Is an agreement possible in the Doha Round negotiations on industrial goods? Or do governments' 'red lines' simply not overlap enough to allow them to strike a deal? The answer remains far from clear, officials suggest, after a week of talks served once again to highlight WTO Members' differences instead of pointing the way to convergence.

Last week's discussions on non-agricultural market access (NAMA) saw a deepening rift between groups of developing country Members seeking to soften their potential tariff reduction obligations, and the countries - both developed and developing - that deem such requests for 'flexibility' unacceptable.

Irreconcilable differences?

With positions seemingly irreconcilable, delegates suggest that an accord will depend on whether countries are truly unwilling to budge from their demands, or are simply trying to influence the content of a new draft negotiating text being prepared by the chair of the NAMA negotiations.

The revised NAMA text and a connected draft agreement on agriculture were initially supposed to be released in mid-November. With the agriculture draft postponed to allow for further discussion, delegates now expect both texts at the very end of this month, or even early December. They suggest that since this would leave little time for governments to negotiate tradeoffs at the ministerial level before the WTO's Christmas holiday, it may already be too late to strike a framework deal on agricultural and industrial trade by the end of the year.

Moreover, the persistent divisions have left NAMA Chair Ambassador Don Stephenson (Canada) with little in the way of guidance for the parameters for tariff cuts and flexibilities to put in his new text. At the end of discussions on 9 November, Stephenson wondered aloud whether it would be possible to resolve any issues in the negotiations without ministerial involvement.

Expanded flexibilities sought

Stephenson's previous draft deal, issued in July, suggested that a feasible tariff reduction formula could cap developed country duties at 8-9 percent, and those of developing countries between 19-23 percent, with duties reduced correspondingly across the board. This drew fire from countries such as Argentina, Brazil, India, and South Africa for being too demanding of developing countries, too easy on industrialised countries, and out of proportion to the farm subsidy reform provided for in the accompanying draft agriculture text. The EU and the US have, in contrast, have called for an agreement within those parameters.

About 30 developing countries - including most of the larger emerging markets - will have to apply the tariff reduction formula (the rest will be eligible for gentler tariff reduction, for instance as 'small and vulnerable' economies). The provisions in Stephenson's July text would allow these countries to subject 10 percent of products to tariff cuts of only half those demanded by the formula (so long as this does not cover more than a tenth of manufacturing import volume), or to exclude 5 percent of tariff lines from reduction altogether (albeit limited to only 5 percent of imports).

The reach of these flexibilities, as well as special treatment for individual countries and customs unions, was the subject of discussion last week. For instance, the Philippines on 8 November called for loosening the import volume constraint, so that the 10 percent of tariff lines slated for 'half-formula cuts' could cover as much as 30 percent of manufacturing import value. Mercosur countries (Argentina, Brazil, Paraguay, and Uruguay) reiterated their request to be allowed to make the lower tariff cuts on up to 16 percent of products without any import volume limitations, arguing that this was necessary for them to respond adequately to their different sensitivities without compromising their common external tariff (see BRIDGES Weekly, 31 October 2007).

Venezuela asked to be exempted from the tariff reduction formula, instead offering to bind its tariffs at a to-be-determined average percentage level. It argued that its economy, because of its heavy dependence on volatile oil export revenues, deserved the special treatment assigned to countries that account for 0.1 percent of global manufacturing trade.

The South African Customs Union (SACU) also asked for additional flexibilities. Since none of South Africa's four neighbours would ordinarily have to apply the formula, they would stand to be disproportionately affected by a WTO-driven cut to the bloc's shared external tariff.

Earlier in the week, China threatened to block a deal that did not accord recently-acceded Members sufficiently flexible treatment (see BRIDGES Weekly, 7 November 2007).

