REPORT ON THE 6TH WTO MINISTERIAL CONFERENCE IN HONG KONG, 13-18 DECEMBER 2005 COMPILED BY XAVIER CARIM, CD: TRADE NEGOTIATIONS, ITED, THE DTI, PRETORIA,

7 JANUARY 2006


Background


1. The negotiating parameters that lead to the scaling back of expectations of the 6th WTO Hong Ministerial Conference (MC6) will in large measure continue to define progress in the negotiations in 2006. This document provides the background to MC6, its key outcomes and offers priority for work for South Africa for the 2006.


2. Aside from accomplishing a vast amount of technical work over 2005, important new developments took place in the months leading to MC6. At the Mini-Ministerial meeting in Zurich, 10 October, the US submitted an important agricultural proposal. As agriculture is key, the US proposal was widely seen as a move to unlock progress. Deeper analysis indicated that while the US offer was inadequate, as it would allow the US to increase currently applied levels of domestic farm support, as an opening gambit, the stage was set for engagement.


3. On 12 October 2005, the G20 submitted its proposal outlining a genuine middle ground in the agricultural negotiations that does not compromise the Doha mandate. The G20 proposed elimination of export subsidies by 2010 and substantial, real reductions in the trade distorting domestic farm support by industrial countries. Global tariff reductions in agriculture offer over 90% of the overall benefits of agricultural reform. In this regard, the G20 proposal offered a middle ground reduction on tariffs for industrial countries at 54% compared to the US 75%. It offered new access to developing country markets on the basis of special and differential treatment (less than full reciprocity at 36% average reduction).


4. The EU was then required to make its proposal. In Zurich, the European Commission (EC) improved its offer to reduce domestic support (from a 65% to a 70% reduction) without going beyond reductions envisaged in the current CAP reform. At the Zurich meeting, the EU indicated it would submit a comprehensive response by 28 October. Between the Zurich meeting and 28 October, the Commission came under severe pressure from some EU Members (particularly France) to remain within the Common Agricultural Policy (CAP) reform mandate. On 28 October, the EC submitted its proposal that precipitated the impasse in the negotiations in two ways. First, whereas the US offered to reduce tariffs by an average of 75% and the G20 proposed 54%, the EU offered only 45% along with a series of caveats for its sensitive products that could see the offer reduced to 24% -less than the Uruguay Round. The EU thus made no meaningful offer in the most important aspect of the agricultural negotiations.


5. Second, the EU made a series of demands that imply enormous adjustment pressure and burden on the so-called "advanced" developing countries (India, Brazil, China, South Africa amongst others) on industrial tariffs and services. The EU is not alone on this: The US and other OECD countries have expressed similar ambition that go beyond mandates agreed in Doha and in the July 2004 Agreement. The EU demands industrial tariff reductions from applied rates of protection whereas the legal basis for negotiations is from the higher bound rates.


Further, the demand for targets in developing country commitments in services undermines built-in flexibilities in both the negotiating format and process. Both sets of demands are insensitive to developing country development needs and regulatory realities, and imply serious economic and institutional adjustments and burden. Moreover, the EU offered minimal adjustment of its own. The EU proposal called for further differentiation among developing countries (between "advanced" and "vulnerable" developing countries) and re-introduced the issue of Geographic Indications. Both issues profoundly polarize WTO Members. Finally, contrary to spirit of any negotiation at this stage, the EU indicated this was its final offer for Hong Kong.


6. In retrospect, the EU proposal and subsequent engagement appeared designed to cause impasse due to a limited negotiating mandate in agriculture. These basic parameters will continue to define both the agricultural and the broader negotiating agenda beyond MC6.


Overview of the Outcomes of the 6th WTO MC


7. While not a direct outcome of the MC6, an important victory for developing countries was that a legally permanent solution on TRIPS and Public Health was secured on 5 December 2005 in Geneva.


8. As modalities would not be agreed, a conscious effort was required to avoid a complete breakdown (as had happened in Cancun) and further delays in the negotiating process beyond MC6. The key objective was to consolidate work undertaken since July 2004 and ensure negotiations continue without compromising its developmental ambition.


9. The broad spectrum of constituencies making up the South African delegation (government, business, labour, communities and Parliamentarians) proved a great strength inside and out of MC6. In advance of the Hong Kong, South Africa had prepared a paper entitled "Reclaiming Development in the WTO Doha Development Agenda" that drew wide support from many developing countries and provided a rallying point for several developmental NGO and Parliamentarian meetings held on the margins. Another important, historic, development involved a meeting of all developing country groupings on one platform (G20, G33, ACP, Africa Union, LDCs, the Caribbean Community). This meeting of the so-called G 110 signaled the possibility for collaboration to harmonise positions of - and counter efforts to divide - developing countries.


