Assessment of the state-of-play in the Doha negotiations as the WTO goes on summer recess

Executive summary

The World Trade Organisation (WTO) traditionally suspends most of its activities during August with negotiators taking a month-long summer break. As the Doha Round negotiations are enmeshed in gridlock, the recess this year will hopefully also be a time of reflection. The WTO General Council (GC) meeting of 27 and 29 July 2005, completed its mid-year assessment of the Doha Round negotiations with sombre acknowledgement of hardly any progress in the on-going negotiations. The sombre mood at the GC meeting was in sharp contrast to last year’s pre-summer recess GC meeting mood of elation when the GC adopted the 2004 July Package Agreement (JPA) that re-established the Doha Round negotiating parameters and re-launched the negotiations following the debacle at the 5th WTO Ministerial Conference that had been held in Cancan, Mexico the previous year.

Outgoing WTO Director General Dr Supachai Panitchpakdi had expected that this year, the pre-summer recess GC meeting would agree on the ‘first approximations’ of a Doha Round deal that would form the basis for establishing full modalities (i.e. the formulae for tariff reduction and percentages and timeframes for tariff and subsidy cuts as well as other critical details that constitute the main ingredients of trade agreements) on different subjects under negotiations. The expectation was that these ‘first approximations’ would be finalised at the 6th WTO Ministerial Conference (MC6) that is scheduled to be held in Hong Kong, China, from 13 to 18 December 2005. This goal had always seemed optimistic given the lack of progress in the negotiations since last year’s JPA.

To be sure, much lip-service continued to be paid to the importance of delivering on the ‘development’ dimension of the negotiations at the various WTO “mini ministerials” that have been held since the 2004 JPA, including one hosted by China in Dalian in mid-July and also at the G8 Gleneagles Summit earlier in July. But the reality in Geneva was gridlock. Last minute consultations before this year’s pre-summer recess GC meeting confirmed that members were too far apart in most areas under negotiation to agree on ‘first approximations’, especially in agriculture that has emerged as the main battleground of this Round. Without a deal on agriculture, there is little likelihood of progress in the other areas.

The signs are that WTO members will return from reflections during the summer recess to keep the show going. The 6th WTO ministerial meeting in Hong Kong, China, in December this year may move the negotiations along a bit by adopting modalities in some areas but is not expected to produce a major breakthrough as such. Most observers see the real deadline for the Doha Round as mid-2007, when the Bush Administration s trade promotion authority is due to expire. This deadline is the latest date that the US president can present a negotiated WTO Agreement as a ‘take-it-or-leave-it package’ for Congressional approval. So far, the US Congress has never rejected a multi-lateral trade deal. The July 2005 ‘first approximation’ deadline was superficial. We would expect the momentum in the negotiations to pick up during 2006 as members race to make a deal before TPA expires. What remains to be seen is how far the needs of the poorest countries will be met at the conclusion of the Doha Round.

David Luke, Coordinator
Luca Monge-Roffarello, Trade Policy Specialist
Chris Uregian (Summer Intern Princeton University)
Trade and Human Development Unit
UNDP Geneva Office

Assessment of the state-of-play in the Doha negotiations as the WTO Goes on Summer Recess

By David Luke, Luca Monge-Roffarello, and Chris Uregian, Trade and Human Development Unit, UNDP Geneva Office

The World Trade Organisation (WTO) traditionally suspends most of its activities during August with negotiators taking a month-long summer break. As the Doha Round negotiations are enmeshed in gridlock, the recess this year will hopefully also be a time of reflection. The WTO General Council (GC) meeting of 27 and 29 July 2005, completed its mid-year assessment of the Doha Round negotiations with sombre acknowledgement of hardly any progress in the on-going negotiations. The sombre mood at the GC meeting was in sharp contrast to last year’s pre-summer recess GC meeting mood of elation when the GC adopted the 2004 July Package Agreement (JPA) that re-established the Doha Round negotiating parameters and re-launched the negotiations following the debacle at the 5th WTO Ministerial Conference that had been held in Cancan, Mexico the previous year.

