Doha package may unravel, WTO warned

The inability of the WTO membership to meet a 31 July deadline set by the Doha Ministerial Conference to take action on two areas of concern to the South has sparked fears that development aspects of the WTO’s work are being sidelined. At the General Council on 31 July, developing countries cautioned that the lack of progress on these two elements of the Doha work programme could throw off-course implementation of the entire package of commitments decided at last year’s Ministerial.

by Chakravarthi Raghavan

GENEVA: The hopes that any developing nation may have had in believing the promises of the Ministers at Doha when they launched the new WTO round were dashed at the General Council on 31 July when the US, the EC and Canada flatly refused to agree to two relatively minor concessions on textiles and clothing trade to developing countries facing export restraints, and to more flexibility in implementing WTO rules on special and differential (S&D) treatment.

While an actual confrontation on S&D has been avoided by extending a Doha-mandated deadline to the end of the year (see box on p. 4), it is clear that the industrialized countries are paying no more than lip service - with even less good faith than they had shown at Punta del Este (in launching the Uruguay Round) and Marrakesh (in concluding the Round and bringing the WTO into existence) - and that they intend to use the ‘promises’ of S&D to divide and rule over the developing world.

The General Council, acting on an oral report of the Chairman of the Special Session of the Committee on Trade and Development, Amb. Ransford Smith of Jamaica, extended till 31 December 2002 the deadline for its work on S&D.

On textiles, the Council for Trade in Goods (CTG) has been unable to make any recommendations on two implementation decisions referred to it by the Doha Ministerial Conference. The Doha Ministerial Decision on Implementation-Related Issues and Concerns had asked the CTG to examine proposals that Canada, EC and the US apply in a more liberal way the “growth-on-growth” elements on textiles and clothing quotas, and to make recommendations thereon to the General Council by 31 July for appropriate action.

The Chairman of the CTG, Amb. Supperamaniam of Malaysia, reported to the General Council on 31 July that there were fundamental differences between the exporting developing countries and the restraining importing countries on this issue, and the CTG could neither make any recommendations as called for by 31 July nor even agree on a report.

The total rejection of the two relatively minor implementation proposals on textiles and clothing, Stuart Harbinson of Hong Kong China told the General Council, “may have a negative effect on the Doha Development Agenda and will be seen as requiring rebalancing elsewhere in the Agenda.”

Harbinson is the chair of the International Textiles and Clothing Bureau (ITCB), the alliance of the textiles- and clothing-exporting developing countries. As Chair of the General Council in the run-up to Doha, he was principally responsible for the Doha ‘package’ (Ministerial Declaration launching negotiations under a new work programme, and the Ministerial Decision on Implementation-Related Issues and Concerns).

The warning about the unravelling and recasting of the Doha package was echoed (with varying nuances of language) by several developing countries including India, Pakistan, Brazil and China.

The General Council also agreed to extend the deadline for completing work on harmonization of the rules of origin (which under the Marrakesh Treaty was to have been completed by 1998). The report of the Chairman of the Rules of Origin Committee indicated that after the World Customs Organization (formerly Customs Cooperation Council) had done some technical work on this issue, some 93 issues need to be resolved by the Committee and the General Council, with the Committee identifying 12 core policy issues that need to be addressed and resolved by the Council. The General Council is to take these up at its first meeting after the summer break.

With regard to the implementation proposals on textiles and clothing, the Doha Ministerial Decision had referred to the CTG two concessions - which involve no change in the rules of the Agreement on Textiles and Clothing (ATC) but a more liberal interpretation as was the intent - to be made by the three major importing countries (US, EC and Canada) to provide “growth-on-growth” market access to developing countries whose exports are restrained.

At the time these proposals were put forward by developing nations (in the run-up to the Seattle Ministerial Conference in 1999, and envisaged to be effective from 1 January 2000), it was estimated that the quota-restrained countries would gain about $1 billion more of trade and export opportunities over the remainder of the ATC transition period (till end-2004).

Since then more than two years have elapsed, and the benefits in fact would be less (retrospective effects in such matters do not produce more exports retrospectively).

Nevertheless, the two proposals in the Doha work programme, which has been dubbed the “Development Agenda”, provided a ‘test’ of the good faith of the US, EC and Canada, and the majors have now demonstrated that the “development” part of the agenda was buried at Doha. They refused to budge and, as Hong Kong China’s Harbinson put it, to “take one more step beyond the absolute minimum legally required under the ATC.”

