The WTO’S Bali Deal – How Balanced?
This issue of South Bulletin provides an overview of the deal made at the WTO Ministerial Conference in Bali in December 2013. It was hailed in some media as a breakthrough for the WTO. The outcomes are however very modest, and there are also imbalances in gains and losses, mainly along North/South lines.
This South Bulletin also reports on the “food fight” in the WTO before and at the Bali Ministerial. In addition, this issue includes two South Centre Experts’ Reports on food security as well as on trade facilitation.
The discussions on Sustainable Development Goals (SDGs) are hotting up in the UN in New York. The South Centre has been playing a significant role. This South Bulletin contains two South Centre papers on the SDGs:
SDGs: Technology and Finance – The Means of Implementation
SDGs: Economic Issues at National and Global Levels
The Group of 77 and China statement on economic issues and finance and technology is also found in this issue.
Finally, a South Centre delegation went on a highly productive visit to South America. The South Centre team held seminars and workshops, met Ministers and officials, and visited several institutions in Brazil, Argentina and Uruguay. This bulletin covers a report and shares photos of the trip.
To download the entire South Bulletin, please click here. To read individual articles, please see below.
WTO makes a deal, but was it balanced?
By Martin Khor
The Ministerial conference of the World Trade Organization in Bali ended with a deal, hailed by many for reviving the WTO as a viable venue for trade talks. The results are however very modest, and there are also imbalances in gains and losses, mainly along North/South lines.
The WTO’s Bali conference was mainly conducted behind closed doors, with the Director General Roberto Azevedo holding meetings issue by issue with a few countries.
Participants were given the final draft only a few hours before a final plenary meeting.
Most of the week was spent on the “food security” issue, with the Director General being the go-between between the United States and India.
India was the most prominent among the developing countries that wanted to change the present WTO rules on agricultural subsidies that hinder the ability of government to purchase and stock staple foods from farmers.
It was agreed that a permanent solution involving changes to rules would take more time, so Bali discussed an interim measure – a “peace clause” whereby WTO legal cases will not be taken against countries having a public food stocktaking programme.
The issue was how long this peace clause would last. India, backed by many developing countries, wanted it to last till the permanent solution is found. The US and others wanted the peace clause to expire in four years.
The final agreement was that the WTO would negotiate a permanent solution within four years, and countries will refrain from taking cases until that solution is found.
Thus in “food security” developing countries won the battle of duration, but in reality the peace clause is of limited value.
First, it applies only to the Agriculture Agreement; countries can still sue under another agreement on subsidies.
Second, the peace clause applies only to “existing programmes.” Thus countries that have no programme and want to start one will not be covered.
Third, there are cumbersome conditions including the country providing a lot of information and notifying that it has reached its allowed subsidy limit, that may make it not worthwhile to use the peace clause.
What is more important is that serious work has to be done to find a permanent solution.
On another agriculture issue, the WTO failed to live up to the 2005 Ministerial deadline to eliminate export subsidies by 2013. Instead the weak Bali decision on export competition regretted the missed deadline and undertook to maintain progress.
With the food issue cleared, the Bali Conference was able to adopt a trade facilitation treaty which obliges all countries to streamline their customs procedures and upgrade their technology and infrastructure, so that imported goods can be cleared faster and easier.
The new obligations can be easily met by developed countries that already have the measures and technology, but are onerous on poorer countries that don’t have the capacity.
It will be of greater benefit to those countries who are net exporters as their goods will clear faster in other countries. Net importers can be expected to see their imports rising faster than their exports, with adverse effects on their trade balance, a concern raised by some developing countries.
Developing countries are able to designate which specific obligations they need more time to implement, and there is also promise of technical assistance for them, but there is only a more vague and less explicit commitment to provide them with “financial assistance”.
The Bali meeting also approved decisions to assist least developed countries on market access, rules of origin, cotton and services. However the decisions are not binding and thus have little practical benefit. These LDC decisions should be seen as a starting rather than an end point, with further negotiations for future decisions that are more useful.
Overall the Bali deal lacks balance, with the trade facilitation treaty advocated by developed countries binding (with those not fulfilling their obligations facing WTO legal cases) while the decisions on LDC issues and export subsidies favoured by developing countries are not binding in nature, while on food security only an interim measure (peace clause) with limited value was obtained.
Before the Bali conference, the South Centre had convened meetings of a Trade Expert Group to discuss issues that were of significance to the WTO’s Bali agenda. The Centre published two reports arising from the Trade Experts meeting.
These reports—on the Food Security and the Trade Facilitation issues—are also published in this issue of the South Bulletin.
Martin Khor is Executive Director of the South Centre. Contact at: director@southcentre.int .
Glaring imbalances in WTO’s Bali outcome
By Ravi Kanth Devarakonda (Inter Press Service)
As industrialised countries celebrate the World Trade Organization’s Bali accord, the developing and the least-developed countries are forced to carry their battle to another day after securing only half-baked results and grandiose promises, said several trade ministers.
“While the agreements reached at Bali are important, it is important to ensure balance in the agreements,” said Rob Davies, South Africa’s trade minister.
“We are of the view that there is structural imbalance in which the least-developed countries secured only best endeavour solutions while there is a binding agreement on trade facilitation,” Davies told IPS.
“The developing and least-developing countries secured only promises and best endeavour outcomes while agreeing to a comprehensive trade facilitation agreement,” said Kenya’s foreign minister Amina Mohamed.
In sharp contrast, the United States, the European Union, and other industrialised countries praised the December 3-7 Bali Ministerial Conference for delivering the trade facilitation agreement.
