Expectations for the WTO’s sixth Ministerial Conference, which opens in Hong Kong on 13 December, are low with regard to the three core market access areas of the Doha Round negotiations: agriculture, industrial goods and services. The organisation’s 149 Member countries acknowledged in November that their negotiating positions were too far apart for them to reach an agreement in Hong Kong on a detailed framework for subsidy and tariff cuts on agriculture and non-agricultural market access (NAMA). Furthermore, a wide gulf has emerged on the approaches to be adopted in the services talks.

With hopes dwindling for a comprehensive pact, several governments have shifted their sights to delivering a ‘development package’ of deals on issues such as aid for trade and duty- and quota-free market access for exports from least-developed countries (LDCs), as a way of salvaging something concrete from the high-profile gathering.

In spite of their ‘recalibrated expectations’ for Hong Kong, Members insist that they are committed to finishing the negotiations by the end of 2006 or early 2007. This is largely motivated by the mid-2007 expiry of US President George W. Bush’s “trade promotion authority,” which allows him to negotiate a trade agreement and put it to Congress for a simple yes-or-no vote without the risk of major amendment.

The Ministerial Text

The draft text to be discussed over the next six days requires few decisions from ministers. Chief among them are new deadlines for completing the negotiating frameworks - or ‘full modalities’ - for agriculture and NAMA. However, separate from the draft declaration text, WTO Director-General Pascal Lamy and General Council Chair Ambassador Amina Mohamed (Kenya) have sent ministers a set of specific questions about the likely nature of eventual modalities in the agriculture and NAMA negotiations. These may serve to take the discussions beyond the simple determination of future deadlines.
The draft declaration does point to convergence that Members have achieved on a handful of issues in the agriculture and NAMA negotiations - albeit in non-binding language that refers to ‘working hypotheses’ on, for example, the number of tiers in which to classify farm subsidies and tariffs for the purposes of reduction.

Attached to the draft ministerial declaration are six reports from the Chairs of key negotiating groups. Only one, on trade facilitation, was approved by Members prior to the Hong Kong Ministerial. The others - on agriculture, NAMA, services, rules, and special and differential treatment (SDT) for least-developed countries - were submitted by the respective Chairs under their own responsibility, and their contents were neither negotiated nor agreed by Members. Nevertheless, delegations did agree that the text was a reasonable basis for ministerial discussions in Hong Kong.

The meeting will be chaired by Hong Kong’s Commerce, Industry and Technology Secretary John Tsang. He has appointed six other trade ministers as ‘facilitators’ to assist him with brokering compromise over the most contentious negotiating areas. Humayun Akhtar Khan of Pakistan will deal with the NAMA negotiations. His Kenyan counterpart, Mukhisa Kityui, will address the equally divisive agriculture negotiations. Guyanese Foreign Minister Clement Rohee will facilitate the talks on specific development-related issues, such as special and differential treatment (SDT) for developing countries. Work on the remaining negotiating issues, including services and rules, will be divided between three ‘facilitators at large’: Korea’s Trade Minister Kim Hyun-Chong, Norway’s Foreign Minister Jonas Gahr Store and Chile’s Foreign Minister Ignacio Walker.

Shift in Negotiating Dynamics

One of the biggest changes since the last Ministerial Conference has been the increased role of developing countries in driving the negotiations forward. The 2004 July Framework Agreement that revived the Doha Round was put together by the ‘five interested parties’ (FIPs: the EU, the US, Australia, Brazil and India), not by the ‘Quad’ of the US, the EU, Japan and Canada that had determined the broad outlines of global trade agreements from the pre-WTO days of the General Agreement on Tariffs and Trade through to the start of the Doha Round.

The G-20 group of developing countries, which came together before Cancun to push for steep reductions in rich country farm subsidies, has defied expectations that it would fall apart to emerge as a cohesive force in the negotiations. Members of the group, which includes Brazil, China, India and South Africa, have successfully bridged their disparate interests to present joint proposals in every aspect of the agriculture talks. The G-20 also plays a significant role in supporting other developing country alliances, such as the G-33, which focuses on food security, livelihood and rural development concerns.
While the ‘new Quad’ - the US, the EU, India and Brazil - brings a far broader range of interests to the WTO’s most influential negotiating table, a number of WTO Members continue to have reservations about the group’s lack of inclusiveness and transparency. These include many smaller developing countries, as well as the G-10, which comprises net food-importing countries that afford a high degree of protection to their farm sectors (Japan, Korea, Switzerland and others).

Agriculture

Members are intensely divided on how deeply to cut farm tariffs, how many products to exempt (partially or entirely) from reductions, and whether and how to set tariff ceilings on agricultural products. Proposals for reductions by developed countries range from a 45 percent maximum cut with no tariff ceiling in the G-10’s proposal, to a 90 percent maximum cut with a 75 percent cap proposed by the US. The EU’s offer of an average farm tariff cut of agricultural 46 percent has been criticised as too low by the US, the Cairns Group of agricultural exporters and the G-20, which wants developed countries to cut tariffs by 54 percent while developing countries do so by 36 percent. Meanwhile, some EU member states, most vocally France, have slammed the offer for being too high.

The EU insists that deeper tariff cuts would erode, with devastating effect, the preferential market access it gives to some developing countries. Brazil and the US have dismissed this argument as self-serving.

On 3 December, the trade ministers of Australia, Brazil, the EU, India and the US agreed to try and reach consensus by 1 March 2006 on a date for eliminating export subsidies - an important part of ‘full modalities.’ Some had hoped that Members would establish this date in Hong Kong.

