WTO: Hong Kong Green Room Deal

The sixth World Trade Organisation (WTO) ministerial meet in Hong Kong has come to a close with little real progress on the important issues that dominated the negotiations, and with less significant advantage for Bangladesh.

The Hong Kong ministerial has somehow been saved from becoming yet another Cancun. Thanks to the last ditch efforts of the key players in the global multilateral trade negotiations in the 'Green Room', it produced a last moment deal, belying strong speculations to the contrary. However, the final outcome of the deal is still not clear. The Hong Kong deal was possible when the European Union (EU) and the USA made fresh pledges to cut export subsidies on agricultural products and open their markets to more products from the world's poorest nations, over a period of time extended far beyond what was earlier stipulated.

The most surprising aspect of the Hong Kong deal is that nobody seemed truly happy over its outcome except for the fact that the multilateral trade talks had been saved. The outcome is, apparently, intended to give some more breathing space to the trade negotiators to deal with tricky issues. At the end of the Hong Kong ministerial, there would thus be a mixed sense of both achievements and failures among delegations coming from 149-member countries of the WTO. In any multilateral negotiation, may it be on trade or otherwise, all parties cannot be equally happy over the outcome, particularly when conflicting interests are involved. But for the sake of justice and fairplay, the poor and weak parties involved in the process do deserve more benefit than the affluent ones. In this context, the critics of the WTO would certainly spare no time to examine the compatibility of the Hong Kong deal with the WTO objective.

The agreement reached with respect to farm subsidies was disappointing in its final form. Not only was the date of elimination for the subsidies pushed back from 2010 to 2013 to accommodate the wishes of the EU, but the details are still unclear. The agreement is not target-based and nothing has been quantified.

From Bangladesh's point of view, the centre-piece was the agreement on granting duty- and quota-free access to developed markets for goods from the group of 15 LDCs. The final deal permits duty- and quota-free entry for 97 percent of products, but permits the developed countries to maintain restrictions on 3 percent of items, that may include ready-made garments from Bangladesh and Cambodia. The reason given for this was that the RMG sectors in Bangladesh and Cambodia are considered competitive and have no need of such a helping hand.

It may not be lost on us that in a way the argument is complimentary to Bangladesh and its garments sector. Perhaps the lesson to be learned in this connection is that the country should be moving beyond thinking of itself as a nation dependent on concessions and unable to compete without them. The fact that the RMG sector is competitive at a global level should raise two questions. The first is why the nation could not attain competitiveness in other sectors, with a commitment to improving port facilities, infrastructure, banking services, etc to bring the business climate in the country up to a level where investments and trade prosper soars. Besides, it is a pertinent question why the country has not diversified its export base in such a way that it would be able to take advantage from the offer on the table. There is nothing to stop bilateral agreements between Bangladesh and other countries with respect to greater market access, and this is a path the country should be pursuing in recognition of the fact that the new tariff-line wouldn't be applicable before 2008.

Some questions have arisen revolving around handling of negotiations at the Hong Kong round which was apparently blemished by lack of cooperation between the Geneva office and the visiting negotiating team from Bangladesh. The government needs to look into the issue to learn from the experience so that negotiation team is better equipped next time around. The Hong Kong declaration provided the basis for moving forward the ongoing trade negotiations towards a conclusion of the so called Doha Development Round, which is two years behind schedule, by 2006.

Critical eyes
It is said that the Bangladesh delegation to Hong Kong has returned to Dhaka empty handed as the declaration adopted at the Sixth WTO Ministerial Conference in Hong Kong provided no gain for the country.

The Hong Kong declaration that offered gains for almost all the groupings in the global trade talks, one way or the other, rather left risks for Bangladesh to lose even what it has been enjoying so far.

The declaration provided for duty-free and quota- access to the markets of developed nations for products originating in the least developed countries including Bangladesh but allowed the rich nations to keep three percent of the products in their tariff lines beyond its coverage. The scope of denials covers all the export items of Bangladesh and other LDCs, although it was apparent from statements made by US Trade Representative Rob Portman in Hong Kong that Dhaka's apparel products would inevitably become the target of such denial at least by the US.

