Anti-development in substance and process

Cancun 13 Sep (Martin Khor and Teteh Hormeku) - The revised ministerial draft is “deeply flawed, and seriously anti-development in substance and process.”

If adopted, it would bury the so-called Doha Development Agenda (DDA) and convert it to the Doha Anti-Development Agenda (DADA).

On the Singapore Issues, about 70 developing countries (including members of the LDC Group and the Carribean Community, India, China, Malaysia, Egypt, Indonesia, Nigeria, Philippines, Botswana, Cuba, Venezuela, Zimbabwe, etc) on 12 September had formally presented a letter to the Facilitator of the Singapore Issues Working Group (Canadian Minister Mr. P. Pettigrew of Canada) and the Chairman of the Conference (Mexcan Minister L.E. Derbez) stating they are “of the firm view that there is no option to pursue other tham the continuation of the clarification process.”

Attached to the letter were annexes with language on each issue stating that with absence of explicit consensus, there is no basis to commence negotiations on the four issues And clarification should continue. This was sent by Indian and Malaysian Ministers on behalf of the entire group.

Despite these well known views, the Draft mandates that negotiations clearly begin on two issues, i.e. transparency in government procurement (para 16) and trade facilitation (para 17). And negotiations are also launched in a thinly disguised way on the other two issues, i.e. investment and competition.

The annexes to these (Annex D, E) contain so-called “modalities” that have never been discussed, let alone accepted by Members. They also deal merely with procedures and very little with substance, and thus on many counts fail the test of being “modalities”, let alone the required test of enjoying explicit consensus on modalities. Moreover, the annexes are even worse than the versions in the first revised text (24 August).

In Annex D (Tranparency in Govt Procurement), it is mentioned that any coverage of the agreement beyond goods and central government entities is not prejudged.  The applicability of DSU is not prejudged. Transparency of domestioc review mechanisms will be included. These go against the views of many developing countries in the working group discussions that any possible framework should be confined to goods and central government, domestic review mechanisms should not be included and and the DSU should not apply. The Annex certainly does not contain modalities on these and hence cannot provide any consensus.

On investment (para 14) , there is a pretence that the Draft does not launch negotiations, but in fact it does. This is by virtue of: (a) the convening of the working group in special session (i.e. the term “special sessions” in WTO connotes that negotiations are involved); (b) mention that consideration is given to the relationship of negotiations to the Single Undertaking; ( c) mention that modalities allowing negotiations on a multilateral investment framework shall be adopted by a unspecified date.

Moreover a significant footnote says this date coincides with dates for agreeing on agriculture and NAMA modalities. This footnotes thus directly links the agriculture, NAMA and investment issues.

This is outrageous because most developing nations have said the investment issue should be considred on its own merit and should not be linked to other issues. This linking will dangerously imply that there will not be progress in developed countries’ commitments to reduce or eliminate their agriculture protection unless or until they get the modalities for an investment agreement that they want.

The text thus not only mandates negotiations on investment but establishes a linkage so that progress on agriculture negotiations is held ransom to the establishment of modalities for an investment agreement that the major countries want!

On competition (para 15), the tricky wording also implies a push towards negotiations is mandated through mandating consideration of modalities for negotiations by a certain date which, through another footnote, is also linked to coincide with the date for agreeing on agriculture and NAMA modalities.

It is astonishing that despite these views in the meetings, and in formal letters, trade officials and sponsors and demandeurs have been spreading misinformation about this or that country changing its position, and such misinformation finding its way into the media.

In contrast to this approach on Singapore issues, the agriculture text (para 4 and Annex A) maintains the same imbalances and problems contained in the previous draft. There are thus no basic changes. Thus the views of large numbers of developing countries that have criticized the 24 August draft and put forward their own proposals have been ignored.

The developed countries would be allowed to maintain or even increase domestic support and elude elimination of export subsidies and credits, whilst imposing even steeper tariff cuts on developing countries and providing less S and D aspects to them.

On domestic support, there is hardly any change. Developed countries will be able to retain their high subsidies and indeed to raise them, as the Blue Box category continues to be maintained, and there is no assurance that the Green Box will be adequately disciplined. There is no cap on the Green Box, only a reference to reviewing its criteria. It is likely the developed countries can continue to maintain or even increase their overall domestic support by switching from one kind of subsidies to other kinds.

On market access, the blended formula for developed countries (originally proposed by the EC-US) remains. This enables the major countries to place their high-tariff items in a category (i.e. category i) for lower tariff cuts and thus elude removing tariff peaks which block developing country products. Para 2.2 seems to address tariff peaks by placing a cap on tariffs, but there are two escape clauses: (a) a choice of capping at that maximum rate or instead providing extra market access in other areas, and (b) additional flexibility given to items designated as having non-trade concerns.

The text shows how badly developing countries are treated in market access. They are subjected to even more disciplines and tariff reductions than the previous draft, even though many of them made demands to expand S and D treatment. The major developed countries on the other hand insisted that developing countries commit to opening their markets more, and the revised draft has bowed to their influence. This is most unfair because many developing countries are already suffering from increases of agricultural imports (artificially cheapened by subsidies) and the only tool they have (i.e. tariffs) to counter unfair competition from the rich nations is being removed very significantly through the Draft.

Some of the glaring instances of the negative aspects include:

Para 2.7 of the Draft imposes a blended formula on developing countries which is even more severe than the previous draft. They now have to reduce some tariffs by an average formula (which is not so steep), but another portion (probably much larger) of tariffs will be subjected to a Swiss formula. Under this formula, the higher the tariff, the steeper will be the cut; and since many developing countries have rather high agriculture tariffs, they will be subjected to steeper cuts. Under a third category, some tariffs have to be brought down to 0-5 percent.

