M. Abu Eusuf
THE Doha Round of negotiations is in its seventh year. The Round has now reached a decisive moment. Ever since the first failure registered at Cancun (Mexico) in 2003, the Round has staggered. The WTO Director-General Pascal Lamy suspended the negotiations when negotiations among the six major players, the G-6 countries namely Australia, Brazil, EC, India, Japan and the United States broke down in July 2006. Progress in all areas of work was put on hold. That break did not cut loose the fate of the Round. The negotiations resumed on a “soft” mode in November 2006, and full-scale negotiations across the board were resumed in February 2007.
Although multilateral negotiations have now been resumed, the progress in the talks critically depends on a breakthrough among the G-4 countries namely Brazil, European Communities, India and the United States. The gaps among these countries are still wide, and their stalemate has paralysed the multilateral process. Though a series of meetings of the G-4 countries were taken place in Potsdam, Germany on June 19 – 21, 2007, they were unable to bridge their differences and talks among them broke down amidst persistent divisions on cutting industrial tariffs and farm subsidies.
The least developed countries (LDCs) are marginal players in world trade, and it is common knowledge that they will not benefit the way other Members of the WTO will, with a successful completion of the Round. Progress was made on issues of interest to the LDCs which were reflected in the July Package (2004) and in the Hong Kong Ministerial Declaration (2005). The Hong Kong Declaration has reaffirmed that the LDCs are not required to undertake reduction commitments in agriculture, non-agriculture market access (NAMA) and in services negotiations. Most important among the decisions in Hong Kong was the one on providing the LDCs with duty-free and quota-free (DFQF) market access. The LDCs are also given flexibility in undertaking obligations in trade facilitation negotiations, and much of the commitments are linked with adequate provision of technical and financial assistance to them. Some feel that with all these decisions, the LDCs demands in the Round are already met. Perhaps due to this notion, and due to the nature of the post-Hong Kong phase of the negotiations, issues of interest to the LDCs did not receive much attention from the wider Membership of the WTO. However, there are certain critical decisions, which require effective implementation without which the commitments at Hong Kong will remain an unfinished business.
The decision to provide DFQF market access to the LDCs was one of the most important decisions reached at Hong Kong. In case of difficulties of Members, the decision stipulates to provide DFQF access to the LDCs for at least 97 per cent of products originating from the LDCs by 2008 or no later than the start of the implementation period of the Round. There was lack of clarity in the drafting of the decision as it is subject to interpretation whether the developed countries should provide DFQF market access in 97 per cent of its national tariff lines; or whether the 97 per cent threshold of products originating from the LDCs applies only to tariffs lines on which the LDCs are currently exporting.
In both scenarios, there is scope for the developed countries to choose product coverage in a manner that could cripple market access opportunities for the LDCs. It may be noted here that barring the United States, the LDCs enjoy DFQF market access to all major developed country markets and most of those countries such as the European Union (EC), Canada already satisfy the 97 per cent threshold. Recently, Japan has adopted an enhanced DFQF market access scheme for the LDCs allowing 98 per cent of its tariff lines, defined at the nine-digit level, duty-free and quota-free for the LDCs. The scheme is, however, not without exceptions such as rice, certain leather and fish products. While Japan should be commended for granting this facility to the LDCs on an autonomous basis, a study is required whether it would result in enhanced exports from the LDCs and whether their current rules of origin criteria and standards potentially pose a threat to the LDCs.
The LDCs have made efforts to engage the developed countries in implementing the commitments on the DFQF market access to the LDCs. The LDCs in March 2006 had made a submission in three negotiating bodies (agriculture, non-agricultural market access or NAMA and Special Session of the Committee on Trade and Development) on how they would like the decision to be implemented. There has virtually been no discussion on this issue in the agriculture and NAMA negotiations (LDCs would need to be vigilant to see whether the modalities in these areas factor in the decision taken at Hong Kong).
Countries such as the United States do not consider the implementation of the decision as a negotiating issue, and considers the implementation as a part of the single undertaking. They, however, have launched the procedural steps required to implement the decision. A consultative process initiated by the USTR’s office has now been completed. The USITC is also investigating the probable economic effects on the US producers and consumers associated with the implementation of the decision. Different stakeholders including the LDCs have submitted their comments to the US on this matter with some associations arguing against the implementation of the decision.
It may be noted that the current tariff structure of the US is biased against the LDCs (and in particular against the exports from Bangladesh). In 2006, the average tariff on all imports from the LDCs was 3.8 per cent while the figure for the Organisation for Economic Cooperation & Development (OECD) countries was 0.8 per cent. These average tariffs on the LDCs thus represented more than five times higher than the average tariffs imposed on the OECD countries. Moreover, the average tariffs faced Bangladeshi exporters was 14.9 per cent. DFQF facility to the US market thus assumes a special significance for Bangladesh. The LDCs (and Bangladesh) should make allout efforts to follow up with the US administration to ensure a meaningful implementation of this decision in the US market.
What the LDCs should also start pursuing vigorously is to engage developing countries to provide DFQF market access to the LDCs. Countries such as Brazil, China, India, Korea have already indicated that they are working on to provide improved market access to the LDCs. In fact, China in 2005 had announced to grant 39 LDCs enhanced market access to LDC products. There needs to be a systematic follow-up with the authorities of these countries, and with other developing countries, for better market access of the LDC products to their markets.