Outgoing WTO Director General Dr Supachai Panitchpakdi had expected that this year, the pre-summer recess GC meeting would agree on the ‘first approximations’ of a Doha Round deal that would form the basis for establishing full modalities (i.e. the formulae for tariff reduction and percentages and timeframes for tariff and subsidy cuts as well as other critical details that constitute the main ingredients of trade agreements) on different subjects under negotiations. The expectation was that these ‘first approximations’ would be finalised at the 6th WTO Ministerial Conference (MC6) that is scheduled to be held in Hong Kong, China, from 13 to 18 December 2005. This goal had always seemed optimistic given the lack of progress in the negotiations since last year’s JPA

To be sure, much lip-service continued to be paid to the importance of delivering on the ‘development’ dimension of the negotiations at the various WTO ‘mini ministerials’ that have been held since the 2004 JPA, including one hosted by China in Dalian in mid-July and also at the G8 Gleneagles Summit earlier in July. But despite the political rhetoric urging compromise and progress in the negotiations at these meetings, the reality in Geneva was gridlock. Last minute consultations before this year’s pre-summer recess GC meeting confirmed that members were too far apart in most areas under negotiation to agree on ‘first approximations’. Even the increasing involvement of top officials from the capitals and trade ministers from some key countries and the arrival of several of them in Geneva for the 27/29 July GC meeting were not enough to forge a last minute agreement, especially in agriculture that has emerged as the main battleground of this Round. Without a deal on agriculture, there is little likelihood of progress in the other areas.

Accordingly, the 27/29 July GC was a routine matter of receiving formal reports from the Chairs of each negotiating subject area and a grand summary from Dr Supachai who chaired the Trade Negotiating Committee (TNC), which is the body responsible for the overall negotiations. Some delegates made the point that the reports downplayed the differences between members and did not necessarily reflect the actual discussions and conclusions from the committees but rather the recommendations of the Chairs. Many developing country delegates went further, suggesting that the development dimension and the concerns of developing and least developed countries were not at the core of the negotiations as had been established in the Doha mandate. Dr Supachai himself made an impassioned plea for a change in approach after the summer break and for a political breakthrough that is required for an agreement.

The GC Chair, Ms Amina Mohammed, Kenya’s ambassador to the WTO, expressed confidence and aplomb that a successful conclusion of the Round was possible by the end of 2006. The United Sates delegation also reflected this optimism pointing to the Central America Free Trade Area Agreement (CAFTA) that was passed in the US Congress hours before the 29 July GC meeting as a good omen.

The main reason for the lack of momentum is that delegates are fully aware that the real deadline is mid-2007 when the Bush Administration’s Trade Promotion Authority (i.e. legislative authority to the Administration by the Congress to negotiate trade agreements) will come to an end. The WTO is based on a mercantilist-centred negotiation process where traditionally brinkmanship is very much a part of the strategy employed by the players and deal-making concessions are made at the last minute. From this perspective, this year’s deadline for reaching ‘first approximations’ was artificial and superficial, given the weight of the United States as the world’s largest trading nation.

With gridlock, the highlight of the two-day GC turned out to be a fulsome farewell to Dr Supachai who takes over as Secretary General of UNCTAD on September 1st and the official introduction of Pascal Lamy as the new Director General of the WTO from the same date.

Mr Lamy, who is also well known as a marathon runner, hit the ground running, announcing the names of his new Deputy Directors General (Ms. Valentine Rugwabiza, currently Rwanda’s ambassador to the WTO, Mr Alejanro Jara, currently Chile’s ambassador to the WTO, Mr. Harsha Vardhana Singh, currently secretary of India’s Telecom Regulatory Authority and Mr Rufus Yerxa of the United Sates, currently a WTO Deputy Director-General). He urged delegates to use the summer recess for reflection and fresh thinking on how to break the impasse in the negotiations following resumption of work in September, and signalled that intensive engagement at the political/ministerial level will be required.

