House of Commons - International Development

Select Committee on International Development Third Report

3 KICKING OPEN THE DOOR

46. The Hong Kong Ministerial proceeded very slowly with much time spent discussing the end date for export subsidies. The EU was the main obstacle to progress in this, despite reassurances from the Government prior to the Ministerial that they would seek to ensure offers were not left to the last minute.[48] Comments from Christian Aid revealed the lack of progress on substantive issues: 'At the end of the second full day, negotiations were still mired in stalemate. The EU has shown not a flicker of interest in softening its line and making a more generous offer on cuts in agricultural subsidies. A large alliance of developing world nations is, as a result, standing firm and refusing to make new commitments on opening up industrial and services markets. All the talk of lowering expectations and putting back the substantive issues until a later date cannot mask the essential paralysis that has gripped these discussions. Hours of behind-closed-doors talks have failed to lead to a breakthrough and there is now a growing anger from developing country delegates that the EU is failing to be flexible on subsidies.'[49]

47. There were heated discussions on the US refusal to move on domestic support to its cotton farmers, the EU position on bananas, and on US food aid. In respect of the first two it is reported that 'the rhetoric of the meeting went beyond the normal language of trade and obligations to emotional references to poverty and social costs.'[50] Subsequently there appeared to be determination not to let the meeting collapse. There was also a coming together of two developing country groupings, the G20 and the G90 — to form the G110 — united not in what they wanted to get out of the negotiations but in their resolve not to be used against each other by the EU and the US.

48. The final declaration revealed that six days of tough negotiations had saved the WTO from a premature demise — the fate of the two previous Ministerials. The fact that no country walked away from the negotiations was seen to demonstrate a commitment to the continuation of the WTO. There was a clear desire to avoid a breakdown of the system which was seen to be more important than any specific objectives. However, developmental outcomes were distinctly limited and heavily qualified. Alan Johnson's comment immediately afterwards was that the outcome was one step up from failure. The price of maintaining unity was, it seems, minimal progress.

49. The Ministerial Declaration adopted on 18 December set out the outcomes of the Hong Kong Conference.[51]

The elimination of all forms of export subsidies by the end of 2013 was agreed to. The specific manner in which this will be achieved (the modalities) has not yet been agreed although the text states that a substantial part of the reductions is to be achieved in the first half of this period.
Non-emergency food aid, export credit programmes and the practices of exporting state trading enterprises are to be disciplined by April 2006.
All export subsidies for cotton will be eliminated in 2006 but there is no agreement to reduce domestic subsidies which are more extensive and harmful to African cotton producers.
Because of the difficulty in getting agreement on an end date for export subsidies, the other two pillars of agricultural support — domestic subsidies and market access — received far less attention. Domestic subsidies will be limited overall and there will be three bands for their reduction. There will be limits on blue box payments and a review of the green box criteria is suggested. [52]
The section on market access did not agree on the size of tariff cuts only that there would be larger cuts for higher tariff levels.
Developing countries will be permitted to self-designate special products, 'guided by indicators of food security, livelihood and rural development.'[53] Developing countries will also have recourse to a Special Safeguard Mechanism (SSM) to protect farmers from a surge in imports or a collapse in import prices.
Duty free, quota free (DFQF) access for 97% of all exports from all LDCs to the USA and Japan from 2008 was agreed. The EU already provides almost 100% access under its Everything But Arms initiative.
On Non-Agricultural Market Access the declaration adopts the 'Swiss formula,' approach with an unspecified number of coefficients.[54] The text responds to two central concerns held by most developing countries, providing for 'less than full reciprocity in reduction commitments' and stipulating that the formula 'shall reduce […] tariffs, including the reduction or elimination of tariff peaks, high tariffs, and tariff escalation, in particular on products of export interest'[55] to them. There is no agreement on numbers or timing.
On services, the controversial benchmarking proposal from the EU was dropped. The final declaration allows for plurilateral negotiations[56] on the basis of a request and offer process and stipulates that in making requests (by 28 February 2006) members must pay attention to the developmental levels of countries.
Immediately prior to the meeting, the agreement on trade related aspects of intellectual property rights (TRIPS) made in 2003 to allow generic drugs to be imported by developing countries was converted into a permanent amendment to the WTO agreement.
A statement supporting initiatives on aid for trade was included and the Director General was invited to create a task force to recommend how to take aid for trade forward in the WTO. The task force is to report by July 2006.

Implications for developing countries

AGRICULTURE

50. The agreement to end export subsidies is a significant outcome of the Hong Kong meeting. The 2010 end date hoped for by the Government was put back by the EU to 2013. This ties in with end of the current CAP reforms when most export subsidies will already have been eliminated. It does not require the EU to make any significant new commitments. We agree with the Government that the 2013 end date for export subsidies was an important outcome. We, too, would have preferred an earlier end date. The Government should ensure there is an acceptance within the EU that the majority of such EU subsidies will be phased out by 2010.