“Totally negative” response

In a very strongly worded statement at the General Council on 31 July, Harbinson cited the relevant parts of the Doha Ministerial Declaration (paragraph 12) and the Decision on Implementation (3rd and 4th preambular paragraphs and para 4.4 and 4.5 on the ATC issues), and said “the logical inference” from the wording of the paragraphs of the Implementation Decision and more general context on implementation “is that Ministers expected some progress to be made and some recommendations to eventuate.”

At the CTG, he said, the developing exporting members made clear that they were open to any other alternative means of making progress, however meagre, towards further progressive liberalization of trade in this sector, but the response from restraining members was “uniformly and totally negative.” They refused to take one more step beyond the absolute minimum legally required of them and the CTG examination “has sometimes seemed to be somewhat of a charade.”

Harbinson charged the three majors with citing data to mislead public opinion and policymakers. While they referred to a variety of data to claim that they were already opening up their markets very quickly and could not bear any further acceleration of imports, Harbinson said the imports into these markets were indeed increasing, but in a skewed way.

In the US market, in the clothing sector, imports had grown by 74% between 1994 and 2000, but this figure hid the fact that the increase from the restrained suppliers was only 44% while the increase from the unrestrained suppliers was no less than 220 percent. Even Canada, not noted for its natural comparative advantage, had recorded a 170% increase.

In terms of import shares in the US, that of the restrained suppliers had dropped from 83% to 69% over that period (and Hong Kong China’s from 12% to 7 percent). The share of the unrestrained rose from 17% to 31 percent.

The increase in imports from unrestrained suppliers was largely due to the “potent” combination of continued quotas, high tariffs and very restrictive preference-qualifying local content rules in preferential schemes. These preferential schemes often require considerable input from US domestic industrial sources, “another form of protectionism,” and create a culture of dependence among the ‘beneficiaries’ who might well be able to do a lot better in the open market.

These trends and ongoing protectionism also mean that little is being done to prepare domestic industries in restraining countries for liberalized trade in textiles and clothing. In fact their markets are being even more distorted as the end of the ATC transition period approaches.

Referring to talk of job losses, Hong Kong China said that the majority of these losses were “at the instigation of the US domestic manufacturers themselves,” trying to make the most out of regional preferential schemes tied to US inputs. “The traditionally restrained suppliers cannot be asked to bear the blame for this phenomenon.”

In the case of the EC, the share of the restrained members had fallen from 47% to 43.5% between 1994 and 2000, while that of non-restrained suppliers had increased from 53% to 56.5 percent.

“What is the justification for keeping under restraint exporters who now account for much less than half, and a declining share of imports - especially at a time when restraints have even been eliminated with respect to some non-WTO members?” asked Harbinson.

As in the US market, the restrained members should not be worse off under the ATC, with its commitment to progressive liberalization, than they were under the “much-maligned” Multi-Fibre Arrangement (MFA). (The MFA provided a special framework for restraints on textiles and clothing imports before the ATC entered into force.) But that appears to be the case, “undermining the legitimate expectations” many exporters had that the ATC would in fact bring about an improvement in their situation.

Harbinson also challenged the claim that the ATC had resulted in such an expansion of quotas that in practice there were no longer any meaningful restraints on trade. He cited the growth rates for quotas before and after the ATC to show there had not been any “significant additional access”, while the embargoes put on categories as a result of full utilization of quotas had been increasing.

On the argument (of the US and EC) that market access could be increased only on a reciprocal basis through lowering of tariffs by developing countries, Harbinson said that removal of the GATT-inconsistent quota restrictions could not be compared to lowering of GATT-legal tariffs, an issue that could only be addressed in the context of the tariff negotiations.

The sudden conversion of the US and EC to the cause of reciprocal market access in textiles and clothing was coming at a “suspiciously late time” - just two years before they were legally bound to eliminate the quantitative restrictions under the ATC.

As the CTG discussions had demonstrated, changes would not be needed in the ATC to give effect to the implementation proposals, but rather the undertakings and promises given by governments of the restraining countries to their domestic industries, Harbinson said. It all came down to the fact that the restraining members refused to budge.

Hong Kong China had never had any illusions or false expectations as “we are only too familiar with the extraordinary power of the textiles lobbies in the importing countries and the peculiar susceptibility of the governments concerned to their arguments.” HKC had not expected any substantive benefits, and had not been disappointed.

