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Africa: No Development in Development Round

AfricaFocus Bulletin
May 20, 2005 (050520)
(Reposted from sources cited below)

Editor's Note

"Looking at the current proposals on the table, it is clear that members are not moving towards a fairer multilateral trading system. ...The sad reality for most developing countries is that this round [of trade talks] has become an exercise in how to minimize losses; a far cry from the promise rich countries made to support development objectives and to launch a so-called development round." - Geneva Update, Institute for Agriculture and Trade Policy

The details of international trade talks are admittedly technical and hard to follow. But it is those details, rather than glowing promises about the prospects of free trade, that determine how real benefits are allocated. The most recent talks, according to reports from non-governmental analysts monitoring the results, have particularly bleak prospects for African and other developing countries. Potential concessions to development objectives, such as progress in lowering rich country protection for their agricultural exports, have virtually disappeared. Meanwhile, there has been unrelenting pressure for developing countries to offer new openings in access to their markets.

This AfricaFocus Bulletin contains excerpts from the latest Geneva Update from the Institute for Agriculture and Trade Policy (IATP) on World Trade Organization (WTO) negotiations, which makes an effort to summarize the current status and to explain some of the technical terms necessary to understand the debate. The full update is available on the listserv archive (http://www.iatp.org/listarchive). The IATP and its associated Trade Observatory feature much additional background material and analysis on current trade negotiations. See http://www.iatp.org and http://www.tradeobservatory.org.

Another Bulletin sent out today has excerpts from a new report from Christian Aid on proposed Economic Partnership Agreements between Europe and African countries.

For previous AfricaFocus Bulletins dealing with trade policy issues, see http://www.africafocus.org/tradexp.php

++++++++++++++++++++++end editor's note+++++++++++++++++++++++

Geneva Update

13th May, 2005

The Haves and the Have Nots: Europe Scores a Deal in Paris

By Alexandra Strickner and Carin Smaller
Trade Information Project,
Institute for Agriculture and Trade Policy (TIP/IATP)

[Excerpts: full text available at http://www.iatp.org/listarchive

For more information contact Carin Smaller Trade Information Project, Institute for Agriculture and Trade Policy, Geneva Office ph: +41 22 789 0734 fax: +41 22 789 0733 [email protected] ]

I. Agriculture: the aftermath of AVEs - where to from here?

In the margins of the OECD mini-Ministerial, held in Paris on 4 May, the so-called Five Interested Parties [FIPs - USA, EC, Brazil, India, and Australia] hacked out an agreement on the issue of converting specific tariffs ($X per tonne of imports) into percentage tariffs or ad valorem equivalents (AVEs)(X% of the price per tonne of imports). The agreement got approval by those WTO Members present at the mini-Ministerial and it is likely to be approved by the rest of the membership in the coming days. ...

The details of the AVE issue are complex and highly technical but they go to the heart of the market access pillar of the agriculture negotiations. The market access pillar essentially proposes a formula for reducing tariffs, a category of sensitive products for both developed and developing countries to accommodate particular sectors, and a category of special products (SPs) and a special safeguard mechanism (SSM) for use by developing countries on the basis of food security, rural development and livelihood concerns.

To start work on a tariff reduction formula members have to use a common measure to be able to compare tariff levels. For the moment, countries use different measures: some use specific tariffs, some use percentage tariffs (AVEs), some use mixed tariffs (a combination of the two) and some use complex tariffs (whichever is the higher between ad valorem and specific). In the July Package, members agreed to use a percentage tariff measure (AVE) as the common measure from which to embark on tariff reductions. The E.C and some G10 countries [developed countries that use a lot of protective measures for their agricultural production, including Switzerland, Norway and Japan] are the main members who use specific, complex and mixed tariffs.

Once there is a common measure, tariff lines will be grouped into different bands or tiers depending on whether they are high, medium or low. The formula will then be calculated to ensure the highest tariffs will be cut most and the lowest tariffs least. ...

[For detailed note on calculating tariffs, see full update.]