Non-agricultural Market Access

On NAMA, the draft declaration refers to a ‘working hypothesis’ on a ‘Swiss’ formula approach to tariff reduction, but convergence on little else, including the flexibilities to be accorded to developing countries when applying the formula, and the treatment of unbound tariffs. Members continue to disagree on whether or not developing countries should be able to retain flexibilities even if the formula itself is structured to allow them to make relatively lower tariff cuts than rich countries through the use of different ‘coefficients’ (the numbers associated with the formula that are strong determinants of a country’s post-reduction tariff levels).

The NAMA negotiations have suffered from the lack of progress in agriculture. Brazil and India have argued that the EU’s demands on NAMA and services - included in its comprehensive 28 October Doha Round proposal - are out of all proportion to what it is willing to offer on agricultural market access. This proposal, they say, would require them to cut NAMA tariffs by 75 percent. The EU has hit back by criticising the two developing countries for not having made formal NAMA or services proposals of their own. They, in turn, have been insisting that they will do nothing of the sort before the EU offers to cut its farm tariffs more deeply.

Brazil and India recently indicated that they could accept a 50-percent industrial tariff cut, and possibly more - but only if the EU and the US agree to deeper cuts to their farm subsidies and tariffs than what is already on the table. Brazil recently suggested that it would be politically impossible for it to accept a NAMA tariff reduction higher than the agricultural tariff cut offered by developed countries.

Services

In order to make agreement possible on sending the draft declaration to ministers in Hong Kong, Members placed its reference to the services annex in brackets, since a number of them felt that the way it was phrased implied a consensus that did not exist. Far more specific than the agriculture and NAMA annexes, the text put forward by the services Chair provided for non-binding qualitative targets for Members’ liberalisation commitments, as well as for a plurilateral request-offer process (in contrast to the currently bilateral one), allowing groups of countries to make requests for market opening.
During the ministerial meeting, Members will negotiate on the status of the unadopted services annex - or more specifically, the approaches to services liberalisation set out therein. The text obliges countries to negotiate with any group of Members that makes a plurilateral request. Some countries fear that this could leave them under heavy pressure to liberalise sectors that are unprepared for foreign competition.

Development Package

In spite of numerous calls for a development deal in Hong Kong, Members have been unable to agree on any of the versions of the five agreement-specific LDC proposals for enhanced SDT provisions present in Annex F to the draft declaration - the third of the “most difficult issues in the talks” identified by Lamy.

Among the most prominent of these is a request for duty- and quota-free access to rich country markets for LDC exports, but the US remains cautious, particularly about opening its textiles market. The draft text’s section on LDCs provides for “developed-country Members, and developing-country Members declaring themselves in a position to do so” to grant duty-free and quota-free access to LDC exports by the end of the round. Several countries have suggested that such access could be part of a potential ‘early harvest’ agreement on development issues in Hong Kong.

However, some developing countries have strongly cautioned that a development ‘package’ does not make a development round. Ministerial Conference Chair Tsang for his part has warned that any such deal must not become a ‘bargaining chip’ in the overall talks.

'Aid for trade,’ generally understood as financing aimed at improving developing countries’ ability to participate in international trade, has been increasingly cited as an essential part of any development package. Several WTO Member countries are expected to announce funding increases in this area in Hong Kong; Japan and the Group of Seven (G-7) industrialised countries recently unveiled beefed-up aid for trade initiatives. The WTO announced yesterday that such spending had increased by 50 percent since the Doha Ministerial Conference in November 2001, with money going to help countries comply with WTO rules and participate in negotiations, to assist businesses to trade and to help governments build trade-related physical infrastructure such as roads and ports. Other possible areas include aid for export diversification or adjustment to preference erosion and other changes caused by trade liberalisation.

WTO Members have already agreed on two issues that had been mentioned as potential elements of a Hong Kong development package - giving LDCs a seven-and-a-half year extension to comply with most WTO intellectual property rules, and amending the Agreement on Trade-related Aspects of Intellectual Property Rights (TRIPS) to allow countries with insufficient pharmaceutical manufacturing capacity to import cheaper generic versions of medicines that are still under patent. However, critics argue that both of these decisions will be of little practical use to poor countries. The former, they say, is so circumscribed that it is of limited value, while the latter is based on a 2003 agreement that not a single country has yet been able to use to import drugs.

Cotton

With regard to Members’ July Framework mandate to address the distortions in cotton trade, the text now provides for two bracketed alternatives: continuing work largely as is, or agreeing upon specific modalities that would ensure earlier and faster elimination of trade-distorting subsidies in the sector.

In response to a series of proposals from Benin, Burkina Faso, Chad, and Mali, the EU has called on WTO Members to agree in Hong Kong to substantial reductions in cotton tariffs and domestic support, as well as the elimination of export subsidies in a manner that is “fast-tracked and front-loaded in comparison with the implementation schedule applicable for other sectors covered by the agriculture negotiations.” It also offered to eliminate ‘on an autonomous basis’ all cotton export subsidies, tariffs and quotas, as well as the most trade-distorting kind of domestic support in 2006.

However, on the eve of the Hong Kong Ministerial, Deputy US Trade Representative Karan Bhatia said that the only ‘early harvest’ the US would be willing to consider was accelerated implementation of cotton subsidy phase-outs - but only after an overall deal had been concluded on agriculture.