Post Hong-Kong Retreat of African Ambassadors,Trade Negotiators on the Doha Trade Round

Jointly organized by the African Union and The Economic Commission for Africa

17-18 February 2006Eurotel Riviera
Grand'Rue 81
1820 Montreux, Switzerland
Tel : +41 21 966 22 22
Fax : +41 21 966 22 20

Aide-Memoire and Provisional Agenda and Programme of Activities

THE HONG KONG MINISTERIAL: A BRIEF NOTE

Background

The Sixth Session of the World Trade Organization (WTO) Ministerial Conference, held in Hong Kong from 13 to18 December 2005, concluded with release of the Hong- Kong Ministerial Declaration (HMD). This Declaration purports to reaffirm "the Declarations and Decisions adopted by the General Council on 1 August of 2004, and our full commitment to give effect to them. We renew our resolve to complete the Doha Work Programme fully and to conclude the negotiations launched at Doha successfully in 2006". (Paragraph 1of HMD)

Ministers meeting in Hong-Kong were forewarned that the outcome would be modest in view of the recalibration of expectations that had to be effected when, by late September, the work on modalities were found to be inexorably dragging its feet. Hong-Kong was therefore already discounted as being more of a confidence building meeting rather than anything else.

The bulk of the work in Hong-Kong revolved around the usually five major issues, namely Agriculture (including Cotton), Non- agricultural Market Access (NAMA), Services and S&D for LDCs. Residually, some issues in rule making were also covered.

Africa, with its extremely low level of participation in the world trade and a share that has been unfortunately shrinking, cannot but continue to claim that the central importance of the development dimension permeates throughout every aspect of the Doha Work Programme. There is urgency for the negotiations to deliver in real and meaningful terms on market access and rule making as well as on the entire development- related issues of interest to Africa. The development promises of the Doha Development Agenda should be fulfilled in a timely manner.

It is in this perspective that Africa took care to develop its own developmental benchmarks known as the "Arusha Benchmarks". The African Trade Ministers at their Meeting in Arusha, Tanzania on 21-24th November 2005 adopted these benchmarks and provided the necessary political guidance and the agreed common negotiating objectives for African trade negotiators as they engage with other trading partners in Geneva and elsewhere.

As far as Africa is concerned, the HMD should be viewed from this angle. This note is designed to provide a quick overview of the main elements of the HMD and some observations to help the discussions.

Agriculture

Domestic Support

(a) There will be three bands for reductions in final bound total AMS and in the overall cut in trade distorting domestic support with higher linear cuts.

(b) There will be higher cuts in higher bands.

(c) It is known that in the lower bands there will be both developing countries and some developed countries. Developed countries in the lower bands with high relative levels of Final Bound Total AMS will make an additional effort in AMS reduction.

(d) Disciplines will be developed to achieve effective cuts in trade -distorting domestic support consistent with the Framework.

(e) The overall reduction in trade-distorting domestic support will still need to be made even if the sum of the reductions in Final Bound Total AMS, de minimis and Blue Box payments would otherwise be less than that overall reduction.

(f) Developing country Members with no AMS commitments will be exempt from reductions in de minimis and overall cut in trade-distorting domestic support.

(g) Green Box criteria will be reviewed in line with Para. 16 of the Framework¹, inter alia, to ensure that programmes of developing country Members that cause not more than minimal trade distorting are effectively covered.

Observations

Since work on modalities are to be intensively undertaken up to April 2006, it is paramount that careful attention is paid to the discussions and negotiations, especially with regard to the above elements as they relate to the Blue Box, Green Box, the fixing of the limits of the band, the efforts of developed countries which are in the lower band. What does it mean that they will make more efforts? Is this not disguised form of best endeavour given to the developed countries while African countries are being pressed into making binding commitments especially when they have been calling for flexibilities and SDT? Make efforts to benefit whom? What are those developed countries and how will they help us or affect us? These are important questions that need quick responses. There is need for vigilance during the course of this extremely sensitive phase of work, which will lead to the next important deadline of July 2006 for the submission of comprehensive draft schedules to these modalities and also those on the other pillars (see below).