The E.C. and G10 countries are claiming the agreement is a great success, reflecting a good compromise. Other members are responding with mixed feelings. The reality is that it is still unclear what the real implications are of the agreement. The proof will only come when the issue has been tackled: how WTO members decide to handle the so-called sensitive products. ...

The E.C. is the real victor here. They have the upper hand when it comes time to decide how the elements of the market access pillar are used. ...

Market access discussions for agriculture are already underway. The WTO Secretariat organized a market access retreat for a very exclusive group (the Quad, the G10, Cairns Group and a few token developing countries including India, Brazil and Rwanda) in mid April. [The Quad are the U.S., E.C., Japan and Canada; the Cairns group are large agricultural producing countries, including Brazil, Canada and South Africa]. ...

However the market access negotiations proceed, it is becoming clearer that there are no development opportunities to be gained. Most developing countries, with the exception possibly of Brazil, Thailand and Argentina, have resigned themselves to the fact that there are no market access opportunities for them in this round. Australia, New Zealand, Brazil, Argentina, Thailand, South Africa, etc. and possibly the United States will be the victors. These countries will continue to fight for as much market access as they can: they know they can't get much from the E.C and G10 countries so they will turn to developing country markets for new openings.

The majority of developing countries will have to fight tirelessly just to minimize their losses. They will fight for a moderate tariff cut, to prevent further opening up of their agriculture sectors to dumped products, and they will be pressured to accept a limited number of special products that could undermine their ability to protect food security and promote rural development and rural livelihoods. The area of the negotiations which is often hailed the most promising for developing countries - agriculture - is looking grim. ...

II. NAMA: a formula for disaster

Non-agricultural market access (NAMA) negotiations in April were dominated by discussions on a proposal from Argentina, Brazil and India. The proposal discusses several issues. First, it clearly states that the concepts of "less than full reciprocity" and special and differential treatment (SDT) are different: the former relates specifically to the coefficients in the formula (by how much will tariffs be cut), while the latter is about flexibility in applying the formula and the right to exclude some tariff lines.

...

The upshot of the April negotiations, according to the Chairman of the NAMA Negotiating Group, Ambassador Stefan Johannesson, is that members have accepted the use of a non-linear formula and more particularly a Swiss or Swiss-type formula. ...

What does this mean? A non-linear formula means that countries cannot protect some products with lower cuts by making deeper cuts to less sensitive areas. An average tariff cut would give developing countries more flexibility to reduce some tariffs more and other tariffs less depending on the needs of the industrial sector. A Swiss or Swiss-type formula means reducing all tariffs to a specified tariff level so that high tariffs are reduced most steeply and low tariffs less steeply. The difference between a simple Swiss formula (as proposed by the U.S.) and the Girard formula (as proposed by Argentina, Brazil and India) is that the simple Swiss sets a specified tariff level (or coefficient) for all countries to achieve regardless of what their individual tariff structures look like and the Girard formula is designed so that the final tariff level that countries aim for is linked to that country's average tariff level rather than to an arbitrary level.

The simple Swiss formula targets countries with high average tariffs, i.e. developing countries, more than countries with low average tariffs, i.e. developed countries. The Girard formula however, could prove worse for countries that depend on preferences.

The greater concern is the general acceptance that all tariffs must be cut. The majority of developing countries have relatively weak industrial bases; they need to retain and even increase their ability to use tariffs as a tool for developing their industries. The non-linear formula goes against the experience of today's industrialized countries, which used tariffs as an instrument to protect certain domestic industries while granting access for products they needed to import. Industrialized countries used selective market access policies during their industrialization process and they continue to rely on tariff peaks and escalating tariffs to protect and promote certain sectors. The insistence on a single formula is simply inappropriate and could have drastic consequences for existing and future opportunities for developing an industrial base.

One of the greatest challenges in the NAMA negotiations is the united front among developed countries. While in agriculture there are great divisions among developed countries, in NAMA all developed countries want to open the markets of developing countries to their industrial exports. The U.S., E.C., Japan, Australia, New Zealand, Norway and Switzerland take turns in pushing for similar objectives.

