Global Trends by Martin Khor

Monday 21 July 2008

Contentious WTO talks kick off

The high-stakes high-level talks at the World Trade Organisation have kicked off, with the Ministers from Brazil and India briefing the media on the need to alter the texts on the table that are unfair against developing countries. Can the “unequal rate of exchange” be corrected during the week ahead?


High level talks among trade Ministers and senior officials kick off at the World Trade Organisation in Geneva today in a last attempt to salvage the eight year old Doha Round.

On Monday morning an informal meeting of the WTO’s Trade Negotiations Committee will begin, with the officials giving their views on the key issues should be resolved, including agriculture, trade in industrial products (known as non agriculture market access or NAMA), services, and intellectual property.  

And in the afternoon, Ministers from about 30 selected delegations, including Malaysia, will convene in a “Green Room” meeting for what are considered the real negotiations.

In the secretive world of WTO talks, the list of countries invited to the “Green Room” is not made public, nor is there a formal record of what transpires in the “informal meetings”.

This is expected to be one of the many problems this week. Officials of many countries have been voicing their concerns about the “lack of transparency” of the process, and want to know how those that are not invited to the exclusive Green Room meetings will get to know what is going on. 

More important, how can they get the opportunity to participate in decision-making if they are not allowed to be present or to watch or hear what transpires in the small group?

At stake are important issues of the creation or changing of rules and parameters that affect the production and trade of agricultural and industrial products as well as services in the WTO member countries and globally.

The events of the week kicked off on Sunday with several preparatory meetings of Ministers in various groupings, such as the Group of 33, Group of 20, the small vulnerable economies, the Cairns Group and so on.

On Saturday, the Brazilian Foreign Minister, Mr. Celso Amorim, a key player in the WTO talks, gave a press conference in which he warned that there are basic imbalances in the latest texts on agriculture and NAMA (prepared respectively by the New Zealand and the Canadian ambassadors) on the table.

This is because of the different mindsets driving the negotiations, said Amorim.  In agriculture, the main aim of talks in recent months was to cater to the needs of developed countries to protect their markets (through subsidies and lenient tariff cuts for their sensitive products). 

And in NAMA, the mindset was to have maximum access to the markets for industrial goods of developing countries (by getting them to open up through steep tariff cuts, and constraining their flexibility for lenient treatment of some products).

Meanwhile, the Indian Commerce Minister Mr. Kamal Nath told Indian journalists in Geneva that he had made clear to the American and European top officials that if India’s sensitivities are not respected, there can be no deal.

He opposed the double standards of developed countries wanting “carve outs” (special treatment or exemptions) for themselves to continue to protect the prosperity of their  rich farmers, while what is important for India and other developing countries is to defend the livelihood of their poor farmers.

The opening blasts from the Ministers of the two countries that have been the most active from the developing world, reflect what many believe is a bias towards the developed countries in the draft texts on the table.

It was Amorim, the Brazilian Minister, who a year ago in the failed talks of the so-called G4 (USA, European Union, Brazil and India), first described the demands coming from the developed countries as an unequal "rate of exchange". 

The two major developed country members of the WTO wanted to give each other a "comfort zone" in not having to take on any significant obligations in agriculture, while still insisting on very high industrial tariff cuts in developing countries, he had then said.

This unfair “exchange rate” still persists in the latest drafts.  This is glaringly shown in the treatment of agricultural domestic subsidies of the rich countries, and the industrial tariffs of both sets of countries.

The agriculture text continues to propose that the US reduce its allowed overall trade distorting support (OTDS) to a range of $13-16.4 billion.  The US had indicated in WTO agriculture talks that it could consider the upper part of that range.

Even if it offers the lowest number in the range, this is still significantly higher than the reported $7 billion of its actual OTDS in 2007. Kamal Nath of India has demanded that the US agree to bring down its allowed OTDS to $7 billion minus one dollar, to symbolize that it is committed to actually cutting its subsidies.  But this will most likely to rejected by the US.

Meanwhile, on industrial products (or NAMA), the Chairman’s text calls on developing countries to take on a mid-point coefficient range of 21-23 and the developed countries a coefficient of 7-9 in a formula to cut industrial tariffs.

It is very difficult to understand the formula and its coefficients, which makes the NAMA negotiations hard to figure, which is part of the problem.

A quick calculations shows however the unequal treatment of rich and poor countries.

Assuming the middle coefficient of 7 for developed countries, the US, European Union and Japan would have to cut their industrial tariffs by an average of only 28% (i.e. 33% for the EU, 29% for the US and 22% for Japan).

 On the other hand, if a coefficient of 22 is used for a developing country like Brazil with an average tariff of 31%, there would be a cut in average tariff of 58% (from 31% to 13%). For India, with average tariff of 34%, the cut would be 61% (from 34% to 13%). For Indonesia, with an average tariff of 36%, the cut would be 62% (from 36% to 14%).

The average cut for these three countries is 58-62%. 

Malaysia’s average bound tariffs for industrial products is 14.9%.  A coefficient of 22 would mean that this average would be reduced to about 9%, or by 41% ( a steeper reduction than the major developed countries have to undertake).

In other words, the coefficients would result in some major developing countries having to reduce their bound industrial tariffs by twice the reduction rates of the major developed countries.  They are worried the steep tariff cuts will mean cheaper imports that will adversely affect their local industries.

The Chair’s proposal would mean special and differential treatment in reverse, i.e. for developed countries rather than developing countries.

The developing countries can be expected to counter the “unequal rate of exchange” in this week’s talks, just as the developed countries will try to press on with their advantages.

Will any positive results be achieved by the end of the week? It’s anybody’s guess.