Signs of progress emerge on duty-free, quota-free LDC access

HONG KONG -- Members of the World Trade Organization seemed to be making some progress on an initiative to help the world's poorest countries on the third day of the Hong Kong ministerial, where the U.S. has come under intense pressure to provide duty-free, quota-free access to all products from least-developed countries.

Zambian Trade Minister Dipak Patel, who is the designated WTO coordinator on the LDC initiative, said on Dec. 15 that after two days of fighting between the U.S. and European Union, members now seem to be moving forward. The U.S. has been resisting EU and LDC demands that the initiative cover all products and be implemented before the Doha round.

"All these issues are on the table," Patel said shortly after a Dec. 15 meeting with Portman and Japan's trade minister. He said he would meet with Portman again later tonight. "I need to listen as well as I need to demand," said Patel. A green room on development is scheduled on Friday morning Hong Kong time.

He said the LDC group and the G90, which also includes the African group, would "see how we can arrive at a compromise" on the product coverage issue with the U.S., Japan and Canada, which have called for exceptions. He did not dismiss the possibility that some tariff lines could be exempted from the duty-free, quota-free access as the U.S. has demanded and said the question was how many tariff lines that would affect.

In a Dec. 15 press conference, U.S. Trade Representative Rob Portman said it would be difficult to get support in Congress to include products in the initiative where countries such as Bangladesh are competitive. However, he said this did not mean that all textile tariff lines from Bangladesh would be exempted.

Portman said the basis for making exceptions to the duty-free, quota-free treatment would be whether a country is "globally competitive" on a tariff line. Besides Bangladesh, he said the U.S. was interested in one other country. The U.S. textile industry has mentioned Cambodia and Bangladesh as problems, as well as Haiti.

WTO Spokesman Keith Rockwell said Guyana Trade Minister Clement Rohee, the ministerial's facilitator on development issues, reported signs of progress at a Dec. 15 heads of delegation meeting.

Rohee said members had agreed to move away from a commitment to bind the new tariff commitments in the WTO, which he said would have raised legal questions. Instead, Rockwell said Rohee reported broad convergence calling for the duty-free, quota-free access to be provided "on a lasting basis."

LDCs would have preferred to have the concessions bound in the WTO, which means they would be part of a country's schedule. But members found it difficult to agree on the legal basis to justify these tariff preferences. One possibility was to have a waiver from WTO rules, which would be difficult to obtain, and the second was to use the so-called enabling clause, according to a senior U.S. trade official.

The enabling clause allows developed countries to provide tariff preferences to developing countries under such programs as the Generalized System of Preferences. A part of it provides a legal basis to discriminate between countries in terms of benefits, the senior U.S.
official said. 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.

The senior U.S. official said the use of the enabling clause as a legal basis for such discrimination is less of an issue for the United States than for other countries.

Rohee also reported to the heads of delegations that members had agreed to language for the ministerial text calling for the access to be provided to "all" LDCs, apparently to ensure that entire countries are not exempted from the benefit scheme. Some WTO members had been resisting this, but Rohee said they had dropped their objections, according to Rockwell.

The final obstacle to an agreement are the objections from the U.S. and others for the initiative to cover all LDC tariff lines. Rohee said he was working to find a consensus based on a proposal by Switzerland included as one of three included in Annex F to the draft ministerial text.

Under this proposal, members would provide duty-free, quota-free access to a specified number of LDC tariff lines by a given date and gradually move towards 100 percent coverage.

European Trade Commissioner Peter Mandelson on Dec. 15 again floated the possibility that the initiative could include a safeguard mechanism to address U.S. sensitivities about certain increased imports. But Portman said he was not sure a safeguard would make sense. It would lower the confidence exporters would have that their products would get access to the U.S. market, he said.

The U.S. position on product exclusions is shared by Japan and Canada, which also want to exempt from any initiative various sensitive products. Canada excluded dairy and poultry from its 2003 duty-free, quota-free program less because it feared real import competition from LDCs but as a matter of principle to protect its supply management programs.

Japan has its own sensitivities, with rice, sugar and fish products, a government source said.

In addition, the U.S. is insisting that the LDC initiative be implemented as part of an overall Doha round package, not an autonomous measure that would take effect earlier. 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 on expanding and extending trade preference programs for WTO members without gaining concessions in the Doha round.

The Bush Administration also wants to ensure that the new tariff concessions are only available to a country as long as it has LDC status, according to U.S. Trade Representative Peter Allgeier.

U.S. officials have insisted that any LDC initiative would have to be part of existing U.S. preference programs, such as the GSP and the Caribbean Basin Initiative. GSP, which expires at the end of 2006, now excludes textiles and apparel because of their import sensitivity.

To use the GSP program for textiles, the administration would have to change it during its reauthorization. Under GSP, products are excluded if they are competitive, which is defined as an import level of $150 million or by accounting for more than half of all imports to the U.S.
of that product, according to one industry source.

According to industry sources, USTR is envisioning applying this so-called competitive needs limit to individual tariff lines at the 10-digit level. This would mean certain apparel items from a given country would be excluded while others are not. Importers are not enthusiastic about this approach, but one industry source said this might be the basis for working out a solution.

Mandelson this week kept up the pressure on the U.S. to agree to a comprehensive LCD initiative, charging that failure to do so would put the credibility of the ministerial at stake. LDCs "need to be able to rely on the system" and know the new benefits are not going away, he said.

Mandelson scoffed at the U.S. arguments that domestic industries could be hurt by these imports. 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.