Geneva Update: Wither Cancun?

25 Apr 2003

by Shefali Sharma, Trade Information Project, IATP-Geneva

In this Article the Following Sections:

-Cancun Promises to be Problematic if Decisions Left for Ministerial
-No Declaration?
-Likely Scenario Leading to Cancun
-Will Internal Transparency be Revisited Prior to Cancun?
- Could Cancun Just be a Mid-Term Review?
-Agriculture, A Deadlock
-GATS: Requests and Offers to Open Up Services Sectors
- Implementation and Special And Differential Treatment: Process or
Substance?
- Trips and Health: A Must for WTO Credibility
- THE TRADE OFF GAME: WHAT’S IN IT FOR DEVELOPING COUNTRIES
-Conclusion
As Reference Below: Excerpt from WTO’s Cancun Timeline (from September
2002)

CANCUN PROMISES TO BE PROBLEMATIC IF DECISIONS LEFT FOR MINISTERIAL

Much has been said this month at the WTO about 4 Missed Deadlines of the Doha Ministerial Declaration (DMD): 1) Implementation Issues, 2) Special And Differential Treatment, 3) Solution regarding Trips and Health and 4) Completion of modalities (negotiating principles) for the agriculture negotiations. There seems to be very little clarity on the part of the Secretariat and member states on the way forward regarding progress in these issues and in particular how these and other issues will play out in the 5th WTO Ministerial in Cancun.

The Cancun Ministerial, September 10-14, has three mandates according to the (DMD) 1) to take stock of progress 2) provide any necessary political guidance 3) take decisions as necessary. The entire set of negotiations and the work thus far in the WTO since Doha, will be divided into one of these three categories as necessary. After discussion with various players around Geneva (member states, secretariat staff), a picture is emerging in terms of the process leading to Cancun.

NO DECLARATION?

The WTO staff say it is unlikely that a declaration will emerge from Cancun. Declaration texts have been a contentious issue since Seattle. There were immense problems prior to Doha when the Chairman of the General Council (GC), Stuart Harbinson, forwarded a draft text “in his own capacity” with a cover sheet indicating that the text had not been agreed. He did so without brackets, nor with any indication of what the differences among governments on the different proposals were. The text itself was referred to as a “house of cards,” meaning if governments attempted to revise language significantly in any one paragraph, then the whole document would unravel. The reality of Doha was quite different in the sense that the text did change and change dramatically, but only in certain paragraphs --with surprising last minute additions such as the convoluted text around the negotiations on Investment, Competition and other language regarding negotiations on the Environment. This time, the WTO is hoping to avoid all these controversies by avoiding a declaration altogether. This is misleading, however, because decisions have to be taken in Cancun, and these will have to be prepared in Geneva in advance, and be available in writing for the Ministerial.

According to a source, there are approximately 13 issues to resolve or address either before or at Cancun, yet six is all a Ministerial can be expected to handle. Why six and not another number is unclear. If all of these issues are left for Ministers to decide in four day at Cancun, then many of these issues will be squeezed out or there will be pandemonium in Cancun or both. In Doha, the declaration had 50 some paragraphs and only 6 issues were assigned facilitators. Many governments had nowhere to turn if they wanted to address other relevant issues that were not assigned facilitators. It appears likely that the Doha process will be repeated.