Portman at a press conference in Hong Kong clearly said the textile products from Bangladesh and Cambodia would not be given duty- and quota-free access to US market, as it would be difficult for him to justify because of the global competitiveness the two nations have achieved in the sector.

Analysts said the scope for denial of the duty- and quota-free access for certain products could also be used politically to gain commitments on certain issues from the beneficiary countries, including Bangladesh.

The more advanced developing countries such as India and Brazil were the major gainers of the six-day conference of the WTO. While there were elements of gratification for the African LDCs particularly the West African nations as the declaration provided for withdrawal of export subsidies on cotton by the rich nations by 2006.

The developed nations, including the US, European Union and Japan also managed to conclude the conference virtually without deviating from their core positions. Bangladesh, the largest economy among the LDCs, emerged as a major loser.

Several members of the official Bangladesh delegation, during informal talks with the home media, were even found praying for a collapse of the talks like the ones in Cancun and Seattle to cover up their failure to gain anything from the conference. The expectation emanated from Brazil's last minute opposition to a deadline set in the draft declaration for withdrawal of export subsidies by the Europeans.

Bangladeshi participants from the business community and civil society organizations were disappointed by the outcome of the conference and poor show of the negotiators from home country that led to isolation and further marginalization of the country in global trade.

Some experts call it a "political failure" rather than a "negotiation failure". The Bangladeshi negotiators failed to read correctly the signals from Washington on the issues the country was pursuing and raised expectation of the people through giving them false hope about the duty-free access leading to the current disappointment. It was also seen as a "sheer failure" of the negotiating mechanism of the government and those responsible for the "disappointing" outcome at the conference.

On duty-free market access to developing country members, the declaration said they would be permitted to phase in their commitments and shall enjoy appropriate flexibility in coverage. It also provided for ensuring that preferential rules of origin applicable to imports from LDCs are transparent and simple, and contribute to facilitating market access.

On road to trade accord
The ministerial conference in Hong Kong enabled the WTO to make a modest advance toward freer global trade, but steered clear of the pesky details that could cause fresh headaches for negotiators in the months ahead.

The six-day meeting of ministers from the 149 World Trade Organisation member states closed with a 19-page statement that managed to bridge some of the gaps separating the European Union and the United States on the one hand and the developed and developing world, on the other.

With the document in hand, negotiators will now attempt to find consensus on the details that lurk beneath the general statements of commitment and concession. The goal is to secure a sweeping multilateral accord that removes global trade barriers by the end of next year, as called for in the Doha Round, launched in 2001. Pascal Lamy, director general of the Geneva-based WTO, hailed the fresh ‘sense of urgency’ and momentum he said the Hong Kong gathering had injected into the Doha process. But he also offered a more realistic assessment of what actually happened, saying: ‘we came with 55 per cent of the round. We’re leaving with 60 per cent. There remains quite a lot to do.’

The offers put on the negotiating table ‘need quite a lot of improvement,’ he added. WTO member governments will have to spell out exactly how they plan to cut farm export subsidies by 2013, a date they committed themselves to respecting in the ministerial text. In addition, the EU, which reluctantly proposed the date, insisted that it be accompanied by close WTO scrutiny of US international food aid programmess that the EU says amount to a disguised subsidy for US farmers.

The US officials at the meeting did little to conceal their intense annoyance at the EU argument that its food aid scheme distorts free trade. Reviving that debate could re-ignite the ill-will between Washington and Brussels that was apparent in Hong Kong. Other WTO members will be under pressure to put forward proposals on opening their services sector ‘as soon as possible’ to foreign competition.

Developing countries are decidedly leery of demands by the industrialised world for such a move and are likely to make strong counter-demands for lower import tariffs in developed markets. The developing countries were ‘not seeing a balance in what they are expected to do in relation to what developed countries are expected to do.’ The developing countries ‘had no choice’ but to agree to concessions in order to avoid blame for prompting the collapse of the conference, which at various points appeared distinctly possible.

