Bridges Daily Update #7 | Low Ambitions Met: Members Adopt Declaration

19 December 2005

After six days of gruelling and sometimes acrimonious negotiations, ministers from the WTO's 149 Member governments reached a deal on 18 December to put the sluggish Doha Round trade talks "back on track," in the words of Director-General Pascal Lamy.

As expected, the Hong Kong Ministerial Declaration did not contain specific numbers and formula structures for cutting subsidies and tariffs - trade negotiators had acknowledged before coming to Hong Kong that they remained too divided on the toughest issues on the table to be in a position to agree on them here. Instead, ministers agreed on some general parameters to guide the development of these 'full modalities' on agriculture and non-agricultural market access (NAMA), and set themselves an April 2006 deadline for finalising them. They still hope to conclude the round by the end of next year.

Ministers also managed to accommodate some developing countries' reservations about the treatment of services in the original draft declaration by weakening the mandatory and prescriptive nature of certain provisions relating to the direction of future negotiations.

The Hong Kong Ministerial Conference's most concrete achievement was to establish 2013 as the end-date for eliminating agricultural export subsidies, contingent "upon the completion of the modalities." Distinct progress was also made on cotton and least-developed countries' long-standing request for duty- and quota-free market access, although critics question the extent to which the new commitments will provide meaningful benefits in either area.

Members have posed themselves a formidable challenge: not only are they expected to finalise full modalities by April, they must also submit comprehensive draft schedules of commitments based on them by 31 July 2006, scarcely three months later. Soon after taking up his job as WTO chief in September, Mr Lamy had suggested that the complex technical exercise of translating modalities into specific, binding liberalisation commitments would take close to a year.

Ministerial Chair John Tsang likened the compromise agreement to pulling a rabbit out of a hat. "The trick now," he said, "is to make sure it grows and multiplies."

Agriculture

The EU's agreement to a date for abolishing agricultural export subsidies on the last day of the conference paved the way for the adoption of the Declaration. The text commits Members "to ensure the parallel elimination of all forms of export subsidies and disciplines on all export measures with equivalent effect to be completed by 2013." This date has good reason to be more palatable to the EU than a widely-supported 2010 deadline it had been resisting in 'Green Room' meetings all week: the 2003 reform of its Common Agricultural Programme (CAP) would eliminate most such subsidies by 2013 anyway. However, in order to bridge the gap with the earlier date, the Declaration stipulates that "a substantial part" of reductions is to be "realised by the end of the first half of the implementation period." For purposes of comparison, the implementation period for Uruguay Round commitments was five years for developed countries.

The text requires Members to develop disciplines on food aid, export credit programmes, and the practices of exporting state trading enterprises by "30 April 2006 as part of the modalities." On food aid in particular - the EU has argued that a great deal of US in-kind food aid is tantamount to an export subsidy to its farmers - the new text provides for "effective disciplines on in-kind food aid, monetisation and re-exports so that there can be no loop-hole for continuing export subsidisation." It also calls for the creation of a 'safe box' for bona fide food aid to ensure that the new rules do not serve to impede it in emergencies.

Domestic farm subsidies are to be classified in three bands for the purposes of reduction. "The Member with the highest level of permitted support" - the EU - will be in the top band, facing the highest linear tariff reduction. The US and Japan will be in the second tier, and all other Members would fall into in the bottom band. Countries such as Switzerland, which have high relative amounts of trade-distorting subsidies even though they fall into to the lowest band, are enjoined to make an additional reduction.

Members must make cuts to overall trade-distorting domestic support that are at least equal to, if not greater than, the sum of the reductions in Amber Box, Blue Box, and de minimis (exempted) support. Although this is weaker than the penultimate revision's stipulation that the overall cut should be greater, it may nonetheless make it harder for countries to simply re-classify subsidies in order to dodge reduction commitments. However, apart from this constraint on 'box-shifting,' the Declaration contains no rules for the criteria of the Blue Box.

With regard to market access, Members agreed to structure their tariffs into four bands for reduction, while "recognising that we now need to converge on the relevant thresholds" for developed and developing countries. The text also refers to different kinds of market access flexibilities in varying degrees of specificity. It notes that Members still need to agree on how to treat 'sensitive' products. This is a step back from the 17 December version of the text, which provided for tariff rate quotas (TRQs) to increase in accordance with the leniency of the tariff cut relative to what would normally be demanded by the formula - several agricultural exporters had complained that that version of the text was more specific about exceptions to tariff cuts than about market access itself.

The final Declaration, which should serve as a guide for the development of eventual 'full modalities', allows developing countries to "self-designate an appropriate number of tariff lines as Special Products (SPs) guided by indicators based on the criteria of food security, livelihood security and rural development." They would also "have recourse to a Special Safeguard Mechanism (SSM)" to protect farmers from a surge in imports or a collapse in import prices. The specifics of SP status and the SSM are to be determined, and "shall be an integral part of the [agriculture] modalities."

