Bridges Daily Update #5 - Overview of Outcomes of WTO’s 10th Ministerial in Nairobi
Trade ministers clinched a deal to eliminate agricultural export subsidies this Saturday, following a five-day meet in the Kenyan capital of Nairobi. The WTO Ministerial Conference, the biennial highest decision-making gathering of the multilateral trade system, also agreed a series of other deliverables on farm trade and least developed country issues, while ultimately leaving open the question of how the WTO’s negotiating arm will evolve.
Deliberations during the week of 15-19 December touched upon an array of intricate matters and politically thorny dilemmas, such that decisions adopted today make it clear that the “post-Nairobi” landscape for the global trade body both as an institution and a negotiating forum is now set to look markedly different than the one preceding the ministerial. The result has consequently drawn a mixed preliminary welcome from trade officials and observers alike, as they work to parse through the various outcomes.
The agreement disciplining agricultural export competition, for example, has been lauded as “historic” by trade officials - an achievement that eluded the trade system for 60 years since the GATT imposed similar curbs on export subsidies for industrial goods. Unsurprisingly deep divisions on the subject among members persisted up to the final hours of the ministerial, requiring round-the-clock negotiations.
On agricultural matters, despite fundamental differences, members managed to bridge their divides– and achieved a result that is likely to have significant ramifications for farm trade and for least developed countries’ participation in global trade flows.
Even so, the text of the ministerial declaration shows that members were unable to overcome profound differences in other key areas, with the document explicitly stating that WTO members remain at odds over the reaffirmation of the Doha Round and subsequent ministerial declarations and decisions.
“We recognize that many Members reaffirm the Doha Development Agenda, and the Declarations and Decisions adopted at Doha and at the Ministerial Conferences held since then, and reaffirm their full commitment to conclude the DDA on that basis. Other Members do not reaffirm the Doha mandates, as they believe new approaches are necessary to achieve meaningful outcomes in multilateral negotiations. Members have different views on how to address the negotiations,” the declaration reads.
In effectively acknowledging the opposing viewpoints without reconciling them – agreeing to disagree - the declaration has shed little light on what lies ahead for the negotiating function of the global trade body, which has long struggled to move out of the shadow cast by the continued lack of resolution in the Doha Round trade talks. The drafting of Part 3 in the ministerial declaration - on the WTO’s future - now presents both a challenge and an opportunity for members, without yet clarity on how to go about them.
“We have to be clear-sighted of the situation we’re in today,” WTO Director-General Roberto Azevêdo told members in the closing ceremony, noting specifically the unresolved divide among members. “We have to face up to this problem. We have to address it.”
The ministerial declaration does note some areas of potential agreement, not least in the “strong commitment” that all members have to continue negotiating the Doha Round issues - while at the same time noting that members do not share the same view of whether they want to continue this work using the existing Doha structure.
The declaration specifically refers to agriculture - domestic support, market access, and export competition - as well as the other two core issues of industrial market access and services as issues where members aim to advance work. It also mentions rules - an area that saw much negotiation but no separate substantive decisions at this ministerial - as well as development and the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement issues.
The declaration states that this “future agenda” should include work on the areas that did see substantive decisions at this ministerial, and that future work will keep development “at its core” with special and differential treatment “integral” to it.
Officials have now been instructed to “find ways to advance negotiations,” with regular reports from the Director-General to the General Council, which is the WTO’s highest-making decision body under the ministerial conference.
One question that was raised in the broader discussions on Doha was how the ministerial declaration would treat the concerns raised from some of the organisation’s newer members, who had undertaken significant market access commitments when joining on the understanding that they would not be required to take additional commitments as a result of the Doha talks, and that the other members were in on-going negotiations aimed at arriving at corresponding levels.
Sources confirmed that this had been one of the key issues under debate in the ministerial’s final days, raised by members such as China, as well as very recently acceded members such as Russia, Saudi Arabia, Chinese Taipei, and Oman.
The ministerial declaration ultimately features a recognition of the “special situation” faced by “Article XII” members under the WTO Agreement, given these market access commitments, noting that their situation “shall be taken into account” in the negotiations.
