Although the ambiguous wording has left many wondering how ‘mapping out a clear path towards the conclusion of the negotiations’ will translate into practice, trade delegates have generally welcomed the signs of re-engagement. It had been widely acknowledged that substantive progress in Geneva (or elsewhere) would not occur until the new administrations in New Delhi and Washington had given some indications of where they stand vis-à-vis the negotiations. The latest attempt to reach a deal collapsed in July 2008 largely due to disagreement between the two countries on the extent of safeguard duties that developing countries would be allowed impose to ward off surges in farm imports (Bridges Year 12 No.4 page 1).

No ‘Insurmountable’ Obstacles; Lamy Eyes 2010 Conclusion

US Trade Representative and India’s Commerce Minister Anand Sharma held bilateral talks on the sidelines of the Cairns Group meeting to explore a way forward for the Doha Round. Describing the dialogue as ‘very positive’, Minister Sharma told a press conference that India was “not looking at the difficulties, we are looking at the possibilities, to do our best and take this process to its culmination. There are no obstacles which are insurmountable.”

Mr Kirk did not enter into the specifics of the discussions, but confirmed that the United States would outline a ‘new basis’ for completing the round by August. Alluding to a proposed change in approach he said: “Doing nothing, rejecting pursuing an alternative to what we have been doing for the past three rounds is in fact a decision that leads to a failure of Doha, and that is not an acceptable conclusion.” Many developing countries have expressed serious concerns over this emphasis on pursuing an ‘alternative’ negotiating track (see page 2).

During his visit to the WTO in May, Mr Kirk had reaffirmed the Obama administration’s continued commitment to reaching a conclusion in the long-running negotiations, which it viewed as “a critical component of what the president believes should be an overall worldwide response to the current economic crisis.” Nevertheless, he emphasised that without evidence of new export opportunities for American businesses, the administration would not be able to convince a trade-sceptical Congress to endorse the deal (see related article on page 23).

Ambassador Kirk and Minister Sharma were to meet later this month in Washington to follow up on their discussions in Bali. Meanwhile, WTO Director-General Pascal Lamy likened the flexibility shown by the two negotiators to pushing the ‘reset’ button on the Doha Round. “What I got from here is that … yes, we should conclude this by 2010,” he told reporters.

New Approach to Doha Is Controversial

While visiting Geneva in May, Mr Kirk noted there was a need to consider changes in the negotiating process. “Whatever vehicle we’ve all been loaded on to get to Doha hasn’t gotten us there,” he said. The United States has repeatedly complained that it is easy to for other Members to see what they stand to gain from its concessions, but that the US cannot determine the extent of future benefits due to the uncertainty surrounding the way in which large developing economies will implement the exceptions and flexibilities in the negotiating texts.

As a possible way of dealing with this problem, Canada and the US have informally suggested bypassing the negotiations on ‘modalities’ - the broad outlines for tariff and subsidy cuts required from developed and developing countries - and moving directly into scheduling specific tariff commitments.

The idea is controversial. Most developing countries are wary of changing tactics this late in the game. Skipping the modalities phase would be ‘completely outside the mandate’ of the Doha Round, one developing country delegate said, and could risk erasing the delicate balance that has been painstakingly built up in negotiations thus far.

Speaking to Washington Trade Daily after the Cairns Group meeting, Indonesia’s trade minister Mari Pangestu said that the follow-up to Bali must be “to identify the problems and gaps to finalise modalities before going to the scheduling process.” South Africa’s new trade minister Rob Davies has also stressed that Members need to focus on the framework agreement: “I think we have reached an impasse in the process. To break the logjam we need to go back and address the fundamental issue of an imbalance in the underlying deal. It’s a complicated deal that has made huge concessions to developed country needs.”

Attempting to bridge the gap, Pascal Lamy suggested to the General Council in May that further work on modalities and a scheduling exercise could run on ‘two simultaneous tracks’. Although the modalities approach was ‘sacrosanct’ for some Members, he noted that certain other countries believed it would lend greater clarity to the process if governments could indicate what products would be accorded more flexible treatment in the scheduling stage, whether on sensitive and special farm products, on duty- and quota-free market access for least-developed countries, or on the use of flexibilities regarding market access for non-agricultural products.