The G-33 proponents of SPs and the SSM welcomed the specification that SPs would be 'self-designated', since the 2004 July Framework Agreement only mentioned 'designation.' The text further stipulates that this selection will be "guided by indicators of food security, livelihood security and rural development." This reflects recent G-33 proposals outlining possible indicators, which included the employment generated by the production of a particular product, or its contribution to the diet of local populations. The Declaration also accepts a price trigger for the SSM, in addition to less controversial volume trigger. This is particularly significant because many developing countries cannot effectively monitor import quantities; prices are far simpler to follow.

Cotton

In May 2003, four African least-developed countries (LDCs) - Benin, Burkina Faso, Chad and Mali - launched the Cotton Initiative, which demanded the rapid elimination of all export subsidies, tariffs, and trade-distorting domestic support for cotton, as well as compensation for LDCs' trade losses until the phase-out was complete. Such action was necessary and urgent, they argued, because developed country subsidies had depressed world prices to the point that African countries no longer could export their cotton at a profit.

In response, the July 2004 Framework Agreement mandated WTO Members to "address cotton ambitiously, expeditiously and specifically within the agriculture negotiations," but subsequent negotiations failed to produce material progress.

Export competition: The Hong Kong Ministerial Declaration states that 'all forms' of developed country export subsidies for cotton will be eliminated by 2006. This means not only the elimination of the US Step 2 export subsidy programme but also the 'subsidy element' of the export credit guarantees the US extends to cotton traders programme - both ruled WTO-inconsistent by the WTO in April 2005. Other developed countries do not subsidise cotton exports.

Market access: Developed countries will give duty- and quota-free market access to LDCs' cotton exports as of the conclusion of the Doha Round negotiations. However, African countries are unlikely to benefit from this, since they do not export cotton to the US - and in other markets, particularly in Asia, they have to compete against subsidised US exports.

Domestic support: After arduous negotiations lasting until the closing moments of the Hong Kong conference, ministers agreed to "the objective that [...] trade-distorting domestic subsidies for cotton production be reduced more ambitiously than under whatever general formula is agreed and that it should be implemented over a shorter period of time than generally applicable." This delays the decision on the depth and speed of domestic cotton subsidy cuts until the overall domestic support reductions in agriculture and their implementation schedules are agreed. African cotton-producing countries were intensely disappointed at this outcome, as the high level of producer and marketing support - domestic subsidies make up 80-90 percent of total US support for cotton (estimated around USD 3.8 billion in 2004) - allows US producers to sell cotton in international markets at prices below the real cost of production.

Compensation: Although the Ministerial Declaration does not establish a compensation or emergency fund to assist affected cotton farmers, it urges the WTO Director-General to explore - together with bilateral donors, and regional and multilateral institutions - the possibility of establishing a "mechanism to deal with income declines in the cotton sector until the end of subsidies."

NAMA

The Declaration's sections on industrial tariff reduction provide for a 'Swiss formula,' with an unspecified number of coefficients. This leaves the door open to both the two-coefficient 'simple Swiss' formula and the multiple-coefficient approach linked to each country's average tariff favoured by Argentina, Brazil, and India.

The text responds to two central concerns held by most developing countries, providing for "less than full reciprocity in reduction commitments" and stipulating that the formula "shall reduce [...] tariffs, including the reduction or elimination of tariff peaks, high tariffs, and tariff escalation, in particular on products of export interest" to them.

The agreement also "reaffirms the importance" of Paragraph 8 of the NAMA mandate in Annex B of the 2004 July Framework as an "integral part of the modalities." This paragraph provides for flexibilities for developing countries such as exempting a small number of tariff lines from reductions, or making cuts less onerous than those demanded by the formula on a higher number of lines. There has been a long-standing argument in NAMA discussions on whether developing countries should have to give up at least some of these flexibilities in return for the higher coefficients that would make for a more lenient tariff reduction formula.

Members adopt a 'non-linear mark-up approach' for unbound tariff lines - this would have them add a certain number of percentage points to the tariff rate that they apply on a particular product to establish the base rate for reduction. The text does not specify whether these marked-up tariffs would be subject to the same Swiss formula as currently-bound tariffs, or to another reduction rate. It thus appears to obviate the notion held by a number of developing countries that the binding of tariff lines constitutes a concession in and of itself, and that immediate tariff reductions should therefore not be required.

Notably, the Ministerial Declaration contains a paragraph that explicitly links the level of ambition on agriculture to that on NAMA, specifying that this ambition "is to be achieved in a balanced and proportionate manner consistent with the principle of special and differential treatment." This has been a longstanding demand of many developing countries.