51. Although the US does not use export subsidies extensively, it does provide food aid in kind, rather than cash. This has the same effect as export subsidies in helping farmers find a market for their excess production and, importantly, hindering the development of local food supplies in developing countries. Other countries such as Canada, New Zealand and Australia operate a system of state trading enterprises with similar effect. The 2013 end date applies to all these practices although there is room for some emergency food aid in kind.

52. The agreement to end cotton export subsidies was similarly limited. The US does not have many export subsidies. The main form of support which the US gave to its cotton farmers was in the form of domestic pay outs when the price of cotton fell. The effect of this was to keep US farmers in business at the expense of more efficient African cotton farmers. Notwithstanding assurances that other trade distorting subsidies in cotton would be reduced faster than for other crops, cotton was not given the separate negotiation that developing countries requested. Subsequently, in February 2006, the US Congress agreed to withdraw domestic support for its cotton farmers, in response to a ruling by the WTO.

53. At the WTO meeting in Hong Kong the US did not respond to concerns raised by cotton exporting states creating a significant amount of ill will which again, as in Cancún, soured the entire negotiations. The US stance was unnecessary given that the WTO had already ruled against the US system. It was also contrary to the spirit of a development round. The subsequent repeal of domestic support for cotton is welcome and long overdue.

54. The real test of a development round lies in market access, especially agricultural market access. While the offer to end export subsidies is welcome, these comprise only 3.6 per cent of overall CAP support. While LDCs came off best, being offered access for 97 per cent of their products in the US and other advanced country markets (they already have access for nearly 100 per cent in the EU market since 2001), it is not yet clear whether other developing countries will gain significantly in market access since no numerical targets for this have been agreed.

55. The Duty Free Quota Free agreement was shamefully restricted by the USA and Japan. Both retained the right to exclude up to 3 per cent of product lines from the LDCs during a transition period of indeterminate length. Because the range of exports of most LDCs is so narrow, excluding 3 per cent of product lines has a significant impact on access for LDCs. The US view is that countries such as Bangladesh and Cambodia are too competitive in textiles to allow them market access. Written evidence submitted by the DTI says that while such imports are small in value — comprising only 5 per cent of imports — exports of textiles and clothing comprise 98 per cent of all manufacturing exports from Bangladesh to the US and 98 per cent of total Cambodian exports to the US.[57] This illustrates the extent to which the developed countries, in this case the US, are failing to accommodate the needs of developing countries if these are seen to cause some difficulty. The costs of a development round should, in the main, be borne by the developed countries.

56. In addition, the DFQF commitment was not bound in the WTO, which means it can be withdrawn at any point. The offer will also impact on non-LDC developing countries. To this end Pakistan has requested that, when making offers, developed countries should take into account the impact of these on non-LDC developing countries.

57. We support the UK Government in pressing developed countries to step up coverage of the Duty Free Quota Free entry for LDC exports to 100 per cent as part of the DDA package, and in their support to LDCs in this endeavour. We encourage the Government to pursue with vigour, and as part of the final agreement, an early date for 100 per cent coverage. Given the limited range of products which LDCs export, and given their negligible share in world trade, the minimum criteria for success in a development round would be Duty Free Quota Free access for all LDCs' products to all developed country markets.

58. Limits to domestic support measures are still to be decided. At present there is no limit on the percentage of products which developed countries can designate as sensitive, and therefore only subject to limited reductions in tariffs. The EU has proposed that 8 per cent of its products be designated as sensitive. According to World Bank analysis, if even 2 per cent of products in developed countries, (and 4 per cent for developing countries) are deemed special or sensitive products this 'virtually eliminates the poverty impacts of a Doha agreement.'[58] Therefore, 'to have a significant poverty impact, the DDA must not only have ambitious numerical targets, it must also seek to limit — indeed eliminate — the use of sensitive and special product exemptions.'[59]

59. When pressed on this matter by the Committee, the Government admitted that it would like to see fewer sensitive products in the EU offer, but it had not had any discussions with other EU member states about this.[60]We consider the lack of discussion about the content of EU member states sensitive products to be unsatisfactory, given the pivotal role which the Government intended to play during its EU Presidency. If such products are indeed sensitive we would like to know the reasons for this. We also wish the Government to take a lead role in trying to reduce the percentage of products which the EU deems as sensitive. While we do not share the World Bank view that the use of special product exemptions by developing countries should be eliminated, we do question the EU's commitment to a development round if it sticks by anything like 8 per cent of its agricultural products.