“For the first time in its almost 20-year history, the WTO reached a fully multilateral agreement,” said US Trade Representative Ambassador Michael Froman. “WTO Members have demonstrated that we can come together as one to set new rules that create economic opportunity and prosperity for our nations and our peoples.”
EU Trade Commissioner Karel De Gucht said the breakthrough at Bali in wrapping up the agreement on trade facilitation, and some deliverables in agriculture, were truly significant for the trade body. “They take the WTO from the darkness of the multilateral era to [shine] light on multilateral action,” commissioner Gucht told reporters. The EU commissioner, however, admitted that there was a lack of balance in the overall Bali agreement.
For over 15 years, the industrialised countries and some advanced developing countries such as Hong Kong, Singapore, South Korea, Chile and Mexico have pushed hard for rapid liberalisation of customs procedures as part of the trade facilitation agreement so as to enable their exports to rapidly penetrate the developing and least developed countries without many hassles.
Proponents say the TF accord is a “good governance agreement” for customs procedures that industrialised countries want the developing and the poorest countries to implement in the coming days and years on a binding basis – failing which the latter can be hauled up at the WTO’s dispute settlement body.
In return, the developing countries managed to secure only best endeavour agreements on some issues of their concern in agriculture, such as an interim mechanism for public stockholding for food security, transparency-related improvements in what are called tariff rate quota administration provisions, and most trade-distorting farm export subsidies and export credits.
The poorest countries as part of the “development” dossier secured another set of best endeavour improvement concerning preferential rules of origin for exporting to industrialised countries, preferential treatment to services and services suppliers of least developed countries, duty-free and quota-free market access for least-developed countries, and finally a monitoring mechanism for special and differential treatment flexibilities.
Ironically, the Bali accord has weakened the language on issues raised by the developing and the poorest countries as compared to what was agreed in the WTO Hong Kong Ministerial Declaration in 2005.
The Kenyan foreign minister – who was the chair of the WTO General Council at the Hong Kong meeting – spoke about this puzzling change.
“What is the guarantee that the industrialised countries will implement the promises now made in the Bali agreement, particularly the provision of financial and technical assistance to implement the trade facilitation commitments, when they did not implement the commitments that were made eight years ago?” she remarked to IPS.
The Bali package included ten agreements. They comprise a binding agreement on trade facilitation and four descriptive items in agriculture such as general services, public stockholding for food security purposes, understanding the tariff rate quota administration provisions of agriculture products, and export competition.
In the development dossier, the Bali package offered non-binding best endeavour outcomes on preferential rules of origin for least developed countries, organisation for the waiver concerning preferential treatment to services, duty-free and quota-free market access, and a monitoring mechanism on special and differential treatment.
“We have only partly accommodated the concerns of the poorest countries,” said Davies. “The priority [ought] to be on development and implementation issues in the coming days,” the South African minister emphasised.
India steadfastly pushed hard for strong language to ensure that the public stockholding programmes for food security continued without interruption until a permanent solution was arrived at.
Despite opposition from some major industrialised countries, including the United States, and also opposition from some developing countries, India managed to secure an interim mechanism that would last for four years during which there is a commitment to find a permanent solution.
If there is no outcome within four years, the interim solution will be extended till members agree to a permanent outcome.
However, there are many notification and safeguard conditions that India and other developing countries will have to implement in order to avail themselves of the interim mechanism for food security. The US said these conditions are essential to ensure that public stockholding programmes for food security in one country do not cause food insecurity in other countries.
The post-Bali work programme has admitted that there are glaring asymmetrical outcomes in the “Bali Package.” “Issues in the Bali Package where legally binding outcomes could not be achieved will be prioritised… Work on issues in the package that have not been fully addressed at this Conference will resume in the relevant Committees or Negotiating Groups of the WTO,” according to the Bali Ministerial Declaration.
In short, the developing and least-developed countries will have to carry on their fight as there are no “legally binding outcomes” on any of their issues. That is the message from the Bali Ministerial meeting.
Also, the Bali meeting shall be remembered for the manner in which the developing and the poorest countries remained divided thanks to a grand strategy adopted by the Northern countries.
“Unless the developing world remains united it is highly unlikely that they will make progress on their issues in the next year, and this is even more true in a period when the North is going to push hard its new trade agenda,” said a trade minister who preferred not to be identified.
Ravi Kanth is a Geneva-based journalist, who wrote this article for IPS news agency.
WTO food fight before and at the Bali Ministerial
The “food security” issue dominated the first several days of the WTO’s Bali Ministerial conference. This article gives the background to the “food fight” at the WTO.
By Martin Khor
Before and at the WTO’s Bali Ministerial Conference, “food security” was a major issue. The group of 33 countries (G33) wants to clarify or change the present WTO rules that constrain the ability of developing countries’ governments to purchase food from small farmers and stock them.
Government purchase (and stockholding) of rice, wheat and other foods is important in many developing countries. Such schemes assist poor farmers by giving them more certainty of sales at certain price levels. It also promotes national food security.
However the present WTO rules are a hindrance to such schemes, and these rules need to be changed, according to a report of the South Centre by several trade experts of developing countries.
They include Rubens Ricupero (former Secretary General of UNCTAD), S. Narayanan (former Ambassador of India to the WTO), Ali Mchumo (former Managing Director of the Common Fund for Commodities and former Ambassador of Tanzania to the WTO), Li Enheng (Vice Chairman, China Society for WTO Studies), Ambassador Nathan Irumba of Uganda, and Deepak Nayyar (former Vice Chancellor of Delhi University and former Chief Economic Advisor to the Indian government).
Public stockholding for food security purposes is included as one of the items under the Green Box of the WTO’s agriculture agreement, but with certain conditions.