The thirteen issues could be the following, depending on what can be
agreed by member states ahead of Cancun:
1) Agriculture Modalities (Deadline was March 31, 2003)
2) Solution for Trips and Health (Deadline as early as possible and at
the latest December 2002)
3) Clear recommendations for decision on Special and Differential
Treatment (this deadline was July 2002 in the DMD)
4) Resolution of implementation issues related to Textiles (passed
July 2002) as well as other key outstanding implementation issues
(deadline December 2002) and those with clear negotiating mandates in
the Implementation Decision Text from Doha (many of those deadlines
have also passed). Outstanding implementation issues also include
extension of Geographical Indications to other products than Wines and
Sprits. Australia and the US are leading voices against this proposal,
while the European Commission is a major proponent of the extension.
5) Non-Agriculture Market Access Modalities (Deadline likely to pass
May 31, 2003)
6) At Cancun: Take a decision based on explicit consensus on the
modalities of the negotiations on Singapore Issues (Investment,
Competition, Government Procurement and Trade Facilitation). Currently
members are in disagreement over whether it is one single decision or
four separate decisions.
7) At Cancun: Decision on the desirability of Negotiations regarding
the Environment (para 32 of DMD)—so far nothing has been established on
this issue.
8) Agreement on improvement and clarification of the Dispute Settlement
Mechanism (supposed to be negotiated early and by May 23, but will not
be completed)
9) At Cancun: TRIPS Council Decision on scope and modalities of
non-violation complaints
10) By Cancun: Conclusion of TRIPS negotiations on Wines and Spirits
11) At Cancun: Report from the General Council on regular work program
including recommendations from small economies, progress in trade, debt
and finance, progress in working group on technology transfer,
e-commerce etc.
12) At Cancun: Report from the Director General (DG) on technical
assistance, capacity building, issues affecting LDCs and accession of
LDCs
13) 13) At Cancun: Technical Assistance and capacity building in the
field of trade and environment.
It is unclear how language on services negotiations, another major area
of the WTO with sweeping implications for countries, will be handled.
The Trade Negotiations Chair (TNC) prepared a “Cancun Timeline” in
September 2002 with deadlines and decisions for the WTO Program. It is
pasted below as a reference.

LIKELY SCENARIO LEADING TO CANCUN

According to a source, the WTO Secretariat will now start working with Chairs of each Negotiating Body of the TNC to harmonize texts for Cancun. There will be final reports from each of these bodies that will go to the General Council before Cancun. The language for Cancun will likely come from these final reports. General Council will assess reports from the regular bodies of the WTO to submit language for Cancun (see No. 10 above). The paragraphs from the TNC bodies, combined with the General Council language on various decisions of the regular work programme will make up the draft text for Cancun. The declaration will be phrased in language that “takes stock,” gives political guidance and forges decisions.

The GC Chair and the DG could circulate a possible skeletal framework of the text as early as mid-May. Starting now until the second or third week of August (approximately ten weeks), the WTO will work hard to harmonise such a text. There should be a draft text by the time the WTO comes back from its two-week break in mid-August. The process of consultation on the text will be a repeat of pre-Doha, referred to as the “HODS” or Heads of Delegations plus One (meaning the head of delegation can bring only one advisor to the meetings). These will range from being open-ended (open to all members) to closed bilateral and small meetings depending on interest and judgment of the chairs of various committees. Once again, it is appears that facilitators for Cancun will be chosen without a transparent process and at the last minute. When asked if facilitators might be chosen through a formal process in Geneva (something a group of developing countries have asked for), one source said, “Only if there is time.”

WILL INTERNAL TRANSPARENCY OF THE WTO BE REVISITED PRIOR TO CANCUN?

Internal transparency and ministerial processes of the WTO have remained controversial and unresolved since Seattle and Doha. Since December 2002, there seems to have been no further consultation on this matter and no resolution between key developed country members and their supporters versus key developing countries of the Like Minded Group (LMG) on how to proceed. The developed country group does not want any type of procedural rules in place that will restrict their flexibility and slow things down. The developing country group wants to establish procedures for decision-making at the WTO that would make the process more accountable and verifiable less susceptible to power politics. However, the LMG paper proposed in April 2002 by a group of 15 developing countries from around the world seems to be dormant at the moment. India and others would like to revive this discussion again with the help of the new General Council Chair, the Ambassador of Uruguay, Carlos Perez del Castillo.

According to a source, the last draft on internal transparency (circulated in Geneva Update #10) was as close a compromise as the WTO could have possibly achieved and they do not see how there can be any further movement on this issue. Yet this draft failed to address some of the major concerns that many developing countries and civil society organizations share about the mishandling of past ministerials. Problems include: “1) The procedures on how the last 24 hours of the WTO Ministerial should be handled. In Doha, the WTO extended the meeting by one day without previous warning or procedure. Many countries are outraged by this and believe there needs to be a procedure for such actions. 2) The selection of facilitators of the Ministerial. Once again, many members of the LMG feel that facilitators are chosen without any procedure and that such a process, including the selection of the working groups in the Ministerial, should be decided in Geneva through an open process before arriving at the Ministerial. 3) The Draft text should represent diverging positions clearly. This is a contentious point because the unbracketed text in Doha blurred many developing country concerns and lulled Ministers into a false sense of consensus. 4) There is yet no agreement on how small group consultations should take place in the Ministerial itself so that a few countries behind closed doors do not make decisions.” (from Geneva Update #10).