However, declared Harbinson, who had played a key role in formulating the Doha package and its adoption, a number of developing countries had implementation concerns regarding some of the Uruguay Round agreements, including the ATC. “They joined the consensus to launch the Doha Development Agenda partly on the basis that these concerns were being addressed; and that there is no doubt that textiles and clothing is a key sector for their development.”

“We are accordingly concerned that the total rejection of these proposals may have a negative effect on the Doha Development Agenda and will be seen as requiring a rebalancing elsewhere in the Agenda. Seen in this light, the subject of ATC implementation is of interest not only to those directly concerned with the trade, but to the wider membership.”

Citing the ITCB Council’s Hanoi communique (23 May) that the engagement of developing countries in the Doha Development Agenda is predicated on full delivery of the Uruguay Round legacy, in particular the full and faithful integration of the textiles and clothing trade into normal WTO disciplines, Harbinson said that the CTG had been unable to make any recommendation and thus had not fulfilled its mandate. The proposals were now back in the domain of the General Council, performing as it did the functions of the Ministerial Conference in intervals between the Ministerial meetings.

In their interventions, the US and the EC made clear they were not prepared to move an inch. Both claimed that they had faithfully implemented their obligations under the ATC and in volume terms had integrated products and brought their trade under normal WTO rules. Both cited a variety of figures to claim that the trade of the restrained members had in fact increased in their markets, and claimed that the data cited by Harbinson and the ITCB members were erroneous.

The US claimed that the value of its imports from the ITCB members since the ATC had increased faster than total imports. The implementation proposals would call for “billions of dollars of additional access” for certain exporting countries, and would harm the small suppliers and be extremely disruptive of the US industry and its adjustment process.

The EC cited figures in euros to show that the exports of the restrained members had increased, showing a growth in quotas. In some categories there were also unutilized quotas. The markets of the developing countries had not been open to the clothing and textile exports of the EC, due to their high tariffs, and any concessions to these countries could not be justified.

However, said Harbinson in a reply at the end, all the data cited by the ITCB were based on data circulated by the WTO secretariat at the request of the US, while the data cited by the three majors were based on different sources and also used different currencies for value of trade.

ITCB sources said the US figures claiming increased growth in imports from ITCB members included data for Mexico, which is an ITCB member but whose quotas are not restrained under the North American Free Trade Agreement (NAFTA, to which both Mexico and the US, along with Canada, are parties). Also, Canada used the value in Canadian dollars, and the EC in euros - both of which, because of currency fluctuations and changes, showed different data than when measured in US dollars.

Harbinson also said that the US talk of hardships caused by imports to its industry and workers was highly misleading and aimed to mislead public opinion and policymakers. The fact was that imports were increasing in the US from the unrestrained exporters and not from the restrained members of the ATC.

On the EC argument about lack of reciprocal market access, Harbinson pointed out that Hong Kong China had no quota or tariff restrictions, and if the EC argument were to be credible, all the quotas against Hong Kong should have been removed. The fact of continuing restrictions showed that the linkage was “hollow.”

Development dimension jettisoned

The Indian ambassador K.M. Chandrasekhar stressed that the textiles and clothing sector was a major segment of the economy of several developing countries, generating both employment and export earnings. India’s textile sector, for example, accounted for 35 million jobs directly and another 58 million indirectly. There had been lack of meaningful integration under the ATC of restrained categories. Also, there had been unjustified anti-dumping actions on products subject to quotas, as well as other restraints through customs and administrative formalities including changes in rules of origin.

All these had affected the market access of developing exporting members - and with most quotas to remain in place until the very end of the ATC transition period, rather than the “gradual and progressive phase-out” of quota restrictions called for. In India’s case, 95% of its apparel, fabric and yarn trade with some of its major trading partners would remain unintegrated even after the third stage of the transition period. The two textile tirets under the Ministerial Decision on Implementation were part of the overall package negotiated by Ministers at Doha; if the intention had been not to take action on them, the Ministers would not have incorporated them in paragraph 4 of the Ministerial Decision, and this would have impacted on the other decisions at Doha and resulted in a different package.

“The Doha work programme constitutes an overall package, with emphasis on development; and the message coming out is that the development dimension has been jettisoned after Doha,” Chandrasekhar said, referring to the failure of the CTG to make any recommendations on the ATC issues and the inability of the Committee on Trade and Development to complete its work on S&D by the 31 July deadline.