The Green Box lists the types of domestic subsidies that are considered minimally or non-trade distorting. WTO Members are allowed to use these measures, usually without limitations.
But in the case of public stockholding, significant conditions, causing enormous problems to developing countries, have been attached.
One condition is that food purchases by the government shall be made at current market prices and sale from public stockholding shall be made at prices not lower than current domestic market price.
But the rules also say that if the price paid by the government is higher than the external reference price, the difference is considered a trade-distorting subsidy which is then placed in and counted as part of the Red Box. Developing countries’ Red Box subsidies cannot exceed 10% of the production value of the product.
The problem is that reference price has been defined as the average international price not of the present but of 1986-88.
Food prices were much lower 25-30 years ago. For some items they are 200 or 300 per cent higher today. It is thus illogical and most unfair to accuse a government that buys rice from its farmers at today’s market price to have unfairly subsidised them because it should have bought it at the 1987 price!
Consider this example. The farm price of a food item was 30 cents in 1987 and rose to 100 cents today. If I buy rice from farmers at 100 cents, it should not be considered a trade-distorting subsidy at all.
Yet the WTO’s rules consider that there has been such a subsidy of 70 cents. And this counts towards the country’s total allowed subsidies.
With such a calculation, it won’t take much purchase from farmers for the country to reach the 10% subsidy limit. Anything above that is considered illegal, opening the country to legal WTO cases from other countries. If they win, they can block the exports of the guilty country up to the value of the “illegal subsidy”.
Among the affected countries is India whose new Food Security Bill obliges the government to spend over US$20 billion to buy foods especially rice and wheat from farmers, and to provide 5 kilos of these per month to eligible poor households, amounting to two thirds of the population.
The Group of 33 proposed a change in the WTO rules, that acquisition of foods by developing countries to support poor farmers should not be considered a trade-distorting subsidy.
According to the South Centre experts’ report, the G33 proposal if adopted would enable developing countries to have such schemes to help their poor producers or families without the present restraints.
“It would advance the cause of national food security, promotion of small farmers’ livelihoods as well as fulfilling the Millennium Development Goals of reducing hunger and poverty,” says the report.
In the last months’ negotiations at the WTO, this proposal was rejected, especially by developed countries like the United States which incidentally have subsidies of their own totalling hundreds of billions of dollars – much more than those of all the developing countries.
The rules are so riddled with double standards that these huge subsidies are allowed (since they were there in the past), while the subsidies of developing countries are severely capped because they did not previously subsidise (or only a little) as they could not afford to do so.
During the WTO talks, a counter proposal was put forward, that countries having public stockholding schemes would not have cases taken against them for four years. Meanwhile, there would be negotiations to find a “permanent solution.”
However, those countries that have exceeded their allowed subsidy level, including due to the unfair calculation and definition of “subsidies”, have to own up, show how much they have exceeded, give details of the purchase and stocks, and also show how the operation of the scheme is not trade distorting.
Just before the Bali Ministerial, the Indian Cabinet decided that they would agree to a temporary “peace clause” (agreement not to take up legal cases), but only if it lasts till a permanent solution is adopted, and also if the peace clause applies to both the WTO’s agriculture and subsidies agreements.
The Indian Minister put this proposal forward at Bali, and after several days of negotiations involving India, the US and the WTO Director General, a text was arrived at, basically agreeing to a peace clause until a permanent solution but only for existing programmes and only in relation to the Agriculture Agreement (thus not covering the subsidies agreement). It is thus of limited value. Negotiations will now have to take place at the WTO to find the “permanent solution.” It should be done soon, and it should be an effective solution that is easy to use, to correct what is an unfair component of the WTO’s agriculture rules.
The WTO’s Bali Ministerial and Food Security for Developing Countries: Need for equity and justice in the rules on agricultural subsidies
The following is a report that has drawn upon discussions in two Expert Group Meetings held in 2013 on the Multilateral Trading System organised by the South Centre in the preparation of the WTO’s 9th Ministerial Conference in Bali in December 2013.
The food security issue linked to public stockholding in the WTO’s Agreement on Agriculture is one of the key issues being negotiated. It has major implications for food security and agriculture in developing countries.
The experts who attended one or both of the meetings include Rubens Ricupero, S. Narayanan, Ali Mchumo, Li Enheng, Carlos Correa, Deepak Nayyar, Nathan Irumba, Yilmaz Akyuz and Chakravarthi Raghavan.
A. Background to the Issue
An important issue for the WTO’s Bali Ministerial meeting relates to one significant aspect of food security for developing countries, which is brought up in a proposal by the Group of 33 developing countries within the framework of the Doha Round multilateral trade negotiations.
According to the WTO Agreement on Agriculture which was negotiated during the Uruguay Round and currently in force, public stockholding for food security purposes is included as one of the items under the Green Box, with certain conditions. The Green Box (described in Annex 2 of the Agreement in Agriculture) sets out domestic support measures that are considered minimally or non-trade distorting, and WTO Members are allowed to take recourse to these measures without limitations. In fact, government spending under these measures can be increased to any extent. However in the case of public stockholding, a significant condition, causing enormous problems to developing countries, has been attached.
One condition is that food purchases by the government shall be made at current market prices and sale from public stockholding shall be made at prices not lower than current domestic market price. It is also stipulated in this context that the difference between the procurement price and external reference price should be accounted for in the calculation of Aggregate Measurement of Support (AMS), or so-called “trade distorting domestic support.” This stipulation negates the objective of including “public stockholding for Food Security purposes” in the Green Box, since effectively the difference between procurement price and the external reference price is treated as a subsidy to the farmer and included in the AMS. This is especially because the external reference price has been defined as the international price prevalent on average in 1986-88. Food prices internationally, as well as domestically, have increased very significantly since then. Thus, this stipulation limits the ability of developing countries to implement schemes to assist their small farmers.
