Global Trends by Martin Khor

Monday 5 Dec 2005

Development hopes fade at WTO

The World Trade Organisation last week adopted a draft Declaration that will be negotiated at its Ministerial conference in Hong Kong starting 13 December.  This is supposed to be a Development Round, but hopes for development are fading as the rich countries insist on using it to open the markets of developing countries instead.


At the WTO’s Ministerial conference in Hong Kong on 13-18 December, there will be many expressions of disappointment that the Doha round of negotiations has not lived up to its “development” name.

This widespread feeling is shared by officials of developing countries and many non governmental groups, thousands of which will be in Hong Kong.

Last Friday, the WTO agreed on a draft Ministerial declaration that will be brought for negotiations in Hong Kong. It will mainly contain only progress reports on how the talks are going in various areas. 

The only report finalised by the WTO members themselves is on trade facilitation.  Malaysia’s Ambassador to the WTO, Muhamad Noor Yakub, chairs this group and has been congratulated for managing this feat.

The WTO members could not agree on the content of the other main reports.  On  agriculture and non-agriculture market access (NAMA), the reports will only carry the name of the Chairmen of the groups.  

And on the contentious area of services, there is disagreement on many items in the text drawn up by the Chairman.  So the draft for Hong Kong will denote (through a bracket) that there is no agreement and the section on services will be opened for re-negotiation in Hong Kong.

It is clear that the WTO talks are stuck.   Developing countries and NGOs alike are worried how the rich countries have derailed the development goals.

The Round is no longer about development but about opening up the markets of the developing world. The fear is that the outcome will be counter to development goals, with millions of small farmers dislocated and local industries losing their business or disappearing.

When the Doha talks were launched in 2001, it was proclaimed that the needs and interests of developing countries would be at the centre of the work programme.

At the top of the agenda were two items directly involving development concerns – strengthening special and differential treatment for developing countries, and resolving the problems from implementing the WTO agreements. 

Over a hundred proposals were forwarded in each item, asking for reforms in the major WTO treaties, which were found to contain imbalances. Four years later, hardly any proposal of significance from these two items have been resolved. 

Then there was supposed to be a strong development dimension in the talks on agriculture, NAMA and services.  This means two things: increasing export opportunities for developing countries, and enabling them to have “special treatment” so that their firms and farms are not required to compete with imports and foreign firms, before they are ready.

Unfortunately, as the Indian Commerce Kamal Nath has put it, the WTO talks are in danger of becoming not a Development Round but a Market Access Round.  Developing countries are being pressed to open up all sectors of their economy.

And at the same time, the rich economies are still very reluctant to liberalise in areas that can benefit developing countries, especially agriculture and the movement of labour services

This is at the heart of the deadlock.  Developing countries want the rich countries to give up their subsidies and open up in agriculture, as they promised to do in the last Round, but in practice did not.  But developed countries, on the defensive, are pushing the developing countries to quickly open up their agriculture, industrial products and services. 

Due to the impasse, expectations that the Hong Kong Ministerial will produce full “modalities” (the formulae and numbers for reduction of subsidies and tariffs) have been lowered.  But the NGOs – and quite a few governments – are worried that in the pressure cooker atmosphere of WTO Ministerials, the developed countries extract commitments from developing countries while giving very little away themselves.

Agriculture should be at the centre of this Round, with rich countries cutting their subsidies and tariffs.  So far, their proposals have been inadequate.  Experts find there would be little if any real cuts in domestic subsidies and little gain in market access, unless the US and EU offers are much improved.

At the same time, most of the proposals would oblige the developing countries to cut their own agricultural tariffs by more than during the last Round.

Thus, rich countries can continue to “dump” their farm products below cost in developing countries, which are even less able to defend themselves from the artificially cheapened farm imports because they have to cut their tariffs even more sharply.

Further, the developed countries have launched a campaign to have the developing countries open their markets also in industrial goods and services.

The “Swiss formula” is to apply on industrial tariffs.  It works in a way that cuts tariffs more deeply the higher they are. Developing countries, which have relatively high bound tariffs to protect their emerging industries, will be caught.

There is a coefficient in this formula, which determines how steep the tariff cuts will be.  The lower the coefficient, the larger the cuts.  The EU has proposed a coefficient of 10 to apply to all countries.   The implications are very dramatic.   All tariffs will go below 10 per cent.  For example, an existing 50% tariff on a product will drop to 8.3% and an existing 20% tariff will fall to 6.7%.   

In services, developed countries want to introduce many new negotiating methods that would undermine the present system allowing developing countries to liberalise in sectors of their choice at their own pace.

One proposal is for a system of “benchmarking”, in which developing countries must commit to liberalise in a certain percentage (the EU has proposed 57%) of sub-sectors.

Another proposal is that countries that are requested by others must compulsorily take part in plurilateral negotiations.  For example, a group of countries that want others to open up their financial services can request countries whose markets they are targeting to join in negotiations for a plurilateral deal, and those requested countries have to participate.

These new methods are designed to make it easier to pry open the services markets of developing countries, by removing their present freedom to decide for themselves what commitments to make at the WTO.

Several developing countries have been fighting the proposals. But the developed countries are adamant to see their demands are met.  So a big battle looms on this front at the Hong Kong meeting.

The Hong Kong meeting had the potential to correct some of the imbalances and turn the corner towards development.  But it looks as if the potential for doing something really positive has faded.   Instead, the Ministerial meeting is in danger of becoming an exercise in fending off the demands of the develop countries, limiting the damage of unfulfilled expectations, and postponing some hard decisions to another day.