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Impasse at the WTO: A Development Perspective

Due to unrelenting pressure by the developed countries, the Doha negotiations have veered from their proclaimed development orientation towards a "market access" direction in which developing countries are pressurised to open up their agricultural, industrial and services sectors.

Insight

Impasse at the WTO: A Development Perspective

Due to unrelenting pressure by the developed countries, the Doha negotiations have veered from their proclaimed development orientation towards a “market access” direction in which developing countries are pressurised to open up their agricultural,

industrial and services sectors.

MARTIN KHOR

A
t the end of July 2006, the negotiations at the World Trade Organisation on the Doha work programme (DWP) were suspended across the board. The immediate cause was the failure of six major WTO members (the US, the European Union, India, Brazil, Japan and Australia) to bridge the gaps among themselves on the modalities of negotiations on two key areas, agriculture and non-agricultural market access (NAMA).

The suspension of talks are said by many commentators to threaten the development prospects of developing countries as it is assumed the completion of the Doha programme would benefit these countries. After all, the negotiations were termed the Doha Development Agenda and the Development Round of the WTO.

However, an objective analysis of the frameworks that have been developed up to now (including the August 2004 Framework agreement and the December 2005 Hong Kong ministerial statement) and the major proposals that are on the table would indicate that there is little development content. On the contrary, there would be few benefits for most developing countries, and many costs (including the loss of policy space) in many areas. Therefore, the suspension of the negotiations should lead to a review, rethinking and revision of the frameworks of the DWP, instead of a resumption of talks along the same lines.

This paper provides a summary of the state of negotiations before the suspension of talks, and some implications for developing countries. It takes a development perspective. It is only appropriate to use the yardstick of development concerns to assess the status of the negotiations, especially in view of the proclamation that this is a Development Round. The Doha ministerial declaration adopted in Doha in 2001 provides the mandate for the negotiations. Its paragraph 4 states that the needs and interests of developing countries are at the heart of the DWP.

I Rise and Fall of ‘Development Issues’

The developing countries had strongly argued before and at the WTO’s 2001 Doha conference that there should be a reform of the WTO rules to “rebalance” the imbalanced Uruguay Round agreements and that this should be done before commencing new negotiations in other areas. They argued that many of the WTO’s rules are biased against their interests, and that this situation must be rectified in order to attain a fairer system. Among the arguments was that the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement puts onerous burdens on the developing countries (raising the cost of consumer products such as medicines, and hindering innovation and technology upgrading); the Trade-Related Investment Measures (TRIMs) Agreement prohibits investment measures such as local content policy that are useful development tools; and the agriculture agreement has allowed the developed countries to maintain their high protection in this sector (through high domestic support and tariffs) while requiring the developing countries to liberalise their food imports, at the expense of food security and farmers’ livelihoods.

At Doha, the developing countries succeeded in incorporating two direct “development issues” into the work programme and as part of the single undertaking, meaning that negotiations to obtain legally binding outcomes on these two issues would be an integral part of the overall outcome. The two issues are: “implementation issues” (more than 100 proposals by developing countries on how to resolve problems arising from the implementation of the Uruguay Round agreements) and “special and differential treatment” (SDT) – numerous proposals by developing countries on strengthening existing SDT provisions in various WTO agreements and introducing new SDT provisions where necessary.

These two issues were scheduled to be resolved before new negotiations on market access, as reflected in the earlier deadlines for completing negotiations on these two issues as compared with those for agriculture and NAMA.

Unfortunately, there has been very little progress on these two issues, and they have instead been accorded low priority. After the WTO’s 2003 ministerial conference in Cancun they were excluded from the list of four issues that were said to be of immediate importance to resolve. Since then the implementation issues seem to have dropped off the negotiating radar screen, except for a couple of issues (on which there has also been very limited progress). On the SDT issues, conclusions were tentatively made on a set of only 27 issues but these were issues that were commercially insignificant. A few more issues concerning least developed countries (LDCs) have been tentatively agreed on. However, the bulk of SDT issues remain unresolved.

II Agriculture

Much of the recent negotiating energy had gone into agriculture, before the talks were suspended. However, from a development perspective, the negotiations have been lacking, both in process and substance.