Regarding how to engage the WTO in addressing so-called new issues – a critical demand from the almost entire membership, even if most vocally by the US and EU - the document also notes a continued disagreement, while leaving enough ambiguity in its drafting to allow a potential range of options.
“While we concur that officials should prioritize work where results have not yet been achieved, some wish to identify and discuss other issues for negotiation; others do not. Any decision to launch negotiations multilaterally on such issues would need to be agreed by all Members,” the declaration reads.
Hours before the ministerial began on 15 December, conference chair Amina Mohamed, the Kenyan Cabinet Secretary for Foreign Affairs and Trade, had warned that members essentially faced two choices over the coming days that would set the tone for the WTO’s future.
“If we have a successful ministerial it will change because we will have invigorated it, we will have renewed the organisation, hopefully modernised it,” said Mohamed to reporters at the time.
She warned, however, that a far different scenario could await the global trade body should the Nairobi talks fail. “If we don’t agree then we will see a change, because obviously what the membership will be saying collectively is that the negotiating function of the WTO is broken.”
In the months - and years - ahead, questions will likely continue to abound as to what future awaits the various modalities of WTO’s negotiating arm, particularly its multilateral mode when compared to the results seen in other major global governance efforts this past year.
The adoption of the UN Sustainable Development Goals (SDGs) for 2030, as well as the successful adoption of a universal climate deal in Paris earlier this month, had drawn many comparisons to the WTO multilateral negotiations under the Doha Round in the weeks and days ahead of the conference, with officials urging the global trade body’s members to draw inspiration from those processes and results.
One of the notable substantive achievements from this ministerial was the announcement of the conclusion of “plurilateral” talks among 53 WTO members to expand the product coverage of the Information Technology Agreement (ITA), a critical mass negotiation furthered in parallel to Doha Round talks since its launch outside the formal framework of the WTO ITA Committee three years ago.
The completed ITA-II has been heralded for being the WTO’s first tariff-cutting deal since its establishment 20 years ago, with the tariff cuts agreed by the participants set to be extended to the full membership of the global trade body.
An achievement of great significance, the ITA-II involves products currently valued at US$1.3 trillion annually and responds to the continued evolution of the global digital economy. For many, this model of Most-Favoured Nation (MFN)-based, open plurilateralism, represented by the ITA-II may become an increasingly more common alternative to multilateral trade agreements under the WTO.
WTO members also extended their moratorium prohibiting customs duties on electronic transmissions until the next ministerial conference in 2017, along with renewing a related work programme. The organisation’s General Council is mandated to report in December 2016 and July 2017 on related issues arising in WTO bodies where the work programme is being implemented.
Regional trade agreements
The continued proliferation of regional trade agreements (RTAs) has been another area of both interest and concern for WTO members, with the ministerial declaration including language reaffirming “the need to ensure that [RTAs] remain complementary to, not a substitute for, the multilateral trading system.”
In this context, ministers have agreed that WTO members should hold discussions on the “systemic implications” of such trade deals under the Committee on Regional Trade Agreements, citing the goals of transparency and greater understanding. They have also agreed to work toward the long-standing goal of turning the existing provisional Transparency Mechanism within the WTO into a permanent one, in line with instructions from a General Council decision nearly a decade ago, without setting a deadline for this goal.
The language draws from a proposal made by Brazil on the subject in the context of the WTO’s rules negotiations, though it drops the language that the South American economy had suggested for reporting such outcomes to the General Council for guidance and directions for action within a year’s time, with a view to finishing this effort by the next ministerial conference. The decision puts in place a more active process that may help members to engage in dialogue within the organisation on the relationship of the evolving global trade system with the WTO’s role.
Agriculture: four new decisions
The Nairobi package includes new ministerial decisions covering a special safeguard mechanism for developing countries; a decision on export subsidies and other “export competition” elements; a decision on cotton; public stockholding for food security purposes.
The decisions, which are legally binding, represent the “most significant outcome on agriculture” seen in the WTO’s 20-year history, Azevêdo told members.
