Despite low expectations for movement on the major negotiating areas in the current round of trade talks, many WTO Members are hopeful that agreement on a 'development package' might be reached at the Sixth WTO Ministerial Conference in Hong Kong on 13-18 December. Since November, negotiators have recognised that deadlock in agriculture, non-agricultural market access and services talks will not be resolved in time for the Hong Kong Ministerial, and instead hope to reach consensus in early 2006. As Members and civil society from around the world converge on Hong Kong, their question is clear: what will be achieved?

The central issue in WTO talks is agricultural liberalisation, where developing countries have been calling for cuts to developed-country tariffs and subsidies. However, the EU's most recent proposal on 28 October on a formula to cut tariffs on agricultural tariffs (Bridges Weekly, 2 November 2005) has been widely criticised, including by developing countries that say it grants little new access for developing country agricultural exports to the EU but demands that developing countries heavily liberalise non-agricultural market access (NAMA) and services sectors. Developing countries have argued that to make the negotiations a true 'development' round, developed countries have to cut protection of their agricultural sectors and allow developing countries to maintain space to decide which and how many services sectors to liberalise and to limit their tariff reductions under NAMA.

In the weeks leading up to the Hong Kong Ministerial meeting, the EC, the US, the G-20 group of major developing countries and other key actors were locked in a waiting game on these issues, each hoping for someone else to make a new and better offer. This stalemate overshadowed other issues, such as environment and development-related questions. Some negotiators were contemplating instead pushing for the adoption of a decision on a development package while continuing discussions on the "big three" issues, on which decision is not imminent.

Agriculture

WTO Members have been trying to agree on a formula that would divide up developed and developing countries' tariffs in 'bands' based on how big the tariff is. The formula would then prescribe different tariff cuts for the different bands, with different sized bands and cuts for developed and developing countries. This market access formula is the biggest point of divergence in the WTO talks, with the G-10 group of net food-importing countries proposing a maximum tariff cut of 45 percent and the US proposing a 90 percent cut to tariffs and saying that a maximum tariff rate, or 'cap', should be imposed at 75 percent. The idea of a cap has been supported by developing countries that argue that their development prospects are damaged by particularly high or 'peak' tariffs along with higher tariffs on processed agricultural products ('tariff escalation') that are of export interest to them.

Developing countries have highlighted the need to reduce subsidies to domestic agricultural producers as one of their key interests in the current round of talks. In this context, the US has said it is willing to cut its trade-distorting domestic support by 60 percent over five years, the EC has offered to make 70 percent cuts and the G-20 group has outlined a formula that would reduce EU support by 80 percent and US support by 75 percent. Despite these differences, all Members have agreed that export subsidies and export credits need to be eliminated because they are particularly trade distorting, although they have yet to decide on a date for the elimination.

Several African countries have pointed out that movement on the elimination of cotton subsidies is their biggest priority in Hong Kong, while some Latin American producers have argued that the EU's new tariff on bananas -- which under a dispute settlement ruling had to be agreed upon by early 2006 -- may be a sticking point during the Ministerial meeting.

Non-Agricultural Market Access

Reducing barriers to exports of non-agricultural products has been discussed in the NAMA Negotiating Group, but has been held up by disagreements on the extent and type of special and differential treatment developing countries should have. Developed countries are the main supporters of high cuts in tariffs on industrial goods, but developing countries have argued that they will be more seriously affected by high cuts given that their industrial tariffs are significantly higher than those of developed countries, who reduced their tariffs in earlier rounds of negotiations. Developing countries have argued that high tariffs are necessary in some of their industrial sectors to protect their growing industries, and point out that developed countries also had high tariffs on industrial products while they themselves were developing. Controversy in the NAMA Group has centred on developing countries' need for flexibility in choosing by how much to reduce their tariffs, and in particular whether developing countries could have both a high coefficient on their tariff reduction formula (allowing for lower tariff cuts) AND be exempt or make lower tariff cuts on some products.

Services

The most significant -- and controversial -- recent development in the services negotiations has been the strong push by some WTO Members to establish mandatory minimum access commitments or "benchmarks". Led by Australia, the US and the EU, this group has argued that the current voluntary process, which allows countries to decide which sectors to "offer" for liberalisation based on bilateral consultations, has not resulted in sufficient depth and scope of liberalisation commitments. However, the overwhelming majority of developing countries are fiercely opposed to any kind of benchmarks, and have reacted strongly against the EC's conditioning of its agricultural market access offer on a minimum 'benchmark' opening of 93 service sectors in all WTO Members. Developing countries have said that this will compromise the spirit of the General Agreement on Trade in Services (GATS) and their policy space to decide which sectors to liberalise or not -- for example, their ability to decide not to liberalise public services sectors such as water or health. The draft Hong Kong Ministerial Declaration does not include any reference to benchmarks or minimum obligations, owing largely to developing countries' insistence (see Bridges Weekly, 7 December 2005). In contrast, developing countries have been pointing to the need for better offers on the temporary movement (migration) of people that supply services under Mode 4 of the talks.

Moving development forward

WTO Members are considering continuing discussions on the blocked agriculture, NAMA and services talks at the Ministerial, but trying specifically to reach agreement on a so-called 'development package'. Such a package could include agreement on special and differential treatment at the WTO (where five proposals put forward by least-developed countries (LDCs) are being considered, including one which calls for duty-free and quota-free access for exports from LDCs); aid for trade (to help LDCs and African, Caribbean and Pacific countries adjust to potential reductions to their exports because of multilateral tariff decreases); and subsidy and tariff cuts to cotton. However, these decisions would need political will from developed countries. Talks in particular on duty-free and quota-free access have been gaining momentum, although the US reportedly has deep reservations about implications for increased textiles imports from LDCs.

Additional Resources

The draft Hong Kong Ministerial Declaration is available at http://www.ictsd.org/ministerial/hongkong/docs/05-12-07_draft_ministerial_text_final.pdf

See http://www.ictsd.org/ministerial/hongkong/index.htm for more information on the Hong Kong Ministerial Conference, including the Hong Kong Trade and Development Symposium that ICTSD is co-hosting.

ICTSD Reporting.