On the process, many developing countries, including those in the African, Caribbean and Pacific (ACP) group, have spoken up on how only a few members seem to be dominating the negotiations. The agriculture negotiations were initially conducted mainly and exclusively by the so-called “Five Interested Parties” (US, EU, Brazil, India and Australia); and then Japan was included, to form the G6. The other WTO members were expected to wait for the G6 to reach agreement among themselves, and their role was seen to be confined to endorsing any deal reached by the six.

On substance, the negotiations are guided by the Doha Declaration (2001), Annex A of the August 2004 Framework, and the 2005 Hong Kong Declaration.

On export subsidies, the Hong Kong Declaration agreed on elimination by end 2013, and there is also a stipulation for front-loading (i e, for most reduction to take place at the start of implementation). As Das (2006) has commented: “There is no reason for export subsidies to continue at all; hence the bulk of the developed countries’ export subsidies, say 90 per cent, should be eliminated right at the end of the first year of the implementation period of the outcome of the negotiations.”

Domestic Support

On domestic support, there is a lot of confusion: (a) on the difference between the allowed levels (i e, the maximum levels) that members commit not to exceed, and the applied (or actual) levels of the various subsidies; and (b) on the different types or “boxes” of subsidies.

The WTO’s agreement on agriculture (AoA) distinguishes between different types of domestic support. Firstly a distinction is made between “trade-distorting” and non-trade-distorting subsidies. Members are obliged to fix maximum levels for trade-distorting subsidies and to reduce some of these allowed maximum levels. For subsidies considered non-tradedistorting (the Green Box), there are no maximum levels, and thus members can increase these subsidies without limit. The Green Box subsidies (such as payments to farmers to protect the environment) are supposed to be “decoupled” from production, and thus they supposedly do not distort trade; however, some experts have pointed out that many of these subsidies are also distorting in that they provide grants to recipients which assist them to maintain farming as a viable occupation, and that without these payments some of the farms or some of their production would not exist.

On the first category of domestic support, the developed countries have been permitted by the AoA to maintain high allowed levels of trade-distorting domestic support or TDS. These trade-distorting subsidies are in three categories: (1) the Aggregate Measurement of Support (AMS), or subsidies in the Amber Box, which is linked to intervention on agriculture prices and considered the most tradedistorting; (2) de minimis support (certain amounts of domestic subsidy that are allowed, calculated as a percentage of the value of agricultural production); and (3) the Blue Box subsidies (which are supposed to be linked to setting limits on production), which are also considered trade-distorting but less distorting than the Amber Box. The total TDS thus comprises these three types. The AoA obliges developed countries to reduce their total AMS by 20 per cent by 2000 below the 1986-88 level, and to limit their de minimis support to 5 per cent of production value; developing countries have to reduce their AMS by 13 per cent and limit de minimis support to 10 per cent. No limit was set on the Blue Box.

Since the Uruguay Round, the developed countries have been reducing their actual levels of AMS to below the allowed levels, and they were able to do this partly by shifting the subsidies from one box to other boxes. In a dispute settlement case on cotton, it was found that the US had been wrongly shielding some tradedistorting subsidies within the Green Box, and was asked to change its policies accordingly. The US has to remove these subsidies, or to shift them into one of the trade-distorting boxes. One option is to move the subsidies to the Blue Box (which it has previously not used), and the US thus seeks to change the definition or criteria of this box to enable the shifting to take place. The EU, which makes extensive use of the Blue Box, is reducing its “tradedistorting” subsidies, but significantly increasing its Green Box subsidies (decoupled payments) under its Common Agricultural Policy (CAP) reform. The Green Box subsidies are not under reduction discipline and thus can be raised without limit.

The EU and US have considerable leeway to (1) move trade-distorting subsidies from the Amber Box to the Blue Box and de minimis in order to make fuller use of their allowed TDS; (2) make creative use of the Green Box which has no limits and has loose criteria at present, and thus enable some subsidies that are in effect trade-distorting to be counted as non-tradedistorting subsidies.

The level of the total actual TDS is presently far below the level of total allowed TDS for the US and the EU. Therefore, the developed countries can afford to reduce the level of allowed TDS significantly, before the cut reaches the level where the present actual TDS is affected. In the informal language of WTO negotiations, this would mean the US and EU would only cut “water” (i e, the difference between allowed and actual subsidies) and not their actual subsidies. This is why the EU and US have been able to announce offers to cut their AMS and their total allowed TDS by a seemingly large degree, while in reality these offers do not necessitate real cuts in the present applied level (in the case of the US) or in the applied level that is already planned for (in the case of the EU, with reference to its CAP).