Thus for a majority of tariff lines, developing countries will have to very significantly reduce their tariffs. Since developing countries have little or no capacity to provide subsidies, this serious erosion of their ability to use tariffs to protect farmers against imports will have severe adverse implications on rural livelihoods and poverty eradication objectives. In the previous draft the obligations were bad enough but there was a flexibility for developing countries whether or not to have the Swiss formula applied to them. This flexibility is now removed.

There is very inadequate treatment of Special Products (SPs) and Special safeguard mechanisms (SSMs) in the draft. More than 30 developing countries had formed an Alliance for SPs and SSMs in Cancun to press their case for strong SP and SSM mechanisms, in which they can self-select certain products as SPs which would not be subjected to tariff cuts, and in which an SSM can be used in a simple and effective way to counter import surges (reflected in an increase in import volume, and/or a decrease in import prices). This is required to protect farmers’ livelihoods and food security. The draft mentions these two concepts in a very inadequate way. SPs are only mentioned in 2.6 (I) where the following restrictions apply: (a) they can only be selected from one category of products which are a minority; (b) there will be conditions attached, which are to be determined. On SSM, there is only a mention that its establishment will be “subject to conditions and for products to be determined. This opens the road for so many conditions and so few products to qualify that in the end the mechanism will have limited use.

On export competition, the draft remains and so too are its weaknesses. The text basically adopts the US-EU proposal, in which both parties agree to tolerate each other’s protection in equal measure (making use of the term “in parallel”).  Thus there is no date placed for elimination of subsidies, nor of credits. This violates the Doha mandate that export subsidies will be reduced with the aim of phasing them out. Now the draft states that “the question of the end date for phasing out all forms of export subsidies remains under negotiations.”

The Draft is extremely dangerous for developing countries. There is hardly any change for the better from the previous draft, despite the demands by many of them in the Cancun negotiations.

On NAMA (Annex B), the para 3 retains the directive that the negotiating group continue work on a non-linear formula applied on a line-by-line basis. This dictates that there be steeper and steeper percentage tariff cuts, the higher the tariffs. Many developing countries have and require higher tariffs to protect their small industries. The non linear formula will drastically reduce their tariffs and threaten the industries.

In Para 4 tiret 2, unbound tariff lines are to be subjected to the non-linear approach, after they are bound at (twice) the applied rate. This would have very serious implications for many countries. It would mean that after the exercise, (a)  the presently unbound tariff lines will be bound, and (b) in many cases the new tariff rates would be below (and in some cases significantly below) the present applied rate. The flexibility for raising applied rates would be eroded.

Para 6 on the “sectoral tariff component” (i.e. accelerated tariff reduction eventually to zero) retains its controversial line that “participation by all participants will be important”, implying it will be mandatory. This is against the demand by most developing countries that such a scheme should only be voluntary. It would commit developing countries to eliminate tariffs on seven sectors or more, many of which contain local industries whose survival would be seriously threatened. (Annex B does not state which sectors are involved, and thus the door is open to cover more than the 7 sectors mentioned in the proposal of the Chairman of the NAMA Group in Geneva).

The paragraph on the sectoral initiative on cotton (para 27) is a travesty of the proposals put forward by the West African cotton producing countries. It completely ignores their two demands: a) elimination of cotton subsidies by the developed countries and (b) financial compensation for loss due to the subsidies.

Instead, in line with the attitude adopted by the US, the paragraph disperses the issue of cotton to be addressed by various negotiating bodies - Agriculture, NAMA, and Rules. Even here, the Chairman is instructed simply to consult with Chairs of these bodies to address the impact of distortions in the cotton sector - including textiles, fibres, clothing etc.

There is reference in the Agriculture annex to product-specific AMS which may be interpreted as being relevant to the cotton issue. However, the proposed measure here is to cap existing subsidies at their current average levels, rather than their elimination as demanded by the West African countries.

Furthermore, under the paragraph on cotton, members simply pledge their discretion under Annex A to avoid making reductions in domestic support for cotton. This is another example of the use of best-endeavour clause which has not served developing countries in addressing their problems.

The WTO head is also instructed to consult with bodies like the World Bank and the FAO to direct existing programmes and resources toward diversification of the economies from cotton dependency. This side-steps the issue of financial compensation. No new funds or resources are to be made available, but existing resources are to be diverted. Moreover, the existing resources are to be diverted not into addressing the financial and other losses arising from cotton subsidies, but towards structural adjustment.

The West African countries are short-changed. Their issues are inserted into other areas where proposed frameworks for negotiation are totally antithetical to their needs.

In effect, the paragraph on Cotton does not address the concerns of the West African countries. It uses those concerns to commit these countries into negotiations in other areas and on the parameters of the US and EU.

On Special and Differential Treatment (Para 12), the previous draft’s para on S &DT was found to be deficient by many developing countries. They proposed changes to that draft, including: (a) clarifying that the Committee on Trade and Development in Special Session established by the TNC is the appropriate body to deal with S and D issues (b) setting a deadline of March 2004 by which specific proposals are to be reported to the General Council; ( c) outstanding issues should also be pursued.

The new Draft does not take into account these proposals. By not being clear on the appropriate bodies to deal with S and D issues, and by not setting deadlines, the Draft leaves the S and D issue in a diffused state, without a deadline, and a clear reaffirmation that it is part of the Doha negotiating mandate covered by the single undertaking.

On implementation, the revised draft ensures that the issue, part of the Single Undertaking, is removed from that, and buried in the General Council for report to the next ministerial. – SUNS5418

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