Export Subsidies

(a) With respect to agriculture, all forms of export subsidies (including export credits, guarantees, and insurances) will be eliminated by the end of 2013 with a "substantial part" of this to be frontloaded during the implementation period. This will be achieved in a progressive and parallel manner to be specified in the modalities.

(b) As a means of ensuring that trade distorting practices of STEs are eliminated, disciplines relating to exporting STEs will extend to the future use of monopoly powers so that such powers cannot be exercised in any way that would circumvent the direct disciplines on STEs on export subsidies, government financing and the underwriting of losses.

(c) A "safe box" for bona fide food aid will be provided to ensure that there is unintended impediment to dealing with emergency situations.

(d) The elimination of all forms of export subsidies, together with the agreed progressivity and parallelism, will be confirmed only upon the completion of modalities.

(f) Developing country Members will continue to benefit from the provisions of Article 9.4 of the Agreement on Agriculture for five years after the end-date for elimination of all forms of export subsidies.

(g) The disciplines on export credits, export credit guarantees or insurance programmes, exporting state trading enterprises and food aid will be completed by 30 April 2006 as part of the modalities, including appropriate provision in favour of LDCs and NFIDCs as provided in paragraph 4 of Marrakesh Decision.

Observations

1. As it is known the 2013 date for the parallel elimination of all forms of export subsidies and disciplines on all export measures with equivalent effect was agreed after long and arduous talks as the EU continued toresist any earlier dates. The 2013 date would appear to coincide with the directives of EU's Common Agricultural Policy (CAP) reform process, which would eliminate most of its own subsidies by 2013. It is, however, not defined what would constitute "a substantial part" of reductions that is to be realised by the end of the first half of the implementation period.

2. By putting together a number of issues including those related to the formulation of disciplines on export credits, export guarantees, etc; the text in paragraph 6 of the HMD does not justify the profile and importance which Africa attaches to paragraph 4 of the Marrakesh Decision relating to food aid, LDCs and NFIDCs. It is imperative to follow these discussions very closely in order to ensure that this 10-year old mandate does not procrastinate further. It is believed that the equation with some issues can only create an unnecessary obstacle to resolving this long outstanding issue.

3. Africa should ensure that that the development dimensions of STEs are well preserved in the negotiations. It would appear that this has been avoided in the declaration.

4. Article 9.4 has a very important developmental dimension. But there is now a five-year sunset clause after the end-date for elimination of all forms of export subsidies. Some developing countries will probably have no problem coping with the sunset clause. However, it will be essential to find some alternatives which will support Africa's development..

Market Access

(a) There is the adoption of four bands for structuring tariff cuts, recognizing the need to agree on relevant thresholds including those applicable for developing countries.

(b) Developing country Members will have the flexibility to self-designate an appropriate number of tariff lines as Special Products guided by indicators based on the criteria of food security, livelihood security and rural development.

(c) Developing country Members will also have the right to have recourse to a Special Safeguard Mechanism based on import quantity and price triggers, with precise arrangements to be further defined.

(d) Members recognize the need to agree on sensitive products, taking into account all elements involved.

(e) SP and SSM shall be an integral part of the modalities and the outcome of the negotiations.

Observations

(1) Benefits under the market access pillar are heavily contingent on the outcomes of SPs and SSM and sensitive products. These are crucial negotiations, which will affect the offensive and defensive interests of African countries.

(2) On the specific issues of special products, it may be recalled that the developing countries in the G33 coalition have been calling for the right for the developing countries to designate up to 20% of all tariff lines as special products. It is to be noted that the text now mentions "an appropriate number to be negotiated in Geneva". The text recognises the need for developing countries to self designate which products need to be protected but it very clearly stipulates that this should be based on the criteria of food security, rural development and the livelihoods of poor farmers. What is meant by "criteria" it does not seem to be very clear? It is hoped that these negotiations are not made more complex and burdensome than necessary.

(3) On the SSM, developing countries can have recourse to a SSM but this will be based on price and volume triggers, "which should ensure that the SSM is more efficient in curbing import surges". The task for determining these trigger points can also be both burdensome and complex. Arrangements negotiated in Geneva should not entail extra administrative and technical efforts and costs to African countries.

(4) Since the SP and SSM "shall be an integral part of the modalities and the outcome of negotiations in agriculture"it is important to make sure that the negotiations are favourable in terms of the desiderata of the mandate relating to "food security, rural development and the livelihood of poor farmers" is fulfilled.