This is one of the present stumbling blocks to the reaching of an agreement on agriculture modalities.

Domestic Support: US Offer

In October 2005, the US announced that it would cut the allowed AMS by 60 per cent; restrict the Blue Box to 2.5 per cent of production value; and reduce the allowed de minimis support from 10 per cent to 5 per cent of production value. This may sound generous at first sight. However, analysis has shown that in fact this offer would allow the US to have a level of total allowed TDS of $22.7 billion. This compares with the $21.4 billion of actual TDS in 2001 (the last year in which the US notified to the WTO); and the $19.7 billion of actual TDS in 2005 that was estimated in a simulation exercise by WTO members.

The US offer was not acceptable to its partners (namely, the EU, Brazil, India and Australia) in the June and July 2006 meetings of the G6 trade ministers in the WTO. They agued that the US would not have to effect any real cuts in its present TDS but would even have the “water” or space to increase its TDS by $3 billion. The refusal or inability of the US Trade Representative to improve on this offer was the immediate cause of the breakdown of the G6 talks, which in turn led to the suspension of the Doha negotiations. The demand of the developing countries in the Group of 20 (G20) is that the US reduce its allowed TDS to $12 billion, and the EU reportedly asked for a level of $15 billion.

From 2001 onwards (to now), the allowed levels of trade-distorting support for the US were estimated as follows: (1) Amber Box $19.1 billion; (2) de minimis $19.8 billion (being 10 per cent of production value), made up of $9.9 billion for productspecific support (5 per cent of production value) and $9.9 billion for general support (5 per cent of production value); and

  • (3) an implied level of Blue Box subsidy of about 5 per cent of production value, and a total allowed TDS of $48.2 billion.
  • The US actual levels in 2001 (as notified to the WTO) were: (1) Amber Box $14.4 billion; (2) de minimis $7.0 billion (made up of $216 million product-specific support and $6.8 billion general support);
  • (3) Blue Box zero; and (4) total actual TDS $21.4 billion. The Green Box subsidies were $50.7 billion. Thus total domestic support was $72.1 billion.
  • The US offer of October 2005 was that it would: (1) reduce allowed AMS by 60 per cent to $7.6 billion; (2) reduce the allowed de minimis to 5 per cent of production or $10 billion [made up of $5 billion product-specific support (2.5 per cent of production) and $5 billion general support (2.5 per cent of production)]; and cap the Blue Box to 2.5 per cent of production value or $5 billion. The total allowed TDS would be $22.7 billion (or a 53 per cent cut from the present total allowed TDS of $48.2 billion).

    Domestic Support: EU Offer

    The EU’s offer on domestic support (October 2005) comprised the following: 70 per cent cut in allowed AMS; 80 per cent cut in allowed de minimis; and restriction of the Blue Box to 5 per cent or production. The total allowed TDS would be cut by 70 per cent.

    Some independent analysts have estimated that the EU would also not have to reduce its already planned level of actual domestic support with its proposal. In fact there will be some “water” between on one hand what the EU has already scheduled to do under its CAP reform, and on the other the proposed new level of allowed trade-distorting support in its WTO proposal; and thus the proposal enables the EU to have a level of domestic support beyond what it had planned in the CAP. According to one estimate, this “water” is around Euro 6 to 13 billion, depending on the assumptions [Berthelot 2005].

    The present estimated allowed levels of trade-distorting support of the EU are as follows: AMS Euro 67.2 billion; de minimis Euro 19 billion; and with the inclusion of the actual Blue Box level (of year 2001-02) of Euro 23.7 billion, the total allowed TDS is estimated at Euro 110 billion.

    In 2001-02, the actual levels of tradedistorting support of the EU were: AMS Euro 43.7 billion; de minimis Euro 1 billion; Blue Box Euro 23.7 billion. Total actual TDS was Euro 68 billion.

    Through the CAP reform, these actual levels are planned to be scaled back so that by 2008 the actual levels are expected to be: AMS Euro 18.8 billion; de minimis Euro 1 billion; Blue Box Euro 7 billion; Total TDS Euro 26.8 billion.

    The EU’s October 28, 2005 offer at the WTO would bring the allowed levels to the following: the allowed AMS to be cut by 70 per cent to Euro 20.2 billion; de minimis to be cut by 80 per cent to Euro

    3.8 billion; Blue Box restricted to 5 per cent of production at end of implementation period to Euro 12.3 billion. The total of these three would be Euro 36.3 billion.