”This is, in my view, doable provided that we see serious political engagement on the part of Members. In other words, provided [that] ministers give the necessary instructions for substantive work to happen on these two tracks,” Mr Lamy concluded.

It was not clear at the time of writing whether Mr Kirk and Minister Sharma intended to base their discussions in Washington on the dual-track proposal.

Date Set for ‘Different’ WTO Ministerial

At long last, the General Council agreed in May to hold the first regular WTO Ministerial Conference in four years from 30 November to 2 December in Geneva. The ‘scaled-down, no-frills, low-key’ event will allow Members to focus on an “overall review of the WTO, and one that is not inextricably tied to any particular ongoing negotiations,” General Council chair Mario Matus said. Discussions under the general theme of  The WTO, the Multilateral Trading System and the Current Global Economic Environment will be held in open plenary sessions rather than in the small informal negotiating groups that hogged the limelight - and excluded many - at recent ministerials. The last three such meetings focused almost exclusively on advancing the Doha Round (see page 4 for more details on the Geneva ministerial).

Calls for an event such the one now planned for December have been multiplying in recent months. Many have argued that regular ministerial involvement is necessary to reinforce the WTO’s institutional legitimacy and to ensure good governance practices. A number of countries also wish to discuss a broader agenda, including, for instance, the risks to the multilateral trading system arising from the proliferation of preferential trading schemes, particularly if Doha fails, or the WTO’s response to global challenges, such as climate change.

But regarding her criticism of aid, frankly, I feel the ‘aid-business’ has reacted too defensively. The practices she condemns are exactly the ones the OECD Development Assistance Committee (DAC) and the more enlightened donors have been trying to reform. I see Moyo’s book as a great opportunity for a public discussion regarding aid effectiveness and trade, for which it has always been hard to get public attention. Such attention might create the constituency and political will to finally implement the reforms in aid delivery agreed by all donors in the Paris Declaration of 2005 and the Accra Agenda for Action last year.

I am especially delighted that Africans have joined the debate, which has been dominated for too long by Westerners, some of whom have too often portrayed Africans as incompetent and helpless. It was time for Africans to stand up against the insulting paternalism of some parts of the international aid community. Suggesting that it is up to us to fix global poverty denies the primary responsibility of developing countries to fix themselves - as embedded in the division of labour in the Millennium Goals.

It is high time to attack the underlying myth of Western superiority: we lecture - you listen; we give - you receive; we know - you learn; we take care of things - because you can’t. Undermining Africans’ self confidence, we take over. Neo-colonialism is what I call it. Or, as an African friend of mine put it: “When you move to Africa, you are per definition an expatriate expert. But when I move to Europe, I am only an immigrant.”

Getting rid of these perceptions is essential for public opinion to understand what underpins the necessary reforms as agreed in the Paris Declaration and the Accra Agenda for Action: the recognition that we, donors, don’t develop them; they develop themselves. Only if Africans - not donors - set their development agenda, can aid be used productively.

In particular, Moyo’s point that “without aid, it would be easier for citizens to hold governments accountable” should not be dismissed. Indeed, the attitude of ‘we’ (standing for experts/money) will save Africa or ‘we’ will end poverty, leads to undermining incentives for poor people to demand action from their own government to improve governance, fight corruption and ensure that resources - not just aid, but also the far larger domestic resources - are spent transparently and well.

This implies that donors have to deliver aid in a fashion that does not allow developing country governments to shirk that responsibility, nor shift their citizens’ expectations away from their own governments to those of the donors. Indeed, the type of aid that removes the link of accountability between political leaders and their electorate ultimately perpetuates poor governance and poverty. Aid must be channelled through recipient budgets to allow domestic accountability.

I also agree with Moyo’s observation that too much aid has been driven by donors own economic and geopolitical interests. Where ‘aid’ is given for geopolitical or export promotion objectives, it was never intended to reduce poverty; thus we should not be surprised if it does not.

Finally, she is also right about the importance of trade relative to aid, and the need to make trade rules fairer. Alas, while the EU has pledged more coherence between trade policies and development objectives for more than 15 years, we still fail to provide genuine market access to the poorest countries, or to reform our agricultural policies.