Warned the Indian ambassador, “if the package negotiated at Doha is interpreted and recast in the post-Doha process at Geneva in such a manner that the development aspects are sidelined, it will inevitably have its impact on other aspects of the negotiations and discussions also. Any attempt to drive the Work Programme forward at two speeds - at a faster pace for areas of concern to developed countries and at a lower pace for areas of concern to developing countries - would lead to the unravelling of the package and create roadblocks in the process, which, in the interest of the future of the multilateral trading system, we must seek to avoid at all costs.”

On the S&D issue and work programme of the Committee on Trade and Development, Chandrasekhar said the Doha programme was a composite package with a carefully negotiated sequence of events and clearly defined deadlines and substantive issues about the content. The Doha programme set out certain events to take place in July and December 2002, March and May 2003, and at the 5th Ministerial Conference.

The July deadline for S&D had now been missed, and there were no recommendations on the textile tirets of the Ministerial Implementation Decision. A “very negative” signal had been sent out to all developing countries, which were now beginning to look at the statements about the development dimensions “with a good deal of scepticism, disbelief and disillusionment.”

The lack of progress on these issues led to other inescapable conclusions, namely that “the deadlines laid down by Ministers are flexible and can be changed by delegations at Geneva ... even the meaning of the decisions by Ministers can be altered ...”

“If deadlines are missed and the work spills over to later periods, obviously there would be a serious impact on the ability of delegations to deal with other issues in a time-bound manner, and this would impact adversely on other deadlines,” India said.

India also expressed its concern about the delays in harmonizing the rules of origin in the agriculture and textile sectors and other specific areas like footwear and marine products. Rules of origin should not confer artificial origin merely on considerations of trade interest, but should be based on the principle of last substantial transformation. In sea fishing, the rules of origin should be harmonious with the rights of coastal states flowing from the Laws of the Seas. India was also concerned over the efforts to alter the balance of rights and obligations under the Agreement on Rules of Origin, by the so-called “implications debate”, which has been referred to the General Council as a core policy issue. India was not sure of the direction this debate was taking, but was under the impression that some members wanted the harmonization of non-preferential rules of origin (required under the Marrakesh Agreement) to become optional. This would open the floodgates to disputes and would alter the balance of rights and obligations.

“Negative signal”

China regretted the failure to adopt any recommendation on the textiles issue. This was an important implementation issue of great interest to developing countries, and part and parcel of the Doha Development Agenda. The failure was difficult to reconcile with the commitments at Doha.

“The unsatisfactory implementation of the ATC over the past 7-1/2 years had greatly weakened the confidence of developing countries in the multilateral trading system. The failure to adopt the two proposals will send a negative signal to the outside world about the inability of the multilateral trading system to address problems and concerns of developing countries. It will unavoidably affect their enthusiasm for other issues on the Doha agenda.”

Brazil said that in the context of the so-called “development round”, one would have expected a little more flexibility on the part of the restraining members, but “unfortunately legitimate expectations have not been met.” The failure to agree on the two proposals amplified the serious dissatisfaction of developing countries with the results of this exercise on implementation, more so when one took account of the fact that “lack of results in implementation until now has been the rule, not the exception.”

Brazil also complained over the failure to reach a decision under implementation on the issue of countervailing duties under the Agreement on Subsidies and Countervailing Measures. Merely because a proposal is labelled an implementation one did not mean it should not entail amendments to the WTO agreements, and more so in the context of para 12 of the Doha Ministerial Declaration.

Independently of the treatment given to these issues of countervailing duties, Brazil would come back to them in the appropriate fora. The status of these issues remained unresolved. The mandate to review the provisions of the Agreement on Subsidies and Countervailing Measures and report to the General Council by 31 July had not been fulfilled. The Committee had not even been able to present a consensus report, but only an oral one from the Chair.

Bangladesh also deplored the CTG’s failure to reach an agreement and make an appropriate recommendation, and underlined that the Doha Declaration was a compromise. It was regrettable that two major restraining countries had not given any effect to the specific concerns of the least developed countries (LDCs). The implementation issues were an important part of the Doha work programme and the members must continue to find a solution.

Pakistan said that with the CTG having failed to make any recommendation, the General Council must play its role and fulfill the Doha mandate.

The Chairman, Amb. Perez Castillo of Uruguay  (who  chaired  the  meeting in the absence of the General Council Chair, Amb. Sergio Marchi of Canada), summed up the discussions and noted the strong views on both sides but drew no conclusions, nor did he indicate how the General Council would proceed. (SUNS5174)

From Third World Economics No. 285 (16-31 July 2002)