(5) It is paramount to keep in view the provisions of paragraphs 8 and 9 of the HMD, which inter alia include the following, " there exists consensus in the Framework on several issues in all three pillars of domestic support, export competition and market access and that some progress has been made on other special and differential treatment issues". It has so far been very difficult to pursue the negotiations on the S&D mandate and developmental dimension in the major areas of the negotiations. The above formulations seem to be couched in a beautiful expression; it essential that the negotiations yield tangible and meaningful S&D.

(6) Paragraph 9 is known to be a text to have been especially negotiated by the enlarged FIPS for whatever that means. It will be important to devote time and decode the undertones of this message and see how they impact on the overall outcome in Agriculture and elsewhere as far as Africa's interests are concerned since the HMD clearly mentions that " we are resolved to establish modalities no later than 30 April 2006 and to submit Schedules based on these modalities no later than 31 July 2006".

Cotton

(a) All forms of export subsidies for cotton will be eliminated by developed countries in 2006.

(b) On market access, developed countries will give duty and quota free access for cotton exports from least-developing countries (LDCs) from the commencement of the implementation period.

(c) Members have agreed that as an outcome of the negotiations, trade distorting domestic subsidies for cotton production should be reduced more ambitiously than under whatever general formula is agreed and that it should be implemented over a shorter period of time than generally applicable. Members agree to give priority in the negotiations to reach an outcome.

Observations

(1) The text calls for an "explicit decision on cotton within the agriculture negotiations and through the sub-Committee on Cotton ambitiously, expeditiously and specifically" with regard to the above.

(2) The Ministerial Declaration does not establish a compensation or emergency fund to assist cotton farmers as claimed by the proponents. It, however, urges the WTO Director General to further intensify his consultative efforts (with emphasis on improved coherence, coordination and enhanced implementation) with bilateral donors, regional and multilateral institutions to explore the possibility of establishing through such institutions a mechanism to deal with income declines in the cotton sector until the end of the subsidies.

(3) There are also some other broad hortatory calls as for example, on the development community or other members to support South- South cooperation.

(4) There is also mention made of a follow-up and monitoring mechanism to be set up by Director General.

NON-AGRICUTIRAL MARKET ACCESS (NAMA)

(a) Members agree to adopt a Swiss formula with coefficients at levels which shall inter alia reduce or as appropriate eliminate tariffs, including the reduction or elimination of tariff peaks, high tariffs and tariff escalation, in particular on products of export interest to developing countries.

(b) Special needs and interests of developing countries to be taken fully into account including through less than full reciprocity in reduction commitments. Members should structure and finalise the details as soon possible.

(c) Members reaffirm the importance of special and differential treatment and less than full reciprocity in reduction commitments, including paragraph 8 of the NAMA framework as integral parts of the modalities². Members are instructed to finalise the details as soon as possible.

(d) For the purpose of the second indent of paragraph 5 of the NAMA Framework Members adopt a non-linear mark-up approach to establish base rates for commencing tariff reductions³.

(e) In furtherance of paragraph 7 of the NAMA Framework, it is recognised that Members are pursuing sectoral initiatives. Participation should be on a non-mandatory basis. The Negotiating Group has been instructed to review proposals with a view to identifying those, which could garner sufficient participation.

(f) As a supplement to paragraph 16 of the NAMA Framework, Members recognise the challenges that may be faced by non-reciprocal preference beneficiary members as a consequence of the MFN liberalization that will result from these negotiations.

(g) Members recognise the concerns raised by small, vulnerable economies. The NAMA Group is instructed to establish ways to provide flexibilities for these members without creating a sub-category of WTO Members.

(h) Members recognise the need for specific negotiating proposals on NTBs and encourage participants to make submissions as quickly as possible.

(i) Recognition of importance of advancing development objectives of the Round through enhanced market access for developing countries in both agriculture and NAMA.

(j)Ensuring that there is a comparably high level of ambition in market access for agriculture and NAMA. This ambition is to be achieved in a balanced and proportionate manner consistent with the principle of special and differential treatment.

