In December 2005, the World Trade Organization (WTO) held its sixth Ministerial Conference in Hong Kong as part of the ongoing Doha Round of trade negotiations designed to focus on developing countries. Expectations for the talks were relatively low, and although a finalized agreement to conclude the round was not achieved, some optimism emerged as ministers recommitted themselves to completing discussions before the expiration of the American president’s trade promotion authority (TPA) in 2007. Despite the lack of significant progress, modest gains were achieved in agriculture, manufactured goods, and services, as well as in the creation of a special package of assistance for developing countries.

Agriculture

In the agriculture arena, discussions centered on the formulation of a new modalities agreement, the elimination of export subsidies, the reduction of domestic support payments, and the definition of “bands” for tariff cuts. A “modalities agreement” that would provide the framework governing tariff and subsidy cutting formulas—members might agree to graduated cuts based on current levels, e.g. a 60% reduction on tariffs over 80% and a 30% reduction for those between 60-79%—was not achieved, but the gathered ministers set a target date of April 30, 2006 for completing such an agreement and a new deadline July 31 for offers on tariff commitments.

More substantial movement occurred on the issue of export subsidies. A compromise was reached between the members of the G20—a powerful bloc of developing countries—and the European Union that the latter would, in conjunction with planned reforms to the Common Agricultural Policy (CAP), completely eliminate all export subsidies by 2013. Discussions are ongoing in response to calls for the to reform its food aid and export credit programs and for, and to dismantle state trading monopolies.

...the Hong Kong Declaration did not tackle the potentially deal-breaking issue of how many products rich countries can declare “sensitive” and for which high tariffs could be maintained (e.g. sugar in the US and rice in Japan).

On the more contentious issue of domestic subsidies, most of the focus in Hong Kong fell on the , which is slated to produce a new Farm Bill in 2007. Although US Trade Representative Rob Portman has helped persuade the Congress to consider supporting cuts in tariffs and domestic subsidies, the exact nature of any harmonization of domestic agricultural policy and its trade policy in the WTO remains unclear. During the Hong Kong Ministerial, EU leaders meeting in Brussels approved a budget that extends farm subsidies through 2013. The EU itself, however, is divided on the issue. While northern countries such as Britain, Demark, Sweden and the Netherlands have been more supportive of tariff and subsidy cuts, others including France (which boasts of close ties between its agrarian and political classes), newly acceded countries in Eastern Europe (particularly the populous, largely rural Poland), and Mediterranean members are fiercely opposed.

Finally, four “bands” for tariff cuts and three “bands” for subsidies cuts were established. However, the Hong Kong Declaration did not tackle the potentially deal-breaking issue of how many products rich countries can declare “sensitive” and for which high tariffs could be maintained (e.g. sugar in the US and rice in Japan).

Manufactured Goods

On manufactured goods, the and the EU sought agreement from developing countries to cut industrial tariffs according to the Swiss formula that was widely employed during the Uruguay Round. Under the Swiss formula, higher tariffs would be cut progressively more than lower ones in order to maximize the reduction of the largest barriers to trade. Because of opposition from emerging economies, who maintain high average tariffs on industrial goods to protect their vulnerable domestic industries from international competition, the Hong Kong declaration neither explicitly endorsed nor ruled out the use of the Swiss formula.

As in all trade negotiations, each participant needs the political cover provided by concessions in order to justify bettering their own offers, thus creating a paralyzing deadlock. WTO Director General Pascal Lamy, himself a former EU Trade Commissioner, suggested that "the level of ambition for opening markets [in both agriculture and manufactured goods] should be commensurately high."

It quickly became apparent that and the rest of the G20 wanted concessions on agriculture before they were willing to go any further on non-agricultural market access (NAMA), while the EU wanted the G20 to lower tariffs on manufactured goods first. As in all trade negotiations, each participant needs the political cover provided by concessions in order to justify bettering their own offers, thus creating a paralyzing deadlock. WTO Director General Pascal Lamy, himself a former EU Trade Commissioner, suggested that “the level of ambition for opening markets [in both agriculture and manufactured goods] should be commensurately high.” This sentiment was included in the final Ministerial Declaration issued at Hong Kong and echoed once again by ministers during the World Economic Forum at Davos, several weeks later, when it was agreed that all major parties should begin to move in concert in order to break the deadlock.