    However, the EU also committed to bring down its allowed total TDS by 70 per cent, implying a level of Euro 33 billion.

    The significant conclusion is that the EU offer to cut its allowed total TDS by 70 per cent to Euro 33 billion still allows it to have “water” of Euro 6.2 billion above the Euro 26.8 billion that it had already planned for its actual total TDS in 2008 upon completion of the CAP reform. In other words, the EU’s offer to the WTO allows it to increase its planned actual total TDS by more than Euro 6 billion.

    Domestic Subsidy Offers

    The conclusion from the above is that even when considering only the tradedistorting support, the US and EU offers are not sufficient to ensure real cuts in the actual or the already planned levels of domestic support. Moreover, the developed countries can continue to use the Green Box subsidies without limit as the August 2004 Framework and the Hong Kong Declaration do not put a cap on these. Some of these Green Box subsidies are actually trade-distorting (as the cotton dispute decisions have shown) and should have been allocated to the trade-distorting boxes such as Amber or Blue or de minimis.

    As Das (2006) 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 AoA) will continue to be the route to give farmers unlimited amounts as subsidies.” Das also comments that the G20 proposal has the aim of disciplining the Green Box but does not give specific quantitative criteria, and he suggests that the criteria for the Green Box (especially the decoupled income support) include eligibility of farmers in terms of their lower economic status, a ceiling on payments to individual farmers in a year, and exclusion of companies from such payments.

    Agriculture Market Access

    On market access, it has been agreed that tariffs be cut according to a “tiered formula” in which there are three or four bands (with each band comprising a range of tariff levels) and with the band of highest tariffs to be cut by the highest percentage, and so on. There is pressure from the US and the Cairns Group (including some

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    agriculture exporting developing countries) to have a “high ambition” in cutting agricultural tariffs steeply. This is resisted by the EU and the G10 developed countries that have defensive interests.

    The US has proposed that tariffs in developed countries be cut sharply by 60 to 90 per cent, according to the tiered formula. It wants developing countries to reduce by almost the same rates. The EU has proposed lower cuts for developed countries and the designation of 8 per cent of tariff lines as sensitive products which are eligible for even more lenient treatment. The EU proposal has been estimated (by the G20 for instance) to result in an average cut of 39 per cent for itself (without yet calculating the effects on this average of the inclusion of sensitive products). The G20 is quite ambitious in the cuts it proposed for developed and developing countries. Its proposal indicates an average 54 per cent tariff reduction for developed countries and an average 36 per cent for developing countries. In contrast, the ACP Group tabled a proposal with more lenient tariff reductions (which are to be limited to an average 24 per cent reduction for developing countries).

    From a development perspective, the developing countries are unlikely to gain from the agriculture negotiations. Firstly, there is a likelihood that the developed countries’ allowed domestic subsidies will not be reduced below their actual or planned levels, or if they are then by not a significant extent. They are also able to shift a significant amount of domestic support to the Green Box. Thus some of the developed countries will be able to protect their markets and compete in third markets, depriving some efficient developing countries from their market share.

    Secondly, most of the developing countries have a defensive interest in agriculture and they are being subjected to serious pressures to open their markets further. From a development perspective, these countries are likely to endure net costs should the proposals by the major countries be adopted.

    Further, some developed counties will be able to continue to dump products that are subsidised at artificially low prices onto the poorer countries that cannot afford to subsidise. The import of subsidised food such as chicken, tomato, maize and rice from the EU and US into Africa, Central and South America and parts of Asia is largely a result of such subsidies. The developing countries are only able to defend themselves through tariffs, due to their lack of resources to subsidise significantly, and due to the WTO’s prohibition on quantitative restrictions. Yet most of the proposals on the table oblige the developing countries to cut their tariffs even more steeply on average than during the Uruguay round, and they also are obliged to cut their tariffs line by line by the formula, unlike in the Uruguay round when they only had to cut their tariffs by an overall average of 24 per cent (subject to a only minimum cut in all lines).

    Most of the developing countries have defensive interests in agriculture and their main priority has been to protect the interests of the small farmers whose livelihoods and incomes are at risk from having to compete with imports. Grouped under the G33, many of these countries have been fighting to establish two instruments that developing countries can use – “special products” or SP (products linked to food security, livelihood security and rural development which they argue should not be subject to tariff reduction or be subject to only small reductions) and “special safeguard mechanism” or SSM (through which tariffs of agricultural products can be temporarily raised above the bound rates when there is a rise in import volume or a fall in import price beyond a certain extent to be negotiated).