However, I disagree with Moyo’s conclusion that if aid does not work, we should quit the aid business. We should not throw out the baby with the bathwater, but should draw the lessons from its failures and successes. And that is exactly what we have been doing the last decade. Now, seriously, for the first time in aid history we do have an agreed broad-ranging agenda of measures to ensure that aid genuinely contributes to development. The Paris-Accra agreements are not just slogans or buzzwords - each is backed up by a series of practical reforms, deeply grounded in reality, and responding to past failures, including the many ills Moyo points out.

What worries me most about Moyo is that she does not say much new: it has all been said before by Peter Bauer in the sixties and seventies (she was fair enough to dedicate her book to him) and by William Easterly a few years ago. By now it is not good enough for us in the aid business to just say we have heard it and debate the finer points.

It is time to implement Paris-Accra, so that aid responds to genuine local needs, builds local capacity to manage development, and makes governments responsible and accountable. But implementation has been lagging as it demands political leadership and understanding of the rationale for the Paris-Accra reforms by public opinion in general and parliamentarians in particular.

Moyo has done us a great favour by providing the platform, generating interest in these issues in mainstream media, and providing the right arguments for these urgent reforms.

Eveline Herfkens is Founder, UN Millennium Campaign; former Dutch Minister for Development Co-operation; and Chair, ICTSD Board.

General Council chair Mario Matus stressed that the event would not be a negotiating session, but rather a ‘regular’ gathering involving all Members. Although the WTO is mandated to hold such meetings at least every two years, the last full ministerial took place in 2005.

Ambassador Matus said that there was broad support for holding the event in plenary sessions where all ministers would be able to participate equally. Since the launch of the Doha Round in 2001, WTO ministerial gatherings (whether ‘regular’ conferences or ‘mini-ministerials’) have focused almost exclusively on advancing the Doha Round negotiations in small groups of key players, leaving many delegations frustrated at the lack of opportunity to participate.

The December 2009 event promises to be different. According to Ambassador Matus, its ‘regular’ nature “could help us establish a new model of ministerial-level meetings conducive to good governance and overall review of the WTO, and one that is not inextricably tied to any particular ongoing negotiations.” The broader focus would also mean that ministers would not necessarily have to focus on producing a formal declaration, “although, of course, we will have to consider the most effective way of recording the substance of the ministers’ discussions and any convergence or conclusions they may reach.”

The General Council chair also said that the conference should be a much leaner and more economical affair than the extravaganzas of the recent past. Space constraints, both for meeting venues and accommodation, would require Members to trim down their delegations, which for some countries have numbered in the hundreds. Members should keep firmly in mind that the meeting is “not intended as a negotiating session, but rather a regular gathering of ministers to engage in a broader evaluation of the functioning of the multilateral trading system.”

It remains to be seen whether the low-key character foreseen for the ministerial will keep media frenzy at bay.

More Countries Join G-20 Commitments

Thirteen developed and developing countries called on WTO Members to “use their best efforts to minimise the negative aspects of necessary policy measures to overcome the current crisis, and to make every effort to resist protectionism and promote global trade.” They invited other countries to join their decision to take on the commitments related to resisting protectionism adopted by the G-20 leaders in April (see page 11), “as well as to join forces in order to develop complementary initiatives to this effect together with the WTO Members ready to do so.”

A number countries expressed support for the proposal, including, among others, Israel, Taiwan, Tanzania (on behalf of the least-developed countries), Thailand and Ukraine. Their joining the G-20 pledges reinforces the WTO’s mandate to monitor the extent of protectionist action. Among the new promises made by the leaders of the world’s biggest economies was a commitment to promptly notify any such measures to the WTO, and to ask the global trade watchdog “to monitor and report publicly on our adherence to these undertakings on a quarterly basis.”

Most G-20 members have taken measures to restrict imports one way or another since they first promised to refrain from doing so in November 2008. At least the EU and the EU have reinstated export subsidies, a move widely condemned by Members at the General Council meeting (see page 8).

