U.S. Takes Hardline On Trade Initiative For Least Developed Countries

HONG KONG--One day into the ministerial meeting, the European Union remained at odds with the United States, Canada and Japan over the scope and implementation of an initiative to provide duty-free quota-free access to least developed countries (LDCs).

The key dispute centers on whether the U.S. and the others can exempt certain products and countries from the initiative to protect local production and whether the concessions would be bound in the World Trade Organization, which would make them subject to dispute settlement. Binding would also make it hard to take away a country's benefits if it changed from an LDC to a developing country, sources said. A senior diplomat said LDCs are demanding that the commitments be bound in the WTO.

The U.S. seems cool to extend duty free access to textiles from Bangladesh and Cambodia, and has said it wants to shield other sensitive products, such as peanuts, sugar and dairy.

In addition, developed countries disagree on the implementation for the initiative, with the U.S. insisting it can only be done when an overall deal on the Doha round is approved by Congress. This position may partially be due to the pressure the Bush Administration feels from Congress, where members and staff have made it clear that they are not keen to expand and extend trade preference programs for WTO members without gaining concessions in the Doha round.

The initiative would be a derogation from WTO rules of providing the same trade benefits to all members, and countries are squabbling over the legal basis for taking this exemption.

The U.S. wants the legal basis to be the WTO's enabling clause, which allows developed countries to provide tariff preferences to developing countries and incorporates the notion that countries extending these preferences can differentiate between recipients provided the differences are based on objective criteria. This would allow the U.S.
to give duty-free, quota-free treatment to most LDCs while excluding, for example, apparel from Bangladesh without facing a WTO challenge, sources said.

European Trade Commissioner Peter Mandelson publicly insisted that the LDC initiative should cover all products and all countries even if the U.S. phased in those concessions over time. LDCs "need to be able to rely on the system" and know the new benefits are not going away, he said.

Some sources speculated that Mandelson may be interested in keeping the ministerial focused on the development package in order to delay negotiations on agriculture, where the EU is under pressure to agree to an end date for export subsidies at the ministerial. U.S. Trade Representative Rob Portman said that in absence of an agreement on agriculture market access in Hong Kong, ministers should set a date for eliminating export subsidies. Portman said the U.S. endorsed an end date of 2010.

Mandelson scoffed at the notion that some industry sectors in developed countries would be overwhelmed by LDC imports, such as textiles. He noted that similar arguments were raised when the EU first moved to provide duty-free, quota-free access to LDCs through its Everything But Arms initiative, which delays full market access for certain import-sensitive products. If the U.S. increased its imports from LDCs by 50 percent, Mandelson charged it would only add up to three days of total imports to the U.S.

Yet the EU has ensured that it can impose safeguards on sensitive products if imports increase under the Everything But Arms initiative. The newly passed sugar reform states that countries cannot increase their sugar exports to the EU by more than 25 percent a year without facing an automatic investigation that could lead to a curb on their exports.

Mandelson also said he was worried that the inability of countries to agree to his demands on behalf of LDCs means the initiative is "in trouble." It would be a "great disappointment and disillusionment" if the package for LDCs were not to come out of the Hong Kong ministerial, Mandelson said.