    The G33 (comprising over 40 countries) have made a firm stand that there can be an overall deal to conclude the Doha Work Programme if the provisions on SP and SSM adequately meet the countries’ needs to protect and promote food security, farm livelihoods and rural development. The group has proposed that developing countries be allowed to self-designate 20 per cent of agricultural tariff lines as SPs. It has also proposed the price and volume “triggers” that would enable a developing country to make use of the SSM, and in what manner. However there is strong resistance especially from the US that has stated that the G33 proposal on special products would block its access to developing countries’ markets. It has counter-proposed that SPs be restricted to only five tariff lines. It also presented a proposal on SSM that severely restrict the conditions and manner of its use and thus render it ineffective.

    The agriculture negotiations are made more complicated by the fact that the US and the EU are demanding that their proposals be linked to the condition of extreme liberalisation commitments to be undertaken by developing countries in NAMA, and that at least some emerging developing countries make additional commitments to their satisfaction in services.

    III Non-Agricultural Market Access

    This is an area where the outcome appears likely to be the least developmentfriendly. The August 2004 Framework on NAMA (in Annex B), supplemented by the Hong Kong declaration, is unduly tilted against the developing countries. A new system is being created that will remove or reduce the present development flexibilities in the General Agreement on Tariffs and Trade (GATT). As a result, the deindustrialisation process that is already taking place in many countries will accelerate.

    First, members are asked to bind all their industrial tariffs. At present, each country can choose how many of their tariff lines they want to bind. This flexibility will be removed as the August 2004 Framework generally requires members (except those exempted such as least developed countries) to bind 100 per cent of their lines, or at least 95 per cent (i e, there is an exception of 5 per cent).

    Secondly, unbound tariffs will have to be generally bound at low levels. This is because the August 2004 Framework proposes that the applied rates of unbound tariff lines will be multiplied by two and then the formula will be used to reduce the tariff rates to the new bound levels. In the latest proposals, a certain number of percentage points (to be negotiated) will be added to the current applied rates and then the formula cut will be applied. In many cases the new bound rates will be significantly below the applied rates, which are already low because of structural adjustment. In contrast, up to now, each country is allowed to choose at which level to bind their previously unbound tariffs. The removal of this flexibility would have serious implications. For the first time ever in the GATT/WTO system the applied rates would be used in calculating the newly bound rates, and the formula linking the two is so strict that the new bound rates will likely be close to or below (in many cases significantly below) the applied rates.

    Thirdly, for the first time, developing countries will be subjected to a formula to reduce tariffs. And it will be a Swiss formula, which cuts higher tariffs more deeply than lower tariffs. Since most developing countries have quite high industrial tariffs, their tariffs will be cut more steeply than the tariffs of developed countries (unless the developing countries are allowed to have vastly different coefficients in the formula than the developed countries). If developing countries have to cut their tariffs more than developed countries, this also goes against the principle of “less than full reciprocity” that is mandated in the Doha Declaration. The depth of cuts depends firstly on the formula and secondly on the coefficient agreed to. On the first, a non-linear formula was agreed to in the August 2004 Framework and the Swiss formula (a variant of the non-linear formula) was agreed to in the Hong Kong Declaration; the Swiss formula’s characteristic is that higher tariffs are slashed at higher rates. On the second, the developed countries agree that there can be two coefficients: one for developed countries and one for developing countries. However they also insist that there should not be much difference between the two coefficients, with the coefficients 10 (for developed countries) and 15 (for developing countries) being mentioned. The lower the coefficient, the more drastic the rates of reduction. The coefficient also denotes the maximum level of tariff after the reduction exercise. Thus a coefficient of 15 for developing countries implies that their industrial tariffs will be brought down to less than 15 per cent.

    Fourthly, the cuts are to be done on a line-by-line basis. This means that every product will be cut by this drastic formula. In the Uruguay round, the developing countries had to cut their tariffs by an overall target of 30 per cent, but they could choose at which rate to cut which product’s tariffs, so long as the overall average came to 30 per cent. This flexibility is to be removed. Finally, there is a “sectoral approach” in which tariffs will be eliminated in products belonging to certain selected sectors. Developing countries want this approach to be on a voluntary basis. But pressures are being put on them to participate.