In the rest of this article, we will summarise the current state-of-play in the main issues under contention in the negotiations, undertake an assessment of the negotiations so far and point out the direction in which the negotiations are likely to unfold, as well as the main challenges for the poorest countries.

I. State of play

The main subjects under negotiation are (i) agriculture (ii) non-agricultural market access (NAMA) (iii) services (iv) development (v) rules (vi) trade-related intellectual property rights (TRIPS) (vii) environment and (viii) trade facilitation.

Agriculture

World farm trade is highly distorted with far-reaching effects. From a human development and poverty reduction perspective, a development-friendly deal on agriculture will be a welcome boost in the efforts of both developing and least developed countries to reach the MDGs. The main plot in the drama of the agriculture negotiations centres on market access and domestic and export subsidy distortions with four other interlinking sub-plots – (a) preferences and preference erosion (b) cotton (c) flexibilities for developing countries and treatment of sensitive ‘special products’ and (d) food aid.

Market access and subsidies

A break-through in market access and cuts in domestic subsidies is critical for progress in the negotiations as a whole. An early deal has been reached on export subsidy reduction, with an ambitious goal of achieving complete elimination. But the date by which this is to be accomplished is yet to be agreed. However, despite the rhetoric of their spokespersons, high-tariff and/or domestic subsidizing countries such as the European Union group and the WTO G-10 net food importing countries (South Korea, Taiwan, Liechtenstein, Israel, Bulgaria, Norway, Iceland, Mauritius, Switzerland and Japan) have so far resisted ambitious reductions of tariffs and subsidies proposed by the largest agricultural exporters such as the US (itself a high tariff country and a major subsidizer) and the Cairns Group (Australia, Bolivia, Brazil, Canada, Chile, Colombia, Costa Rica, Fiji, Guatemala, Indonesia, Malaysia, New Zealand, Paraguay, Philippines, South Africa, Thailand and Uruguay). In response, the Cairns Group has taken an inflexible stance, making clear that this Round must deliver on agriculture if other areas of negotiations are to move forward.

Clearly real progress will require high-tariff and domestic subsidizing countries to agree with their own constituencies on reform. With the US and the EU apparently not in a position to provide leadership in moving the agriculture negotiations along, the WTO G-20 countries (led by Brazil, China, India and South Africa, and including Argentina, Bolivia, Chile, Costa Rica, Cuba, Ecuador, Egypt, Guatemala, Indonesia, Mexico, Pakistan, Philippines and Thailand) which make up over half the world’s population and two thirds of its farmers, have taken on the role of ‘honest brokers’ not withstanding the overlapping membership of some G-20 countries with the Cairns Group. The G-20 has proposed less ambitious modalities for agricultural tariff reductions and new disciplines for subsidies aimed at narrowing the gap between the high-tariff and subsidizing countries and the Cairns group. But these proposals are yet to gain traction.

Treatment of preferences and preference erosion

With market access and subsidies as the main drama, the way the other sub plots are unfolding is equally riveting. Preferential access to the markets of the major OECD countries is of particular interest to the smallest and most vulnerable economies in Africa, the Caribbean and the Pacific that are also less competitive than the big Latin American and Asian agriculture exporters as well as South Africa. But preferential market access is also a distortion in world agriculture. As such, reform of farm trade will inevitably result in an erosion of preferential margins. To this extent, the treatment of preferences is an issue that divides developing countries and attempts to reconcile their positions has so far proved to be difficult. Yet a proper solution has to be found either within the current WTO negotiations or through ‘aid for trade’ as the economic and social adjustments costs as well as human development impacts at stake for the small economies is high.

