Rethinking Bretton Woods | Wed, Oct 29, 2008
Interpreting outcome of WTO talks no easy task for FFD negotiations
This month negotiations leading to the Doha Financing for Development Review continue in New York. On October 23, as negotiators took on the trade chapter, surprisingly deep divisions among country blocks on how the Doha FFD Review should interpret the halt of WTO talks earlier this year --and, in fact, the record of trade talks since 2002-- came to the fore. Negotiations were chaired by the co-facilitators who are assisting the President of the General Assembly in this process, Ambassadors of Egypt and Norway.
The WTO Round of trade talks, initiated at the WTO Ministerial in Doha in 2001, preceded the Monterrey Summit. In spite of the protracted process in convening the follow up to Monterrey –confusingly, also scheduled to take place in the city of Doha, at the end of this year-- such follow-up will happen when the WTO Round is still not concluded. In the period, the Round has been successively on and off, with all deadlines systematically missed. In a last-ditch attempt to save it, the WTO Director General, Mr. Pascal Lamy, convened a Ministerial meeting in Geneva in July of this year, which ultimately led to no agreement among country delegations. So it seemed that agreeing on how to refer to the fate of these talks in the Doha FFD Review would be a “no brainer.” Not really.
The Draft Outcome Document (DOD) was issued before the end of July, and finished by the co-facilitators even before then, so it could not foresee what the outcome of the then-ongoing negotiations at the WTO would be. Thus, the section carried a footnote that announced it would be reviewed “in the light of ongoing negotiations.” At the start of negotiations on October 8, the Amb. of Antigua and Barbuda, representing the G77, reminded the chair that the chapter had not been redrafted, yet. While initially the chair indicated agreement, in a following session he stated there was not going to be time to review the chapter, so negotiations would have to be based on the available chapter of the DOD.
In its first intervention on this chapter, the G77 delegate expressed that the DOD language posed significant difficulties to that group. In the years following the Uruguay Round, a number of imbalances had emerged, that the Doha Development Agenda, initiated right before the Monterrey Consensus was adopted, promised to redress. That gave rise to the supportive language in para. 26 of that document, which welcomed “the decisions of the World Trade Organization to place the needs and interests of developing countries at the heart of its work programme.” But for the seven years since then, he said “we got nothing reasonably close to what a trade regime may look like.” He stated the focus on development had not happened, neither the benefits of trade had been spread.
He said the group could agree that “international trade was inextricable linked to economic growth” but, he said, it should be clear that the link was through the export side of trade. “The question for us”, he said, “is whether we have access to markets that allow exports to grow.” This position is at odds with CANZ’s proposal that has proposed language in another paragraph of the Trade chapter that says “We recognize, as well, that developing countries can also gain by opening their own markets through lower import costs, greater consumer choice, and more efficient participation in international trade.”
Civil society groups had been saying in the preparatory process that, in spite of no progress in the WTO talks, global trade has grown 70 percent since 2001. So, the problem does not seem to be about increasing the flows of trade, as the now discredited “bicycle” theory, very much in vogue at the end of the 1990s and providing the underpinnings for the launch of Doha Round, used to postulate. The problem is clearly about enhancing the distribution of benefits of trade. In fact, the astonishing paradox that developing countries’ exports have increased in the last few years, even as their poverty and unemployment levels remained stagnant or grew, too, has been explored in several reports. This would be clearly an issue for the Financing for Development Doha Review, not for the WTO, to take on.
With regards to paragraph 23 of the DOD [i], and on those basis, the G77 submitted an alternative drafting that would read:
“We are seriously concerned over the failure in July of the talks of the WTO Doha Round that will preclude finishing negotiations this year and consider it a serious setback for the Doha Round and call upon the developed countries to demonstrate the flexibility and the political will necessary for breaking the current impasse in the negotiations, and we reaffirm the need to strictly adhere to the development mandate of the Doha Ministerial Declaration, the decision of the General Council of the World Trade Organization of 1 August 2004 and the Hong Kong Ministerial Declaration, which places development at the heart of the multilateral trading system.”
Mexico had, likewise, an alternative assessment of the DDA, that was put forward in a suggested paragraph 22bis and that was also linked to the ongoing turmoil in global financial markets. “We express deep concern on the recent failure to reach agreement in the WTO Doha Development Trade negotiations, in particular at a time when the global economy Is in much needed injection of confidence to come out from the current crisis, and call all WTO members to show in the necessary political will and flexibility to reengage to bring the negotiations to a successful outcome.”
Both proposals met with immediate reactions from developed countries. The delegate of the European Commission --which is carrying the negotiations on behalf of the EU for this chapter-- questioned the G77’s assessment. She said it would be difficult at this time to foresee what will be end of DDA, but negotiations did not stand still these seven years so, “there’s a need to capture progress so far, as well as the difficulties ahead of us.” She stressed that progresses made so far should not be lost, and that the word “failure” should be banned from the document.