    There are non-tariff barriers (NTBs) which hinder the access of developing countries’ products to developed countries’ markets. NTBs are supposed to be an integral part of the negotiations in NAMA. However this issue has been given low-priority treatment and it is unlikely that there will be any significant outcome in this area which is of high export interest to developing countries.

    Some flexibilities are provided in the August 2004 Framework to developing countries, but they are very few and very limited. The flexibility is that they can either (1) apply less than formula cuts to up to 10 per cent of the tariff lines provided that the cuts are no less than half the formula cuts and that these tariff lines do not exceed 10 per cent of the total value of a member’s imports; or (2) keep as an exception, tariff lines unbound, or not applying formula cuts for up to 5 per cent of tariff lines provided they do not exceed 5 per cent of the total value of a member’s imports.

    There is a marked imbalance in this flexibility for developing countries in NAMA, when it is compared with the generous flexibilities proposed by the EU or the G-10 for themselves in agriculture. The EU has for example proposed that 8 per cent of developed countries’ agriculture tariff lines can be self-designated as sensitive products (which will then not be subjected to the full formula cuts) and they are not limited to 8 per cent or any level of total import value; compared to developing countries’ flexibilities in NAMA where only 10 per cent of tariff lines can enjoy less than full formula cuts (even then limited to half the formula cuts) and these tariff lines are limited to 10 per cent of total import value. Even then, the developed countries (backed by a few developing countries) want to reduce the NAMA flexibility for developing countries by reducing the numbers in the brackets, or to link them to the severity of tariff reductions (i e, the coefficient).

    For developing countries that have bound less than 30 per cent of their tariffs (known as the paragraph 6 countries), there is a concession that they need not be subject to the formula. However, the August 2004 Framework requires them to bind all their tariffs, and at a level that is the average level of bound tariffs of developing countries (taken to be 27.5 per cent). This is an inadequate concession, for it would still ask too much of these countries in terms of wide and rapid liberalisation. These countries have put forward their own proposal for more flexibilities, but this has so far not been accepted.

    The developed countries have projected the idea that having two coefficients would take care of the requirements of special and differential treatment for developing countries, and even of the “less than full reciprocity in commitments” principle that was mandated by the Doha Declaration. But merely having separate coefficients will not fulfil these two requirements, unless there is a vast difference in the coefficients. For example, if a coefficient of 10 in a simple Swiss formula is applied to developed countries, then the EU states, which have an average bound tariff of 3.9 per cent, will only cut their bound tariffs approximately by 28 per cent. With a lower coefficient of 5, the EU’s cut would be by

    43.8 per cent.

    Compare this with the situation of a developing country with an average bound tariff of 30 per cent, which is about the average level for developing countries. If a coefficient of 10 is applied, the average tariff would fall from 30 per cent to 7.5 per cent (or a reduction of 75 per cent, far more than the EU’s 28 per cent). A coefficient of 15 leads to an average 10 per cent final tariff (or a 66.6 per cent reduction). A coefficient of 20 leads to a final tariff of 12 per cent (60 per cent reduction). Even a coefficient of 30 leads to a final tariff of just 15 per cent (50 per cent reduction). In these cases (coefficients 10 to 30), the developing country would have to undertake far deeper cuts than the EU.

    Only at much higher coefficients will this developing country undertake similar percentage reductions as the developed countries. For example, with a coefficient of 70, the developing country will cut its tariff from 30 per cent to 21 per cent, a reduction of 30 per cent. This is still more than the 28 per cent reduction by the EU if it applies a coefficient of 10.

    However, the developing countries are not required to undertake the same level of commitments as the developed countries since the Doha Declaration says they

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    are to undertake “less than full reciprocity in reduction commitments”. They can cut their tariffs by less than the percentage rates of developed countries.

    The implications of the NAMA proposals are serious as their adoption is likely to exacerbate the deindustrialisation that has already taken place because of rapid liberalisation, mainly under the structural adjustment programmes of the IMF and World Bank. For example, the domestic industries of many African countries have closed or have been seriously damaged in the 1980s and 1990s.

    There is a myth that developed countries and successful developing countries industrialised because they had low or zero tariffs, and that the lower the tariff the higher the industrial growth. In fact, developed countries made use of high tariffs to protect their industries during their industrialisation phase. Also, the successful East Asian economies of Taiwan, South Korea and Japan resorted to tariff measures to pursue their industrial development. Two recent papers, by Ha Joon Chang (of Cambridge University), and by Yilmaz Akyuz (former Chief Economist of the UN Conference on Trade and Development (UNCTAD)), have demonstrated this.