Cotton

Cotton is perhaps the most closely followed sub-plot in the drama of the agriculture negotiations. Cotton presents an interesting case of production under competitive conditions in poor and vulnerable counties. The plight of West and Central African cotton farmers dramatizes the far-reaching effects of distortions from high tariffs and subsidies in global markets. Following the formation of a sub-committee on cotton negotiations in November 2004, there were high expectations for speedy and substantial results in this highly sensitive area of negotiations. But the absence of progress in the overall agriculture negotiations has also meant limited advance on the cotton front. Representatives of African cotton producing countries in Geneva have nevertheless made it clear that, despite missing the ‘July approximations’ deadline, they still expect an early harvest resolution of the cotton issue in Hong Kong. Encouraging recent developments have been the EU proposal to ‘front load’ the implementation of an agricultural deal with respect to cotton on the one hand and on the other a Dispute Settlement Body (DSB) ruling on the cotton case brought by Brazil against the US that has found the use of US cotton subsidies inconsistent with the latter’s WTO obligations. With negotiations failing to provide a way forward, DSB ‘activism’ has emerged as another source of pressure for reform.

Flexibilities and sensitive ‘special products’

Flexibilities for developing countries and the treatment of sensitive ‘special products’ is also part of the drama. The Doha mandate recognized the principle that developing countries as a whole require sufficient flexibility (so-called ‘policy space’) to pursue national priorities with respect to rural development, livelihood and food security. Although there is some understanding that developing countries should be allowed to use a simple trade defense contingency measure (such as a Special Safeguard Measure or SSM) to protect their markets against import surges, the modalities for achieving this are yet to be agreed upon. At the same, the 2004 JPA recognized the need to treat some ‘sensitive’ agricultural products that are considered to be strategic for rural livelihoods and food security differently, with less liberalization than for other products. Modalities for addressing these sensitive products have also been a sticky point due to the concerns of Cairns Group countries that a ‘long’ list of special products would not bring the expected disciplining of subsidies and market access results.

Food aid

Last but not the least of the sub-plots in the agriculture drama is food aid. While there is agreement in principle that new disciplines to prevent commercial displacement should not compromise the provision of genuine food aid, the issue whether food aid should be provided in cash or in kind remains widely disputed. In particular, there is concern that food-in-kind might at times work as disguised export subsidies, distorting markets.

Non-Agricultural Market Access (NAMA)

Like agriculture, NAMA negotiations have been disappointingly slow. This is not surprising as the two subject areas are so closely intertwined that in the final days leading to the 27/29 GC, the NAMA negotiations were postponed in recognition of the obvious fact that any agreement on NAMA issues was unlikely in the absence of progress in the talks on agriculture.

A major concern for developing country negotiators in NAMA is the effect of liberalization on long-term industrialization and export diversification prospects (and thus more broadly on their economic development). Protection is therefore seen as a tool that could be brought into service when required to enhance development prospects as the economic history of many developing countries attest. Typically, developing countries’ bound tariffs are high although applied rates can be much lower. Accordingly, policy space and flexibility is the primary objective of developing countries in these negotiations. One dimension of such flexibility is to leave tariff schedules unbound, as binding commitments once undertaken at the WTO cannot normally be reversed. Developed countries on the other hand have no such concerns as indeed, apart from few limited sensitive sectors like fisheries and textiles and clothing, they have already reduced industrial tariffs to very low levels and have almost entirely bound their tariff schedules. So developed countries, the EU and the US in particular, have come to view both tariff reduction and binding concessions in NAMA as part of the price developing countries will have to pay for farm trade reform.

This explains the aggressiveness that has characterized developed countries’ strategy in NAMA. Developing countries on the other hand have displayed much caution, wanting to see a positive outcome in agriculture first before making tariff and binding concessions.

As in agriculture, the main sticking point is the appropriate modality for tariff reductions including the depth and sectoral spread of liberalization. Many developing countries would like to insert in the formulae to be used for tariff cuts additional elements or coefficients that would capture the vulnerabilities they face and have submitted a variety of proposals in this regard. Developing countries also favour formulae that recognize and provide credit for unilateral trade reforms they have undertaken as part of World Bank/IMF structural adjustment programmes.

