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To: Geneva Update <geneva-update@lists.iatp.org> Geneva Update 27th June, 2005
FORMULA ONE RACING: WHO'S GOING TO WIN THE GRAND PRIX? By Alexandra Strickner and Carin Smaller, TIP/IATP
CONTENTS I. THE JULY SCRAMBLE II. THE FORMULA DEBATE III. AGRICULTURE: a game of tactics IV. COMMODITIES: addressing the crisis V. NAMA: the dangerous dynamics VI. SERVICES: developed countries push for change? VII. PROCESS: will it ever change? VIII. THE FORMULA GLOSSARY IX. IMPORTANT DATES TO REMEMBER X. DOCUMENTS
THE JULY SCRAMBLE
Delegations in Geneva are concerned about the lack of progress in the negotiations. As the membership approaches the July General Council, there is a scramble to draft language for the so-called "July Approximations." The Chairs of the different negotiating committees will write detailed first texts outlining the rules for making commitments. The most contentious issues will be left blank. Filling in figures and numbers will also be left to a later date.
The stage is set for another U.S.-E.C. onslaught. In the services negotiations, the E.C. will push hard to establish benchmarks for minimum offers that countries must make. In non-agricultural market access (NAMA), the Chair, Ambassador Johannesson, along with the developed country membership, have decided that there is consensus on the U.S. simple Swiss formula and intend to submit a formula of this type in July. In agriculture, the U.S. and E.C. are showing strong resistance. This is the area of the negotiations where they have to make concessions and they are simply unwilling. The E.C. and the U.S. refuse to address domestic support, in particular the U.S. proposed expansion of the blue box to accommodate its subsidy payments. The U.S. is maintaining a hard line on food aid and the E.C. is becoming more defensive in market access. The Chair of the agriculture negotiations, Tim Groser, has already lowered the ambition of agriculture compared to NAMA and services. He has said he will not submit a "July Approximation" on the formula for market access and it is unclear whether he will be able to submit anything on domestic support. If all this goes according to plan, the U.S. and E.C. will get key commitments in the areas most important to them, services and NAMA, and they will be able to postpone making any key commitments in agriculture until later in the year, the area of key importance for much of the rest of the membership. This course is not yet locked in but there are strong indications that things are heading this way. Of course, developing countries could decide to insist that, as a Single Undertaking, they cannot make commitments in NAMA and services without some indication of how far the U.S. and E.U. are willing to go in agriculture. But it will be a fight.
THE FORMULA DEBATE
In both agriculture and NAMA negotiations, the discussions are focused on how much each country will reduce barriers to trade at the border, particularly tariffs. Tariffs are trade measures that allow countries to control the price, speed and volume with which imports enter their domestic markets. Tariffs are often used to generate government revenue, and sometimes to protect local production from foreign competition. Well-designed tariffs are cheap, transparent and easy to apply, which makes them very useful for developing countries with relatively weak administrative capacity and little if any money to support their domestic producers with direct subsidies.
Both the NAMA and agriculture negotiations committees are working to develop a formula to apply to each country's tariff structure to reduce their tariffs. The negotiators want to find a formula that will cut higher tariffs more than lower ones, but of course, countries are also manoeuvring to try and avoid cutting their own tariffs as much as possible. There are several types of formulas being proposed. (Please see below for a detailed glossary on the different formulas.)
The outstanding feature of the formula debate is its utter lack of consideration for how such a simplified approach will play out in practice, particularly on livelihoods in developing countries. In many cases, a single formula is proposed for all countries to apply. This is ludicrous. First, this approach ignores the diversity of tariff structures across different countries and the importance of that diversity as a way for countries to regulate the flow of goods into their country to help develop local production and industries. Second, it ignores the very different economic capacities among different countries. Most developed countries have already reduced their industrial tariffs to relatively low levels, although many still rely on high tariffs for many of their agricultural products. Developed countries also have access to other forms of protection for their producers because they have much larger budgets than developing countries. On the other hand, tariff measures are vital tools for developing countries both now or for the future, as the demands to best serve their domestic development needs evolve. To reduce tariffs now, and to lock in those reductions, not only restricts existing opportunities for economic development but ruins future prospects to use tariffs for development.
AGRICULTURE: a game of tactics
In July 2004 members agreed to reduce agricultural tariffs through a tiered formula with high tariffs to be cut more than low tariffs. The debate is now about how many tiers to create, the threshold for deciding which tariffs go into which tier and the type of tariff reduction formula to be applied to each tier. At the heart of this negotiation is how ambitious countries are willing to be in their tariff reduction. Agriculture exporting countries including the U.S. and the Cairns Group, particularly Australia and New Zealand, support an ambitious formula that will cut tariffs steeply, known as the Swiss formula. Countries that want to continue to protect their agriculture with tariffs, including the E.C., the G10 and India, would prefer to use a formula that reduces tariffs more gently using average percentages, known as the Uruguay Round formula. The Chair of the Committee on Agriculture, Tim Groser (currently working in his personal capacity as he retired as Ambassador in May to run for office in the New Zealand elections), urged members not to be wedded to particular formulas and to look for alternative ways to reduce tariffs. Canada presented an alternative formula proposal and China suggested a mix of the two approaches. (see links below to the Canadian proposal and the WTO Secretariat Background notes.)