Special safeguard mechanism
The G-33 group assembling a set of developing countries, that includes China, India, and Indonesia as well as many smaller economies, had argued in favour of a special safeguard mechanism that will allow developing countries to raise tariffs temporarily to respond to sudden import surges and price depressions. However, agricultural exporting countries such as Australia, Brazil, and the US had contested against a safeguard in the context of a broader deal to cut tariffs, fearing that otherwise the higher duties could serve to restrict access that exporters have at present to these countries’ markets.
The new decision states that developing countries will “have the right to have recourse” to a special safeguard mechanism “as envisaged under paragraph 7 of the Hong Kong Ministerial Declaration.” This paragraph anticipates that developing countries will have the right to “a Special Safeguard Mechanism based on import quantity and price triggers.”
It also says that WTO members will pursue negotiations on a special safeguard mechanism for developing country members in dedicated negotiating sessions of the WTO agriculture committee.
This decision groups together export subsidies with other types of export support instruments that can distort competition: export credits, export credit guarantees and other types of export financing; exporting state trading enterprises; and food aid.
When the Doha talks were launched, the EU insisted that these other types of arrangements also be disciplined in parallel to efforts to phase out and ultimately eliminate export subsidies. The EU subsidised exports at very high levels – reaching €10 billion in 2000 - and since almost totally curbed.
Historically, the US has been the main provider of export credits and food aid, while Canada, New Zealand and Australia have operated exporting state trading enterprises, some of which have since been privatised.
While the EU has discontinued export subsidies for most products, Switzerland, Norway, and Canada still notify support to the WTO, and some developing countries such as India or Turkey also provide this type of support but have not formally notified it to the trade body.
Although the Hong Kong ministerial declaration has said that developing countries should be allowed to provide Article 9.4 export subsidies – related mostly to marketing and internal transportation- for five years after export subsidies are eliminated, the legal authority for doing so under the Agreement on Agriculture has already expired.
Under the decision, developed countries will immediately eliminate their remaining agricultural export subsidies. These types of payments have long been seen as particularly trade-distorting, and already prohibited for manufactured goods. At the Hong Kong ministerial conference in 2005, members agreed that these payments would be eliminated by 2013, although the wider stalemate on the Doha agenda meant that this deadline was missed.
A footnote provides an exception until 2020 for developed countries that provide these subsidies on “processed products, dairy products, and swine meat,” to accommodate countries such as Switzerland and Canada that still use this type of support. The exception nonetheless would require the countries concerned not to export these products to least developed countries.
Developing countries must also eliminate their export subsidies by the end of 2018. Again, a footnote provides an exception until 2022 for some countries which have notified their support to the WTO.
An extended 2023 deadline is also provided for developing countries to use export subsidies for transport and marketing, which were originally covered under article 9.4 of the Agreement on Agriculture. The arrangement is in keeping with other WTO clauses providing “special and differential treatment” to developing countries - often in the form of longer implementation periods for commitments. Least developed countries and net food importing developing countries will be allowed to do so until 2030.
Special arrangements are made for export subsidies on cotton. Developed countries would have to immediately implement their export subsidy commitments for this product, and developing countries would have until January 2017 to do so. More ambitious disciplines on cotton have long been a special demand of West African cotton-producing countries in the C-4 - Benin, Burkina Faso, Chad, and Mali.
Export credits, export credit guarantees, or insurance programmes
The decision says that maximum credit repayment periods for developed countries would be eighteen months. The EU, Brazil, and other members had proposed nine month repayment periods under certain conditions. Although current US legislation allows repayment periods of up to 24 months, actual practice is believed to be 18 months.
Developing countries would initially also be allowed to extend credit for longer periods of up to 36 months, although this would be gradually reduced to 18 months over the course of a four-year implementation period.
Exporting state trading enterprises
The decision states that WTO members must ensure that exporting state trading enterprises do not operate in a manner that circumvents any other disciplines. This could be interpreted as meaning that these enterprises must not be allowed to operate in a way that effectively subsidises exports once the relevant deadlines in the export subsidy section of the text have expired.