There is also the continued problem of green rooms (closed small group negotiations) in ministerials and in the preparatory process. The last two nights of Doha were Green Room negotiations. Many ministers and delegations were not present at the time of the final plenary. The Secretariat staff itself has no sense how many delegations were actually present when the final Doha Declaration was accepted on behalf of 144 countries.

These last 24 hours are crucial because often this is where the most pressure is exerted on weaker members to accept some sort of consensus, whether it is in their best interest or not. WTO Staff also fall into this mentality of needing a document to show “success” wanting to avoid a repeat of the evident failure in Seattle. The result ends up being a claim to “victory” at any cost regardless of the consequences that a so-called consensus will have on democratically created legislation in areas that the WTO now affects i.e. development policy, intellectual property, environment, services and perhaps via Cancun, on the Singapore issues. Thus, with or without a formal declaration, the stakes are extremely high for Cancun.

COULD CANCUN JUST BE A MID-TERM REVIEW? Conversely, many developing countries are hoping to avoid such a high pressure situation. They are hoping that language from negotiating bodies can be in the form of clear and concise plans and affirmations to continue negotiating beyond Cancun. For instance, in extremely critical negotiations such as market access for non-agricultural products, where developing country industrial policy is at stake, many developing countries are hoping to reach a substantive agreement before Cancun even if the May deadline is missed. However, if no agreement is in sight, they do not see why an agreement must be hammered out in a high pressure situation such as Cancun. Ministers could also choose to set deadlines beyond Cancun for an agreement on this issue.

They see no reason why Cancun must be the deadline to resolve outstanding issues given how many of the Doha work programme deadlines have been missed. Cancun could rather be an opportunity for developed countries to signal more political will, given how reluctant they have been to make commitments despite the promise of the so-called “Doha Development Agenda.” Modalities in WTO agreements i.e. non-agricultural tariffs, agriculture and the Singapore issues, if negotiated substantively, create the basis, terms and conditions of the commitments made by member states in the WTO—they are 95% of the work required to complete negotiations. The other 5% is the scheduling of sectors based on those commitments. Thus, the substantive decisions do not need to be rushed in an effort to show “progress.” After all, the WTO is a permanent negotiating forum and deadlines in the past have been set for before and after Ministerial Conferences.

Agreement on modalities in effect signs and seals the terms of the negotiations and thus members should and in fact must take their time to come to agreement on these. Meanwhile, Cairns group countries desperate to get movement on agriculture want to link all other negotiating modalities to agriculture at Cancun. They see the Ministerial Conference as their best chance to achieve such a goal, because of the political pressure that dominates the conference. Such a strategy leaves many weaker members as observers, watching the EC, the US, the Cairns group and some major developing countries play out their positions amongst themselves.

AGRICULTURE, A DEADLOCK

What we see playing out is the US and the Cairns Group on one side pushing for more aggressive cuts in tariffs, saying that the Harbinson text is inadequate (though, some insiders believe that the fairly steep cuts Harbinson proposes probably are agreeable to this group and their critique of the Harbinson text is only a negotiating stance). This group is probably fairly content with the cuts proposed on Domestic Support as well. The common assumption is that the EC has the most trouble with the domestic support cuts proposed. However, some observers have pointed out that the proposed Harbinson modalities are not so far from the EC proposal itself. These sources suggest it is the drastic tariff cuts that Harbinson proposes that the European Member States will not stomach. The lack of proposals to really address the level and nature of US’s domestic support is lost sight of in the widespread criticism against the EC.

India is in agreement with the EC on its caution against steep tariff reductions. India is finding itself squeezed from Cairns developing countries one the one hand and the US on the other in fighting against aggressive tariff cuts. Thus India is hoping for 1) a much milder tariff reduction formula 2) a strong permanent “Strategic Product” (SP) provision and a temporary Special Safeguard Mechanism (SSM) against import surges, for developing countries Only. The SP and the SSM are a major concern for many developing countries who cannot afford to liberalize at all in many of their agriculture sectors and even wish to raise their tariffs in certain vulnerable areas.