The debate is well under way and once again it seems like developing countries will be coughing up the concessions. The key aspects are the tariff reduction formula, sensitive products, special products (SPs) and a special safeguard mechanism (SSM) (see Geneva Update 13th May, 2005 for further details). The E.C. is moving towards a position where it can put most of its products in the tariff reduction formula, apply a Uruguay Round formula (which will have a gentle tariff cut) and leave only very few products for the sensitive products category. The E.C is confident that the internal Common Agriculture Policy (CAP) reforms undertaken in 2003, where they lowered the internal prices paid to agricultural producers and introduced decoupled income support payments, will mean that any tariff reduction commitments under the WTO will not increase actual imports. Australia, New Zealand and Canada are aware of this. They are proposing formulas with steep tariff cuts because they want to see the E.C. forced to use the sensitive products category, which will make the protection in use more obvious and which will come with tariff rate quotas that will be lower than the regular applied tariffs under the formula cuts. Australia and New Zealand know the only way to get market access into the E.C. is though increased tariff quotas under the sensitive products category. Canada plans to protect its supply management system by using the sensitive products category and wants the E.C. as an ally in the fight.
So far there has been only limited discussion on domestic support, including how to reduce the amber box, the possible expansion of the blue box and the review and clarification of the green box.
Instead of putting development and the needs of developing countries at the centre of the debates, the negotiations are focused on how much market access countries are willing to provide, with very little concession to special and differential treatment. Far from creating trade rules that effectively address dumping, the agriculture negotiations seem set to further open the markets of developing countries and so make them more susceptible to dumping.
While the market access games continues, the only issue that is linked to development - the special products category based on criteria of food and livelihood security and rural development - is seen as a nuisance issue that must be limited in scope and given very strict parameters. The G33 alliance of developing countries on SP and SSM are fighting hard for greater recognition of these issues. They submitted a proposal to the Committee on Agriculture (see link below) and issued a Ministerial Communiqué. Importantly, they linked SPs and the SSM to human rights, underlining "that addressing the problem of food and livelihood security as well as rural development constitute a concrete expression of developing countries' right to development" and strongly stressed that the selection and designation of SPs must be made according to the "domestic policy context and circumstances of individual developing countries." If the WTO membership is serious about food and livelihood security and rural development, then they must ensure that SPs are given broad criteria that allow developing countries to designate products on the basis of these issues rather than linking them to other commitments (for example, the ambition of the tariff reduction formula or to the designation of sensitive products).
COMMODITIES: addressing the crisis
In the week of agriculture meetings, 30 May to 3 June, a group of African countries including Côte d'Ivoire, Kenya, Rwanda, Tanzania, Uganda and Zimbabwe, made a submission calling for action to address the commodity crisis arising from the decline in prices of primary commodities (see link below). They called on the WTO Committee on Agriculture, the Negotiating Group on Market Access for Non-Agricultural Products (NAMA) and the Committee on Trade and Development (CTD), to address the crisis jointly. They emphasized the need to ensure "stable, equitable and remunerative prices under the umbrella of the WTO" for primary commodity producers and to "adopt systems of supply management that involve control over production for dealing with structural oversupplies in commodity markets." Finally, they highlighted the negative impact of the "colossal power asymmetry" in commodity markets which allow a small number of multinational companies to gain an ever-increasing share of the profits from commodities trade, leaving producers in developing countries impoverished and unable to gain a fair price for their produce.
This is an important initiative. By calling for systems of supply management and tackling corporate concentration, the proposal offers meaningful alternatives to tackle the root causes of dumping. The WTO currently does have rules that address elements of agricultural dumping: the Agreement on Agriculture, for example, reduced export subsidies, which is one cause of dumping. However, though the final elimination of export subsidies was mandated in the July Package last year, export subsidies are only one small part of the problem. The AoA does not tackle the root causes of dumping: namely unmanaged production and the market power of corporations. In addition, the AoA categorization of domestic support into various boxes allows developed countries to side-step the question of how much support they provide to their agricultural sectors and what impact that support has on others, particularly in the South.
The commodities proposal submitted by the group of African countries is a refreshing step towards tackling a very serious, trade-related, poverty crisis and it deserves careful consideration and discussion by the WTO membership.