Mixed reception

The calls for flexibilities, with the partial exception of the appeal from SACU, met with significant opposition. Industrialised countries including the EU, Japan, Canada, Norway, and the US argued that existing exceptions were sufficient. A group of developing countries led by Costa Rica, including Hong Kong, Singapore, Colombia, Mexico, Ecuador, Peru, and Thailand, also rejected calls for extra flexibilities. Some of these countries were part of a group that in June called for a "middle ground solution" on NAMA, proposing terms similar to those that were ultimately in Stephenson's July text (see BRIDGES Weekly, 27 June 2007).

On the other hand, South Africa, speaking for the NAMA-11, defended the proposals from Mercosur and the Philippines. The NAMA-11 group includes Mercosur members Argentina and Brazil, as well as countries such as Egypt, India, Indonesia, and the Philippines. Venezuela's proposal only received support from Cuba and Bolivia.

Even delegates from countries not among those critical of the July text suggested that Stephenson would likely have to alter its parameters to have a chance of coming up with the basis for an agreement.

"Positions are diverging rather than converging," said one official, pointing to the dilemma facing the NAMA chair as he prepares the revised draft agreement. "He may now paradoxically have to go backward to go forward," the source added. "These new proposals for flexibilities will have to be reflected to some extent - but this won't be easy for others to swallow."

Another trade diplomat expressed the view that in order to make an agreement possible, Members would have to accept terms that deviated at least somewhat from those in Stephenson's July text.

Speculating about the motivations behind the new demands for flexibilities, one source suggested that being allowed to shelter a higher proportion of the manufacturing sector from the full force of tariff cuts might enable governments to tolerate a relatively lower cap on tariffs. Another suggested that countries might step back from demands for greater flexibility if permitted a higher tariff ceiling, recalling that even some NAMA-11 members had in late 2005 suggested that the '10 and 5' figures for flexibilities were acceptable, albeit as a "bare minimum."

Part of the reason that revising the NAMA text is complicated is that the nature of the negotiations means that only a handful of numbers make it easy for countries to see where the pain will lie, and where the gains will be made. The agriculture negotiations, in contrast, have several 'moving parts' that muddy the picture. For instance, there are no import volume constraints on how many farm products can be designated as 'sensitive', that is, eligible for lower tariff cuts in exchange for a new import quota. Even the size of future import quotas would depend on a range of considerations that remain to be finalised.

As one negotiator recently told Bridges, Stephenson's July text was virtually a complete deal - just one that was not conducive to consensus (see BRIDGES Weekly, 24 October 2007).

Ag talks continue

Meanwhile, agriculture negotiators continue to address some of the less controversial moving parts in the talks. Chair Ambassador Crawford Falconer (New Zealand) on 12 November suggested that the handful of developing countries that provide agricultural export subsidies could be allowed until 2016 to phase them out; rich countries are supposed to eliminate these highly trade-distorting payments by 2013. Delegates were set to meet on 14 November to discuss Falconer's new 'working papers' on export competition (see BRIDGES Weekly, 7 November 2007).

Falconer has also called a meeting on 16 November to discuss domestic food consumption data for the purposes of calculating import quota expansion for sensitive farm products. How specifically countries will be able to define these products (e.g., beef in general, or a particular cut of the animal) remains undetermined, and there have been data availability problems as well. Sources said that the US, EU, Canada, Norway, Japan and Switzerland had responded to the chair's request for developed countries to come forward with data.

One agriculture delegate suggested that with technical consultations continuing to make progress - albeit at a glacial pace - the new draft texts might even be held back until the beginning of 2008.

This would leave governments even less time to hash out a deal before the US election campaign is in full swing. Reuters reports that EU Trade Commissioner Peter Mandelson told a Washington audience last week that if the WTO talks are not concluded by early 2008, "this round is headed quickly for hibernation, from which I think it will be difficult to bring it out."

Officials and some ministers from the G-20 bloc of developing countries are set to meet in Geneva on 16 November to discuss the Doha Round. They are also scheduled to meet with representatives from other poor country alliances. However, sources expect these talks to yield little more than general political declarations in support of reaching an agreement.

ICTSD reporting; "US, EU have to settle for less in Doha-Mandelson," REUTERS, 8 November 2007.