    The ability to use tariffs for industrialisation is all the more important since the use of other tools (which other countries had used during their industrialisation) has now been constrained by WTO rules, for instance on TRIMs and subsidies. Also, for many developing countries, customs revenues constitute 20 to 30 per cent or more of government revenue, while for developed countries this is less than 1 per cent. Cutbacks on government revenue could result in decreased social spending such as on health and education.

    IV Services

    The WTO’s General Agreement on Trade in Services (GATS) has many “development flexibilities” that allows developing countries to choose whether, to what extent and when to make commitments and in which sectors. Negotiations have previously been based almost solely on the bilateral request-offer modality. Countries can make requests on others for liberalisation in certain sectors. However, it is up to each developing country to decide how to respond to the requests it receives. The country can make as much or as little in its offers as it deems appropriate to its interests.

    However these flexibilities and even the architecture of the GATS itself came under threat in 2005 from proposals (mainly by the EU, Japan and Australia) for “benchmarking” or “establishment of targets and indicators”.

    Under these proposals, countries would have been required to liberalise in a certain minimum number of key sectors. The EU on October 28, 2005 proposed that developing countries be required to improve their commitments or make new ones in 57 per cent of the services sub-sectors. Other proposals are that developing countries would be required to bind in the GATS, their present level of liberalisation in the various sectors, and then to extend the level of liberalisation through new GATS commitments. These proposed changes would, if accepted, affect the present architecture of the GATS and contradict the bottom-up and positive-list approach, thereby removing much of the present development flexibilities of the GATS. Particularly targeted was the liberalisation of “commercial presence”, or Mode 3 of the GATS.

    Athough these “benchmarking” proposals were rejected after a hard fight, another proposal by the developed countries was adopted at the WTO’s Hong Kong conference in December 2005. This was that that “plurilateral negotiations” be established, to complement the bilateral requestoffer modality. In the plurilateral modality, a set of countries that demand wider and more rapid opening in a service subsector can formulate their demands and requests to a set of countries for negotiations on these demands.

    This plurilateral approach was also originally opposed by many developing countries which believed that they would be subjected to greater pressure under this method, and that this would also go against the development flexibilities of the GATS. However the “plurilateral” modality of negotiations was eventually adopted, despite the opposition and reservations of many developing countries during most of the conference period.

    After the Hong Kong conference, the new modality of plurilateral negotiations has been implemented, and a number of rounds of plurilateral negotiations have been conducted, in more than 20 sub-sectors or areas of negotiations.

    The course of the services negotiations shows the intense pressures that the developing countries have come under to liberalise their services sub-sectors under the Doha work programme. In fact the negotiations for modalities for the services negotiations had been completed already, with the guidelines and the procedures for the negotiations on trade in services adopted in March 2001, ahead of the modalities for agriculture and NAMA (which are yet to be settled). Despite this early resolution of services modalities, the developed countries put the developing countries under severe pressure to totally alter these guidelines and procedures by introducing new modalities (benchmarking and plurilateral approach). This was another attempt to stress the “market access” aspect of the Doha programme, at the expense of the development aspect.

    The developed countries argued that they need the new approach in order to get developing countries to liberalise at a faster rate. But this goes against the principle that developing countries be able to choose their own rate of liberalisation, which is the centrepiece of the GATS.

    Moreover, the developed countries themselves have moved very slowly, if at all, in the only area where most developing countries could benefit from the GATS, which is in Mode 4 or the movement of people. The offers by them have been few and of low quality. Thus, developing countries rightly argue that it is the developed countries that are not forthcoming in making services commitments, and that they should not pressurise the developing countries to liberalise faster than what they can bear.

    V Conclusion

    Due to unrelenting pressure by the developed countries, the Doha negotiations have veered from their proclaimed development orientation towards a “market access” direction in which developing countries are pressurised to open up their agricultural, industrial and services sectors.

    A development-oriented outcome would have (1) given top priority to satisfactory conclusions on resolving the “development issues” (implementation issues and the strengthening of special and differential treatment); (2) resulted in significant real reduction in domestic support and in tariffs in agriculture in developed countries, while enabling developing countries to protect and promote the interests of their small farmers; (3) allowed developing countries to continue to make use of existing flexibilities in NAMA so as to promote domestic industrial development, while developed countries commit to eliminate or significantly reduce their industrial tariff peaks and high tariffs and eliminate their non-tariff barriers; (4) enabled developing countries to maintain and make full use of the development flexibilities contained in the GATS and reaffirmed in the March 2001 guidelines and procedures for the services negotiations.

