Geneva Update: HEADING TOWARDS AN ICEBERG: is it too late to steer the ship?

CONTENTS

I. WHAT IS LEFT TO DECIDE?
II. THE PROCESS: modalities, schedules and timelines
III. AGRICULTURE AND NAMA: pushing for convergence
IV. SERVICES: preparing for the onslaught
V. IMPORTANT DATES TO REMEMBER
VI. DOCUMENTS

I. WHAT IS LEFT TO DECIDE?

The Hong Kong Ministerial Declaration produced a detailed framework and provided political direction for WTO members to conclude the Doha Round, launched in 2001. Concluding modalities (detailed commitments including numerical targets) for further liberalizing trade in agricultural products, industrial goods and natural resources is the next crucial step towards completing the Round. The deadline set by WTO Members is 30 April 2006.

The Hong Kong Ministerial Declaration sealed the Doha Round as a model for aggressive trade liberalization rather than a model intent on promoting development. The narrow pursuit of ever-increasing access to markets for exporters has forced people and the environment out of the trade equation. Instead of using trade as a tool for development, the current rules are set to worsen a system already in desperate need of change. Even the latest World Bank statistics suggest that developed countries will gain more than developing countries, overall, and the gains will be very unevenly distributed among developing countries. Knowing this, WTO members are still determined to complete the round.

Developing country WTO members are now trying to minimize the many potential negative impacts of the Round; they have entered a phase of damage control. Many developing country groupings are putting their negotiating energy into seeking expanded flexibilities or demanding exemptions from particular commitments. The recently established developing country grouping on non-agricultural market access (NAMA), the NAMA-11, for example, aims to reclaim the development content of the Doha Round and emphasizes the importance of flexibilities to ensure space for industrial development. Pockets of resistance such as the NAMA-11 are important for keeping open policy choices for developing countries. However the main thrust of the Round - the promotion of far reaching market access in all areas of trade - remains undisputed, to the detriment of an outcome that promotes sustainable development and puts people at the centre of trade-policy making. The Small and Vulnerable Economies (SVEs) are also determined to secure as much policy space as possible to take into account their specific development concerns. Sadly, the Doha Round might be even worse than the Uruguay Round in practice, as the proposed formulae for tariff reductions cut deeper than before and countries anyway have less "water" (unused tariff space) to bargain with.

Despite the stark reality of where the Doha Round is headed, many WTO members, especially the most active members in the negotiations, are making every effort to conclude the Doha Round this year. With Fast Track Trade Negotiating Authority in the U.S. set to expire in mid-2007 with a very uncertain chance of its renewal and several elections in key countries coming up soon (for instance, Brazil in autumn 2006 and France in spring 2007), WTO members consider the next few weeks to be the last chance to finish the Round any time soon.

To complete the Doha Round, WTO members must agree to a series of modalities in agriculture and NAMA (modalities are detailed commitments, including numerical targets for cutting subsidies and tariffs - see next story), to market access commitments in services (under GATS) and to new or revised rules and disciplines on other issues contained in the Doha Agenda. The conclusion of the Round requires agreement on all issues jointly (all members must agree to all agreements; they cannot pick and choose what they like) - an approach known as a single undertaking.

The challenge for the membership is how to break the deadlock among the U.S., E.C., Brazil and India in agriculture and NAMA. These four members are considered key to unlock the process. The E.C. argues that, having given a specific end date for export subsidies, it is up to the others (in particular Brazil and India) to take the next step by making further concessions on non-agricultural market access and services. Brazil and the U.S. insist the E.C. must make more concessions on agricultural market access to move the overall negotiations forward.

II. THE PROCESS: modalities, schedules and timelines

In Hong Kong, WTO members set a deadline to achieve modalities by 30 April 2006. Modalities include all the details needed to draft a member's schedule of commitments. The schedule of commitments shows what a member's current level of bound tariffs are, as well as levels of support payments, and then shows how these will be reduced during the implementation of the agreement. Many of the rules and disciplines that members are negotiating, including disciplines on food aid, the blue box in agriculture, anti-dumping measures, the Special Safeguard Mechanism (SSM) and rules governing the GATS negotiations, are not directly related to the drafting of the schedule of commitments. In theory, anything that looks more like a rule or a discipline can wait to be decided until after the conclusion of modalities. For example, by April 30 countries have to agree which tariffs and support payments to cut by how much with which exceptions for all the issues under negotiation. However, a decision on whether or not to include a rule in the Agreement on Agriculture that prohibits the monetization of food aid is not needed for a schedule and can be decided at a later date without prejudice. Members aim to finalize these other issues by December 2006.