Observations

1. With the adoption of the Swiss formula, Africa has no choice. It will therefore be necessary to participate fully in the construction of the formula and the choice of the coefficients which will respond to africa's needs . This negotiating process should be conducive to generating flexibilities and S&D to the Group. The design of the formula and choice the coefficients are crucial.

2. Extreme care should be exercised in dealing with the sectoral initiatives even if they are not mandatory. Mutual exchanges of concessions between participants can be damaging to the competitiveness of African industries. Indeed the whole negotiations are sensitive to the industrialisation and de-industrialisation in Africa.

3. It should be ensured that the developmental dimensions through (a) "less than full reciprocity in reduction commitments", (b) "a formula that shall reduce tariffs, including the reduction or elimination of tariff peaks, high tariffs, and tariff escalation, in particular on products of export interest to them", (c) " reaffirmation of the importance of paragraph 8 mandate in annex B of the July Framework as an integral part of the modalities". (This paragraph 8 provides for flexibilities for developing countries such as exempting a small number of tariff lines from reductions, or making cuts less onerous than those demanded by the formula on higher number of tariff lines) (d) Addressing effectively the preference erosion issue, (e) all other developmental elements embodied in the mandates and the July Framework.

4. There are risks of de-industrialization country-wise or continent-wise. Bindings by the African countries based on applied rates would be contrary to the principle of "less than full reciprocity" if one considers that developed countries had largely bound their tariffs in previous rounds, where they were allowed to bind at any level they liked. Besides, African countries that have unilaterally liberalised have generally low applied rates. These applied rates which will be "marked up to base values", would then be cut by the formula and would be bound. In such cases the treatment of unbound tariffs would produce drastic cuts and finally result in low bound tariffs⁴, implying that the sacrifices would be much greater than would developed countries be required to make.

5. Serious consideration need to be given to the concluding paragraph of the NAMA text (Paragraph 24 of HMD), which refers to the "balance between agriculture and NAMA". It was reportedly introduced by Argentina because it feared that the rich countries would push for more rapid progress on NAMA than on agriculture.⁵ The text explicitly links the level of ambition on agriculture and that of NAMA, specifying that this ambition "be achieved in a balanced and proportionate manner consistent with the principle of special and differential treatment."

SERVICES

(a) Services negotiations shall proceed to their conclusion with a view to promoting the economic growth of all trading partners and the development of developing and least developed countries and with due respect for the members' right to regulate.

(b) The HMD recalls and reaffirms the objectives and principles stipulated in the GATS, the Doha Ministerial Declaration, the Guidelines and Procedures for the Negotiations on Trade in Services adopted by the Special Session of the Council for Trade in Services on 28 March 2001 and the Modalities for the Special Treatment for Least Developing country Members adopted on 3 September 2003, as well as Annex C of the Decision adopted by the General Council on 1 August 2004.

(c) Members are urged to participate actively in the negotiations so as to achieve a progressively higher level of liberalization of trade in services, with appropriate flexibility for individual developing countries as provided for in Article XIX of the GATS.

(d) Negotiations shall have regard to the size of the economies of individual Members, both in overall and in individual sectors.

(e) Members recognise the particular economic situation of the LDCs, including the difficulties they face, and acknowledge that they are not expected to undertake new commitments.

(f) Members are determined to intensify the negotiations in accordance with the Objectives, Approaches and Timelines set out in Annex C to the HMD with a view to expanding the sectoral and modal coverage of commitments and improving their quality. In this regard, particular attention will be given to sectors and modes of supply of export interest to developing countries.

Observations

1. While the bilateral request-offer process is preserved it is noted that plurilateral services negotiations will also be possible among interested members. Considering how the developed countries and a few developing countries have been pushing for an aggressive liberalization of trade in services, the risk of marginilization of African countries in the services sector are now higher if appropriate measures are not taken at this stage of the negotiations.

2. Attention is drawn to some of the pressing deadlines for submission of requests and offers in February 2006 and July 2006. Besides there is also the October 2006 deadline for the submission of final draft schedules of commitments. These e are worrying deadlines bearing in mind their limited financial and administrative capacities of African countries.

3. Services sectors are upcoming sectors although one has to recognise that the developed countries today hold the greatest comparative and competitive advantages. There is need to ensure that industries in Africa are made competitive with greater prospects for income, foreign exchange and employment generation capacity.

