WTO Negotiations: Secanario# 3 prevailed

Re: Commerce Minister’s Participation in the Ministerial at Davos: A Briefing Paper by the Chief WTO MINFAL

The forum and related bilateral interactions provide an opportunity to help narrow down the differences, in the stalled negotiations, and also advance Pakistan’s perspective on these issues.

Following brief may help in this regard:

State of Play in the ongoing WTO Negotiations:

The ongoing trade negotiations have entered a critical stage reflecting their convergence with two key U.S. policy events: the expiration in 2007 of both current U.S. farm legislation and of Trade Promotion Authority (TPS). Under TPA, if the Administration meets negotiating objectives established by Congress and satisfied consultation & notification requirements, then Congress would consider implementing legislation for a Doha Round Agreement with limited debate, no amendments, and a straight up-or-down vote. TPA is set to expire on July 1, 2007, and, although Congress could extend the deadline, there is concern that such a vote would be both rancorous and uncertain in outcome.

The active participation of developing countries in the Doha Round distinguishes it from previous multilateral trade rounds held under the auspices of the General Agreement on Tariffs and Trade (GATT)- the predecessor of the WTO. During the Uruguay Round, an agreement between the United States and the EU on agricultural issues at Blair House in 1992 paved the way for a successful conclusion of this last GATT Round. However, a U.S.-EU joint proposal on agriculture during the 2003 Cancun Ministerial meeting was challenged with strong opposition from a group of developing countries. This group, led by Brazil, India, and Chine, known as the G-20, has remained together since Cancun and is playing a key role in the Doha agricultural negotiations. The G-20 was first among the major players in the Doha Round to offer a proposal on agricultural modalities in advance of the Hong Kong meeting, and its proposal has become a benchmark for evaluating other, developed country proposals. Not only the more advanced developing countries like the G-20 members, but also the least developed countries (LDCs) are participating actively in the Doha negotiations. The African Cotton Initiative (C-4), first introduced during the Cancun Ministerial, is an example of the LDCs attempting to use multilateral trade negotiations to accomplish their policy objectives. The LDCs also were instrumental in blocking an overall agreement at Cancun when they rejected a EU proposal to enlarge the negotiating agenda to include discussion of the so-called “Singapore issues” of trade facilitation, competition policy, investment, and transparency in government procurement. Subsequent agreement to limit negotiations of Singapore issues to just one – trade facilitation.

The WTO Director-General Pascal Lamy reported to the General Council on 14 December 2006 that “an increasing level of engagement” is starting to appear in consultations with Members by Chairs of the Negotiating Groups.

Though changes in numbers have yet to emerge, he said, there was a willingness to enter into discussions on substance, and contacts between Members remain ongoing, with some at Ministerial level scheduled early next year. He said:

“So we can be ready to engage fully on substance when the time comes. “We need to.. increase the rhythm of informal work when we return after the break, in order to exploit the window of opportunity that remains ahead of us in the first quarter of next year. Failure could be just around the corner but we need not turn that corner. With everyone contributing and playing their part, we can stay on track to take this Round to a successful conclusion next year,” concluded the WTO DG.

A series of talks among key players, beginning this January, support optimism expressed late 2006 that the stalled Doha Round might be revived in the coming weeks.

After a meeting between EU President Jose Manuel Barroso and US President George W. Bush in Washington D.C. on 8 January, Barroso said negotiators had been told to come up with a solution to the impasse “as soon as possible, as we are really at defining moment,” he remarked.

President Bush said both the US and the EU recognized “the best way to help impoverished nations is to complete this Doha Round to encourage the spread of wealth and opportunity through open and reasonable and fair trade”. Senior US and EU trade negotiators said they would respond by intensifying efforts to achieve a breakthrough in the next two weeks.

Earlier, EU Trade Commissioner Peter Mandelson said negotiations between the US and EU were on a “knife edge”, but that he had not given up hope of agreement. “After a series of meetings of senior officials, it is clear that the gap between us is no longer such as to dismiss hope of a successful outcome. “We are not that far apart to give up on the process.”

Also on 8 January, German Foreign Minister Frank-Walter Steinmeier said after talks with WTO Director-General Pascal Lamy there was still a chance of a breakthrough. “Despite all the difficulties, we have embarked on a path that makes an agreement appear possible,” adding that Germany would use its role as current EU president to work for a resumption of the talks.