A “best endeavours” clause would also commit members to making their best efforts to ensure that any export monopoly powers exerted by these bodies do not distort trade, the text says.
New language on food aid would commit WTO members to refrain from providing in-kind food aid where this might cause an adverse effect on local or regional production of the same or substitute products. The decision would also require them to ensure that international food aid does not unduly impact established, functioning commercial markets of agricultural commodities.
The decision would also establish new commitments affecting the extent to which countries would be allowed to “monetise” food aid - meaning for donors to sell in-kind food in recipient countries so as to raise funds for development projects.
The text would require WTO members to monetise international food aid “only where there is a demonstrable need” for transport purposes, or where monetisation is used to redress food deficit requirements or “insufficient agricultural production situations” which give rise to hunger and malnutrition in least developed and net food-importing countries. Other requirements are also included in the decision - such as for a market analysis to take place before monetisation occurs.
On public stockholding, the G-33 group of developing countries has argued that current farm subsidy rules unfairly constrain their ability to purchase food at administered prices as part of their public programmes for food security purposes. The 2013 Bali ministerial saw WTO members agree not to challenge these schemes under the trade body’s dispute settlement process, and members agreed a year later that this arrangement would apply until a permanent solution is reached.
The G-33 have argued that price inflation over the last two decades have eroded the degree of flexibility they have to provide farm subsidies, even if purchases are made at administered prices that are below the level of international market prices.
The new text says that WTO members note the Bali decision, and also reaffirm a November 2014 decision extending the arrangement until a permanent solution is reached.
Today’s agreement also says that negotiations will be held on the subject in dedicated negotiating sessions of the WTO’s agriculture committee - but that these will be distinct from Doha negotiations.
African countries have long sought stricter disciplines on cotton, and in particular in the area of domestic support. The Hong Kong ministerial declaration, agreed in 2005, committed members to finding an “expeditious” solution to the problems facing the sector. Washington has long argued that policies in “emerging” developing countries should also be addressed by any resolution to this issue, as domestic support levels have risen in recent years.
With no negotiations on agricultural domestic support at Nairobi, there is little in this area on cotton in the final conference decision. However the text does include measures on market access and - as noted above - also on export competition.
The new agreement says that developed countries shall grant “to the extent provided for in their respective preferential trade arrangements” duty‑free and quota‑free market access for least developed country cotton exports, from 1 January 2016 onwards.
Developing countries “declaring themselves in a position to do so” would undertake the same commitment - and a footnote clarifies that this would include China, both for general market access commitments and also in their preferential trade agreements. In the past, the US has often argued that China ought to undertake market access commitments as part of a broader sectoral agreement in this area. The most recent proposal from the C-4 group would also have included separate market access commitments for developing countries, including China.
An annexed product list would also specify which other cotton-related products would benefit from similar market access treatment.
Substantive advances for LDC issues
Given the complex and political nature of issues at stake for the WTO’s poorest members, observers suggested that the conference did mark an important step forward within the multilateral trading system by adopting a set of binding multilateral provisions on preferential rules of origin for least developed countries (LDCs) as well as a new decision on the services waiver.
LDCs had repeatedly voiced concerns that these preferential rules of origin are often too restrictive and impose onerous compliance burdens, making it difficult for them to take full advantage of existing preferential margins.
The decision adopted in Nairobi now sets a timeframe for preference-granting members to undertake the commitments contained in the decision by 31 December 2016.
Regarding the value addition threshold, the document allows for the use of materials not originating from an LDC to make up to 75 percent of the final value of a product for it to qualify for preferential treatment. Some observers consider, however, that 75 percent non-originating material is in fact still prohibitive, given modern manufacturing methods based on global value chains which require in some cases only very little domestic content.
Discussions on the services waiver for LDCs – which had proved difficult on certain technical aspects early in the morning yesterday – eventually led to a compromise on the draft text proposed by Rwandan Minister of Trade and Industry François Kanimba, who was facilitating those talks.