    However, the developed countries have succeeded in (1) marginalising the “development issues”; (2) minimising or trivialising the development components (including the principles of special and differential treatment and less than full reciprocity) in the agriculture and NAMA negotiations; (3) not committing to reduce their total trade-distorting domestic subsidies beyond the actual levels or the already planned levels, and not committing to effectively discipline or limit Green Box subsidies and thus ensuring their continuation of high subsidisation in agriculture;

    (4) introducing new modalities in services which make it potentially easier to pressurise developing countries to liberalise, while not making meaningful offers in areas (especially Mode 4 on labour services) that can practically benefit developing countries; and (5) so far blocking progress in the TRIPS negotiations on disclosure on genetic resources and traditional knowledge.

    The current impasse in the negotiations provides an opportunity to review the negotiating positions and proposals from a development perspective. On the “development issues” (implementation and SDT) it is imperative that progress is made, in order to rebalance the existing WTO rules in the various areas, and make the multilateral trading system more fair. As these issues are part of the single undertaking, it must be made clear that there can be no agreement on the Doha Work Programme unless there is a satisfactory outcome on the development issues.

    On agriculture, the developed countries have to improve their offers on reducing their total allowed trade-distorting subsidies to levels that would significantly cut their actual or planned levels, including at the product level. There should be effective disciplines on the Green Box subsidies, including criteria on which farmers are eligible to receive them, and limits placed on amounts receivable per farmer, while excluding corporations. Developing countries should have enough flexibilities in their market access obligations (in the tariffreduction formula and in special products and special safeguard mechanism) that allow them to effectively safeguard food security, livelihood security and rural development.

    It should be recognised that the current NAMA frameworks (Annex B in the August 2004 Framework and the Hong Kong Declaration) are inappropriate for meeting the desired goals of facilitating industrial development in developing countries. The proposed outcome would seriously erode the present flexibilities available to developing countries.

    A standard tariff-reduction formula to apply to all affected members is inappropriate. This is all the more inappropriate when a non-linear Swiss formula is chosen and when it is to be applied on a line-byline basis. The flexibilities remaining, as provided for in paragraph 8 of Annex B, are too limited and even then there are proposals to further limit these flexibilities or even remove them. There should be a rethinking of the modalities as Annex B is inappropriate and potentially extremely damaging to the industrial prospects of developing countries.

    A more suitable approach for developing countries is that of the Uruguay Round, in which developing countries committed to reduce tariffs by an overall and average target rate. During the Uruguay Round, members could choose the method by which to cut their tariffs, as long as they met the minimum target. Thus, for the current NAMA negotiations, members can choose to apply the Swiss formula if they so wish. But developing country members should not be obliged to do so.

    On services, the existing principle of development flexibility should be upheld, that developing countries be able to choose which sectors they will commit to liberalise under the GATS, and to what extent, and at the time of their own choosing, according to national policy priorities. The main negotiating method should remain the bilateral request-offer basis. Attempts to introduce “benchmarking” or “targets and indicators” where developing countries are obliged to commit in a certain number of sub-sectors have been rejected and should not be revived. The plurilateral approach, which was agreed to in Hong Kong, should not be mandatory for a country to join. Any plurilateral approach should be on a voluntary basis and there should not be any pressure put on a developing country.

    EPW

    Email: twnet@po.jaring.my

    References

    Akyuz, Yilmaz (2005): The WTO Negotiations onIndustrial Tariffs: What Is At Stake for Developing Countries, Third World Network, Penang.

    Berthelot, Jacques (2005): ‘Why the EU’s Domestic Support Offer Is Empty Promise’, South-North Development Monitor, November 2.

    Chang, Ha Joon (2005): ‘Developing CountriesNeed to Wake Up to the Realities of the NAMA Negotiations’, TWN Briefing Paper 26.

    Das, Bhagirath Lal (2006): ‘Why the EU and US Offers on Farm Trade Are Not Good Enough’, TWN Briefing Paper 33.

    Khor, Martin and Goh Chien Yen (2006): The WTO Negotiations on Non-Agricultural MarketAccess: A Development Perspective, Third World Network, Penang.

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