NAMA: the dangerous dynamics
In the last NAMA negotiation session, the Chair, Ambassador Johanesson indicated convergence among the membership in support of the U.S. proposal of a simple Swiss formula with two coefficients. Much emphasis was placed on the Asia-Pacific Economic Cooperation (APEC) Declaration, which supported a Swiss formula for the WTO NAMA negotiations. However, several qualifications must be made. First, APEC Declarations are not considered to form the mandate of member-states' positions at the WTO. There are a wide range of APEC member-states, both developed and developing, including the U.S., Australia and many Asia-Pacific countries, and they do not negotiate together at the WTO. Second, reference to a Swiss formula is a very broad statement since all the formulas that have been put on the table in NAMA are "Swiss-type" formulas, including the Argentina, Brazil and India (ABI) proposals. Third, it is simply inaccurate to claim convergence on a U.S. formula, when Caribbean countries support the ABI formula and when the voices of the Africa Group were absent because they were at the Africa Union Ministerial in Cairo.
The move is indicative of the dynamic in the NAMA talks: while both services and agriculture still face considerable disagreement, NAMA negotiations move rapidly. Developed countries share a common position in the NAMA talks and whilst they do not negotiate as a group, the statements they make and proposals they submit demonstrate a common agenda and give greater force to the pressure exerted on developing countries to liberalise their industrial sectors. Developing countries on the other hand have varying interests in the negotiations and are often divided. This is a huge disadvantage both in terms of potential joint proposals on the elements of the negotiations and also in terms of power relations. Furthermore, industry lobbyists have been coming to Geneva during negotiating sessions, organizing meetings in the WTO and privately with developing country delegations to put further pressure on them to liberalise particular sectors. This has happened for electronics, forestry products, chemicals, and other products.
SERVICES: developed countries push for change?
End of May 2005 the deadline for revised offers has passed. Until now, the E.C., the U.S., Australia, Hong Kong, Taiwan, Canada, Singapore, Korea, New Zealand, Brazil, Bahrain, Surinam and Iceland have tabled revised offers. Whether there is an Improvement in the quality of revised offers remains unclear. WTO members seem to complain about the quality until now. However the informal meetings taking place in Geneva as well as the statement of the Chair of Services negotiations, Chilean Ambassador Alejandro Jara, at the last Trade Negotiation Committee (TNC), indicate a drive to change the "methodology of negotiations." Developed countries in particular - the countries most interested in services liberalization - want more and better offers. The request and offer process however is designed to give each WTO member the freedom to decide whether to table an offer as well as its quality. Given this situation, the E.C., the U.S., Switzerland and other developed countries are advocating the need to change this process and make services negotiations more compulsory by introducing quantitative and qualitative benchmarks. Recent information from trade negotiators suggest the EC is planning to propose that out of a certain number of services sectors countries need to make a minimum number of commitments (e.g. 8 sectors from 10 commitments). Developing countries will have to make commitments in fewer sectors. In terms of quality, the benchmarks could require that in the selected sectors, countries agree to autonomous liberalization. According to Geneva sources, the E.C. has been inviting several countries such as the US, Canada, Japan, Brazil, India, Indonesia, Malaysia, China, Hong Kong and Rwanda to an informal meeting in Geneva to discuss the current situation in services negotiations and develop proposals on how to change the negotiation process to ensure an outcome.
Since the E.C., the U.S. and other developed countries have their offensive interests in services and NAMA, it is to be expected that the "crisis" scenario will soon re-emerge in the public messaging of the Chair of the negotiations as well as by the major developed countries. For the July Approximations, developed countries will aim to change the negotiating process. If this takes place, developing countries will be making a major commitment in services. The position of the large number of developing countries on this issue remains rather unclear. Given the far reaching consequences of services liberalization in general, and also the far reaching consequences that such a change in the negotiation methodology would have on the negotiating power of developing countries in relation to other areas including agriculture and NAMA, it is to be hoped that this does not happen. More than 180 civil society organizations have already spoken out against such a change of the negotiation process in a joint statement on services negotiations. Among these organizations are many global, regional and national trade unions from the South and North.
Besides the issue of benchmarking, conflicting debates are taking place on the issues of domestic regulation and special safeguard measures. In an informal meeting on the issue of special safeguard measures - strongly advocated by Asian countries - both the WTO Secretariat and the Chair of the services negotiations took strong positions against such measures, according to Geneva sources. This is quite worrying, since it is expected that the chair and the WTO Secretariat remain neutral and do not impose their opinions onto the membership.
During the services cluster that starts as of June 27 until July 1, there will be a stocktaking of current offers, a special LDC session and further discussions on domestic regulation. Some civil society organizations will meet services delegates from key countries to expose concerns. It is to be expected that at the end of this cluster, Ambassador Jara will try to come up with a first text for the "July Approximations" to take to the China Mini-Ministerial.
PROCESS: will it ever change?