NON-AGRICULTURAL MARKET ACCESS (NAMA)

60. On NAMA, developing countries have expressed concerns that allowing large multinational corporations greater access to some developing country markets will threaten, if not wipe out, their fledgling industrial sectors. We were told by DFID that the reason that India was so reluctant to lower it industrial tariffs was not because of the EU but because of Chinese industrial exports. The case for selective and time-limited protection for developing countries was made to the Committee by Professor Robert Wade.[61]

61. The Hong Kong Conference made limited progress on NAMA. The decision to adopt a Swiss formula with coefficients is seen as positive for developing countries in that it leaves the door open to a more development friendly two-coefficient, or multiple-coefficient approach linked to each country's average tariff.[62] The latter has been favoured by Argentina, Brazil, and India because they have quite high levels of bound industrial tariffs and the 'simple' Swiss formula, initially favoured by the developed countries, would have meant a higher level of tariff cuts for them.

62. Oxfam, War on Want, Action Aid and other NGOs, continue to see the NAMA text as an unacceptable recipe for de-industrialisation.[63] Research from Boston University expresses concerns that countries like Brazil will trade away the space for the policies which made their industrial sector so competitive — 'a mixture of markets, tariffs and subsidies and the strategic use of foreign investment.'[64]

63. The debate about infant industry protection appears inconclusive. We have heard evidence to support both sides of the argument and evidence which tends toward a middle ground — some protection is useful, for limited periods of time, and for the right reasons. We believe that these are issues which must be decided on a case by case basis and that it is important for any WTO agreement to provide the space for developing countries to make decisions about which policies are most suitable. We are concerned that this type of policy space may already be limited by agreements made in the Uruguay Round and would not like to see it limited further. Development is a process of diversification and developing countries must not be forced to remain exporters of primary commodities by policies which damage emerging industrial sectors.

SERVICES

64. In services, the EU was unsuccessful in its attempt to make compulsory a specified number of offers from all countries. This initiative from the Commission, which formed part of their negotiating position, was intended to ensure that there was some significant progress in the services sector when, according to the Commission, offers were limited and unambitious. The Government told the Committee that they thought it unlikely that this initiative would gain support in the WTO, although, as we have said, we do not think that Government was sufficiently critical of the proposal. We consider the rejection of the EU's benchmarking proposal to be a positive outcome for developing countries.

65. Plurilateral requests were to be submitted by the end of February 2006, or as soon as possible thereafter, with responses made by the end of July. Plurilateral negotiations have the advantage of allowing major suppliers and consumers of a particular service to reach an agreement, and in their current form will offer access, but not impose requirements, on the countries excluded from the negotiations.

66. Our main concern is that the services negotiations are proceeding apace with few, if any, feasibility studies about the implications of these for developing countries and with decisions being made by people who know about tariffs rather than people who know about particular services.[65] It is important that decisions on services are carefully taken. We are unconvinced that the current timetable provides sufficient time for this.

AID FOR TRADE

67. The failure to agree on any concrete commitments with respect to aid for trade, other than inviting the Director-General to create a task force to study the issue, was also a disappointment. Donors have pledged money — much of which is not additional to aid pledges made earlier in the year — but without some idea of the basis for allocation it is, thus far, a very preliminary and insubstantial gain.[66]

68. The Government have said that they are pursuing a development agenda, and that they want to see a pro-development outcome to the Round. As Ian Pearson said, 'What we have to do at the very minimum is kick open the door of the developed world so that the poorest countries can actually trade with us.'[67] We are pleased by this approach, but what is crucially needed is an agreement which prioritises the needs of developing countries. The Hong Kong Declaration falls short of this requirement. The Government must now invest time and political effort to ensure that a development agenda can be agreed in December 2006.

48 Q 87 [Ian Pearson MP] Back

49 "WTO talks in stalemate" Christian Aid, 15 December 2005. Available at: www.christian-aid.org.uk Back

50 Sheila Page, Hong Kong: Success for the WTO, not for the Doha Round (unpublished draft). Back

51 Doha Work Programme, Ministerial Declaration, 22 December 2005. Back

52 The blue box includes permissible domestic agricultural support measures which are production limiting. The green box contains permitted domestic agricultural support measures deemed minimally or non-trade distorting. No limits or reductions are required for these measures. Back

53 Doha Work Programme, Ministerial Declaration, 22 December 2005, Article 7. Back

54 The Swiss Formula approach reduces the highest levels of tariffs the most leading to greater harmonization of tariffs. The coefficients determine the maximum final tariff rate. Back

55 Doha Work Programme, Ministerial Declaration, 22 December 2005, Article 14. Back

56 Under plurilateral negotiations, the countries most interested in seeing a change make a joint request to the country or countries where the change is most important to them, and negotiations then take place between these groups. Any agreement to make a commitment, however, is then generalised to all WTO members. Back

57 Ev 68 [Ian Pearson MP] Back

58 Kym Anderson, Will Martin and Dominique van der Mensbrugghe, "Would Multilateral trade reform benefit sub-saharan Africans?" CIES discussion paper no 0518, (2005), p 25. Back

59 Ibid. p 25. Back