. They are not likely to want a necessity rest with regards to Mode 4 and qualification requirements, but may like one vis-a-vis licensing requirements. Other countries in opposition include the ACP Group, Malaysia, Indonesia, the African Group and the small and vulnerable economies (SVEs).

US’ lack of support has effectively put the brakes on the necessity test negotiations, especially since some of the demandeurs want the US to get back to the WTO table. There is now talk of downgrading any such reference to possibly preambular and thus less legally binding language.

The demandeurs of the necessity test are Australia, New Zealand, Switzerland and Hong Kong.

Other Dangers: Qualification and Licensing Requirements and Procedures:
However, the domestic regulations negotiations pose other dangers for developing countries. If there is no necessity test, India wants the disciplines on qualification requirements (6) and procedures (7) to be very detailed. These disciplines could reduce the practice of countries (US and EU), putting up only “paper offers” in their Mode 4 (movement of natural persons) commitments through non-transparent immigration laws.

If these disciplines only applied to Mode 4, it could help many developing countries. However, the disciplines also cut across all other sectors – banking, insurance, tourism, transport, health, water, education etc – and are likely to severely curtail developing countries’ ability to regulate the entry of foreign investors. The same is true in the area of licensing requirements (8) and procedures (9), where the EU has submitted very detailed proposals.

What do some of these disciplines look like? In the Chair’s consolidated text of July 2006 JOB (06)/225, qualification requirements include for example:
H 1. Each Member shall ensure that qualification requirements are pre-established, objective, transparent and publicly available..2. Each Member shall ensure that qualification requirements are not adopted or applied with a view to creating obstacles to trade in services and shall be based on objective criteria, such as competence and the ability to supply the services etc.

Licensing procedures include:
F.1. Each Member shall ensure that licensing requirements are pre-established, objective, transparent and publicly available..F.2. Each Member shall ensure that licensing requirements do not act as barriers to trade in services and are not more trade restrictive than required to fulfill national policy objectives (The Chair’s footnote here reads: “Many delegations have made no proposals on the concept of necessity and have expressed their opposition to its inclusion in the disciplines).

Some variation of such disciplines is likely to be adopted, should the negotiations come to completion. According to an inside source, DR disciplines on qualification requirements (QR) and qualification procedures (QP) are a critical component of a package for India in the Round. India’s offensive interests are in Mode 1 (cross border supply) and Mode 4. However, knowing that not much is forthcoming in Mode 4, these QR and QP disciplines have been put on high priority.

The dangers are many for developing countries that want to provide universal services, or have weak services industries. The moment they have opened a sector in their WTO services schedules, licensing and qualification procedures, even if crafted to meet national objectives, may not be WTO-legal.  For example, a country wanting only to accept foreign banks that provide a certain percentage of credit to small farmers, may find their legislation deemed to be in contradiction with “pro-trade” WTO jurisprudence, where criteria of entry tend to center around the provider’s ability to supply the service or its level of competence.

Aileen Kwa is a research associate with Focus on the Global South,  
based in Geneva.

1. Hefemeister J 2006 Presentation at the Carnegie Endowment for International Peace Workshop “The Doha Round and Trade in Agricultural Products: Who are the Losers and What Should be Done?”, 5 September, Washington.
2. In style, this proposal follows from Lamy’s proposal before the July breakdown of “20-20-20” – bringing down US’ overall trade distorting domestic supports from the current 22 billion to 20 billion, the G20 market access proposal of tariffs cuts for developed countries by 54% and a NAMA coefficient for developing countries of 20. This proposal was rejected by the G20 and developing countries. The G20 had proposed that US cuts its overall trade distorting domestic supports to 12 billion.
3. During the Uruguay Round, in addition to tariff cuts through a formula, countries were asked to create minimum market access opportunities by allowing imports of specified quantities at a second tariff level lower than the usual tariff rate. The quantity of goods imported at this lower tariff rate was termed the ‘tariff-rate quota’ (TRQ). Developed countries were asked to provide a TRQ of up to 5% of domestic consumption, developing countries up to 4% of domestic consumption. However, this is not a rule. A country may not have provided a second lower tariff rate because it considered that the required minimum access opportunity would be available at the ‘normal’ tariff rate.
4. The SSG in the Uruguay Round Agreement on Agriculture was provided to the products that were subject to tariffication (when non-tariff barriers were converted to tariffs) as a result of implementation of the Agreement. The SSG allows for increased duties when there are surges in imports or large price declines. Since most developing countries did not have non-tariff barriers, the SSG has largely only been used by the developed countries such as EU and the US. Only 21 countries have access to the SSG and only on a few products. This was another area in the Uruguay Round where the developed countries secured special treatment for themselves.
5. The preamble of the GATS recognizes the right of members to regulate, and introduce new regulation to meet national policy objectives. However, the necessity test in GATS Article VI:4b, that disciplines are “not more burdensome than necessary to ensure the quality of the service” as well as the chapeau of Article VI that countries’ regulations “do not constitute unnecessary barriers to trade in services” pose an inherent contradiction to this right. Whilst Members have a right to determine the ends of their regulation, the means they choose could be called into question and subjected to the WTO’s necessity test by a dispute panel
6. Qualification requirements are substantive requirements relating to the competence to supply a service that a service supplier is required to demonstrate prior to obtaining authorization to supply a service.
7. Qualification procedures are administrative or procedural rules relating to the administration of qualification requirements, including those aiming at verifying the compliance of candidates with  
qualification requirements as well as those relating to acquiring or supplementing such qualifications.
8. Licensing requirements are substantive requirements, other than qualification requirements and technical standards, with which a service supplier is required to comply in order to obtain or renew  
authorization to supply a service9. Licensing procedures are administrative or procedural rules relating  
to the administration of licensing requirements for the supply of a service, including those relating to submission and processing of an application for a licence or renewal thereof.