LDCs

The most significant point of the Ministerial Declaration's Paragraph 47 on least-developed countries (LDCs) is its reference to Annex F, which provides details on the brand-new developed country obligation to provide duty- and quota-free access for LDC exports as of 2008. While that is later than LDCs would have hoped, a precise date is important since it guarantees an application of the benefits even in case the Doha Round negotiations stretch beyond 2008.

There is, however, an important caveat with regard to product coverage: developed countries that face difficulties in providing full unrestricted access in 2008 will only be required to do so for 97 percent of tariff lines. This 3 percent reservation would account for some 330 tariff lines, according to Debapriya Bhattacharya, head of the Dhaka-based think tank, Centre for Policy Dialogue. "Given [LDCs'] undiversified export basket, 3 percent of tariff lines may essentially deprive them of market access for all of their products." He noted that 20-25 tariff lines at the 6-digit HS level account for some two-thirds of Bangladesh's total exports.

There is no deadline for extending this treatment to all products, although the text includes a 'best effort' provision to "take steps to progressively achieve" full product coverage "taking into account the impact on other developing countries at similar levels of development, and, as appropriate, by incrementally building on the initial list of covered products." While this last provision undoubtedly provides comfort for poorer developing countries likely to compete for the same export markets, it also carries the risk of permanently excluding the most competitive LDC export sectors. Some LDCs that benefit from preference schemes were actually supportive of the reservation, since it would reduce the chances that their exports would be displaced by competition from more efficient LDC producers.

Services

Annex C on services was the most controversial part of the 7 December draft declaration submitted to ministers. Several developing countries had in fact requested that it be removed altogether on the grounds that it had not been agreed by Members. They were particularly incensed by the annex's provisions on qualitative modal objectives and the mandatory language requiring Members to enter into plurilateral market access negotiations if presented with a request to do so.

The final Ministerial Declaration weakens the mandatory and prescriptive language in the original version of Annex C. The annex's much-contested Paragraph 7 on the plurilateral request-offer process was revised to explicitly specify that Members' obligatory consideration of collective requests would take place in the context of Paragraph 2 of GATS Article XIX, which stipulates that liberalisation in services trade should pay respect to countries' developmental levels. Thus, Members facing collective requests "shall consider" them "in accordance with Paragraphs 2 and 4 of Article XIX of the GATS." This change was thought to be necessary to address the concerns of the G-90 and some Association of Southeast Asian (ASEAN) countries, even though the introductory 'chapeau' of Paragraph 7 in the annex already specifies that plurilateral negotiations will take place in accordance with GATS principles.

Members also agreed that plurilateral requests should be submitted by 28 February 2006 or as soon as possible thereafter. In addition, the second round of revised offers shall be submitted by 31 July 2006. Final draft schedules of commitments are to be submitted by 31 October 2006.

Many developed country Members such as Japan and the EU expressed frustration at the extent to which the services text had been watered down, but were nonetheless prepared to accept it in order to get the services negotiations moving again. India, too, appeared disappointed, suggesting that the watered-down text provided the US an excuse for saying that they would now be unable to offer anything significant on Mode 4 (which covers the cross-border movement of workers to provide services).

One trade analyst said that developed countries may have ceased to see Paragraph 7 as a tool for advancing their offensive interests. They have instead chosen to use the fact that plurilateral negotiations are sanctioned by the Guidelines and Procedures for Negotiations on Trade in Services as justification for submitting collective requests for plurilateral negotiations in early 2006 regardless of what eventually happens to Paragraph 7. Ironically, the Guidelines' mention of plurilateral approaches was what some developing countries had been using to argue that Paragraph 7 was unnecessary. Under this scenario, Paragraph 7 instead becomes a vehicle for developing countries to assert their procedural rights and interests during the plurilateral negotiations.

A number of developing country delegates meanwhile commented that the timelines fixed for submission of plurilateral requests, revised offers and final draft schedules would definitely test their capacity to respond to these requests within the deadlines prescribed.

Bananas

The discord surrounding the EU's transition to a tariff-only banana import regime had the potential to become a serious obstacle to final consensus. At issue was the EUR 176 per tonne tariff due to enter into force on 1 January 2006. Latin American banana producers claimed the tariff was too high to ensure, at a minimum, the maintenance of their present share of the EU's banana market, as required by an agreement concluded at the Doha Ministerial Conference in 2001. The parties agreed to continue consultations under the 'good offices' of Norway's Foreign Minister Jonas Gahr Store, who served as facilitator of the conflict in Hong Kong. A statement read out by Mr Store at the closing plenary session specified that the interests of the African, Caribbean and Pacific (ACP) countries - whose member states enjoy duty-free access to the EU - would be taken into account in the consultations. While the WTO's Dispute Settlement Understanding encourages Members to use the 'good offices' of the Director-General or another mediator in order to find a mutually agreeable solution before resorting to litigation, the legal relationship between the banana consultation process and the WTO's dispute settlement system is not entirely clear.