On the other hand, the developing countries do not have a united front. Potential developing country alliances are weakened because developing countries are put into different categories and end up fighting for different objectives. Least-developed countries for example, have been offered an exemption from any tariff reduction but would have to substantially increase their tariff bindings in exchange. ...

Simply put, there is too much at stake for development for this single-minded push for markets from OECD members combined with too little for too few developing countries to be an acceptable outcome.

III. Services: marathon ahead

Over the last few weeks, several informal and formal services meetings took place. The main discussion in services negotiations at the moment is between developed countries (in particular the U.S., E.C., Switzerland, Canada, Japan, Australia, and New Zealand) and a handful of developing countries, including Chile, Mexico, Brazil, Colombia, India, Thailand, Philippines, Pakistan and Egypt. These countries are very actively engaging in discussions around domestic regulation as well as in the more specified classification of services sectors. This latter work is done in the so-called "Friends" meetings.

Informal meetings have been held to discuss domestic regulation issues ... discussed. Domestic regulation covers issues such as qualification requirements and procedures, licensing requirements and procedures, transparency on the above, and the so-called necessity test. One of the key issues in the negotiations on domestic regulation is the extent to which governments will be able to introduce new laws and regulations to protect its people or the environment. ...

In this informal session it was agreed that the WTO Secretariat will prepare a matrix of all the issues which have been raised in the different proposals that have been tabled during the last few months, indicating which country made which proposal. The matrix will help show where the WTO members engaged in this process have converging positions and where gaps are still large. As Geneva delegates report, it is possible that by the end of July a first draft document will be agreed upon, which outlines the structure of the modalities and where consensus exists. During the next services cluster, to start on 20th June, WTO members will undertake negotiations based on this matrix.

A formal special session on visa issues in relation to Mode 4 (which concerns the provision of services through the movement of people across national borders - effectively immigration for employment) took place end of April. The Philippines and Colombia presented a paper that said the GATS Agreement does not formally exclude visa questions. They made several proposals on how the question of visas in relation to Mode 4 could be dealt with. The group of countries attending, including the U.S. and the E.C. welcomed the paper - which is particularly surprising in the case of the U.S., given the strong resistance in the U.S. Congress to make any opening for Mode 4 services.

Within two weeks the May deadline to present initial or revised offers will end. Recently the Director General of the WTO has sent another letter to the members urging them to table offers. Developed countries continue to push the idea of the establishment of benchmarks, to force at least a minimum amount of liberalization even on reluctant developing countries. This will certainly become one of the important issues in the weeks to come. ... If accepted, these kind of benchmarks would remove a great deal of the flexibility that was meant to distinguish services talks. They reveal the strong push from developed countries to allow their firms to take over local service provision in developing countries.

Many developing countries have rejected this approach, choosing to defend the positive list approach, which allows each country to make offers according to its own pace and possibilities.

In Mode 4 - the area of most interest for many developing countries engaged in the services negotiations, Geneva sources clearly indicate that only in professional and contracting services is any market access likely to be achieved. None of them believes that during this round any market access for low skilled labor will be given by developed countries. The only possibility for this category of labor will be through the area of contracting services, which are included in the definition of professional services (e.g. a country A contracting a service provider in country B to undertake construction works in country A).

In large part, developing countries have a realistic assessment that most of the Mode 4 offers on the table will not be improved much. ...

IV. Process: the dangers of exclusion

The negotiation process becomes more and more exclusive as time goes on. The negotiations have moved from taking place with just a few developed countries to including a few larger developing countries. The majority continue to be left out. Many developing countries with smaller delegations in Geneva continue to stress that they cannot keep up with the negotiations, particularly in this highly technical phase.