The main element of the G-33 proposal is that acquisition of stocks of foodstuff by developing countries with the objective of supporting low-income or resource-poor producers should not be included in the calculation of AMS. The G33 proposal if adopted would thus enable developing countries to formulate or implement such schemes to help their poor producers or families without the present restraints placed by the WTO agriculture rules. It would advance the cause of national food security, promotion of small farmers’ livelihoods as well as fulfilling the Millennium Development Goals of reducing hunger and poverty.
We thus consider this proposal to be worthy of support and of great importance in contributing to the success of the WTO’s 9th Ministerial Conference and to the reputation of the WTO as an organisation that is concerned with development and poverty reduction.
B. The Importance of Public Stockholding Programmes in Developing Countries
This issue is of major importance not only in terms of trade but also the livelihoods of millions of small farmers and the food security of people in developing countries. The acquisition of food stocks has always been an important instrument for development and was also used by many developed countries during their development process. It remains an important policy tool for developing countries for the following reasons:
(1) In the face of volatility of food stocks on the global market today and fluctuations in global food prices, building national reserves has been widely acknowledged to be a critical part of developing countries’ food security strategy. Today’s global food market is structurally different from the market when the Uruguay Round was completed. In the 1990s and early 2000s, food on the global market was cheap and stocks were plentiful. It is no longer so.
(2) Acquiring surpluses from some regions of the country and sending these supplies to other regions of the country that are food deficit has been and remains an important food security instrument for developing countries.
(3) Many developing countries continue to struggle with widespread rural poverty. At least 1.5 billion individuals depend on small-scale farming for their livelihoods. This remains a major issue especially when the share of the population engaged in agriculture continues to be significant and the industrial or services sectors cannot provide sufficient employment. For broad-based development to take place, countries must ensure that the living standards and purchasing power of the majority can be increased. Governments’ programmes acquiring foodstuffs at administered prices are therefore an important avenue whereby resource poor farmers’ incomes can be stabilised and even guaranteed.
(4) Article 11 of the International Covenant on Economic, Social and Cultural Rights imposes on States three levels of obligations in the realization of such right: to respect existing access to adequate food, to protect and to fulfill the right to food; they ‘must facilitate it by proactively strengthening people’s access to and utilization of resources and means to ensure their livelihood, including food security’. The adoption of the G33 proposal will be instrumental to the realization of the human right to food. Preserving the current situation under the Agreement on Agriculture might, in fact, force WTO Members to violate their human rights obligations.
C. The G33 Proposal to Correct the Present Treatment of Public Stockholding
At present “Public Stockholding for Food Security Purposes” is included in the Green Box, the category of subsidies that are minimally or non-trade distorting. There are many other items also in this Green Box, including measures to protect the environment and subsidies to farmers that are not directly tied to production, most of which are used by the developed countries, which provide very large amounts of subsidies under this Box. WTO Member countries are allowed to provide all these other Green Box subsidies without limit. However only in the case of the Public Stockholding for Food Security Purposes does the Agriculture Agreement place the condition that the difference between the acquisition price and the external reference price should be accounted for in the AMS.
This treatment of the developing countries’ support for public stockholding is discriminatory and there is thus much logic in the G33 proposal not to count this expenditure as part of the trade distorting subsidy which goes into the calculation of AMS. Just like the treatment for other Green Box measures such as decoupled supports, insurance, environmental protection and other support instruments provided by developed countries under the ‘Green Box’, Public Stockholding for Food Security Purposes should all the more be treated as a Green Box measure without any conditions attached to it.
It is important and pertinent to note that the G33’s proposal (JOB AG/22 13 November 2012) is not a new proposal only recently formulated by the group. In fact the proposal reproduces a part of the last version of the WTO’s Doha agriculture modalities text of 6 December 2008 (TN/AG/W/4/Rev.4, Annex B). The text on this issue had been included by the Chair of the Agriculture negotiations in this modalities draft, without square brackets, denoting that it enjoyed consensus and that the text on this issue had there was already ‘stabilised’.
The G33 proposal therefore is being put forward as a text that had already been agreed to by the Membership, and that should be part of an “early harvest” of the Doha work programme.
The proposal is also in line with the 2001 Doha Ministerial mandate and the subsequent mandate from the 2005 Hong Kong Ministerial recognising the need of developing countries to safeguard food security, rural livelihoods and rural employment.
The G33 proposal would also provide a solution for the discrimination in the way the Agreement on Agriculture rules stipulate how the AMS is to be calculated when developing countries undertake public stockholding programmes. The present formula in the Agreement leads to an artificial and inflated figure, making it very difficult for developing countries to provide for or to implement these programmes in an adequate manner or to an adequate extent. The reason for this problem is that prices of agricultural commodities, especially staple foods, and including vegetables and meats, have increased manifold, in some cases by three or four or more times, compared to the period when the Uruguay Round was negotiated. Yet the benchmark used to calculate the AMS supports as stipulated by the Agreement is still the prices of 1986 – 1988. Thus there would be a very significant difference between the prices at which the government presently purchases food items from the farmers or the traders, and the reference prices which are based on 1986-88 levels. Such large price differences would be used to count the amount of subsidies. With this type of calculation, which is clearly unfair, the government schemes could easily exceed the maximum level of AMS or any de minimis that the developing countries could have.