Environment

Under the trade and environment mandate of Paragraph 31 of the Doha Declaration, only environmental goods and services (EGS) made a noticeable appearance in Hong Kong. These discussions reflected underlying divisions over the approach to take to the mandate embodied in Paragraph 31(iii) which calls for the expedited liberalisation of trade in EGS. Developed and newly industrialised countries, such as the US, New Zealand, the EU, Taiwan and Korea, favoured a 'list approach,' i.e. identifying a list of environmental goods for liberalisation, and were looking for language that would steer talks in that direction. Many developing countries, on the other hand, would like to keep options open for other approaches, such as India's 'environmental project approach' which would allow countries to temporarily liberalise trade in EGS associated with environmental projects designated by a national authority.

During informal meetings in Hong Kong, the list supporters and India managed to agree on common text that would have instructed Members to clarify the coverage of goods and their relation to services, taking into account the capacity constraints of developing countries and the centrality of the environmental rationale of the negotiations. However, a number of Members - including South Africa, Colombia, Egypt and other Latin American countries - opposed the text due to concerns that it could favour the list approach. As a result of time constraints and a general reluctance to move the negotiations to the Green Room level, countries in the end agreed on brief, non-committal language that would simply instruct Members to "expeditiously complete the work" under Paragraph 31(iii).

The 7 December draft text on fisheries subsidies - along with the rest of the text on WTO rules (anti-dumping, subsidies and countervailing measures) - was left unchanged. The Ministerial Declaration calls on Members to strengthen disciplines on fisheries subsidies, including by identifying and prohibiting subsidies that contribute to over-capacity and over-fishing. It notes that "appropriate and effective special and differential treatment" should form an integral part of the negotiations, highlighting the sector's importance to poverty reduction, livelihood and food security concerns. The text for the first time explicitly links subsidies to over-capacity and over-fishing and acknowledges the need for addressing this link, overcoming strong resistance to negotiating fisheries subsidies disciplines from Japan and Korea in the early stages of the Doha Round.

Intellectual Property Rights

Before and during the Ministerial Conference, India was the driving force behind efforts to place discussions on the relationship between the Agreement on Trade-related Aspects of Intellectual Property Rights (TRIPS) and the Convention on Biological Diversity (CBD) high on the agenda. It would have liked to see an explicit negotiating mandate included in the Ministerial Declaration, calling for an amendment to the TRIPS Agreement to require patent applicants to disclose the origin of genetic resources and associated traditional knowledge along with evidence of prior informed consent and benefit-sharing in their application. Brazil, Kenya and Peru also joined in the effort, albeit with various degrees of ambition.

Peru's proposal provided the weakest language of the ones put forward -- it simply suggested intensifying discussion on the three requirements. Some observers were surprised at the proposal's low level of ambition, speculating that this could be related to Peru's recently-concluded free trade agreement with the US, which includes a side-letter referring to the use of contracts to govern access to genetic resources or traditional knowledge.

The EU would have been willing to support an explicit reference to negotiations on the CBD-TRIPS relationship if coupled with a similar mandate on negotiations to extend the additional protection already provided to geographical indications for wines and spirits to other products (GI extension).

However, in the end - to the great frustration of India and the EU - neither of the two negotiating mandates found mention in the declaration due to stiff resistance from the US and others, including Canada and Australia. The text in the Hong Kong Ministerial Declaration remained identical to that in the 7 December draft declaration, simply taking note of the work undertaken on the TRIPS-CBD relationship and GI extension under Paragraph 12(b) of the Doha Declaration (on implementation issues).

The Declaration establishes the conclusion of the Doha Round as the end date for negotiations on the multilateral register for GIs related to wines and spirits. These were originally scheduled to be completed by the 5th WTO Ministerial meeting in Cancun, but no new deadline had been set after Members failed to meet the original one.

The declaration also extends the moratorium on launching non-violation complaints under the TRIPS Agreement (i.e. complaints based on the loss of an expected benefit caused by another Member's actions even if the actions do not violate WTO law), until the next Ministerial Conference, by which time Members are supposed to make recommendations on the scope and modalities of such complaints.

18 December 2005
WTO Director-General Pascal Lamy and Hong Kong Ministerial Conference Chair John Tsang released a revision of the draft ministerial declaration to Members at approximately 2 p.m. on 17 December...
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18 January 2006
THE STANDSTILL IN SUBSIDIES - UPDATE. By Matthew Walls and Damon Vis-Dunbar. International Institute for Sustainable Development (IISD), November 2005. This paper updates a previous IISD publication...
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