In practice, however, many of these rules and disciplines will affect the final schedules and what the real impact of new market access commitments will be. They cannot all be left, therefore, until members start to draft their schedules. The rules determining the new blue box in agriculture, for example, will be critical in determining deciding which payments the U.S. will be able to shift from the amber box (which is the most disciplined) to the new blue box, which will face much less strict reductions. In another example, the structure and rules for using the SSM will influence the extent to which developing countries commit to tariff reductions in agriculture and to their selection of Special Products (which will be exempt from most of the tariff cuts that other products will face). All this means there is still real uncertainty about exactly what members need to agree to complete modalities by 30 April.

A Ministerial Conference is not required to conclude modalities or to start drafting schedules. The General Council can take decisions on behalf of the Ministerial Conference (under Article IX of the Marrakesh Agreement Establishing the WTO). In practice, however, governments are determined to be involved in this level of decision-making because the questions around modalities are highly political. Ministers are increasingly present at key decision-making moments between official WTO Ministerial Conferences. However, this type of Ministerial involvement is often ad-hoc, includes only a select group of Ministers, and increasingly takes place in Geneva or at mini-Ministerial meetings; the July Framework Agreement of 2004 was a clear example of involvement of only some WTO member Ministers. Since there is no time to organize another Ministerial Conference this year, it is very likely that a small group of Ministers will continue to make decisions in this manner. To date it remains unclear if and when Ministers will be called to come to Geneva to finalize a deal. Few civil society organizations can come to Geneva on an ad hoc basis; for them the uncertainty implies that work at the national level is now critically important. Civil society should hold trade ministers accountable for their positions and ask for justification for the decisions expected to be made in Geneva in the next month or two - particularly given the pessimistic outlook for any kind of development outcome.

III. AGRICULTURE AND NAMA: pushing for convergence

At a mini-Ministerial meeting in Davos, Switzerland, on 26-27 January (on the sidelines of the World Economic Forum), ten WTO members decided to engage in a statistical exercise to test the effect of a narrow range of tariff cuts on agriculture and NAMA (see link below). They include, the U.S., E.C., Australia, Canada, Japan, Norway, Brazil, India, Egypt and Malaysia. In agriculture, the G-20 market access proposal is being used as the basis for the projections, with a variety of options for tariff cuts that reflect proposals from the U.S., E.C., G-20 and the Africa, Caribbean and Pacific Group (the ACP). In NAMA, a narrow range of coefficients (a number applied to a formula which determines the final tariff level) will be applied using a Swiss formula - an approach agreed in Hong Kong. The Swiss formula is the most drastic way to cut tariffs because it is designed to make steeper cuts on higher tariffs, so as to bring all the final tariffs closer to the same level. For developed countries the range of coefficients is 2 to15. For developing countries the range is 15 to 40. The U.S. will conduct the NAMA simulations and Canada will conduct the agriculture simulations for the ten countries. This exercise is meant to help push members towards convergence simultaneously in both areas of negotiation, rather than pressuring one Member or group of Members to take the first step. The ten countries are hoping that the simulations will produce results that will break the deadlock. The simulation results are expected on 28 February. The ten members are then expected to meet to discuss the results at a mini-Ministerial in London, 10-11 March.

It is unclear how these ten countries plan to involve the rest of the membership in their decision-making. The process is extremely exclusive and untransparent and many developing countries members are unaware of what is happening. Some members have taken it upon themselves to do their own simulations to prepare for any surprises that might emerge. Most developing country members however lack the capacity to undertake such simulations or even to track the developments within the select group of ten countries. The fear is that if this group does reach agreement, the rest of the membership will face significant pressure to accept the outcome.