This is especially because most developing countries declared zero or low amounts of AMS in their Uruguay Round schedules, as they were too poor to provide subsidies in the past periods and their negative support was not reflected in their AMS schedules. Thus many of them have to rely on the de minimis subsidies (which are limited only to 10% of the production value for the majority of developing countries, and 8% in the case of China). The G33 proposal sidesteps these problems by making developing countries’ public stockholding programmes a Green Box measure without any conditions thereby bringing this Green Box measure in line with other Green Box measures largely used by developed countries. This implies that the developing countries will not have to restrict their Public Stockholding programmes fearing that they may breach their 10% de minimis.
D. Need to Correct Imbalance in the Treatment of Subsidies
At a systemic level, the proposal in its original form, if accepted, would have injected a small dose of ‘equity’ in the Agreement on Agriculture. A major and glaring loophole created in the Uruguay Round’s Agreement on Agriculture to the benefit of the developed countries was the ‘Green Box’ (or Annex 2 of the Agreement on Agriculture). The Green Box allows countries to provide a range of support programmes in agriculture, and these supports can be provided without limits. However, the programmes elaborated upon under the Green Box (Annex 2) are those provided by developed countries. They include direct payments to producers, decoupled income support (supports given to landowners whether or not they produce as these subsidies are not tied to production), insurance payments of various forms and structural adjustment assistance to retiring producers or resource retirement programmes. The programmes that developing countries provide – government purchases from producers at administered prices—though included in the Green Box, has to be ‘counted’ under a country’s AMS (footnote 5 of Annex 2), if the administered price is more than the external reference price, determined on the basis of 1986-88 prices.
Thus, the current Agreement on Agriculture imposes a triple jeopardy on developing countries. First, a subsidy is alleged when foodstuffs are procured from low-income or resource-poor producers at an administered price by artificially comparing this price with 1986-88 prices. This is most inappropriate. Second, in some cases, the subsidy is calculated on the total production and not on the quantity actually procured, which also inappropriately magnifies the amount of the alleged subsidy (see Box in next page). Third, this alleged subsidy is required to be counted as a trade distorting subsidy, whereas huge and real subsidies given by developed countries to their farmers under similar or equivalent programmes are not to be counted as a trade distorting subsidy.
This inequity in the rules is further compounded by the fact that most developing countries bound themselves at zero AMS in the Uruguay Round (this was the case for 61 out of 71 developing countries when the WTO came into effect). Since then, most acceding developing countries have also had to bind their AMS at zero. Those developing countries which have declared providing some AMS in fact only provided very small amounts due to their fiscal limitations. As a result, developing countries effectively bound themselves to not being able to provide ‘trade-distorting’ (AMS) domestic supports aside from the ‘de minimis’ amount.
In stark contrast, developed countries in the Uruguay Round declared high levels of AMS. Their Uruguay Round commitment was a reduction of AMS supports by only 20%, over the implementation period of 6 years—1995–2001. Since 2001, there is no commitment for them to reduce their AMS. After reductions, at the end of its Uruguay Round implementation, the US has a bound AMS ceiling of USD 19 billion. The EU (27) has a bound AMS ceiling of 72 billion euros.
Since the understanding in the Uruguay Round is that the developed countries would have to progressively reduce their AMS, there has been a move by the major developed economies to shift more of the supports to the Green Box, while maintaining very high levels of their overall subsidies. WTO data show that the total domestic support of the United States grew from US$61 billion in 1995 (of which $46 billion was in the Green Box) to US$130 billion in 2010 ($120 billion in the Green Box). The European Union’s domestic support went down from 90 billion euro in 1995 (19 billion in the Green Box) to 75 billion euro in 2002 and then went up again to 90 billion in 2006 and 79 billion in 2009 (of which 64 billion euro was in the Green Box). A broader measure of farm protection, known as total support estimate, which is used by the OECD in its reports on agricultural subsidies, shows the OECD countries’ agriculture subsidies soared from US$350 billion in 1996 to US$406 billion in 2011.
In sum, while those developing countries declaring zero trade distorting domestic supports were locked into providing zero amounts of supports apart from the 10% de minimis product-specific AMS, developed countries providing large amounts of AMS could still continue doing so with a 20% reduction, while also moving large parts of the subsidies to the Green Box.
During the negotiations at the WTO, several WTO Members, mostly developed countries, have argued against the G33 proposal, with some stating that it might lead to a distortion of trade. They have sought to drastically narrow the scope of the proposal, and to attach many conditions. One of the suggestion is to provide an interim measure, in particular a peace clause (i.e. that there be no dispute settlement cases taken against a country undertaking public stocktaking) for a limited period e.g. two or three years.
The prevention of a permanent solution along the lines of the G33’s original proposal would lead to a lost opportunity to attaining some small amount of re-balancing to an iniquitous Agreement. If such an interim ‘peace clause’ solution is accepted, it should only expire upon the conclusion of the agricultural negotiations mandated under Art. 20 of the Agreement on Agriculture in accordance with para 13 of the Doha Ministerial Declaration and a permanent solution along the lines of the original G33 proposal has been found. It should also not be accompanied by cumbersome conditions that would reduce its usefulness when it is put into operation. In addition, the Peace Clause should cover any dispute arising from the Agreement on Agriculture as well as the Agreement on Subsidies and Countervailing Measures (ASCM).
Distortions in Calculations Pertaining to Acquisition of Foodstocks
If a fair method of estimating subsidies was used, when a government procures from producers, the subsidy amount should be calculated as the difference between the government’s procurement price (administered price) and the current market price, multiplied by the volume the government had actually purchased. This, however, is not the formula in the Agreement on Agriculture. Annex 3 paragraph 8 states:
‘Market price support shall be calculated using the gap between the fixed external reference price and the applied administered price multiplied by the quantity of production eligible to receive the applied administered price.’