Japan gave support to paragraph 22 of the DOD as it was saying it would give “a forward-looking message to negotiators in Geneva.” Canada, speaking for the CANZ (Canada, Australia and New Zealand) group and the USA similarly supported the paragraph.
However, come to paragraph 23 the US delegate wanted to strike down the qualification “truly development oriented” after the call for conclusion of the Doha Round of trade negotiations. He also proposed to add that “major trading nations, both developing and developed, must contribute on a level commensurate with their role and participation in the global economy and make commitments that result in new trade flows, not new trade barriers.” He criticized what he characterized as “finger pointing” by the G77 and affirmed that “Well-known research and documentation shows that major growth is going to come from major developing countries, G77 countries.” He also cautioned against language that dismisses the Doha Development Round, saying the US has not given up on it.
The G77 responded that in Doha leaders (not UN-based negotiators) would be making an assessment and that in 2002 they gave a very optimistic picture but now, at that time they meet, it is clear there will no resolution to the problem, not even –maybe-- an active process. “This is not even like in 2005,” he said, “when there were some discussions going on.” He went on to say that if the outcome from July had gone through, development components were actually not being taken into account, so “the word ‘failure’ is probably the mildest of words we could use” and that it did not seem that sidestepping the present situation would lead to any correction, so it was better to put the truth on the table. He wondered whether it was a coincidence that developed countries had all such a rosy picture of the situation and developing countries a grim one, question he responded with the fact that the benefits of trade had simply not been flowing to developing countries. He clarified that the discomfort of developing countries with the workings of the trading system went as far back as the Seattle 1999 Ministerial, not the Doha 2001, so we should talk about 10 years , not only seven, of wait. “Patience is a virtue, but not a renewable resource” –he concluded.
A large range of views was also visible in assessing paragraph 24 of the DOD.[ii] In particular, the notion of policy space came under fire from all developed countries, who suggested the deletion of the wording The G77 proposal for this paragraph would commit to “make progress in the Doha development agenda … affording the necessary policy space for developing countries in particular the LDCs.” Policy space, after emerging for the first time in a North-South document at UNCTAD XI, has been the subject of heavy debate, including at the latest UNCTAD XII Conference in Accra. It has become an important component of the international development debate by highlighting that, under the progress of trade, investment and financial arrangements, developing countries have seen increasingly curtailed their ability to utilize policy instruments that would help them pursue development, oftentimes even at the risk of having to go against democratically, well-expressed will of their populations.
Japan, followed by Switzerland, suggested that the wording on “special and differential treatment” captured the idea of policy space. But the European Commission, in fact, in addition to its deletion of “policy space” offered language that would also restrain the notion of special and differential treatment qualifying it as “precise” –though also called for it to be “operational.” It is actually very unlikely that the now very co-opted notion of Special and Differential Treatment (which in WTO-speak usually refers to merely longer periods of implementation of the same rules for developing countries) can be equated to the widely supported academic finding that all successful cases of development in the last fifty years have been based on creative and often heterodox policy approaches.[iii]
The US delegate commented that “policy space” was not language agreed at Monterrey, not could it be agreed here (in an apparent attempt to sideline the agreement reached in UNCTAD Conferences of Sao Paulo and Accra, where the concept had been internationally accepted).
While in general terms, developed countries expressed discomfort with the idea of the listing contemplated in this article (the US said this was “very delicate” as it deals with the heart of what is being negotiated in Geneva), they all concurred in offering a deletion of “facilitating technology transfer” as one of the areas of interest of developing countries on which there was need to make progress at the WTO talks.
The G77 proposal for this paragraph also included reference to the areas in paragraph 28 of the Monterrey Consensus, which contained a longer and casuistic listing. The US government said that, of course, paragraph 28 of Monterrey was supported by them. However, it is unclear what advantage it brings, to anybody, to just repeat the commitment reached at Monterrey in this regard.
Paragraph 25 received general support from the G77. However, the paragraph acknowledges “that the optimum pace and sequence of liberalization depends on the specific circumstances of each country and that its costs and benefits must be weighted carefully in each case.” The G77 offered a qualification that it was liberalization “by developing countries” that is being referred here. In the final sentence, that reads “A positive impact of liberalization on development also depends to a large extent on appropriate actions” it proposed to add “by developed countries.” But the most important amendment offered to this paragraph was at the beginning, where it sought to put the rest of the paragraph in context by connecting the trade issues with the functioning of the international financial architecture. It proposed “We acknowledge that the economic, financial and trade system requires a profound restructuring that must take place immediately in order to be able to address the current crises.”
Civil society groups had mentioned repeatedly in the preparatory sessions that longstanding problems in access to finance and exposure to and impact of foreign exchange fluctuations in developing countries had a critical and asymmetrical effect on their trade performance, compared to that of developed countries, especially those issuing hard-currency. In fact, the immediate impacts of the current crisis have been seen in the restrictions on trade finance, which has motivated the WTO Director General to call an urgent meeting of leaders of financial institutions to look into the problem (see related item in this same mailing).