An associated issue with the DFQF market access is the rules of origin. Although preferential rules of origin were not subject to WTO rules, the Hong Kong Decision has brought this issue into the negotiations. Members were asked to ensure that rules of origin are transparent and simple and contribute to facilitating market access for the LDCs. Although the LDCs submitted a proposal in the negotiations suggesting single value-added criteria for conferring origin, there is a disagreement on the forum where such issues should be addressed. The rules of origin Committee in the WTO deals with non-preferential rules of origin and so far has not carried out any multilateral review of preferential rules of origin. The European Commission (EC) has long been stating that reforms of its rules of origin in the GSP schemes are underway. Advancing the LDC agenda on rules of origin in the WTO will be a complex and lengthy task.
One of the critical areas of the negotiations is non-agricultural market access (NAMA). Although modalities in this area are yet to be agreed upon by Members, issues concerning the LDCs such as exemption from tariff reduction commitments and the flexibility for the LDCs on the level and coverage of bindings enjoy consensus among Members and have not been questioned in the post-Hong Kong phase of the negotiations. However, a number of components of the modalities could have indirect but substantial consequences for the LDCs.
There appears to be an increasing convergence on a simple Swiss formula with two coefficients for the modalities for tariff reduction. It is not difficult to understand that under an aggressive Swiss formula in NAMA, the expected tariff cuts for developed countries on certain products of export interest to the LDCs (for example textiles and clothing) would be much steeper, which would erode the margins of preferences currently enjoyed by the LDCs. Erosion of preferences has become a highly contentious issue in the negotiations. In recent times, there has been attempt to assess the scope of the problem. Although the problem will affect a group of developing countries and will affect only a limited number of products, the issue is significant from the LDC perspective.
The question is what would be a right formula that could minimise erosion of preferences on products of export interest to the LDCs, and what could be the possible range of solutions. Although the negotiations have witnessed heated debate on the issue, there was lack of progress in identifying possible solutions. A number of countries are opposing a trade solution in this area while others are alluding to find a solution in the “Aid for Trade” context. The LDCs are yet to pronounce themselves in this area.
It is time for the LDCs to submit a proposal on how they would like the issue to be addressed. It may be noted here that preference erosion could also hit agricultural exports from the LDCs and a solution is also needed in the context of agricultural modalities.
Another divisive issue in the NAMA negotiations is its sectorial tariff component, which is being actively pursued in an informal Member-driven process. Around fifteen sectors have been proposed for negotiations. If sectors of export interest to the LDCs are included here, this initiative is likely to erode even further the preferential margins enjoyed by the LDCs.
An equally important and integral part of NAMA negotiations is addressing the non-tariff barriers (NTBs). Unfortunately, this area of the negotiations did not receive priority attention from Members since the launch of the Round. There has been a sporadic effort to advance NTB negotiations. In addition, whenever NTB issues were taken up, Members had devoted a lot of attention to procedural matters and its scope within the NAMA negotiations. It is also becoming clearer that the majority of notified NTBs could be addressed either in regular WTO Committees or in other negotiating groups. For instance, several of them pertain to technical barriers to trade (TBT), trade facilitation, customs valuation, sanitary and phytosanitary (SPS) measures, etc.
Despite resource and capacity constraints, two LDCs — namely Bangladesh and Senegal — did submit NTB notifications. The Hong Kong Ministerial Declaration recognised the need for submitting specific negotiating proposals. This is indeed a complex area of work and the LDCs have struggled to identify and make suitable proposals in the negotiations. Only few LDCs have initiated a dialogue with the private sector to feed inputs into the negotiations. Without a proper survey of the private sector, it is difficult for any Member to submit specific proposals.
Let us turn to Agriculture which is the stumbling block of the Round- and remains as such. Without a balanced outcome in the agriculture negotiations, there is little chance of success in other areas of the negotiations. World trade in agriculture accounts for less than 10 per cent (agriculture’s contribution to GDP in the OECD countries is currently around 2.0 per cent), yet positions among the big countries are entrenched in this area. The Chairman of the Agricultural negotiating group recently issued a “challenges” paper highlighting where divisions lie in the talks, and suggesting some ways to close the gap. The paper has drawn harsh criticisms from all quarters. The three biggest sticking points are: how much the US should cuts its ceiling level for domestic support, how much the EU should cut its tariffs on average, and how many “sensitive” and “special” products should be allowed to shield from deeper tariff cuts.
It is difficult to make the US reduce the limit on overall trade-distorting domestic support to single figures as it is difficult to have an upper limit to the number of special products. While these issues do not affect the LDCs directly, it needs careful assessment on the degree to which the tariff cuts would undermine the preferential margins enjoyed by the LDCs and how the net food importing LDCs would fare with the elimination of subsidies. Interestingly, although agriculture constitutes more than 50 per cent of exports for half of the group, the LDCs are not active players in the negotiations. Perhaps, exemption of reduction commitments in agriculture and promise of DFQF market access has made the LDCs complacent in this area of the negotiations. So far, the LDCs have submitted only one proposal (together with the African Group) in a less controversial area of food aid, which falls under the pillar of export competition.
However, on the agricultural dossier, one important part of the equation is cotton. The July Package in 2004 as well as the Hong Kong Declaration have given clear mandate to address cotton ambitiously, expeditiously and specifically within the agricultural negotiations. At Hong Kong, decisions were taken to eliminate all forms of export subsidies by developed countries in 2006.
However, the DFQF market access to all cotton exports from the LDCs has been tied to the conclusion of the DDA negotiations and there has been no movement on the domestic support pillar despite the proponents (Benin, Burkina Faso, Chad and Mali- Cotton four countries) submitting two specific proposals relating to an ambitious reduction of domestic support for cotton.
The writer is Assistant Professor, Department of Development Studies, University of Dhaka.