In parallel to the exclusive and untransparent process taking place among the ten countries for agriculture and NAMA, the Chair of the agriculture negotiations, Ambassador Falconer, is conducting regular negotiating sessions. A week of negotiations on agriculture week took place 13-17 February. Ambassador Falconer distributed a series of questions to outline issues that still need to be resolved in the talks (see link below). Ambassador Falconer made some specific proposals, including that members use the G-20 proposal as a basis for amending the green box to include programs used by developing countries. He also proposed using a text drafted by the former Chair of the agriculture negotiations, Stuart Harbinson, as a basis for further negotiations on the issue of preferences. The text proposes that WTO members maintain, to the maximum extent possible, the margin of preferences; that a longer implementation period be given to products of vital export interest to developing country beneficiaries of preferences; and that Members who provide preferences undertake targeted technical assistance programs to support efforts to diversify the economies and exports of preference-receiving countries. Several Latin American countries rejected this proposal. These countries are generally excluded from existing preference schemes and view such schemes as unfair competition for their exporters.

Based on the discussions during the week, Ambassador Falconer said he is ready to start drafting "reference papers," which will be designed to evolve into draft modalities. In the next two weeks, Ambassador Falconer will write "reference papers" on export competition, in particular on food aid, State Trading Enterprises (STEs) and export credits, and on all the elements related to domestic support: the de minimis levels, and the amber, blue and green boxes (see link below to Glossary on the Agreement on Agriculture).

For a simple guide to key issues and countries in agriculture negotiations please see the "Matrix of Agriculture Negotiations" below.

IV. SERVICES: preparing for the onslaught

In services, the first cluster of negotiations ended on February 16th. Market access (done on a request/offer basis) and domestic regulation are the key issues of services negotiations. "Friends" groups (groups of countries with a common interest in liberalizing a specific service sector) are still formulating requests for the plurilateral negotiations and are expected to formally make their requests on February 28th.

Various Geneva sources, including the WTO secretariat, indicate that formulating plurilateral requests is more complicated than first expected, in terms of defining the parameters for the collective requests. Some of the demandeurs fear that the process will lead to low common denominators - in other words, that the joint demands will be less onerous than the bilateral demands. Why is this so? In a bilateral request/offer process, demandeurs can ask for far reaching commitments from other countries in the areas that interest them. In a plurilateral process, formulating the plurilateral request is requires a negotiation among the demandeurs (all the members of a friends group have to agree what they are asking for before the request can be made). The proposed requests have to be assessed by each member of the friends group to determine their willingness to match the offer themselves. With different regulatory regimes in place and different interests to be taken care of in the domestic context, the level of ambition can vary among the members of the friends group themselves, hence leading to a lower common denominator. It remains to be seen, how the plurilateral requests will look like, once they are presented.

According to Geneva sources, many of the qualitative benchmarks that were proposed last year by developed countries (such as removal of regulations that limit foreign ownership of local companies, economic needs tests or limitations relating to intra-corporate transferees), are resurfacing in the plurilateral requests. This means that benchmarks, which were successfully removed from Annex C at the Hong Kong Ministerial Conference, could return via the plurilateral requests. Developing countries need to be cautious in this respect. More importantly, WTO members should bear in mind that Annex C does not remove any of the flexibility contained in the GATS in relation to making commitments. Each country, and particularly developing countries should make use of the GATS flexibilities and make no commitments that will jeopardize policy space for development.

To date, plurilateral requests are expected for the following services sectors: financial services, telecommunications, energy, legal services, computer-related services, logistics, construction, distribution, maritime transport, environmental services (among others waste water), postal (express delivery), engineering, architectural services and Mode 4 (the movement of people across international borders). Members of friends groups are typically OECD countries and (in some cases) a few developing countries (India, Mexico and Chile). Target countries are typically larger developing countries, such as Brazil, Argentina, Colombia, Venezuela, bigger ASEAN countries (Indonesia, Malaysia, Thailand, Philippines), India, China, South Africa, Nigeria, Morocco and Egypt.

The first negotiating cluster based on the plurilateral requests will take place between March 27th and April 7th. Many demandeurs would like to dedicate the two weeks to market access negotiations. It is clear that at the end of March, the targeted developing countries will find themselves in a series of plurilateral and bilateral meetings on services. Additionally to the official services clusters, the E.C. seems to strongly advocate a stock taking exercise at the end of April, which has to be seen in light of the modalities negotiations in agriculture and NAMA. According to Geneva sources, the US, Canada, but also India seem to be open to such an exercise. Furthermore, the E.C. would like to see market access negotiations to be finalized already by the end of July.