Although the WTO’s March protectionism report included long lists of trade-related actions taken by Members since September 2008, it carefully refrained from assessing whether the measures were ‘protectionist in nature’, WTO-consistent, or whether they had an impact on, or were related to, the global financial crisis (see page 5). The mandate to ‘monitor and report publicly on our adherence to these undertakings’ could make it easier for the WTO secretariat to be more explicit, and thus possibly make the ‘naming and shaming’ exercise a more effective tool in curbing protectionist pressures.

Argentina proposed that the WTO should pay more attention to the trade-distorting elements of subsidies in fiscal stimulus packages and sectoral rescue plans (see sidebar on page 6).

Lamy Endorses Dual Track for Speeding Round

WTO Director-General suggested that Members could work on two parallel tracks in the Doha Round negotiations. In addition to continuing technical work in the various negotiating groups, they could also start testing possible outcomes through a scheduling exercise that would indicate the level of future market access for agricultural and industrial products. The latter approach, proposed by Canada and the US, is controversial, but the US in particular has complained that while it is easy to see what Members stand to gain from its concessions, the US cannot determine the extent of future benefits due to the uncertainty surrounding how countries will apply the flexibilities in the negotiating texts (see page 2 for more).

Mr Lamy, who will start his second term as WTO chief in September, also informed the council that he had decided to retain all four current Deputy Directors-General in their positions.

Nevertheless, the investigation found “no indication of an imminent descent into high intensity protectionism, involving widespread resort to trade restriction and retaliation.” Maybe not, but some tit-for-tat retaliation has already occurred.

For instance, the US 2009 Omnibus Appropriations Act prohibits the Department of Transportation from allocating funds necessary to maintain an inspection programme on cross-border trucking services from Mexico, which has prompted Mexico to suspend preferential tariffs accorded to 89 US tariff lines under NAFTA. And, in May, the US reinstated dairy export subsidies at least partly in response to those adopted by the EU in January (see page 8).

The main risk, the report concluded, was that governments would “continue to cede ground to protectionist pressures, even if only gradually, as long as the global economic situation continues to deteriorate.”

More Details Offered on Trade Measures

The March report was much more precise than its January predecessor. It included information on import and export restrictions, trade-related subsidies and trade remedy actions taken since September 2008.

A long and detailed annex, naming the countries and the measures taken, shows the variety of means that governments have used to ward off the worst of the recession. Many have introduced administrative measures, such as reference pricing, import licensing, limiting ports of entry, or new technical standards, including SPS measures. Some have imposed higher tariffs or quantitative restrictions on imports. Several countries have dropped export duties and increased value-added tax rebates for export products. Anti-dumping investigations are trending upwards, and ‘could accelerate rapidly’. Although steel, automobiles and footwear have been particular targets of trade-related measures, such actions run the gamut from soybeans, dairy and chemicals to dried lilies and cotton yarn.

Measures such these are relatively simple to track compared to subsidies hidden in governments’ general stimulus plans and sector-specific rescue packages.

Extent of Subsidies in Stimulus & Rescue Packages Remains Elusive

The report recognised that some countries had increased state aids and potentially trade-distorting subsidies to support manufacturing (particularly in the automobiles and steel sectors) or financial services industries, including through direct funding, special loans and guarantees. It also cautioned that the vast majority of developing country WTO Members could not afford this alternative to border trade restrictions to protect their economies against foreign competition. The report warned that support measures such as these could prolong the operations of uncompetitive firms, denying market share to more efficient producers, including those overseas.

Some government support policies include specific conditions that can restrict or distort trade, such as requiring a firm or an industry not to de-invest domestically, or not to source labour abroad. “Since conditions such as these are often attached informally, and are of a political rather than contractual nature, it is very hard to know of their existence and how they are being implemented,” the report noted. The list of stimulus packages attached to the report was far less detailed than the one on individual trade-related measures, often just mentioning that such a plan exists.

The report prudently explained in a footnote that the inclusion of a measure in the list did not imply that the WTO secretariat judged it, or its intent, as protectionist in nature. Nor was there ‘either direct or indirect’ judgement on the WTO-consistency of any measure, or its “impact on, or relationship with, the global financial crisis.”

The lack of such analysis was perhaps the report’s greatest weakness (see sidebar, page 6).