The week before, Brazilian Foreign Minister Celso Amorim met with US Trade Representative Susan C. Schwab in New York to discuss the suspended trade negotiations.

In the aftermath of the Uruguay Round, countries whose agriculture is dominated by small-scale farmers oriented to domestic production discovered that they have a different interest in trade reform than do those countries whose farmers operate at large commercial scale oriented to world markets. As Members began thinking about how to frame the Doha Round Negotiations, many developing countries argued that “food security” should be a legitimate reason to undertake lesser liberalization obligations in any new deal. By Cancun, the idea of “Special Products” had taken hold.

At the same time, some of the rich countries whose small-scale highly protected farmers feared further liberalization began to promote the idea that some products are too “Sensitive” for real reform. And then producers of cotton and bananas realized that a simple formula approach to tariff reduction would not necessarily advance their interests. Sugar producers dependent on preferential access to the EU market worried that they could be wiped out by real liberalization of the EU subsidy regime. Countries that are net food importers were not at all in favor of an end to subsidized exports from rich countries, which has given them food at below market prices. As Members became aware of this growing complexity, in part through discussion in existing groups, they reconsidered their allies, which led to the formation of new groups, and to the participation of many countries in more than one group.

Agriculture negotiations are different today, in contrast to GATT-UR. The EC and USA dominated the Tokyo Round process, and the agriculture modality was bilateral bargaining. In the pre-Uruguay Round period, the Cairns group mobilized to ensure its members would have a voice, a particular Australian concern after their Minister was left out of the key meetings during the 1982 GATT ministerial. During the early stages of the Uruguay Round, the new domestic dimension of trade policy needed new ideas, which created an opening for policy entrepreneurs. In the process of learning, frequent informal dinners among the lead negotiators were invaluable, though most participants were from OECD countries, except for Brazil. Now in the Doha round, groups have proliferated, for at least three reasons.

Today at first place , the growing number of Members, each of whom has the institutional power to block consensus, created the need for the leading Members to meet in small groups to manage the process. Second, the WTO unlike the GATT is a “Single Undertaking”, which means Members can accept the entire package, or nothing. Members have gradually understood the implication, that all aspects of the system are connected: in the Doha Round, Members are highly conscious of the interaction between negotiations on goods, agriculture, services, and rules. In this inherently multilateral process it is easier for small states to aggregate their material power in coalitions than to work alone. Power and learning are not opposed concepts: the ability to make ideas effective depends on power, but changing modalities mean different forms of power can be salient. Third, the most significant change might be in the modalities for the negotiations. Multilateral modalities such as formula approaches to tariff rate reductions or new rules for domestic support provide more opportunities to block consensus than bilateral modalities such as “request and offer”. But these modalities also require a high level of engagement and negotiating resources because the agreed formula or rules usually require domestic regulatory changes by Members and, once agreed by all, apply to all. As trade policy moves behind the border, voice becomes more important, and it becomes all the more important as exit becomes less plausible for any country.

The complex pattern of meetings is directed to a simple goal, finding a consensus on a deal to reform global farm trade as part of a Single Undertaking package for the WTO Doha Round as a whole. But that goal is anything but simple, because the deal need to strike a balance between the interests of both developed and developing countries, for example large commercial farmers in Europe and Brazil with those of small rice farmers in the Philippines and dairy farmers in eastern Canada. The current process has emerged as a means to help everybody learn about the issues and the technical complexities of the possible solutions. At its core are discussions among a small group of Members on the elements of a compromise. In Hong Kong, delegations were happy with the so-called “bottom up” process (inputs coming directly from members rather than from above), but the challenge in 2006 is moving to a “text-based” process. Will the Members in the small groups, like the Green Room, be able to explain to those they represent the basis for the text that emerges, and will it be seen to be a legitimate compromise?