The lack of transparency and exclusiveness of the negotiating process remains firmly entrenched. The rush towards the July General Council has led to a series of informal meetings both inside and outside the WTO, many of which were not representative of all the interested parties. For example, the E.C. held a Senior Officials Meeting in Davinne, France which focused on all areas of the negotiations and according to sources created big rifts between the E.C. and U.S. over export competition, food aid, domestic support and the market access formula in agriculture. (see link below to E.C. food aid proposal)
Meanwhile, the Five Interested Parties (FIPs - U.S., E.U., Australia, Brazil and India) seem to be in trouble. There have been discussions about a possible expansion and a rethinking about the role of the group. Several FIPS meetings have been cancelled under pressure from the rest of the WTO membership, who resent the exclusive nature and power of the grouping.
Yet aside from statements in the Committee on Agriculture and the Trade Negotiating Committee, there has been no formal demand from WTO members to disband the group and make the process more inclusive and transparent. Neither has there been any formal request to make the informal negotiating process within the WTO more transparent, for example, by requesting the Secretariat to ensure that minutes are taken of all meetings and written reports are made available in a timely manner. While civil society groups consistently demand for greater transparency and inclusion of all members in the negotiations, it is essential that those members who are regularly excluded take appropriate steps to ensure the necessary changes.
THE FORMULA GLOSSARY
A HARMONIZING FORMULA: when a formula is referred to as having a "harmonizing" effect it is designed principally to make steeper cuts on higher tariffs, so as to bring all the final tariffs closer to the same level.
A COEFFICIENT: the number that determines the final tariff rate for each product. For example, if the coefficient is set at 25, then the formula will be designed to bring the final tariffs close to or at 25 percent.
SWISS FORMULA: this is a harmonizing formula that uses a single mathematical formula to produce a narrow range of final tariffs. A "simple" Swiss formula will select an arbitrary coefficient for all countries irrelevant of their starting point so that everyone's tariffs are set at the same level. For example, countries would select a single coefficient and all WTO members will have to bring their tariffs close to that level.
GIRARD FORMULA: this is a harmonizing formula that uses a single mathematical formula to produce a narrow range of final tariffs. It differs from the simple Swiss formula in that each country has its own coefficient calculated on the basis of the country's national tariff average. It is often referred to as a "Swiss-type" formula.
URUGUAY ROUND FORMULA: this is the formula that was used in the Uruguay Round for agriculture tariff reductions. Tariffs are cut by a percentage average over a number of years. For example, developed countries agreed to cut tariffs by an average of 36% over six years with a minimum of 15% on each product. The combination of average and minimum reductions allows countries the flexibility to vary their actual tariff reductions on individual products so that some cuts will be greater than others.
CANADIAN "INCOME TAX" FORMULA: this is a new formula that was proposed in June 2005 in the Committee on Agriculture. It is a harmonizing formula. Instead of applying a single cut to the entire tariff, different percentages are applied to different portions of the tariff, in a similar way to which European income tax is calculated.
ABI FORMULA: the Argentina, Brazil and India (ABI) proposal for formula in NAMA. The formula is essentially a Girard formula.
See http://www.wto.org/english/tratop_e/agric_e/agnegs_swissformula_e.htm and http://docsonline.wto.org:80/DDFDocuments/t/tn/ma/S3R2.doc IMPORTANT DATES TO REMEMBER June 27-29 LDC Ministerial, Lusaka, Zambia July 9-10 Mini-Ministerial, China July 27-29 General Council September G20 Meeting, Pakistan November Mini-Ministerial, Korea The next negotiating sessions will take place: Agriculture 4 July - 8 July NAMA 4 July - 8 July Services 20 June - 1 July DOCUMENTS Chair Groser's Food Aid Paper http://www.tradeobservatory.org/library.cfm?refid=73079 EC non-paper on Food Aid: http://www.tradeobservatory.org/library.cfm?refid=73273 Chair Groser's Exporting State Trading Enterprises Paper http://www.tradeobservatory.org/library.cfm?refid=73078 G33 Proposal on SP/SSM http://www.tradeobservatory.org/library.cfm?refid=73080 G33 Ministerial Communiqué http://www.tradeobservatory.org/library.cfm?refid=73101 Commodity Proposal by a Group of African Countries http://www.tradeobservatory.org/library.cfm?refid=73146 The Canadian Proposal for a tariff reduction formula: http://www.tradeobservatory.org/library.cfm?refid=72991 The WTO Secretariat Interpretation of the Canadian proposal: http://www.tradeobservatory.org/library.cfm?refid=72992 The WTO Secretariat Background note on different types of formulas: http://www.wto.org/english/tratop_e/agric_e/agnegs_swissformula_e.htm Discussion about a tariff reduction formula at a market access retreat held April 15-16, 2005: http://www.tradeobservatory.org/library.cfm?RefID=72871 Carin Smaller
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