In the area of "domestic regulation," the Chairman of services negotiations, Mexican Ambassador de Mateo, has been asked to present a "road map" (see link below), explaining how the talks will proceed. According to this road map, a first draft consolidated text on domestic regulation will be prepared for June. During the June services cluster, negotiations based on this draft will start. They will continue during the services clusters in the autumn. One of the key issues of the negotiations will be GATS Article VI:4. This article deals with the issue of qualification requirements and procedures, technical standards and licensing requirements and the requirement that these standards and requirements not constitute an unnecessary barrier to trade in services. Once a country has committed to open a services sector under the GATS, existing and future domestic regulation (such as qualification requirements) must not unnecessarily block trade, or they risk a complaint under the WTO dispute system. In practical terms, this means that existing and future laws and regulations relating to a country's services sector are subject to challenges at the WTO. This threatens a country's ability to decide it's the future of its services industries on terms wider than international trade concerns. Democratic institutions, including parliaments or local councils, will have to restructure their laws according to trade interests rather than the wider mix of economic, social and cultural concerns that should determine policy objectives.

For each of the services sectors under negotiation, different expertise is needed to assess the requests and to ensure no commitments are made that will undermine development. Civil society groups need to double their efforts in the sectors known to be targeted for negotiations, while continuing the current work on the GATS negotiations more generally. There is a good level of expertise already mobilized on public services (health, education, water, etc.) but there is a still a gap when it comes to liberalization of "infrastructural" services and their possible impacts as regards loss of policy space, impacts on employment, the quality of jobs, as well as on access to these services (see IATP's publication on the linkages between GATS and agriculture outlining some of the questions arising).

V. IMPORTANT DATES

28 February Results of Simulations on Agriculture and NAMA expected for ten WTO Members
10 March mini-Ministerial meeting, London, UK
20-24 March Agriculture Week
20-24 March NAMA Week
27 March - 7 April Services Week
30 April Deadline for concluding Agriculture and NAMA modalities
15-16 May General Council
16-19 May NAMA Week
12-16 June NAMA Week
26 - 30 June Services Week
28-28 July General Council

VI. DOCUMENTS

Methodology for Simulations on Agriculture and NAMA:
http://www.tradeobservatory.org/library.cfm?refid=78541
Contribution by Australia on Sensitive Products:
http://www.tradeobservatory.org/library.cfm?refid=78542
A Basic Approach to Sensitive Products:
http://www.tradeobservatory.org/library.cfm?refid=78639
Invitation to Agriculture Negotiations Week, 13-17 February 2006
http://www.tradeobservatory.org/library.cfm?refid=78497
Agriculture Negotiations - List of Questions from the Chair:
http://www.tradeobservatory.org/library.cfm?refid=78496
Statement by the NAMA Group of Developing Countries (NAMA-11):
http://www.tradeobservatory.org/library.cfm?refid=78466
USTR Paper on Implications of EU agriculture offer:
http://www.tradeobservatory.org/library.cfm?refid=78351
EU Response to USTR Paper "Getting the facts straight on the EU's agriculture offer in the Doha Round":
http://www.tradeobservatory.org/library.cfm?refid=78425
Doha Work Programme - Timelines for 2006:
http://www.tradeobservatory.org/library.cfm?refid=78407
G-10 Position on Domestic Support, January 2006:
http://www.tradeobservatory.org/library.cfm?refid=78405
G-10 Proposal: Treatment of Sensitive Products, December 2005:
http://www.tradeobservatory.org/library.cfm?refid=78404
Roadmap on Domestic Regulations and Calendar of Meeting for 2006:
http://www.tradeobservatory.org/library.cfm?refid=78652
Glossary on the Agreement on Agriculture:
http://www.tradeobservatory.org/library.cfm?RefID=37606
Matrix of Agriculture Negotiations:
http://www.tradeobservatory.org/library.cfm?refid=78651
Impact of GATS on Agriculture:
http://www.tradeobservatory.org/library.cfm?refID=77569


Carin Smaller
Project Officer, Trade Information Project
Institute for Agriculture and Trade Policy, Geneva Office
15 rue des Savoises Geneva 1205
ph: +41 22 789 0734
fax: +41 22 789 0733
csmaller@iatp.org
www.iatp.org
www.tradeobservatory.org