Specific Outcomes of the 6th WTO MC


Agriculture


10. Before MC6, the EU came under pressure to offer a credible date for the elimination of agricultural export subsidies. The G20, Cairns, AU, ACP, LDCs and the US all demanded that subsidies be eliminated by 2010. In the final hours of negotiations, the EU reluctantly offered to eliminate its export subsidies by 2013. After a difficult exchange, the G20 agreed to the date provided "the substantial part is realized by the end of the first half of the implementation period" . Nonetheless, the outcome did not move the EU off its CAP timetable. There were no further advances in agriculture.


NAMA


11. The NAMA negotiations are vital to South Africa from defensive and offense points of view. While South Africa stands to gain access to global markets for its industrial product exports, the outcome must be balanced, and we require flexibility to protect employment sensitive sectors (clothing and textiles) and industrial policy space (autos). In the context of the EU (and OECD) demands, South Africa took a lead in establishing a developing country alliance in the NAMA negotiations. The final Declaration reasserts existing flexibilities and establishes a link between NAMA and tariffs negotiations in agriculture in a manner that is "balanced and proportionate".


Services


12. The major challenge in the services negotiations was the attempt by OECD countries (with support from India) to introduce benchmarks and numerical targets for commitments in the service sector that would raise ambition of the negotiations and increase pressure on less competitive developing countries. The AU (including South Africa), the ACP and several ASEAN countries opposed these efforts. The final text removed the prescriptive language and reasserted existing flexibilities in services negotiations.


The Development Package


13. The "Development Package" failed to materialize. LDCs have long demanded that developed countries provide legally bound, duty and quota free market access for all their exports. The US has argued it could not offer full product coverage to such countries as Bangladesh and Cambodia in textiles and clothing as these were sensitive sectors and that such access would displace African countries' exports provided under AGOA. Pakistan surprised most by arguing that it would not accept a deal for LDCs which did not provide some comfort that preferential textile exports from Bangladesh could displace its exports into the US market. The US thus offered LDCs access up to 97% of tariff lines. The 3 percent exemption would allow the US to exclude almost all the products of export interest to LDCs. The final decision at MC6 foresees ongoing negotiations on these issues.


14. The four West African cotton-producing countries (C-4) had insisted on an early harvest in the cotton negotiations in the form of an early removal of domestic support to cotton farmers in the North (US). The US reiterated its position that cotton will only be addressed as part of overall agriculture negotiations. Whereas the US offered to eliminate its cotton export subsidies in 2006, Brazil pointed out this was called for anyway by the recent WTO Appellate decision on the case brought by Brazil against the US trade distorting cotton subsidies. The US agreed to provide duty and quota free market access for cotton exports from LDCs on conclusion of the DDA. Aside from these incremental advances, the US and C4 agreed to continue negotiations in Geneva post MC6, with the C4 maintaining their demand for an early harvest not linked to the agriculture negotiations.


15. On preferential erosion and the special needs of small, vulnerable economies, the ACP group managed to gain further recognition of these concerns in the NAMA negotiations and a commitment to address these in the ongoing negotiations. On Aid for Trade, the final text called on the WTO DG to establish a Task Force to make recommendations to the General Council by July 2006. In sum, incremental gains were made on the development package, but greater political will is required to advance these issues post-Hong Kong.


Way Forward: Post-Hong Kong


16. There was little time for Ministers to consider the timetable of the post-Hong Kong work programme. It is assumed that the Round be concluded by December 2006; that Members achieve full modalities in Agriculture and NAMA by 30 April 2006; and that new schedules of commitments based on the modalities be concluded by 31 July 2006. There was no discussion of how to generate the political will to meet these dates would be accomplished. This remains the key challenge for the negotiations. Without significant changes in positions soon, the main parameters and limitations noted will to continue to plague the process. Advancing the Doha negotiations in the post-Hong Kong period will require renewed political commitment and will by the major developed and developing countries. At this stage, the ED is the main obstacle to progress and unless tremendous political pressure is brought to bear on the ED Member States in the next few months, the WTO is set to miss its deadlines and will certainly not conclude the Round by the end of 2006. Any reduced ambition in agriculture would eviscerate the development content of the DDA and the WTO will continue to prejudice the trade interests of developing countries.