Global Trends by Martin Khor

Monday 7 February 2005

Uphill task to meet WTO deadlines

A side meeting of some Trade Ministers at Davos seems to have set an ambitious target to conclude the current WTO round of negotiations by 2006, and reach basic agreements on “modalities” by the Hong Kong Ministerial meeting this December.  But this will be an uphill task as major differences remain in all the key issues being discussed.


The meeting of world political and business leaders at Davos, the Swiss resort town, a fortnight ago, may have been media-upstaged by movie celebrities like Sharon Stone (who raised a million dollars from the floor to buy mosquito nets for Africans), Angelina Jolie and Richard Gere.

Less publicized but more significantly, Davos was also the venue of a “mini-Ministerial meeting” of Trade Ministers from 23 countries, including Malaysia.

The one-day meeting, on 29 January, was organized by the Swiss Economy Minister Joseph Deiss, to “kick start the political process” to get this year’s negotiations at the World Trade Organization on the right track.

What happens this year is important to the WTO’s image as it will hold a Ministerial Conference in Hong Kong in December.  The WTO is infamous for having had two well-publicised failed Ministerial meetings (in Seattle in 1999 and in Cancun in 2003) and it would be a blow if the Hong Kong meeting were also to break up in acrimony.

The WTO leadership thus want a road map between now and December to ensure a success in Hong Kong.  But the countries are divided on most issues in the current round of talks (known as the Doha programme) and even on what would constitute “success” in Hong Kong.

Last week, the first negotiations of the year took place at the WTO,  on how to cut import tariffs on manufactured goods.  There was little agreement.   The rich countries were strongly pushing for deep tariff cuts for all products in developing countries, so that their firms can gain greater access to the developing world’s markets.

But many developing countries, whilst not objecting to some liberalization, are against having to bind all their tariffs and to cut them steeply all at once.  They fear that many local products will not be able to compete with the cheaper imports, and some local industries would close, throwing workers out of their jobs.

Thus, a ding-dong battle went on last week, on how many products the developing countries would have to commit through “binding” of the tariffs, what formula to use to cut the tariffs, and whether they must be part of a “sectoral approach”, in which tariffs are brought to zero in many selected sectors. 

Although most people look at trade negotiations as technical and boring, many  governments now realize that decisions taken there can have serious effects on the national economic and social situation----for better or worse.

Unlike the past, it is harder now to push everyone to sign on to agreements they do not understand, or that have detrimental effects to their countries..

The current WTO round involves many issues, key among which are agriculture, industrial goods, services, and the development issues (special treatment for developing countries, and solving their problems of implementation of the rules). 

The round was to have ended in December 2004, but that deadline has passed.  A new deadline has to be set and at Davos the Swiss Minister said he sensed at the meeting that  the round could end in 2006. 

For that to happen, the Hong Kong meeting must agree on “modalities” on how to liberalise trade in agriculture and industrial goods, and there should be good progress in services liberalization and on the development issues.

Given the differences on all these issues, most analysts think it is impossible for the talks to conclude in 2006.  Thus, setting such ambitious goals for the Hong Kong meeting may be unwise, as the scene may be set for another collapse.

According to a senior WTO official, if there is no basic agreement on the key issues by July, it is better to let Hong Kong be a low key affair.  Otherwise there would be very tense negotiations in Hong Kong, risking another Cancun-like breakdown that the system could not afford.

To have decisions made quickly, the developed counties want to have a group of Ministers to drive the process, instead of leaving the work to the Geneva diplomats.  They want more “mini-Ministerials” like the one in Davos.   Already there are plans for such meetings in Kenya in March, Paris in May, Beijing and Seoul in November.

But most countries are not invited to join this process.  As in the past, many of them are likely to resent being left out.  This will revive the old charge that the real decisions are taken by a few countries, whilst everyone else is pressurized to go along.

The timeline announced at Davos (the round to end in 2006, and the main aspects or modalities to be ready this December in Hong Kong)  must be considered very optimistic, considering the complexity of and differences of positions on the issues.

At a deeper level, there is a deep difference of overall perspective between developed and developing countries.  The former claim they are making sacrifices in reducing agriculture subsidies.  In return, they demand that the developing countries open up their markets in agriculture, manufactures and services. 

The developing countries, on the other hand, do not see the developed countries’ agriculture commitments as being significant yet.  For example, the date for ending export subsidies is not yet agreed on.  There is also a suspicion that there would not be any effective cuts in their domestic subsidies.

In any case, the developed countries had already promised to liberalise their agriculture in the last Round, and in exchange the developing  countries had made sacrifices by agreeing to new agreements on services and intellectual property which are to their disadvantage.

From the developing countries’ perspective, it is unfair that having already paid once, they are asked to pay again.  In agriculture, the rich countries’ subsidies will remain while the developing countries are asked to lower their tariffs, thus risking their farmers’ livelihoods being ruined buy cheap imports.

On industrial goods, the developing countries perceive they face a “united bloc” of the North that wants to drastically slash their industrial tariffs through a drastic formula and to also have them bind almost all their tariffs, and at low rates.  These would take away the flexibilities they now enjoy to reduce their tariffs at their own pace.

On services, the developed countries are also aggressively seeking to open up many sectors in the developing countries.  But the latter are cautious about opening up because they don’t want their local firms to be over-run by giant foreign service enterprises. 

On the “development issues”, which were supposed to have the highest priority, in fact very little has been achieved as the rich countries are most reluctant to engage..

There is a real danger that the existing imbalances in the WTO rules will remain, and will indeed  worsen, even though this has been dubbed a “Development Round.”

With so many issues to cover, and so many divisions, it will thus be a really uphill task for the ambitious targets to be met---to end the Round by 2006 and to have basic agreements on most topics by this December at the Hong Kong meeting.