The fixed external reference price was fixed upon the conclusion of the Uruguay Round. It is the average f.o.b. (free on board) price that has been notified by a country for a product for 1986 – 1988. Due to the time that has lapsed, this price is often much lower than the present price.
The applied administered price can be the acquisition price announced by the government in advance. This is the price paid by the government to producers when they would sell the product directly to the government.
The ‘production eligible to receive the applied administered price’ has been interpreted by some as 100% of total production in a country (as illustrated in the calculations on http://www.wto.org/english/tratop_e/agric_e/ag_intro03_domestic_e.htm). That is, even if a government only procures only a small portion of a product from producers, they have to calculate the AMS supports as if they had provided price supports for the entire domestic production of that product.
The end result is that the amount of subsidy attributed to the government is not what that government has actually provided as subsidy, but a much bigger, inflated figure. With these rules, it is almost inevitable that developing countries will surpass their allowed 10% product-specific de minimis, even if they procure only very small volumes of a product.
WTO Negotiations on Trade Facilitation: Development Perspectives
The following is a report that has drawn upon discussions at two Expert Group Meetings held in 2013 on the Multilateral Trading System organised by the South Centre in the preparation of the WTO’s 9th Ministerial Conference in Bali in December 2013.
This report relates to the negotiations on a Trade Facilitation agreement in the WTO, pointing out several development aspects and implications of the proposals on such an agreement.
The experts who attended one or both of the meetings include Rubens Ricupero, S. Narayanan, Ali Mchumo, Li Enheng, Carlos Correa, Deepak Nayyar, Nathan Irumba, Yilmaz Akyuz and Chakravarthi Raghavan.
This report was written before the WTO’s Ministerial meeting in Bali which adopted a trade facilitation agreement.
A. Introduction
An agreement on trade facilitation has been proposed as an outcome from the Bali WTO Ministerial Conference. WTO Members formally agreed to launch negotiations on trade facilitation in 2004 pursuant to the July 2004 Framework Package (referred to as the post-Cancun decision). The main proponents are the major developed countries, while many developing countries have taken a defensive position. In fact the developed countries have been advocating trade facilitation for many years. It was part of the four ‘Singapore Issues’, along with investment, transparency in government procurement, and competition, which many developing countries had proposed to remove from the Doha negotiating agenda during the 5th WTO Ministerial Conference in Cancun. Eventually three of the issues were removed from the agenda through the July 2004 package whilst trade facilitation remained on the table.
The trade facilitation negotiations have been focused on measures and policies intended for the simplification, harmonization and standardization of border procedures. They do not address the priorities for increasing and facilitating trade, particularly exports by developing countries, which would include enhancing infrastructure, building productive and trade capacity, marketing networks, and enhancing inter-regional trade. Nor do they include commitments to strengthen or effectively implement the special and differential treatment (SDT) provisions in the WTO system. The negotiations process and content thus far indicate that such a trade facilitation agreement would lead mainly to facilitation of imports by the countries that upgrade their facilities under the proposed agreement, as an expansion of exports require a different type of facilitation involving improving supply capacity and access to developed countries’ markets. Some developing countries, especially those with weaker export capability, have thus expressed concerns that the new obligations, especially if they are legally binding, would result in higher imports without corresponding higher exports, which could have an adverse effect on their trade balance, and which would therefore require other measures or decisions (to be taken in the Bali Ministerial) outside of the trade facilitation issue to improve export opportunities in order to be a counter-balance to this effect.
Another major concern that has been voiced by the developing countries is that the proposed agreement is to be legally binding and subject to the WTO’s dispute settlement system, which makes it even more important that the special and differential treatment for developing countries should be clear, strong and adequate enough. The negotiations have been on two components: Section I on the obligations and Section II on special and differentiated treatment (SDT), technical and financial assistance and capacity building for developing countries.
Most developing countries, and more so the poorer ones, have priorities in public spending, especially health care, education and poverty eradication. Improving trade facilitation has to compete with these other priorities and may not rank as high on the national agenda. If funds have to be diverted to meet the new trade facilitation obligations, it should not be at the expense of the other development priorities. Therefore it is important that, if an agreement on trade facilitation were adopted, sufficient financing is provided to developing countries to meet their obligations, so as not to be at the expense of social development.
B. Negotiations mandate and text
The negotiation mandate established in the “Modalities for Negotiations on Trade Facilitation” of the 2004 July Package was confined to “clarifying and improving” relevant aspects of trade facilitation articles under the GATT 1994 (i.e. Articles V, VIII and X GATT), with a view to further expediting the movement, release and clearance of goods, including goods in transit. Thus, the negotiations are not meant to limit or eliminate the rights and obligations of Members under the three GATT articles or to impinge on national policy and regulatory space. Yet, several of the proposed provisions, as discussed below, are in fact amending, not just clarifying, the GATT Articles V, VIII, and X. This goes beyond the negotiation mandate and would require, as mentioned below, an amendment of the GATT in accordance with the procedures provided for by the Agreement Establishing the WTO.
The negotiation mandate sets an intrinsic link between Section I and Section II of the draft text referred above, whereby it conditions implementation by developing countries and LDCs on the acquisition of financial and technical capacity, based on the delivery of assistance by developed country Members of WTO (as contained in Paragraphs 2, 3, 6 of Annex D of the “July package” WT/L/579).
Major issues in the negotiations and arising from the draft texts
The following are the main issues of concern for a large number of developing countries in the trade facilitation issue.