Services

On services, the largest developments in Hong Kong came in the form of new deadlines: all countries are supposed to present their offers by the end of July 2006 and finalize commitments by the end of October 2006. While there was some controversy over the issue of minimum standards, or benchmarks—supported by the EU but opposed by developing countries—the bitterest debate erupted over the extent to which developing countries should open their services markets in the important sectors of banking and telecommunications, with countries such as South Africa, Venezuela, Kenya and the Philippines seeking to give their own young industries a chance to grow before facing international competition.

The Special Development Package

To help keep the Doha Round moving forward and avoid the devastating kind of collapse that occurred during the Cancun Ministerial of 2003, the OECD countries accepted proposals and several special measures targeted to helping the least developed countries (LDCs). The special development package had three primary elements: the extension of duty-free and quota-free market access, a deal in the cotton sector, and expanded Aid for Trade programming.

The OECD countries reserved the right to exempt 3% of their lines from the arrangement by designating them as “sensitive products.” This loophole, which provides cover for key industries such as textiles, bananas, sugar and rice may undermine the entirety of the program by squandering the greatest potential gains for poor countries.

First, plans for the OECD countries to grant duty-free and quota-free market access to the UN-designated LDCs (mostly in sub-Saharan Africa, but also including and ) on 97% of tariff lines by 2008 were adopted. The already allows 83% of all its tariff lines, or product classifications, from the poorest countries duty free access to its markets, while the figure is 87% for and virtually 100% for the EU under its “Everything But Arms” initiative. The OECD countries reserved the right to exempt 3% of their lines from the arrangement by designating them as “sensitive products.” This loophole, which provides cover for key industries such as textiles, bananas, sugar and rice may undermine the entirety of the program by squandering the greatest potential gains for poor countries.

The case of four West Central African countries that depend heavily on cotton exports—Benin, Burkina-Faso, Chad and Mali—called attention during the Cancun Ministerial to one of the most egregious trade-distorting domestic subsidy programs: the nearly $4 billion annually provided by the US to its 25,000 cotton farmers. The so-called “Cotton Four” claimed that depression of world cotton prices caused by the U.S. subsidies cost them $400 million per year and demanded not only an end to the subsidy programs but also compensation for past losses. Leading up the Hong Kong meeting, several African nations threatened to block any Ministerial Declaration if there was not a satisfactory accord on cotton. At Hong Kong, USTR Portman offered to exempt West African cotton exports from tariffs and quotas and to provide technical assistance. In reality, such concessions would have little impact since exports from West Africa to the are very small and the current tariff level is only 2%. The may be forced to go even further in reforming the program in the upcoming Farm Bill in light a recent ruling by the WTO’s Dispute Settlement Body, in which successfully challenged the cotton support payments. This matter was not resolved at Hong Kong , much to the dismay of the developing world.

Finally, the categories of programs known as "Aid for Trade” received increased prominence in the official Ministerial Declaration. These programs are intended to assist poor countries better integrate into the world trading system and better capture the potential benefits offered by trade liberalization."

Finally, the categories of programs known as “Aid for Trade” received increased prominence in the official Ministerial Declaration. These programs are intended to assist poor countries better integrate into the world trading system and better capture the potential benefits offered by trade liberalization. They provide technical assistance for the development of trade policies and participation in the processes of trade negotiation, assistance for supply-side capacity building to help countries reconfigure their economies for the global marketplace, and adjustment assistance to redistribute money to those who have been harmed by trade liberalization and whose jobs may be lost due to import competition. At Hong Kong, the US, EU and Japan, among others, all pledged substantial increases in Aid for Trade funding, but how exactly these funds will be disbursed remains unclear.

Conclusion

The dilemma faced by rich countries now is how to strike a balance between the demands of their domestic political constituencies and the ever growing reality that global security can not be found in a world where jobs are increasingly dependent on participation in the global economy through trade. For their part, poor countries face demands to “pay” for trade concessions that would open agriculture and textile markets abroad, for example, by opening their own markets to industrial goods and services from developed nations. Even after Hong Kong, much work remains to be done if the Doha round is to fulfill its development mandate by ensuring that the world’s richest countries do not deny to the poorest the very opportunities to move up the economic ladder that they themselves exploited on the road to growth.




Contributed by Globalization101.org. Reprinted with permission from Globalization101.org.

To read another Global Envision article about the most recent WTO meeting, see Global Envision Blog From World Trade Organization Meeting.



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