The draft text adopted in Nairobi provides for an extension of the existing services waiver until 31 December 2030. LDCs had argued that three years had essentially been lost between the waiver’s adoption in 2011 and when the first notifications were submitted this year. These countries argued that an extension of the duration of the waiver was therefore needed. Australia, the US, and the EU had reportedly raised some reluctance on this aspect but indicated they would not oppose the text.
Another key feature of the text concerns the encouragement for both developed and developing members “in a position to do so,” that have not notified preferences, “to redouble efforts” to notify them. At press time, 21 WTO members had submitted their notifications. The text further specifies that these preferences should have “commercial value” and “promote economic benefits.”
In the lead up to the conference, some LDCs had expressed dissatisfaction regarding the scope of the notifications made so far over the past months to “operationalise” the services waiver, in line with their collective request tabled last year. Some were of the view that the notifications were not “commercially meaningful” enough, and have therefore tried to deepen the coverage of the notifications, while also attempting to change certain regulations to work more in their favour.
However, one source mentioned that given the political sensitivities around issues such as mutual recognition, the reduction of administrative visa procedures and fees, work and residence permits, and licenses for LDC services suppliers and independent professionals, these aspects were unlikely to be addressed.
“Members shall give special priority to addressing regulatory barriers of interest to LDCs,” reads the decision.
The text also contains provisions related to the provision of technical assistance and initiation of a process to review the operation of notified preferences.
Special and differential treatment
Discussions on special and differential treatment (S&DT) continued to prove divisive on Friday, before ultimately collapsing. The proponents met yesterday morning to “essentially restate their positions and even backslide,” said one developed country trade delegate.
After some discussions on the nature of the disagreements between the 28-nation EU and the G-90 - which is comprised of the African, LDC, and African, Caribbean and Pacific (ACP) Groups - the United States suggested focusing on the Monitoring Mechanism (MM), as it could provide a forum for monitoring S&D issues and improve beneficiaries' ability to utilise S&D provisions.
Other developed countries reportedly said that the MM could indeed be a good platform to identify and discuss problems. However some developing countries raised the point that MM does not have a negotiating function.
One particular issue that emerged strongly in the discussions relates to the scope of the beneficiaries of the proposals put forward by the G-90. Some countries argued that some of the flexibilities being sought could only be provided to LDCs, while others were of the view that any S&DT outcome should apply to all developing countries, unless they were LDC-specific proposals.
Reportedly, the G-90 was said to have perceived some of the proposals as not conducive of their own interests, notably with regard to industrialisation and investment.
Various consultations took place on the subject, however issues related to balance of payments, sanitary and phytosanitary measures, technical barriers to trade, safeguards, LDC-specific issues and also tariff negotiations have been cited as being particularly problematic.
The revised text presented by the facilitator in this issue, WTO Deputy-Director General Yonov Frederick Agah, was rejected by the G-90 and LDCs as it did not reflect any consensus, said one source close to the process. Instead, on Saturday morning, the G-90 submitted a draft decision which included text on future work on the issue, instructing the Committee on Trade and Development in Special Session (CTD SS) to continue to negotiate on the basis of specific proposals tabled by the G-90 last November with a view to achieving agreement on all proposals by 31 July 2016.
An outcome on S&DT could not be secured as members had “opposing interests,” explained Azevêdo.
“S&DT is an area that is horizontal, crossing across all WTO agreements. These are also difficult negotiations, as it is about the flexibilities in the agreement,” he said.
However, one delegate suggested that if these issues could not be resolved in the past several months, it is unrealistic to think there could be a solution by that deadline, said a delegate.
Sources indicate that on Friday night, one S&D proposal which had been identified earlier by Agah as a “doable” and related to Trade-Related Investment Measures was put forward as a standalone item outside the LDC package by the G-90 and Uganda, supported by South Africa, Cameroon, Jamaica, and Tanzania.
According to Azevêdo, there were some proposals that could have been agreed to but the proponents preferred to maintain a more ambitious set of proposals for future harvest.