As in the case of agriculture, NAMA preference and preference erosion is highly divisive among the developing countries.

The fate of NAMA, besides being closely linked to the drama in agriculture, will largely depend on how far developed countries will be willing to accommodate the flexibilities or ‘special and differential treatment’ sought by developing countries.

For developing countries to gain from NAMA negotiations, it is also imperative to look beyond tariffs reductions and address non-tariffs barriers such as standards and other technical barriers to trade (TBTs) that are increasingly becoming a major impediment in accessing rich countries’ markets.

Services

At the end of July GC meeting, Director-General Supachai was candid in his assessment that the services negotiations are stuck. This lack of progress is not surprising as the bilateral request-offer negotiating format in services is particularly time-consuming, technical and complex due to the nature of domestic regulations that have to liberalized to allow enhanced market access and the large number of sectors involved.

Moreover, since developed countries are the main demandeurs in terms of expanding market access for services, several developing countries are not willing to make substantive offers, waiting for real progress in other negotiating areas of interest.

For most developing countries, the core area of interest in services is the temporary movement of skilled and unskilled labour to provide services in developed country markets. Another concern of developing countries is safeguards for domestic service providers and the introduction of new disciplines to regulate rich countries’ subsidies to services sectors.

To move the services negotiations along, an intensive work programme has been announced to start in September following the summer recess

Development, Rules, TRIPS, Environment and Trade Facilitation

Development, rules, TRIPs, environment and trade facilitation encompass a range of issues that are under discussion and, in each, there is so far no prospect of a deal in sight.

On development, the representative of Jamaica at the WTO struck a chord during the end July GC meeting in noting that the development dimension in the negotiations is ‘sadly lacking’. Although differences between developing countries have not been helpful, the lack of leadership from the US and the EU in addressing development issues such as special and differential treatment (S&DT) that will allow developing countries some flexibility under WTO rules has also been evident. A key aspect of the impasse concerns the designation of which developing countries should benefit from which flexibilities, another divisive issue for developing countries.

On rules, the reforms of WTO provisions on anti-dumping and regional trade agreements (RTAs) are the key issues. The demandeurs on anti-dumping are countries such as Chile, Costa Rica, Hong Kong, Japan, Korea, Norway, Switzerland, Chinese Taipei, Thailand and Turkey which want to make the use of anti-dumping measures more regulated and transparent. The EU and US on the other hand oppose much of this agenda, wanting to maintain as much flexibility on their use of these measures.

In regard to RTAs, transparent rules have emerged as a concern of several countries. But from a development perspective, the main point of contention (and on which several proposals have been submitted) is the inclusiveness of RTAs in term of trade and products coverage and the degree of reciprocity expected among RTAs members. The latter is of particular relevance in North-South RTAs such as the ACP-EU arrangement and in particular on the extent to which ACP will be requested to open their market to European’s goods and services.

On TRIPs, a very disappointing failure of the Doha process so far is the impasse over establishing a permanent solution on access to generic medicines for countries without or with insufficient manufacturing capacity. Although the GC reached an agreement for addressing this in its Decision of 30 August 2003, negotiators have since not been able to agree on the way forward towards the obvious permanent solution – amendment of the TRIPs Agreement to incorporate the guidelines.

There is a further impasse in the TRIPS negotiations concerning appropriate modalities for the protection of products originating in specific geographical locations – geographical indications. But some progress has been made on establishing a multilateral system of notification and registration for wines and spirits.

There is no sign yet of fulfilling the Doha Round mandate on the environment which concerns liberalizing goods and services used in environmental conservation and defining the relationship between between WTO rules and specific trade obligations (STOs) of Multi-lateral Environment Agreements (MEAs). Definitional and procedural issues have bedevilled these discussions.

