UPDATE ON MULTILATERAL TRADE NEGOTIATIONS IN THE WTO - "THE JULY PACKAGE"

BRIEFING PREPARED BY THE INTERNATIONAL TRADE AND DEVELOPMENT DIVISION (ITEDD), THE DTI

PRETORIA, 23 AUGUST 2004

 

Introduction

1. Since the failure to achieve concrete outcomes at the 5th WTO Ministerial Conference in Cancun, in September 2003, WTO Members undertook a range of efforts to put the negotiations back on track. There was wide acceptance that this would need to be achieved by the end of July 2004 to ensure the negotiations did not enter into an extended period of drift. Members were concerned that the combination of Presidential elections in the United States (US) and the appointment of new Commissioners in the European Union (EU) in the second half of 2004 would delay re-engagement in the WTO at least until the second quarter of 2005.

2. In this context, the decision adopted by WTO Members in the General Council in the early hours of Sunday morning, 1 August 2004 - the so-called July Package -signalled a significant advance in the negotiating process in several respects. First, the July Package represents agreement on what had been unsuccessfully sought in Cancun. Second, in providing a framework for ongoing negotiations, the July Package ensures the process of negotiations is continued on a more focussed agenda. Third, while it is clear the original deadline (December 2004) will not be met, the negotiating process will continue without compromising the Doha ambition, mandate and objectives. The 6th WTO Ministerial Conference is scheduled for December 2005 in Hong Kong.

3. The lead up to the adoption of the July Package illustrated the growing strength and cohesion of the G20. The G20 continued to demonstrate the political unity and technical capacity necessary to influence and shape the outcome of the agricultural negotiations that remains the litmus test of the development credentials of this Doha Round. There was also evidence of growing effectiveness and maturity in the Africa Group to advance its interests and compromise when necessary to achieve overall gains. A positive development was the growing cooperation between the Africa Group and the G20. The Cairns Group continued to make its presence ~t in the agricultural negotiations, particularly through Australia's participation in the small negotiating group on agriculture (explained below).

4. While there was general acknowledgement that the negotiating process had been better managed and was more transparent than in Cancun, there was concern over the central role played by the Five Interested Parties (FIPs) Group comprising the

US, EU, Australia, Brazil and India in setting out the final terms of the agreement in Agriculture. Major players, such as China or Argentina, are unlikely to accept this as a permanent feature of negotiations. India and Brazil, in our view, effectively advanced the positions of the G20 in the FIPs process.

5. The July Package addresses the five issues considered to be the immediate obstacles in negotiations: i) development issues; ii) agriculture; iii) cotton; iv) non-agricultural market access (NAMA), or industrial tariffs; and v) trade facilitation. An annex on Trade in Services was also adopted. At this stage, the services negotiations have been less controversial. The Annex simply reiterates Members commitment to these negotiations and sets a date (May 2005) for the submission of revised offers.

6. Difficult and complex negotiations lie ahead. The July Package only marks agreement on a framework for ongoing negotiations and much work will be required to define modalities that will give more definition to the final outcome. Many difficult decisions are deferred to the next phase of negotiations. This suggests that South Africa will need both to continue to build its capacity to participate effectively in negotiations and build its alliances in the G20, the Africa and Cairns Groups.

KEY ELEMENTS OF THE JULY PACKAGE

Development

 

7. South Africa was requested by the Chair of the General Council to assist as a facilitator on the so-called "weak and vulnerable developing country" issue, which emerged from the letter submitted by European Commissioners Lamy and Fischler. The objective was to provide developing countries that have specific concerns with a basis to ensure these concerns are addressed in the modalities phase of negotiations. At the same time, it was necessary to ensure no new sub-category of developing countries be established, as this could prejudice the interests of developing countries with more competitive economies. South Africa successfully negotiated this text early in the process, providing a basis for successful agriculture and NAMA negotiations.

Agriculture

8. The Doha mandate commits Members to negotiate results that achieve "substantial improvements in market access; reductions of, with a view to phasing out, all forms of export subsidies; and substantial reductions in trade-distorting domestic support." Special and differential treatment for developing countries (S&D) should be integral to the negotiations.

9. The July Package contains the framework to establish modalities in agriculture and contains significant detail on each of the three pillars of agriculture: domestic support, export competition and market access.

 

i) Domestic Support: The main issues in this pillar involved ensuring a genuine cut in overall levels of trade distorting support; reducing the ability of Members shifting support among commodities; reducing the ability of Members to avoid reductions by simply changing "forms" of support; and the US demand for a "new" blue box for support it provides under its new Farm Act.