Developing Country Challenges

Developing countries are being hit not only by declining growth and demand for their exports, but also by the sudden jump in the cost of trade finance, a drop in remittances, reduced foreign direct investment, and outflows of portfolio investment.

The report detailed efforts by international financial institutions, government-backed export credit agencies, and some central banks to support trade finance. Traditionally, trade finance - the short-term credit or insurance that enables exporters to offset the risk that they will not be paid and importers to offset the risk that they will not receive merchandise they paid for - has been considered almost risk-free, with the traded goods serving as collateral. But with banks suddenly unwilling to lend to exporters or importers at only a tiny premium above benchmark rates, governments have had to intervene to keep trade flowing.

Many developing countries are likely to face a ‘sharp deterioration’ in their balance of payments in the second half of 2009. The World Bank has estimated that developing countries face a financing shortfall of US$270 to US$700 billion, while their export earnings are projected to drop.

The WTO was expected to release its next proctectionism report in mid-June.

Argentina noted that the G-20 leaders had requested the WTO to regularly monitor and report on measures adopted by the group’s members as a result of the economic and financial crisis (see page 11).

It went on to say that the two reports issued by the Director-General so far had essentially referred to two types of actions: ‘trade restricting or distorting’ measures, such as import licensing, import tariffs and surcharges, anti-dumping duties and safeguards; and potentially trade restricting/distorting measures, such as state aids and subsidies through fiscal stimulus and financial support programmes.

Argentina argued that these ‘potentially’ trade-restricting or -distorting measures were likely to have a “strong protective and distorting impact on international trade because of their extent, resulting in a loss of competitiveness on the part of countries without any capacity to subsidise, in other words, developing countries.” The fact that information on these measures was ‘scarce, not systematised and not very transparent’, made it difficult to evaluate and monitor their effects.

It therefore proposed a programme of work designed to “obtain information and undertake the relevant analyses in order to determine the impact of these measures, not only in the current international situation but also in the medium and long terms.” The exercise should focus on four points: (i) information and statistical estimations of the trade impact of the measures; (ii) making a distinction between horizontal stimulus measures and those intended for a particular sector, and providing details on the individual measures according to their potential trade-restricting or distorting impact; (iii) a horizontal, sectoral and detailed analysis of the impact of such measures; and (iv) regular follow-up.

”The Doha Development Round has a particularly important role to play at this time of global economic crisis. Concluding the negotiations would deliver a much needed contribution to economic recovery and demonstrate the benefits of the multilateral trading system. This outcome is within our grasp, and we are determined to make it happen.

”Agriculture lies at the heart of the Doha Round, particularly due to its importance for the development of developing countries. The outcome of the negotiations must build substantially on the foundation, disciplines and achievements of the Uruguay Round by taking a further step along the path of significant agricultural trade reform in line with the mandate.

”The Cairns Group recognises the good progress that has been made in the agriculture negotiations. We must build on that work, based on the draft modalities text, to secure an outcome that meets the Cairns Group’s long-term objective of a fair and market oriented agricultural trading system through substantial improvements in market access; substantial reductions in trade-distorting domestic support; and the long overdue elimination of all forms of export subsidies as agreed by ministers in Hong Kong.

”An ambitious and balanced outcome to the Doha Development Round will generate substantial improvements in agricultural market access opportunities. It will lock in significantly reduced domestic support commitments, open up new export opportunities and reduce the level of distortions in international markets. This will benefit all agricultural producers, including low income producers in developing countries. And it will eliminate export subsidies once and for all. Such reforms will provide valuable insurance against the growing threat of protectionism, and will help move the international trading system closer to a level playing field.

”At this critical time in the global economic downturn, it is essential that we guard against increased protectionism in agriculture, which includes not only tariffs but also subsidies and other restrictive non-tariff measures. The recent reintroduction by the EU and US of export subsidies for one major commodity has deepened that risk. Cairns Group ministers remain deeply disappointed by the re-introduction of such measures. The EU and the US must show leadership by removing these export subsidies in the shortest timeframe. Even measures that are applied within WTO commitments can still have a significant protectionist effect. We therefore urge WTO Members to exercise the utmost restraint and not follow this example. All WTO Members must act responsibly and resist the temptation to resort to protectionist measures at this difficult time.