However relying on the SSM and the SP solely to gain respite for their agriculture sectors, while developed and developing country Cairns members, the US and the EC oppose their inclusion could be an extremely precarious negotiating position for developing countries. The SSM would be for temporary use and the major powers would exact a high price from developing countries for any concessions on SP. The SP and SSG drafts are yet to be formulated and these discussions will take place, most likely, in May with much opposition from Cairns, the US and quiet lip service from the EC. This makes one wonder if the approach should not be an all out opposition against drastic tariff cuts as a primary driver unless developing countries can get SP and SSG at no cost, on the grounds that high levels of domestic support from the EC and the US will continue.

It is possible that the upcoming expiry of the Peace Clause, in December 2003, will provide developing countries with further negotiating power. Without the peace clause, the US and EC will be vulnerable to countervailing duties for their high levels of domestic support and, particularly in the EC, for the continued use of export subsidies. Both governments have indicated they wish to extend the Peace Clause. Any such extension should come at a real price, given that the need for the Clause reflects how far their agricultural practices are from the GATT ideal.

GATS: REQUESTS AND OFFERS TO OPEN UP SERVICES SECTORS

As of last week, the total count of requests was 30 and sources say that total offers to date are around 16. The following countries are known to have made offers to open up their services sectors: Switzerland, Liechtenstein, Panama, Paraguay, US, Argentina, Japan, Canada, Iceland, Australia, Korea, New Zealand, Norway, Taiwan, Uruguay. Brazil has expressed its intention to submit offers fairly soon.

The signal from major industry lobby groups such as the European Services Forum (ESF) (they have been lobbying in Geneva lately) is that developing countries should open up ambitiously and move quickly on making offers. Indeed they contend that the principle gains for developing countries in the GATS negotiations will come from opening their own markets rather than from increased access to developed countries’ markets. ESF says that most developing countries have very little to provide in terms of services to other countries. However, when it comes to the EC offer they contend that the Europeans cannot offer much since they have already liberalised their market extensively during the Uruguay Round. Thus the highly influential industry association implies that developing countries do not need to pay so much attention to the requests to the EC but should rather focus on the offers to the EC and other WTO members. The EC however has not submitted its offers due to problems amongst the member states on the liberalization of certain sensitive sectors.

However, this is a clear indication of the dramatic nature of imbalance in this negotiation where industries from the Quad countries (EU, Japan, Canada, US) have everything to gain for their transnational corporations and their powerful lobby groups. Developing countries, on the other hand, have very little defense but to restrain their offers and should until they can clearly identify costs and benefits. Nonetheless, the reality is that many developing countries do not have a clear indication of the longterm impact of opening up their various services sectors. As the leaked EU requests have indicated, countries are now targeting the limitations that members put on their schedules in the previous round.

The second issue continues to be the outpacing of market access negotiations in services versus the problems still unresolved in rules, domestic regulation and other critical areas of the services negotiations.

Implementation and Special And Differential Treatment: Process or Substance?

Currently, there is widespread confusion on how to deal with the mandates of Implementation and Special and Differential Treatment (S&D). In Doha, Implementation was split into two categories and dispersed through various subsidiary bodies for final recommendations. The result has been a widespread confusion as to how to evaluate the various issues collectively and measure progress, if any. The so-called DMD para. “12B” issues or “outstanding” implementation issues of Doha were classified as being dealt with on the TNC level, but even that has met with criticism from certain key members. Thus the end result is confusion and no resolution. The Director General is still consulting on the process of how to deal with them!

It seems that S&D is headed in the same path. Jamaican Ambassador Ransford Smith has held consultations since the TNC was established under the Special Session of the Committee on Trade and Development. Since the beginning of the consultations, there has never been clarity as to whether this is, in effect, a negotiating issue or not. The US and others vehemently oppose this to be formally included under the TNC. Moreover, the EC and others have been asking to clarify what is the actual mandate. Since 80 odd issues--are still at the table, the current General Council Chair has decided to put them into three baskets with the most contentious issues perhaps being dispersed to various bodies (the same fate as implementation issues). He has insisted that all of these issues will be treated equally, but in the WTO, dispersed means diffused. It is also unclear whether Ambassador Smith will continue to co-consult with Chair Castillo or not. The General Council Chair’s consultations currently are thus also limited to the process rather than the substance.