The conference was going to be a failure. The developing countries, including the least developed countries, had no choice but to make a lot of concessions in order to make at least some progress. There was a sort of blame game going on. If that attitude lingers, chances of finding the common ground among rich and poor countries necessary for an overall accord by next December could be uncertain.

Another potentially explosive issue left unresolved is the plight of African cotton producers, who once again failed to convince the United States to abolish the generous domestic support subsidies it lavishes on its own cotton farmers.

EU farm subsidies survive attacks
The European Union’s lavish farm subsidy system survived attacks on two fronts, in Brussels and Hong Kong, but pressure is growing for a broad overhaul in the long term. Never has the EU’s Common Agricultural Policy come under such fierce fire as negotiations on the European Union’s future budget and tough WTO negotiations stirred up a storm of criticism. But in the end, defenders of the controversial farm support system succeeded in stalling reform until 2013.

WTO ministers meeting in Hong Kong approved an EU plan for agricultural export subsidies to be scrapped by 2013, three years later than the target pushed by the United States and key developing nations. That year is important because it also marks the end of the EU’s next long-term budget period, which starts in 2007.

The Hong Kong accord came after EU leaders agreed to a 2007-2013 budget package which included no clear commitment to reform farm subsidies. However, in the face of fierce French resistance, a clause was inserted in the budget agreement to let the European Commission carry out a sweeping review of EU spending halfway through the period.

It would then issue recommendations on how to better spend the EU’s money which member states would then have to decide whether to follow or not. The sensitive issue of farm subsidies would be put under the microscope. The sheer size of EU farm subsidies means that there are huge stakes in the disputes over Europe’s agriculture support system. In 2004, the CAP accounted for 43.6 billion euros (51.9 billion dollars) of the EU’s 105 billion euros, according to recent figures from the European Court of Auditors.

However, the programme faces growing criticism—which has made strange bedfellows of often opposed free-trade lobbies and developing world campaigners—leading attacks against it for being wasteful and unfair to the poor.

The EU farm subsidy system underwent a deep reform in 2003 which in particular broke the link between the amount of subsidies farmers received and how much they produced. After that deal, there was not supposed to be any big reforms to the CAP until after 2013. As shown at the WTO ministerial in Hong Kong, the reluctance of the EU to reform its agriculture sector has resulted in further isolation and growing bitterness from its key trading partners.

The commitment to end farm export subsidies left European farmers uneasy, demanding that the EU’s trade partners keep their end of the bargain and also make painful sacrifices.
 

Winners and losers of WTO
The world's least developed countries (LDCs), 32 of which are members of the World Trade Organisation (WTO), secured in the latest Hong Kong Ministerial duty-free and quota-free access to rich countries' markets. But they gave rich countries the right to exempt 3.0 per cent of poor nations' product lines from that special treatment.

What did key parties gain and give up in the latest WTO trade agreement? The United States made concessions to West African cotton producers by agreeing to eliminate export-oriented subsidies to American cotton-growers by 2006. But the U.S. was able to avoid discussion of further cuts to its other farm subsidy programmes.

The U.S. and other wealthy nations agreed to give duty-free and quota-free privileges to the world's least developed nations, but did manage to exclude 3.0 per cent of imports from these countries after it raised concerns about textiles from Bangladesh.
U.S. also failed to get the European Union (EU) to further cut its import tariffs on agricultural goods.

European farmers will have to adjust after the EU agreed to stop paying them to export goods by 2013, but Brussels held out against pressure from Brazil and other developing nations to eliminate such export subsidies by 2010.

The EU failed to get concessions it wanted from major developing countries on cutting tariffs on industrial goods and services

The big developing nations like Brazil and India secured an end to wealthy nations' farm export subsidies, but not as early as 2010 the date that they would have liked.

They were able to maintain protections for their still-young industrial and services sectors. They also got exemptions on some agricultural products from any WTO tariff-reduction plan.

But they failed to wring further concessions from the EU on import tariffs on agricultural goods. The EU has offered to cut these tariffs by an average of 46 per cent, but developing nations want bigger reductions.