”To reach a conclusion to the round, WTO Members must now summon the political will to conclude our mandate for a balanced and ambitious outcome.

”Looking ahead, we now need a transparent and inclusive process of engagement at both the technical and political levels. Trade ministers underlined the urgency for officials to engage intensively and on an ongoing basis. Senior negotiators must reconvene in Geneva as soon as possible to map out a clear path towards the conclusion of the negotiations, and to start down that path before the European summer break. USTR Kirk and Commerce Minister Sharma of India fully endorsed these views.

”At the same time, WTO Members must take advantage of every opportunity to engage at the political level to drive progress. Cairns Group ministers committed themselves to using every opportunity over coming weeks and months to this end.”

GATT Article XVIII allows developing countries to impose temporary import controls to “forestall the imminent threat of, or to stop, a serious decline in its monetary reserves; or, in the case of [Member] with very low monetary reserves, to achieve a reasonable rate of increase in its reserves.” The measures must be notified to the WTO, and the country imposing them must hold consultations with other Members in the Committee on Balance-of-Payments Restrictions.

The committee met in April to consider Ecuador’s request for a one-year waiver for the measures adopted in January, but failed to reach agreement. A number of sources indicated that the reluctance to grant the waiver was largely attributable to the fear that other, perhaps much bigger, countries would be tempted to follow Ecuador’s example and request balance-of-payment waivers for protectionist measures.

Lengthy consultations in early June, however, produced a compromise.

No Disagreement on Balance of Payment Problems

Members did not dispute that Ecuador was indeed experiencing balance-of-payment difficulties. In its WTO notification, Ecuador said its trade deficit was likely to rise to US$3.5 billion by the end of the year (WT/BOP/N/65/Rev.1).

The IMF confirmed that Ecuador’s external environment had deteriorated sharply since August 2008, and projected a further deterioration of external accounts until 2010.

However, the US, Canada and the EU said in April that Ecuador should have tried other means, such as spending cuts, to balance its budget before instituting import quotas. Barring outright embargoes, quotas are the most trade-restricting way of controlling imports.

Members most affected by the import curbs - Colombia, Panama, the EU and South Korea - also complained that the measures targeted particular products and sectors of export interest to them. Colombia, hit particularly hard by the quotas, had seen its exports drop by 42 percent.

In June, Ecuador made a major concession: it consented to convert most of the import quotas into tariffs by 1 September. It also promised to reassess the measures and to terminate them early if its balance-of-payment situation improves.

Had the committee not accepted this compromise, Ecuador would have been vulnerable to dispute settlement challenges. In practice, however, the threat was remote since WTO disputes proceed at a leisurely pace and the import controls were to be lifted in January 2010 in any case.

Members Applaud

Members expressed satisfaction at the result. They said it showed that the WTO system was working well despite the economic crisis: consensus could be forged through negotiations rather than by imposing conditions. China, whose exports to Ecuador have fallen by nearly a half due to the import curbs, was also pleased with the outcome, in particular because it demonstrated  that the WTO could address the problems of developing countries in the crisis.

Russian officials suggested that restarting the talks as a three-nation bloc would stimulate economic integration in the former Soviet Union, a longtime Putin priority. Many Western analysts, however, saw the surprise move as a sign of Russia’s growing frustration with the tortuous accession process, and some speculated that it could be a ploy to force a quick deal.

Just days before Mr Putin’s announcement, the EU and Russia had made significant progress on the thorniest bilateral issues in the accession negotiations, and Russia’s Economy Minister Elvira Nabiullina and EU Trade Commissioner Catherine Ashton had agreed that the negotiations should be completed this year. US Trade Representative Ron Kirk also said there had been progress, although he expressed some doubts about wrapping up the negotiations by December. The US is particularly concerned about Russia’s use of sanitary regulations to  keep out imports of US beef, pork and chicken.

Up to now, the EU and the US have supported Russia’s WTO bid, which would bring the country within legally binding multilateral commitments. As a member of the G-20 major economies group, Russia is in principle bound by the promise to avoid protectionist measures (see page 11), but since November 2008, the government has raised import duties to 15-20 percent on iron and steel products, 30 percent on cars and 25 percent on trucks and buses, and has threatened to raise tariffs on a raft of other goods ranging from shoes to furniture.