Trips and Health: A Must for WTO Credibility

According to some secretariat Staff, the TRIPS saga must be resolved before Cancun. Taking it to Cancun will raise tremendously the profile of Conference—something the Secretariat wants to avoid for the same reason it does not want a high profile declaration. Director General Supachai Panichpakdi met with USTR Representative Bob Zoellick on April 12 in the US, however he came back with very little positive news. Zoellick did not seem optimistic on Trips and Health nor did he see S&D as a high priority for the US. However, for the WTO, having TRIPS and Health in Cancun will mean a flood of major Pharmaceutical Industry players at the Ministerial and a highly volatile situation. An example was sited of a similar massive presence of telecommunications companies present in the Singapore Ministerial when the Telecommunications Annex was being negotiated for the Services Negotiations.

A failure on TRIPS and Health is a major public relations disaster for the WTO. They would sooner avoid this situation and handle it outside of Cancun. On this, most developing countries would be in agreement. Bringing this to Cancun will mean much less time on all of the other crucial areas. However, if the EC plays its cards right, all of these issues will be in Cancun so as to diffuse its very opposed stand on agriculture.

The TRADE OFF GAME: WHAT’S IN IT FOR DEVELOPING COUNTRIES

The WTO has been talking a lot about “negative” and “positive” linkages recently. Negative Linkage: If you do not give me what I want in Agriculture, I will not give you anything in Services and/or Non-Agriculture Market Access. If you do not give me Agriculture, I will not give you Government Procurement and Trade Facilitation. This is the Cairns Group Approach.

Positive Linkage: If you give me “less than full reciprocity” on Non-Agriculture Product Tariff reduction (according to the DMD, developing countries are allowed to reduce less in tariffs and in less sectors), I will agree to negotiate trade facilitation that is not subject to Dispute Settlement of the WTO.

But the harsh reality in Geneva right now is that for too many developing countries, there is little if anything to gain with current negotiations and much to lose in new negotiations. Thus, many countries are starting to shy away from linkages. Investment and Competition must be looked at substantively on their own terms without having to make linkages in Agriculture, some say, because there is no clarity on how ambitious the negotiations will become. Now that the International Chamber of Commerce has come out openly with a very aggressive position on Investment in the WTO, these countries have every reason to worry about signing a blank check of procedural modalities (meaning agreeing to negotiate without defining the terms of negotiations) for these critical areas. The EC and increasingly other proponents of these issues are pushing for procedural modalities of the Singapore Issuesbecause they know that a substantive agreement on these issues is impossible before Cancun. Thus they would like to package all four complex issues in a bundle and only address the process of negotiations.

Another reason not to make linkages and to look at each agreement on its own terms is the complexity of individual negotiations (i.e. the tradeoffs in SP, SSM for really aggressive tariff cuts on all other crops in agriculture). The same can be said about virtually all other negotiations. For instance, the meetings last week on Market Access of Non-Agriculture Products revealed that developing countries are being pushed from New Zealand, Australia and the US for practically zero tariffs, while the EC’s best is a 15% ceiling. This makes a mockery once again of the term, “less than full reciprocity” of the Doha paragraph on Non-Agriculture Market Access negotiations which includes a mandate for “appropriate studies…to participate effectively in the negotiations” for developing countries. There is no hint of any independent studies of this nature.

African countries and other LDCs are particularly vulnerable since they are being squeezed in both the agriculture and the industrial sectors. The Doha Round will essentially determine what, if any, future policy making space they will have left to direct development policy given all the commitments they may make in both the industrial and the agriculture sectors, plus the Singapore issues. A paper by African countries in the Negotiations on Market Access for Non-Agriculture Products has voiced this very concern on the need to negotiate based on building local industry in Africa, rather than for the sake of trade liberalization itself. Meanwhile both the EC and the US have the Non-Agriculture negotiations as a key interest.