The European Commission, in its intervention, sought to qualify the reference to “expansion of productive capacities, development of human resources and basic infrastructure“ by turning it into “appropriate action and strategies at the national level” for those purposes. It also proposed changing “access to technology “ with “absorption of technology.” In addition it proposed adding mention of the importance of South-South trade. Japan commented that efforts should be made to avoid completely the adjectives “developed” and “developing” in talking about the issues of this paragraph (and also the whole chapter, if possible). In the sentence that says that costs and benefits of liberalization must be weighted, the US submitted that “each country will make this decision based on its own evaluation” of such costs and benefits. The US delegate also proposed to add, at the beginning, that “We recognize that trade liberalization, combined with pro-market development domestic reforms, enhances the growth potential of developing countries.” As for the final sentence of the paragraph, which calls on the removal of measures distortive of trade, removal of tariffs and increased market access, he requested its deletion.
The proposals motivated the reaction of the G77 inquiring “If trade liberalization is so good, so painless, then could someone explain why developed countries have to create so many boxes –of all colors- to deal with subsidies and extend the years they have to liberalize them? “
On paragraph 27, that deals with Aid for Trade,[iv] the G77 stated how critical it was for developing countries to get the resources to build their productive capacity, especially taking into account steep terms of trade losses –this was in spite of the rebound of commodity prices in the last few years. He said he did not see the current language in 27 actually achieving that. It is a real concern that the concept of Aid for Trade does not rule out aid for subsidizing imports from developed countries. The US, Japan, CANZ and the European Commission supported the general thrust of the paragraph.
The CANZ group wanted to add the categories that OECD uses for Aid for Trade, while the European Commission wanted to stress the concepts of “ownership and alignment with national development strategies.” These notions, while coined a few years ago to ensure a strategy that had broad support in the country would lead engagement by donors, has lately been the matter of controversy as it became known that the OECD’ s fine print to define ownership ultimately defers to whether the country in question has a strategy the World Bank judges to be “operational.” While figures recently released show Aid for Trade in the decline, whether in absolute numbers or as a share of ODA,[v] donor country blocks also sought to shift the onus on making progress in Aid for Trade to recipient countries. For instance, US proposed “Success [in Aid for Trade] will require recipients to prioritize trade in their development programs”, while similar language was proposed by the European Commission.
The role of UNCTAD was the subject of paragraph 30 in the DOD. Though it contained almost innocuous recognitions of fact, such as restating that UNCTAD held its Conference earlier this year in Accra, and restating its mandate, developed countries requested several deletions. The European Commission raised eyebrows when it said Doha FFD should not be used to expand mandates of UNCTAD. In fact, as the Russian delegation responded, coming in support of the paragraph, the DOD defined the mandate as exactly the same as the Accra Accord of earlier this year. Japan joked the language read “like one of those commercials you have at the end of a show: this show has been made possible by… .”
The US delegation expressed the view that this paragraph did not add anything and, in fact, several other actors support trade work. In this regard, they said they would be ready to consider a G77 proposal for paragraph 30bis that said “At the same time, those UN specialized agencies that have the mandate should strive to help developing countries building their trade-related productive capacities,” as a more appropriate language to address the role of all these agencies. This is, however, no surprise in the light of positions formulated at the UNCTAD Conference in Accra earlier this year. There the US delegation sought to downplay and relativize UNCTAD’s importance as an agency providing analysis for developing countries saying such role “was something of the past.”
[i] As currently drafted, this paragraph says “A major challenge persists. The Doha Round of multilateral trade negotiations has not been concluded, jeopardizing a continued dynamic expansion in the exports
of developing and transition economy countries, and adding to the risk of a slowdown in the global economy. We will strive for a successful, early and truly development-oriented conclusion of the Doha Round that ensures fair, balanced and equitable market-opening commitments.”
[ii] As currently drafted “We recognize the need to make progress in key areas of the Doha Development Agenda that are of interest to developing countries, including, inter alia, increased market access for manufactures and agricultural products, substantial reduction and elimination of subsidies, facilitating technology transfer, effective provisions for special and preferential treatment, opening of markets to services from developing countries, and affording sufficient policy space.”
[iii] Rodrik, Birdsall and Subramanian 2005, If Rich Countries Really Cared About Development.
[iv] Aid for Trade is a vital component of the measures required for developing countries to effectively benefit from the Doha Round. Aid for Trade is not a substitute for a successful outcome of the Doha Development Agenda. We will strive to substantially enhance Aid for Trade to support efforts of recipient countries to take advantage of new trade opportunities and assist them in addressing trade liberalization adjustment measures. A critical aim of Aid for Trade should be to enhance competitiveness and ownership while aligning it with the respective national development strategy. The commitments by individual donors relating to Aid for Trade should be fully mplemented.
[v] World Bank and IMF, Global Monitoring Report 2008, as quoted in MDG Gap Task Force Report 2008, “Delivering on the Global Partnership for Achieving the MDGs.”