Many developing countries have legitimate concerns that they would have increased net imports, adversely affecting their trade balance. While the trade facilitation agreement is presented as an initiative that reduces trade costs and boosts trade, benefits have been mainly calculated at the aggregate level. Improvements in clearance of goods at the border will increase the inflow of goods. This increase in imports may benefit users of the imported goods, and increase the export opportunities of those countries that have the export capacity. However, poorer countries that do not have adequate production and export capability may not be able to take advantage of the opportunities afforded by trade facilitation. There is concern that countries that are net importers may experience an increase in their imports, without a corresponding increase in their exports, thus resulting in a worsening of their trade balance. Many of the articles under negotiations (such as the articles on ‘authorized operators’ and ‘expedited shipments’) are biased towards bigger traders that can present a financial guarantee or proof of control over the security of their supply chains. There is also the possibility that lower import costs could adversely affect those producing for the local markets.
The draft rules being negotiated, mainly drawn up by major developed countries, do not allow for a balanced outcome of a potential trade facilitation agreement. New rules under Section I are mandatory with very limited flexibilities that could allow for Members’ discretion in implementation. The special and differential treatment under Section II has been progressively diluted during the course of the negotiations. Furthermore, while the obligations in Section I are legally binding, including for developing countries, developed countries are not accepting binding rules on their obligation to provide technical and financial assistance and capacity building to developing countries.
The trade facilitation agreement would be a binding agreement and subject to WTO dispute settlement. The negotiating text is based on mandatory language in most provisions, which includes limited and uncertain flexibilities in some parts. Accordingly, if a Member fails to fully implement the agreement it might be subject to a dispute case under the WTO DSU and to trade sanctions for non-compliance. The cost of non-compliance could thus be significant; and to avoid potential trade sanctions, countries may have to invest in infrastructure and incur substantial costs to comply with binding commitments. It is worth noting that several WTO Members have been already challenged under WTO dispute settlement based on the grounds established by articles V, VIII, and X of the GATT 1994.
Many of the proposed rules under negotiations are over-prescriptive and could intrude on national policy and undermine the regulatory capacities and space of WTO Member States. The negotiating text in several areas contains undefined and vague legal terminology as well as ‘necessity tests’, beyond what the present GATT articles require. These could establish multiple grounds for challenging a broad range of WTO Members’ laws, rules, regulations and measures not only in matters that pertain to customs, but also on more broadly trade-related matters and on regulations ‘on or in connection with’ import, export and transit of goods (for example, in the proposed article 1 on ‘publication and availability of information’ and article 6 on ‘disciplines on fees and charges’).
Several provisions would have significant influence on national legislative processes. For example, some of the articles proposed under the agreement refer to an undefined open-ended category of ‘interested parties’ which have to be included among those which a country has to consult prior to introducing new laws or measures (article 2 on ‘prior publication and consultation’). The reference to the category ‘interested parties’ is not in the present GATT 1994. It could include an expanded list of entities that have a direct or indirect relation to the trade transactions covered by the agreement, and do not necessarily have to be located in the territory of the Member implementing the measure. This may lead to lobbying and pressures by various interest groups from outside the Member, which could have an undue influence on national regulatory and legislative processes. None of the relevant GATT 1994 articles seem to require any consultation with any party, inside the Member or outside, prior to promulgation of laws or administrative regulations. There is only requiring prior publication before enforcement in certain cases. The proposed article would thus introduce a totally new obligation which is intrusive with regard to a Member’s regulations.
Several of the provisions under negotiations could hold significant administrative and institutional burdens on LDCs and other developing countries. Customs and customs-related institutional mechanisms in these countries are not as advanced compared to developed countries. It is worth noting that most of the proposals based on which negotiations are undertaken were presented by developed countries, reflecting the nature and form of practice that they already undertake at the national level. Thus, developing countries are asked to converge to the practice and standards of developed countries. While some developing countries may have the capacity to upgrade their capacity accordingly, many others will have difficulties in aligning the facilities of all their customs agencies and in all regions of the country.
Meeting the obligations is likely to involve significant costs for developing countries. The costs include human resource expenses, equipment and information-technology systems, as well as other significant infrastructure expenditures. These costs would not be limited to a one-time investment and most of them are of a recurring nature, and would thus be a burden especially on low-income countries.
For example, Turkey’s efforts to modernize its customs information technology required USD28 million. In Morocco, the costs of information and communication technologies (ICT) were estimated at US$10 million, while in Chile the total investment cost of implementing an automated customs system amounted to USD5 million in the early 1990s. In Jamaica, the introduction of the computerized customs management system cost about USD5.5 million. Tunisia needed US$16.21 million to computerize and simplify procedures.
Furthermore, a 2003 OECD report highlighted that in Bolivia, a five year project for customs modernization cost USD38 million, of which about USD25 million was spent for institutional improvements and USD9 million for computerized systems. For Chinese Taipei, express clearance alone necessitated establishing 20 new processing lines each equipped with an X-ray scanning machine. There are a total of 117 officers at the express division, working day and night shifts so as to provide a continuous day and night long service.
The infrastructure and automated systems mentioned above are only part of the investments required to allow implementing the practices stipulated under a potential trade facilitation agreement. A World Bank report noted that the costs of implementing ICT at customs is only part of the life cycle cost of these systems and that too often these maintenance and upgrading costs are underestimated and not adequately included in the life cycle costs.
Accordingly, meeting these costs will necessitate an allocation in the national budgets and could divert limited resources from public services, such as health care, food security and education to customs administration. This is the reason developing countries are insisting that the additional costs of meeting the new obligations are provided to them, as was the understanding when the trade facilitation negotiation mandate was established. However, there is not yet a binding or adequate commitment for the provision of new and additional funds.