The agriculture process evolved to accommodate changing configurations of power, more complex issues, and new modalities. The WTO will always face the institutional design task of providing a forum for all 150 Members to understand the intentions of all other Members (transparency), and to learn about complex new issues (new consensual knowledge for the public and officials), a forum where all Members have a voice. The challenge is squaring the circle of the formal equality of members, and their practical inequality in capacity to participate in negotiations or contribute to the outcome. The evolving process for farm trade negotiations may provide a model. If agriculture is about to contribute to a successful Doha outcome, this new process, however complex and cumbersome, will have proved its worth, and may suggest new avenues or future research on the contribution of institutional design, in contrast to the usual political economy approaches to explaining international economic outcomes.

Conclusion: The negotiations on Doha Development Agenda (DDA) are facing their most difficult phase after having been suspended de facto across the board on 27 July. Their current status can be characterized as interplay between entrenched positions of key trading nations on the one side and the pressure to resume negotiations (mainly from developing countries) on the other, combined with an overall lack of leadership. It remains rather unclear when the negotiations of the DDA will be resumed and what the implications of the final outcome are for developing countries.

In a globalized world, a fair, rules-based multilateral trading system is more crucial than ever. The DG/WTO described the current system in his speech at the European Parliament on 17 October: “It is as if economic decolonization had had to wait 50 years after political decolonization”. To achieve the former, a radical change of the mercantilist negotiation logic, combined with strong leadership is critical, but still missing among the major players.

The major challenge of a “Development” Round is to contribute to the goal that trade works better for development. In this regard, three problems emerge:

-First, there is no panacea, i.e. each of the 150 WTO members has to find a somehow different strategy.

-Second, conductive multilateral rules are important but must be complemented by supportive national and /or regional measures. Their, trade opportunities and adjustment costs arising from a successful completion of the Round are distributed unequally among WTO members.

Possible scenarios: Doha Round and their implications for development.

Scenario 1: The Round will be concluded in 2007 by a bottom-up approach: Possible but difficult.

This scenario requires that WTO members get back to the negotiating table soon and conclude a DDA framework agreement until the end of March 2007. This agreement must include modalities in the areas of agriculture and NAMA, final offers in services and an agreed text in trade facilitation and rules. The March deadline arises from the political timetable in the US, since US Congress will have to decide on the prolongation of the “Trade Promotion Authority” (TPA) and the “Farm Bill” by this time. While the now Democrat-dominated Congress indicated some willingness to renew the TPA if labor and environmental provisions are included, the future of the Farm Bill is more uncertain. Since it regulates the US domestic farm support program, its reform is necessary to allow the US more flexibility in the agricultural negotiations. In contrast to the Republicans, Democrats are traditionally less dominated by farm lobby groups and will probably be more skeptical about the program, given its high burden for the US budget. The development impact of this scenario would be rather modest, although not negligible. While agricultural export subsidies would be reduced until 2013 (in the case of cotton even earlier, combined with a reduction of domestic support), overall trade-distorting regulations would not be removed drastically and the level of real subsidy spending in developed countries not be reduced significantly. In NAMA, moderate cuts in tariffs; tariff peaks and escalation would correct some of the imbalances and offer few developing countries more possibilities for increasing their exports, whereas other developing countries would face negative effects. While progress could be achieved in trade facilitation, this seems unlikely in areas, such as services or rules, except from the reduction of fisheries subsidies.

Scenario 2: The Round will be concluded in 2007 by a “Lamy text”: Unrealistic but possible

Along the lines of the “Dunkel text”, it is speculated that Lamy could come up with a similar text, offering a minimal consensus. This would require an active interpretation of his role as “facilitator” and “catalyst” as well as strong leadership. Lamy already came forward with a proposal, trying to facilitate a solution at the June 2006 “Mini-Ministerial”. Both developing and developed countries, however, rejected this. Thus, it seems unlikely that such a text, produced by a top-down approach would gain the final approval of all WTO members. Nevertheless, it might be a useful instrument to facilitate the first scenario.

Scenario 3: The Round remains stalemated for some years: Realistic but undesirable.

If the first scenario does not deliver, the Round will be stalemated at least until the US presidential elections in 2008. It will reduce pressure from governments, and offers that are already on the table might be watered down or disappear completely. The French election in 2007 will influence the level of flexibility of the EC especially in the area of agriculture. This scenario gives countries time to follow a holistic approach and could lead to the resumption of the “Singapore issues” or even financial topics. It is unclear if development concerns would be taken more seriously by then.

(Dr. Syed Wajid H.Pirzada)

Chief WTO,MINFAL