As far as trade facilitation is concerned, there is strong participation of developing countries in the negotiations. But few of the proposals that have been submitted deal with special and differential treatment and support for capacity building that is of great interest to least developed countries, and also an integral part of the 2004 JPA mandate.

II. Assessment

There is gridlock in virtually all the main areas under negotiation in the Doha Round. We have identified five key issues that account for this impasse.

First, is lack of leadership among the major developed countries as a driving force in moving the negotiations forward. So far the leading players have hardly contributed to the impetus that is needed. Perhaps due to the formidable difficulties they face with their own constituencies – farm trade reforms being a case in point – they have adopted a ‘wait and see’ approach notwithstanding their own rhetoric linking the negotiations to progress in poverty reduction and achievement of the MDGs. The current dispute before the DSB between the two trade super powers over subsidies to their respective aircraft industries does not bode well for the Doha Round. The G20 appears to have begun to fill the leadership gap but is yet to demonstrate adequate sensitivity to the needs of the poorer developing countries. While the logic of the ‘new geography of trade’ would suggest that the emerging economies would wish to improve and facilitate access to their own markets by poorer countries, this is yet to happen. The same lack of momentum and results that have been seen in the Doha Round characterizes the South-South Generalized System of Trade Preferences (GSTP) negotiations under the auspices of UNCTAD.

Second, much lip service has been paid to addressing the development dimensions of the negotiations but the meagre results speak for themselves. Perversely, many rich countries have come to view S&DT as a smokescreen for altering previous agreements. These countries appear to be determined to exclude advanced developing countries from any new S&DT regime, thereby also exacerbating the divisions among developing countries.

Third, is the obvious fact of divisions among the developing countries. To some extent, this division has become institutionalized in the emergence of the G-20 (mostly advanced developing countries) and G-90 (least developed and other low income countries) alliances. As we have noted, there is substantial divergence of interests between the G-20 and the G-90, especially in the matter of trade preferences and S&DT. An unambiguous sign of the difficulties among developing countries in the WTO is their failure to unite around one of the three developing country candidates for the position of Director General.

Fourth, with the negotiating or ‘executive and legislative’ branch of the WTO in gridlock, members – especially advanced developing countries – have turned to the judicial branch, the DSB for redress. The landmark DSB decisions on bananas, sugar and cotton not only illustrate this trend but also confirm the divisions between developing countries, especially over trade preferences. Similarly, the end of the Multi Fibre Arrangement (MFA) early this year has also demonstrated the effects of preferential erosion on the poorer countries.

Finally fifth, our assessment is that the active role of the DSB is being matched by efforts to seek trade deals outside the WTO. Ironically, the new CAFTA-US trade deal was trumpeted at the July pre-summer recess GC meeting as a good omen for the Doha Round.

III. What next?

The signs are that WTO members will return from reflections during the summer recess to keep the show going. The 6th WTO ministerial meeting in Hong Kong, China, in December this year may move the negotiations along by adopting modalities in some areas but is not expected to produce a major breakthrough. Most observers see the real deadline for the Doha Round as mid-2007, when the Bush Administration s trade promotion authority is due to expire. This deadline is the latest date that the US president can present a negotiated WTO Agreement as a ‘take-it-or-leave-it package’ for Congressional approval. The US Congress has so far never rejected a multi-lateral trade agreement. The July 2005 ‘first approximations’ deadline was superficial. Brinkmanship is very much a WTO tradition, so we would expect the momentum in the negotiations to pick up during 2006 as members sprint to make a deal before TPA expires. What remains to be seen is how far the needs of the poorest countries will be met at the conclusion of the Doha Round. With preference erosion more or less inevitable and special and differential treatment likely to be circumscribed, scaling up aid for trade to these countries to help them overcome their supply side difficulties has become an imperative. There is a role for UNDP in addressing this imperative, in facilitating and enhancing the trade capacity development effort that is required in these countries.