To try to make sense of all the possible tradeoffs and linkages that could be made in the coming months may be useless since much is posturing and much will remain to be seen closer to Cancun. What is more important at this time is to identify areas in each negotiation where there cannot be compromises including the decision not expand negotiations in other areas. However, it is clear that countries under pressure and with very little staff in Geneva (and few resources at home) will find it extremely difficult (in a Round of this size and ambition) to make optimal decisions for their current development level. Clear political signals must come from national constituencies and citizens starting now. For many developing countries, the pending decisions (Implementation, Trips and Health, Special and Differential Treatment, Agriculture, Non-Agriculture Products, Singapore issues) and the lack thereof are major issues that impact their future ability to create and develop policies centered on their own people.

Conclusion

Things are not looking so good for Cancun. This really means that developing countries, especially the weakest, are at the greatest disadvantage. The more decisions that ministers will have to make, the greater the pressure there will be in Cancun for developing countries to make compromises—the higher the stakes for “success” for the WTO. None of this actually has to happen if delegations realize that nothing in these agreements or the nature of the WTO binds them to make high pressure decisions at ministerials. What should be central and of utmost of concern are the costs and benefits for citizens whom these governments represent. The multilateral trading system can continue negotiating until serious concerns have been addressed.

(For previous Updates, go to , scroll down looking on the left-hand side for the Trade Information Project, and click on Geneva Updates.)

Timeline to the Cancun Ministerial Conference

(The complete version of this document was handed to WTO Members prior to the Trade Negotiations Committee that was held on 3-4 October as JOB(O2)/78/Rev.1, (Dated 27 September 2002). It was circulated by the Chair of the TNC to provide a picture of key dates and deadlines established for the WTO Work Programme. Key Dates and Deadlines related to the General Council are shown in Italics.)

2002

October 3-4 Trade Negotiations Committee to: - receive reports from subsidiary bodies and review progress.

15-16 General Council to.. - receive reports from Agriculture Committee on two implementation issues (NFIDC Decision and export credits).

November Negotiations on market access for non-agricultural products: -participants will aim at submitting proposals on modalities for market access negotiations by 1 November 2002 being understood that proposals submitted before that date will be welcome and, that proposals submitted until 31 December 2002 will be fully taken into account in a consolidated overview of proposals to be submitted to participants at the first meeting of the Group in 2003.

December 4-6 Trade Negotiations Committee to: - receive reports for appropriate action on outstanding implementation issues from relevant bodies (where no specific negotiating mandate is provided). - receive reports from subsidiary bodies and review progress.

10-11 General Council to.. - receive report from Committee on Trade and Development with clear recommendations for decision on Special and Differential Treatment issues, including the elaboration of the Monitoring Mechanism agreed at July General Council. - receive reports on implementation issues from: - Anti-Dumping Committee,. - Customs Valuation Committee,. - Market Access Committee.

- receive report from TRIPS Council on manufacturing capacities in the pharmaceutical sector and the effective use of compulsory licensing (TRIPS and Health Declaration). - receive interim reports from DG on: (i) implementation and adequacy of technical cooperation and capacity-building commitments,' (ii) all issues affecting LDCs, following coordination with other agency heads.

- consider results of General Council work on the harmonization work programme for non-preferential rules of origin.

2003 January

February Trade Negotiations Committee, date to be determined.

General Council, date to be determined, to: - receive report from Chairman of the Sub-Committee on LDCs with concrete recommendations, as appropriate, agreed in the Sub-Committee, on the implementation of the commitment by Ministers to facilitate and accelerate negotiations with acceding LDCs (LDC Work Program).

March Agriculture negotiations: - modalities for further commitments, including provisions for special and differential treatment, to be established (no later than 31 March).

Services negotiations: - submission of initial offers (by 31 March).

Negotiations on market access for non-agricultural products: - participants will aim at a common understanding on a possible outline of modalities by the end of March 2003 with a view to reaching an agreement on those modalities by 31 May 2003.

April

May/June Dispute Settlement Negotiations: - agreement on improvements and clarifications (not later than May); steps to be taken then to ensure that results enter into force as soon as possible thereafter.

Trade Negotiations Committee, date to be determined.