Decisions on the Development Pillar Expected to be Reviewed in Bali

27 November 2013

"We cannot tell the world that we have delivered" WTO Director General Azevedo warned at the General Council on the 26 November. Some consensus have recently emerged on agriculture and development issues however the prognosis for the Bali package as a whole is on hold after the trade facilitation talks collapsed earlier this week.

Good news and bad news

Just a few days before the Ministerial Conference kick starts in Bali, Azevedo stated that "the good news is that we came very close to fully agreed texts". Except for Trade Facilitation text, the other documents are reported to be entirely or mostly clean of square brackets. "They are not agreed texts but they are stable".

"Delegations may want to revisit them (...) but we managed to conclude negotiations" reads the statement.

"The bad news", however is that the negotiations stalled as members "stopped making the tough political calls".

According to sources the African group is committed to find landing zones in various area and the African, Caribbean and Pacific Group believes that an outcome is within reach in Bali and lots of work remains for the post Bali agenda.

Additionally the source confirmed that South Africa raised concerns about certain unbalances in the agenda that has focused mostly on Trade Facilitation and the lack of flexibility from developing countries.

Commentators have stressed that the recent alarmist statements might be part of a wakeup call strategy in order to bring members to unveil their last cards in Bali. This strategy could be risky in case some negotiators give up on the negotiations while others continue.

Development pillar to be reviewed in Bali

During next week's Ministerial Conference in Bali, separate decisions are expected to be reviewed on the third pillar of the Bali package, including the so-called LDC package and Special and Differential Treatment.

The LDC package to be harvested during the MC9 includes four elements of interest to LDCs: duty-free, quota-free (DFQF) access for LDC exports; more favourable rules of origin (RoO) for their goods; the operationalization of the services waiver; and the cotton issue.

Negotiations on all four LDC proposals have resulted in draft decisions to be discussed by the Ministers during the Bali Conference.

Additionally, a draft decision on a Monitoring Mechanism that would review the functioning of provisions in multilateral trade rules for SDT was also tabled recently.

Services

In order to realize the potential economic benefit of the services waiver adopted during the last Ministerial Conference in 2011, the draft decision - a copy of which has not been made public yet but was seen by Bridges Africa - tabled by the LDC group (JOB/TNC/25) for the MC9 seeks expeditious and effective operationalization of the waiver through a periodic review operated by the Council for Trade in services.

The draft decision states that a high-level meeting of the CTS would take place six months after LDCs submit a collective request to identify sectors and modes of supply of particular interest. Developed and developing countries ‘‘in a position to do so" would then be expected to indicate where they could provide preferential treatment to LDC services and services providers. The text also refers to Aid for trade,' generally understood as financing aimed at improving developing countries' ability to participate in international trade, in order to overcome LDCs' supply side constraints in services trade.

Some observers have noted that the benefit of the services waiver is that it puts the services issue of LDCs back on the table, but, in the end, it is not sufficient enough to influence the negotiations for a plurilateral agreement on services, also known as a Trade in Services Agreement (TISA).

Rules of origins

Crucial to effectively facilitate market access for LDCs under non-reciprocal trade arrangements, a draft decision - a copy of which was not been made public yet but was seen by Bridges Africa -  related to rules of origin is expected to be agreed upon by Ministers in Bali. To that end, The Hong Kong Decisions asked for these rules to be both applicable to imports from LDCs and "transparent and simple". However, where they concern LDCs, preferential RoO are often considered too restrictive and inflexible, making it difficult for them to take advantage of the intended preference.

In their submission to the WTO in view of the Bali Ministerial (JOB/TNC/24) on the 24 October 2013, the LDC group set out the technical aspects of preferential rules of origin and discussed different methodologies to determine when substantial or sufficient transformation has taken place. The draft decision also details provisions related to transparency and cumulation - the latter of which allows two or more parties in a preferential scheme to jointly fulfill the relevant local processing requirement.

In spite of being a "step in the right direction", currently, this draft decision is in the form of non-binding guidelines, implying that developed country members are free to choose to adopt these guidelines.

DFQF

From an economic perspective, DFQF is the issue with the most potential for LDCs.

The draft decision on DFQF -- a copy of which has not been made public yet but was seen by Bridges Africa--  that will be considered during the Bali conference further encourages developed-country members to improve their existing DFQF coverage for products originating from LDCs, so as to provide greater market access to LDCs. The draft decision instructs members to notify DFQF for LDCs to the Transparency Mechanism for Preferential Trade Arrangements and the Committee on Trade and Development. The latter will annually review the steps taken to provide the duty-free and quota-free market access to LDCs and report to the General Council for appropriate action.