Most trade facilitation provisions under negotiations are entirely new or go far beyond what the World Customs Organization (WCO) Revised Kyoto Convention (RKC) requires. The arguments that the proposed trade facilitation agreement would largely be a copy of the RKC, or that it would simply reaffirm what most Member states already agreed to in the RKC, do not hold, as it would contain obligations that go beyond the Convention. Moreover, any obligation undertaken under a new agreement on trade facilitation could be enforced through the dispute settlement body of the WTO and through cross-sectoral retaliation among countries, unlike the Kyoto Convention.
To be balanced, a trade facilitation agreement requires strong and effective rules under Section II on SDT for developing countries, particularly the LDCs. These countries need clear and mandatory rules to operationalize the intrinsic link between their obligation to implement and their acquisition of capacity. Procedural rules under the Section II should not be burdensome on these countries in a way that dilute their rights as provided for under Annex D. They should be able to designate themselves the provisions under Section II, and to determine when they have acquired the capacity. Moreover, the agreement should include mandatory rules on obligations by developed country members to provide long-term and specific financial and technical assistance, and capacity building to developing and least developed country Members in accordance with their specific needs for implementing their obligations. A trade facilitation fund should be established to ensure resources for the long term.
Finally, in order for a trade facilitation agreement to be made legally effective and become part of the WTO body of law, it should be adopted through an amendment to the multilateral trade agreements in Annex 1A of the WTO Agreement. An agreement along the lines being proposed would alter the rights and obligations of Members under GATT 1994. An amendment of this has to be undertaken in accordance with Article X of the WTO Agreement. Accordingly, a potential trade facilitation agreement will take effect only after two-thirds of the WTO Membership has ratified it. Moreover, it will only be effective for Members that accepted it. The Members that accept the agreement will also accept applying the ‘most-favoured nation’ rules to their commitments, thus extending accepted preferential treatment to WTO Members having difficulties to accept the agreement.
C. Conclusion
While it may be beneficial for a country to improve its trade facilitation, this should be done in a manner that suits each country, rather than through international rules which require binding obligations subject to the dispute settlement mechanism and possible sanctions when the financial and technical assistance as well as capacity building requirements for implementing new obligations are not adequately addressed.
Thus one possibility is that the agreement provides that substantive provisions in the present Section 1 of the draft text are not legally binding on developing countries, just as the provision of financial resources and technical assistance is non-binding on developed countries. Instead, developing countries can endeavour to meet the obligations on an aspirational basis, and can apply for financial resources for programmes to upgrade their trade facilitation capacities.
In the case commitments under a multilateral trade facilitation agreement are undertaken, these should be approached in a way that would provide developing Members and LDCs with policy space and flexibility to adopt and implement commitments commensurate with their capacity to do so, and subject to the provision of technical and financial assistance and capacity building. Developing Members and LDCs could then, at their discretion, progressively move into higher levels or standards of implementation, when capacity exists to do so, taking into account their development context.
Achieving the above necessitates a balanced agreement with effective and binding rules on SDT that fully operationalize Annex D (2004). Moreover, least developed countries should be exempted from undertaking binding commitments as long as they remain LDCs. This would be consistent with the understanding in other components of the Doha work programme, where the draft modalities for agriculture and NAMA stipulate that LDCs are not required to reduce their bound tariffs.
On the basis of the current content of the negotiating text and given the current internal imbalance in the proposed agreement, developing countries are advised to be very cautious about rushing into a trade facilitation agreement by the ministerial conference in Bali, given the implementation challenges it carries. Furthermore, this decision should be considered in light of what developing countries and LDCs are able to obtain in other areas of interest to them.
A large part of the Doha work programme (the Doha Development Agenda) that would benefit developing countries and help to set right the imbalances of the Marrakesh Treaty remain to be completed. Developing countries and LDCs are advised to ensure that the entry into force of a trade facilitation agreement, if finally adopted, is linked to the conclusion of the Doha mandate with its development dimension fulfilled and based on the single undertaking.
As noted, some of the proposed obligations under a trade facilitation agreement would change current GATT 1994 provisions. Therefore, a formal process of amendment under article X of the Agreement Establishing the WTO would be required.
In case an agreement is accepted on a ‘provisional basis’, in the context of paragraph 47 of the Doha mandate, then WTO Members are advised to define what they mean by ‘provisional’. The enforceability of the new agreement should be conditional upon the conclusion of the Doha Round as a single undertaking and the approval of the new agreement in accordance with the WTO rules. Hence, the DSU should not apply to the agreement when implemented on a ‘provisional’ basis. Within the period of provisional application, Members should be able to voluntarily choose to apply all or parts of the agreement. This may help avoid a scenario in which the developed countries would already have attained a definitive agreement on trade facilitation and then have no more interest in negotiating or completing other issues in the single undertaking of the Doha round.
If a balanced text is not attained by the ministerial conference in Bali, negotiations on trade facilitation can continue post-Bali with a view towards attaining an agreement that is internally balanced, as well as within a balanced overall Doha outcome. Political arguments about the damage that could be made to the WTO as a global rule-making institution in case of failure to get an agreement on this subject should not be given precedence over the genuine interests of developing countries. Indeed, the greatest failure of the WTO will be to make decisions that do not ‘ensure that developing countries, and especially the least developed among them, secure a share in the growth in international trade commensurate with the needs of their economic development’.
SDGs: Technology and Finance—The Means of Implementation
- South Centre Paper on Sustainable Development Goals
The following is a statement by Executive Director of the South Centre, Martin Khor, to the Open Working Group on Sustainable Development Goals held at the United Nations in New York on 9 December 2013.
1. Means of Implementation and Global Partnership for Development
The Means of Implementation (MoI) and Global Partnership for Development (GPD) are closely related. Both are the elements that most directly represent the cruciality of international cooperation that is needed to support develo