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Bill Rosenberg: WTO (Hong Kong) Wrap Up - Part One

WTO (Hong Kong) Wrap Up: Part One

By Bill Rosenberg

The official line from the WTO’s Director-General Pascal Lamy is that the 6th WTO Ministerial conference in Hong Kong, was a modest success, and that its scant results recognised that this is a “Development Round”, putting the developing countries to the fore.

Yet the process and outcome leaves developing countries not only seriously disadvantaged but with more and more rungs sawn away from the development ladder. Most are expressing disappointment.

One of the achievements of the meeting is a distant and conditional end date of 2013 to the EU’s agricultural export subsidies. Though highly significantly politically, it will make barely noticeable inroads into third world poverty, and may in fact increase prices in some food importing countries. Export subsidies are only about 3 billion euros a year compared to EU domestic support of 55 billion euros whose reduction is yet to be negotiated.

One condition of ending export subsidies is measures which could endanger our remaining producer board, Zespri, leaving its producers as unhappy as pipfruit growers after the loss of their marketing board. As with most of the elements of the negotiating round, details on this are yet to be agreed.

The second heralded achievement of the meeting was a package for the Least Developed Countries. Its two main parts were an “Aid for Trade” package and “Duty free, quota free” access to developed country markets by 2008.

The aid package is supposed to assist these countries make the enormous adjustments necessary as their markets are opened, creating unemployment, and government income from tariffs is lost, threatening public services. Yet it is largely smoke and mirrors. There is no enforceable commitment to the money required. It may include debt-increasing loans, and most of the grants look likely to be merely redirection of existing aid funds, often with onerous conditions attached. For example, only 250 million euros of the EU’s promised 2 billion euros is new money. The package is seen as a bribe for silence rather than a solution to the problems of trade liberalization.

“Duty free, quota free” market access allows the developed countries to exempt 3% of their tariff lines from the concession. Cynical use of this exemption (and cynicism is the rule in international trade) would allow them to continue to charge duties and apply quotas to the most important exports of each least developed country. There is no timeline for the commitment to phase out the 3%.

Finally, there is a begrudging and miserly acceptance by the US that its cotton subsidies are harmful to other cotton producers, including some of the poorest countries in the world. Export subsidies will go from 2006, but they are small compared to the price-distorting domestic support US growers receive, whose phase-out must wait agreement on the rest of the agriculture package. This slow movement is despite a WTO ruling that these subsidies are illegal.

What is the price developing countries will be paying for these minimal concessions, remembering that any further agricultural market opening will bring global benefits measured in only cents per person per day, and then much greater benefits to consumers in the industrialised world than peasant farmers in the developing world?

The price comes in two huge tranches.

First, they will be expected to make large reductions in their tariffs on imported non-agricultural goods under a “Swiss formula”. For example, current estimates are that many of South Africa’s tariffs would have to be halved. Many workers would lose their jobs in a country already experiencing unemployment levels of around 40%. As one of New Zealand’s most experienced trade economists, now advising African nations, told me in Hong Kong, trade theories just don’t work when unemployment is endemic, particularly at such levels.

But not only will these tariff cuts add to current social misery, they will jeopardise industrialisation programmes developing countries are counting on to lift their living standards. Agriculture is still a life or death matter in many developing countries, but no-one got rich growing coffee or bananas – only those processing or marketing the produce. Developing valued-added, higher productivity industries where there are economies of scale is the usual path to higher incomes.

The second tranch is in services. Services became a major development issue at Hong Kong. A draft programme for the next stage of services negotiations was sent to Hong Kong by the Geneva chairman of the Council for Trade in Services despite being highly controversial and lacking the consensus required for all WTO decisions. Known as Annex C of the draft declaration of the ministers, it proposed a major change in the way services would be negotiated.

The practice until now has been an exchange of requests and offers between individual countries in which the target of the request has no obligation to respond with an offer. The new proposal was that “plurilateral” groups of member countries with an interest in a particular service (such as post, transport, energy, telecommunications, financial services and education) would put together a model “request” which all members would then be forced to respond to.

The change from individual to group demandeurs, and from optional to required negotiations would greatly magnify the pressure on individual countries, many of which have neither the negotiating nor research capacity to respond adequately to such approaches.

Services are particular controversial because they include most of the infrastructural, capacity-building and social underpinnings for development, including most public services.

Educationists were strongly represented at the WTO as observers because of their concerns, heightened by the action of the New Zealand government to initiate a plurilateral group for education services. Education International, which groups unions representing 29 million education personnel, advocates coverage of international education by an alternative international agreement.

Developing countries baulked at the prospect of being pushed into increased commercialisation and overseas ownership of their infrastructure and public services, threatening local suppliers and cramping their ability to regulate and to reverse mistaken privatisations. The G90, the largest single group of developing countries, drew up a much softened alternative text. Six significant countries wrote to the chairman of the conference, stating that Annex C “cannot be part of the final Ministerial Declaration”.

The response from the WTO negotiating machinery to the G90 alternative illustrated the opaque and unfair processes followed in this supposedly member-driven organisation. It in effect refused to accept the alternative for serious discussion, outraging developing country members.

The final declaration reduced the requirement to negotiate to a requirement to “consider”, but left in place the plurilateral approach designed to speed up liberalisation of services. Many countries continued to object to it.

The Ministerial demonstrated that the old power brokers in the organization – principally the EU, US and WTO officialdom – are incapable of distinguishing the normal histrionics of negotiations from a real crisis among its 150 members. New Zealand negotiators apparently suffer from the same disability. Discussions with one indicated no appreciation of the strength of feeling by the developing countries over the services proposal.

These power brokers have scraped through – Lamy estimated the progress at 5% – with a dishonestly obtained deal that protects and enhances their interests at the expense of the developing world. That pattern cannot continue without the WTO becoming paralysed or even breaking up. The glacial movement over the last four years, and the minimal results of this Ministerial are evidence of this.

It is now clear that the developing world is becoming increasingly strategic in its actions. Hong Kong brought many indications of this, the most dramatic being a meeting of all the developing country groupings to form a G110, accompanied by avowals of unity in their approaches to negotiations.

Some of this is rhetoric. There are differences between groups of developing countries. Nevertheless, they have a common interest in nurturing their industrial development, want rules on agriculture that ensure their people are properly fed and rural communities are protected (better agricultural market access is only a small part of the picture), and want policy space to build their infrastructural and social services.

For New Zealand, whose trade policy seems largely to be “we’ll do anything for agricultural access”, the strategy comes down to the demeaning but simple one of backing anything the major powers want except in agriculture.

But in the end, New Zealand’s natural resource-based exports, while still hugely important, cannot fulfil our increasingly obvious need to create jobs that pay good wages for the 85% of the labour force not employed in agriculture, forestry, or fishing.

In this, we are more like the developing world than the industrialised countries. Continuing to play the role of court footman is neither in our own long term interests nor does it recognise the changes that are occurring in the balance of power in the WTO.


Bill Rosenberg was reporting from the Hong Kong ministerial meeting which he attended as an observer. Bill Rosenberg lives in Christchurch, New Zealand and regularly contributes articles to CAFCA (Campaign Against Foreign Control Of Aotearoa)


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