Each of the issues negotiated is complex and proposals such as the recently agreed AVE conversion methodology for agricultural tariffs will take time to analyse, in order to understand how it will work in practice. More than 50 Civil society organizations recently sent an open letter to WTO members and the Chair of the Special Session in Agriculture, the Chair of the General Council and the WTO Director General, which urged WTO members to establish a more transparent and inclusive process in the agriculture negotiations and calling for an ending of the FIPS process. Most of the key issues in agriculture are being negotiated only among the FIPs members (Five Interested Parties - US, EC, Brazil, India and Australia), with some 25 other countries brought in at a second stage to review the progress made. The rest of the membership - well over one hundred, mostly developing countries - are left in third place.

V. Development: strengthening SDT or just shrinking it?

The Committee on Trade and Development (CTD) is locked over an agenda for moving forward on special and differential treatment (SDT). At issue is the question of whether to focus on the dozens of proposals that developing countries have made for specific changes to SDT, as mandated in the Doha Ministerial Declaration, and/or to deal with the issue of differentiating some of the poorer developing countries from the more advanced developing countries.

The question of further differentiating developing countries is complicated. Everyone can agree that Zambia, Rwanda and Kenya, for example, have different needs and face greater development challenges than Malaysia or Singapore. However, it is becoming clear to observers, that the fight over SDT is not motivated by a concern to strengthen SDT for the poorest members of the WTO. Rather, it is about reducing or even removing access to SDT for a few large developing countries, particularly India, Brazil, South Africa and China - countries that are home to millions of people living in extreme poverty. It is the developed countries who are most vocal on the issue of differentiating developing countries.

Developing countries have made it clear they want to deal with the proposals tabled in the CTD, proposals that have been on the table for many years and that developed countries continually delay discussing.

The atmosphere is poisonous. The gross failure of developed countries to solve even one of the outstanding development issues raised in relation to the implementation of the Uruguay Round has made developing countries much less likely to have an open discussion of the real issues about differentiation. If there were ideas for new and innovative SDT that might make a real difference to poorer WTO members, other developing countries might be more willing to accept the need for more categories of countries. But if the only offer is the SDT already on the table, the proposal clearly becomes one where developing countries such as Brazil are asked to give something up, at no cost to developed countries.

More meaningful SDT is seriously needed. Developing countries are very conscious of this. They have tabled a series of proposals which should be discussed urgently. Developed countries could start by showing they are serious about SDT and serious about putting development at the forefront of the negotiations. This would indeed be a welcome first step.

VI. A Time to Protect: taking a stand at the WTO

Looking at the current proposals on the table, it is clear that members are not moving towards a fairer multilateral trading system. In the area of agricultural dumping, the current proposals will do little to solve the problem. The U.S. and the E.C. will continue existing farm support programs and developing countries will have to lower their tariffs further - thus reducing their ability to protect themselves from under priced agricultural exports. Given the existing imbalances and trade distortions in agriculture, developing countries should not be forced to lower their tariffs and any kind of payment that contributes to the export of products at less than cost of production prices should be banned, regardless of which colored box the payment occupies. As long as the E.C. and the U.S. continue to ignore the root causes of dumping and resist proposals for addressing dumping, developing countries must be allowed to use stronger measures to protect their farmers and prevent further destruction.

In non-agricultural market access (NAMA) and services negotiations, it has been quite clear from the beginning that developing countries - with perhaps a few exceptions - have little to gain and much to lose. In particular, governments risk losing the policy space that allows them to decide and implement strong national policies that promote development and poverty reduction. The possible gains in GATS Mode 4 need to be balanced against the loss in policy space implicit if developing countries accept to liberalise crucial services sectors.

The sad reality for most developing countries is that this round has become an exercise in how to minimize losses; a far cry from the promise rich countries made to support development objectives and to launch a so-called development round. Among the developing countries, it is also becoming clearer that only the larger developing countries have some possibilities for gains. For the rest of the developing countries and in particular for least-developed countries (LDCs), most African developing countries and the members of the African, Caribbean and Pacific Group (ACP), they are left staring into a very empty glass. There is serious need for change and for taking a firmer stand against the hypocrisy and injustice of the current negotiations.

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