Although the text indicates a degree of political commitment on behalf of WTO members to integrate LDCs into the multilateral trading system, achieving a concrete outcome in this area has proved a long, difficult journey. A key inhibitor has come from within the LDC Group itself, as some members fear the possibility of "preference erosion".

Many LDCs benefit from non-reciprocal preferences, which are granted primarily by developed countries. Applying DFQF to all LDCs, however, could effectively result in some of these countries losing some of the competitive advantages that such preferences have provided. The US has also reportedly raised concerns on the subject, having previously argued that DFQF should be agreed when the rest of the Doha Round topics are resolved.

In fact with no substantial progress on DFQF, the debate has focused on the potential gains under a 97 percent DFQF scheme versus full coverage and on related rules of origin. Some analyses indicate that further trade gains for LDCs would be rather limited under a 97 percent DFQF scheme, since the 3 percent of excluded tariff lines could potentially cover between 90 percent and 98 percent of all LDC exports.

Cotton

The controversial topic of cotton returned to centre stage just a few weeks prior to the MC9, after Benin, Burkina Faso, Chad, and Mali, - the West African cotton producers known as the C-4 - tabled a proposal at the end of October. Their proposal builds on nearly a decade of negotiations, harkening back to the 2005 call by Ministers in Hong Kong to address the subject "ambitiously, expeditiously and specifically." Some elements from the proposal have now been incorporated into a draft text to be adopted by Ministers at Bali.

The C-4 "compromise" draft text from 24 October 2013 requested that cotton imports from LDC markets be granted DFQF market access from 1 January 2015 onwards. The draft text circulated on 19 November 2013 (RD/AG/23) -- a copy of which has not been made public yet but was seen by Bridges Africa -- for the Ministerial conference no longer makes reference to these elements, however, and instead focuses on reports and discussions examining subsidies for, and exports of, cotton.

The elimination of cotton export subsidies had also been called for, but the draft text now only requests that the WTO Secretariat circulate a compilation of any trade-distorting domestic support from all cotton stakeholders over the past decade. The text also invites a link to be made between the development aspects of the cotton issue and the WTO's Aid for Trade Initiative.

The draft text on cotton says members will meet twice each year to study the latest information and to discuss the latest developments on market access, domestic support and export subsidies for cotton, particularly from least developed countries. These sessions will come under the agriculture negotiations.

Several quadrilateral meetings - between Brazil, the EU, the US, and the C-4 group of African cotton-producing countries - were coordinated by the Chair of agriculture committee and the LDC facilitator and ended with this draft text on cotton.

Members are expected to continue the 2005 objectives based on the content of the 2008 revised draft agriculture modalities that constitute a reference point.

According to sources close to the negotiations, in spite of positive reception of the text, the C-4 is not totally satisfied with the provisions contained in the draft text since their previous submission targeted substantial short term actions in order to reduce poverty in cotton producing countries - provisions which are no longer included.

Critics say that there is little to expect for the C-4 country proposal on cotton, a draft which came late in the process.

Special and Differential Treatment

On 21 November WTO Members have reached consensus on a Monitoring Mechanism that would review the functioning of SDT provisions across various WTO agreements. The text will now be forwarded to ministers for formal adoption in Bali.

"It is one less thorn" said a delegate.

The text is clear, fairly unambiguous and free from a lot of political language that could be subject to different interpretation.

The stabilised text - a copy of which has not been made public yet but was seen by Bridges Africa--  indicates that the Mechanism shall act as a focal point within the WTO to analyse and review all aspects of implementation of S&D provisions, and where the review identifies a problem, the Mechanism may make recommendations, including, if necessary, for initiation of negotiations, to the relevant WTO body in charge of the technical substance.

The Ministers of Trade of the African Union stated in October's Addis Ababa declaration on WTO issues that they would "strongly object" any attempt to reduce the scope of the Monitoring Mechanism by limiting it to the review of implementation of SDT provisions.

The language of the draft decision, however, remains unchanged. According to a copy of the draft seen by Bridges Africa, it has also been agreed that the recommendations emanating from the Mechanism will inform the work of the relevant body, but not define or limit its final determination.

The text mentions clearly that the Mechanism will operate in dedicated sessions of the CTD and meet twice a year. It also indicates that while provisions cannot be renegotiated by the mechanism itself, it can recommend to the appropriate body to consider renegotiation. The status of recommendations emerging from the Mechanism shall be included in the annual report of the CTD to the General Council. Finally the mechanism will not be set in stone as the draft decision notes that a review will occur three years after its first formal meeting, therefore leaving some room for any future adjustments.

Sources close to the negotiations indicated that Cuba opposed the text on Monitoring Mechanism on the basis that such text does strengthen nor add any value to SDT.

ICTSD reporting

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