Trade remedies, fisheries talks flounder
Though agriculture and LDC issues did see substantive outcomes in Nairobi, the negotiations to advance some proposed deliverables from the WTO’s “rules” talks failed to bear fruit, despite a series of informal, bilateral, and small group meetings over the week.
A chair’s text tabled early Friday, which brought together various elements of these proposals into a possible draft ministerial decision on anti-dumping and countervailing measures and another on fisheries subsidies disciplines, received pushback on a number of fronts.
The first draft decision would have instructed the WTO Committee on Anti-Dumping Practices, through its Working Group on Implementation, to study and make recommendations to report to the General Council on a specific list of topics. This would be done in order to ensure “maximum possible” predictability and objectivity in implementing the relevant provisions in the Anti-Dumping (AD) Agreement. The Committee on Subsidies and Countervailing Measures would also have been instructed to study these outcomes to determine their relevance and report conclusions to the General Council.
Some industry voices have cautioned that the proliferating use of trade remedies could threaten expansion or foreign investment in growing and salient industries, pointing to areas such as clean energy technologies. Other experts in Nairobi, however, considered that the steps proposed chair’s text would not have been a high-ambition outcome.
The document was panned by several nations, including Russia among others, who had also circulated its own revised draft decision on transparency issues in anti-dumping and countervailing measures on Friday morning. Moscow reportedly expressed disappointment that the chair’s text did not explicitly include a reference to the Agreement on Subsidies and Countervailing Measures (SCM) in the instructions paragraph on implementation recommendations, as featured in its proposal.
The second draft decision on fisheries subsidies would have decided to work towards completing negotiations within specific timeframe – potentially two years, though this was bracketed – for prohibitions on subsidies linked to illegal, unreported, or unregulated (IUU) fishing and those provided to any vessel or fishing activity “negatively affecting fish stocks that are in an overfished condition.”
This language was reportedly resisted in the final stretch on Friday by the 28-nation EU. The chair’s document would also have had members commit to a best endeavour standstill on introducing new fisheries subsidies contributing to overcapacity and overfishing in so far as these undermine the development livelihood and food security prospects of developing countries – a move rejected by China, given its estimated sizeable domestic support in this area.
The draft decision also included additional fisheries subsidy programmes notifications commitments under the SCM Agreement with guidance on format outlined in an annex, taking into account each members’ resources and technical capacity. China and India reportedly struck out against the supplementary notifications on Friday afternoon, reiterating concerns these did not constitute a development outcome, due to the potential additional burden it could imposed on poorer countries.
The failure to clinch a deal on fisheries subsidies in particular met with mixed reaction among experts. Some considered that the chair’s text would ultimately have been relatively weak, while others expressed disappointment at the fallout, given its references and potential contribution to the global community’s new sustainable development agenda. However, group of 28 WTO members did release a ministerial statement on fisheries subsidies on Thursday pledging to reinvigorate WTO work in order to achieve ambitious and effective disciplines on fisheries subsidies, a move welcomed by ocean conservation groups.
Still others said that a concrete mandate for carrying multilateral work forward on fisheries subsidies is now found through a relevant SDG, although some also pointed to the fisheries subsidies disciplines inked as part of the recent 12-nation Trans-Pacific Partnership (TPP) as an example of ongoing efforts at the regional level.
Price of inaction
The Nairobi ministerial ultimately yielded some substantive decisions for negotiators to applaud – with China, for instance declaring “this is a big, big victory. This conference will be remembered for its historic contribution to development.” In addition, it also saw a concluded ITA-II, higher participation and a new negotiating approach from developing and least developed economies, the accession of Liberia and Afghanistan and expressions of interest from Somalia and Iran.
However, the road ahead for the WTO may still be a rocky one, though also with potential opportunities for creativity if members so choose.
“Members must decide – the world must decide – about the future of this organisation,” said WTO Director-General Roberto Azevêdo during the closing moments of the ministerial.
“The world must decide what path this organisation must take. Inaction itself is a decision and I believe the price of inaction is too high,” he added, noting that the year ahead leaves them with a “very serious task.”