At the core of the dispute is the Mexican tuna fleet’s use of purse seine nets, which often trap and kill dolphins that swim above the fish. Tuna captured by this method does not meet US dolphin-safe criteria. Mexico argues, however, that its exports should be entitled to the label since its fishing practices are in line with an international agreement in force since 1999 under the auspices of the Inter-American Tropical Tuna Commission (Bridges Year 12 No.5 page 8).

The case marks the first time that a panel will examine the WTO compatibility of a non-mandatory label, albeit one administered by a government. The proceedings will be of systemic interest since WTO Members have engaged in a heated but inconclusive debate on private sector standards in the Committee on Sanitary and Phytosanitary Measures. The issue has been pushed by developing countries concerned about the proliferation of non-governmental standards, which they see as significant market access barriers.

The US argued before the Dispute Settlement Body that the case should be arbitrated under the North American Free Trade Agreement. NAFTA gives the respondent in an environment-related dispute the right to choose the forum where it will be heard.

But Mexico said it was determined to have the case resolved at the WTO. “Many countries have informally indicated their wish to participate in or to follow the dispute, something that would not possible under the NAFTA. Mexico believes that the substantial concern that this dispute has generated at the international level must also be taken into account,” the Mexican delegate told the meeting.

The US suggested that submissions in the case be made publicly available and panel hearings opened to public observation.

Ironically, the EU and the US renewed their pledges to refrain from raising new barriers to investment or to trade in goods and services at the G-20 summit in April (see page11). Both have now taken advantage of the caveat in this declaration: measures to stimulate exports are not covered by the commitment if they are WTO consistent.

US Agriculture Secretary Tom Vilsack said the subsidies would support the dairy industry, which had “seen its international market shares erode, in part due to the reintroduction of direct export subsidies by the European Union earlier this year.” EU Agriculture Commissioner Mariann Fischer Boel called it ‘very unfair’ of the US to use Europe’s reinstatement of export subsidies “as an excuse to go ahead in this direction.”

WTO Members Call for Leadership, Reversal of Decisions

At the May General Council meeting, a number of delegates made it clear that they considered both countries in the wrong, although they did not dispute that the measures were within WTO export subsidy limits.

That, Australia’s WTO ambassador Peter Grey said, was not the point. “If other economies follow the example set by the US and the EU and raise tariffs, domestic support and export subsidies toward their maximum WTO commitment levels, it would undermine the effectiveness and credibility of the WTO system.” He also warned that “subsidy wars only drive prices even lower, thereby delaying economic recovery further. They punish those trying to compete without the help of subsidies, and particularly damage unsubsidised farmers in developing countries, jeopardising their agricultural production, food security and their most competitive export sectors.”

In a press release, Australia’s trade and agriculture ministers Simon Crean and Tony Burke  charged that the US move flew in the face of the commitments made by G-20 leaders not to impose protectionist measures. Australia had protested strongly at the time of the EU decision, and warned that it would invite retaliatory action. “Now, both the EU and US are using export subsidies and setting a poor example for the rest of the world. We strongly reaffirm the need for the US and the EU to show better leadership,” the ministers thundered.

The G-20 coalition of developing countries called the US reintroduction of dairy export subsidies a sign of  ‘murky protectionism’, not directly violating WTO obligations and yet potentially weakening the WTO system at a time of economic crisis. “Protectionism is not about raising tariffs or controlling imports only. Protectionism also includes any form of government intervention, such as subsidies, which artificially tilts the field in favour of domestic enterprises, to the detriment of competitors abroad. In this case, the unsubsidised farmers in the developing world will also be negatively affected,” the group stated.

New Zealand’s trade minister and former chair of the WTO agriculture negotiations Tim Groser said in a press statement that the long-term solution was clear: “We need to complete the Doha Round in order to secure the elimination of agricultural export subsidies. In the meantime, restraint is needed, not a resumption of retaliatory subsidisation.” The G-20 and the Cairns Group of agriculture exporting countries also said the tit-for-tat action highlighted the importance of concluding the round, and urged the EU and the US to withdraw the subsidies as soon as possible (see page 4 for more on the General Council meeting).