The establishment of a cap (5% of total value of production) on the blue box (previously unlimited), as well as a cap and an initial 20% "upfront down-payment" on the overall level of trade distorting support are significant outcomes of the framework (especially as one considers that a 20% reduction in trade distorting domestic support is what was achieved in the Uruguay Round as a whole).

The rules for the new blue box demanded by the US will be negotiated in the next phase. This is a significant gain as earlier drafts adopted a new blue box without providing for the development of rules to govern its applicability. Although the overall cap on trade distorting support is higher than current expenditure in most major subsidising countries, the cap represents a major improvement in comparison to the results of the Uruguay Round. The cap is the departure point for further downward negotiations in the next phase.

ii) Export Competition: Significant gains were made in this pillar. The framework contains an "in principle" agreement that export subsidies will be eliminated by an "end date to be agreed". While negotiations will continue to define the end date, it is an historic achievement that there is agreement to eliminate export subsidies. The next phase of the negotiations will deal with other forms of subsides that have an equivalent effect. These may include instruments such as export credits, exporting state trading enterprises and food aid.

iii) Market Access: A serious imbalance in the earlier draft of the framework agreement was corrected in the final decision. In the earlier version. "sensitive products" for developed countries were defined so widely as to exclude the possibility that developing country exports could gain substantial improvements in market access. Moreover, the sensitive products for developed countries were accorded greater prominence than the sensitive and "special products" of developing countries. This was addressed in the final draft by postponing negotiations to define sensitive products to the post-July phase of negotiations. Similarly, criteria for defining sensitive and special products of developing countries will be negotiated post-July.

In addition, special mention is made of the undertaking in the agriculture agreement for developed countries to provide enhanced access for tropical products from developing countries as well as recognition that the vital issue of preference erosion must be addressed in the modalities negotiations.

iv) Cotton: The West African proponents seeking to redress the devastating effects of industrial country domestic support to their cotton producers (mainly the USA) came under intense pressure from the US negotiators to accept that the issue of cotton be addressed within the overall framework of the agriculture negotiations. This is now the approach to be followed. The possibility for an "early harvest" in the form of firm commitments relating to domestic support in the area of cotton was delayed to the next phase of the negotiations.

Non Agricultural Market Access (NAMA)

 

10. In Doha, Ministers agreed that negotiations shall aim, by modalities to be agreed, to reduce, or as appropriate eliminate tariffs, tariff peaks, tariff escalation as well as non-tariff barriers in particular to products of export interest to developing countries. The mandate also specifies that "less than full reciprocity" in favour of developing countries shall be integral to negotiations.

11. In preparations for the July meeting, two main issues constrained progress. First, many Members were reluctant to negotiate on NAMA without having greater clarity on progress in agriculture. Second, there was disagreement on what should constitute the basis of the negotiations. Industrial countries had supported using the Cancun text on NAMA as an agreed starting point.

12. Many developing countries, including the Africa Group, opposed this text as it pre-empted negotiations on the tariff reduction formula (specifying a non-linear ambitious phase down); committed Members to sectoral negotiations (zero-for-zero negotiations in certain industrial sub-sectors); and did not, in the view of many. provide sufficient flexibility for developing countries.

13. When no consensus emerged and the Chair resorted to advancing the Cancun text as the basis for negotiations, developing countries, and African countries in particular, negotiated intensely to shift the terms of the negotiations. It was finally agreed that a new introductory paragraph be inserted. This paragraph effectively opens the Cancun text for further negotiations. The outcome also ensures balance between the NAMA and agriculture negotiating processes.

Trade Facilitation

14. The outcome of the negotiations on Trade Facilitation signals two important advances in the negotiations. First, in seeking to reach consensus to launch negotiations on Trade Facilitation, the EU and other proponents for negotiations on the other Singapore issues (investment, competition, transparency in government procurement) had to agree to drop these from the negotiations. This has addressed what many Members considered to be an over burdening of the negotiating agenda and has cleared the way for progress on other issues.

15. Second, the consensus to launch negotiations on trade facilitation also required agreement on the framework within which the negotiations would proceed. The key element involved linking commitments to implementation capabilities. This related to investment on infrastructure, technical assistance and capacity building and special and differential treatment.

Xavier Carim, Chief Director: Trade Negotiations, ITEDD