RULES

(a) The HMD recalls the mandates in Paragraphs 28 and 29 of the Doha Ministerial Declaration⁶.

Observation

1. Paragraph 29 of the Doha Declaration is of importance to African countries for several reasons. Various regions and sub-regions are currently negotiating Economic Partnership Agreements with the European Union. Besides some RTAs are likely to cause prejudice to African countries and it's comparative and competitive advantage even if may not be party to such regional trading blocs.

2.There is need for active engagement in the negotiations as African countries seek to secure developmental dimensions in RTAs in which they are involved and in making them stepping-stones into the multilateral trading systems.

3.Negotiations on rules on subsidies and countervailing measures are also of concern in as much as there are several development related issues of direct relevance to Africa.

LDCs

(a) Members agree that developed country Members shall and developing -country members declaring themselves in a position to do so provide duty-free and quota-free (DFQF) market access on a lasting basis, for all products originating from all LDCs by 2008 or no later than the start of the implementation period in a manner that ensures stability, security and predictability.

(b) Members facing difficulties at this time to provide market access as set out in (a) shall provide DFQF for at least 97% of products originating from LDCs, defined at the tariff line level, by 2008 or no later than the start of the implementation period. In addition, these Members shall take steps to progressively achieve compliance with the obligations set above, taking into account the impact of other developing countries at similar levels of development, and as appropriate, by incrementally building on the initial list of covered products.

(c) Developing country members shall be permitted to phase in their commitments and shall enjoy appropriate flexibility in coverage.

(d) Members should ensure that preferential rules of origin applicable to imports are transparent and simple, and contribute to facilitating market access.

(e) Members shall notify the implementation of schemes adopted under this decision every year to the Committee on Trade and Development (CTD). The CTD shall annually review the steps taken to provide DFQF to the LDCs and report to the General Council for appropriate action.

(f) It is reaffirmed that LDCs will only be required to undertake commitments and concessions to the extent consistent with their financial or trade needs, or their administrative and institutional capacities.

Observations

1. Annex F of HMD deals with the five specific LDC S&D proposals. The initial demand of bound DFQF access has not been fully met. DFQF will be provided on a "lasting basis" by 2008 for at least 97 per cent of all products. The decision still falls short of the Doha mandate for full DFQF access. LDCs have finally agreed to have these as an immediate gain from the negotiations as it was practically impossible for certain developed countries, in particular the US, to agree to 100% DFQF facilities. The US had invoked legal constraints at national level.

2. Apart from any apparent lacunae in this agreement, there is also the fact that the remaining 3% is likely to comprise sensitive products. It remains to be seen how these agreements will now help LDCs fight out poverty and marginalisation.

3. Other highlights in the HMD on LDCs are the IF (Integrated Framework) and the best endeavour efforts for capacity building. Some specific language has been put with regard to the Aid for Trade as far as the LDCs are concerned. The discussions in coming weeks will indicate the extent to which the LDC will be able to benefit.

Development Issues

1. The mandated work on S&D is a core element of the developmental content of the DDA. But in Hong-Kong and even prior to going to Hong-Kong the focus was limited to the five LDC proposals. The remaining proposals were all kept in abeyance. This is why the HMD only contains some soft language for the pursuit of the work on the remaining Special and Differential proposals (paras 35-38) as well as on the Implementation Issues (para 39), Small economies (para 41), Trade, Debt and Finance (para 42), Trade and Technology Transfer (para 43), Commodities (para 55), Trips: CBD (para44), DSU (para34) and Preference Erosion (paras 9 and 20).

2. A truly development outcome is what is needed to lift Africa from its present level of development. This cannot be translated into reality if Africa is not provided with a series of concessions. There is no short cut to having special and differential treatment in the absence of any specific derogation from the MFN principle during a determined transition period. The negotiations on S&D have so far proved to be very difficult. It remains to be seen how effectively the deadlines will be met.

3. The Aid for Trade package has to be meaningful to help countries achieve their developmental objectivesand support them during their transition period in order to enable them to face the challenges of the new regime of liberalisation which will be triggered following the implementation of the outcome of the Doha Round. Since there is no level playing field there is a need to take into account the constraints of Africa and its very small share of world trade. There can be a legal transition period which is binding and predictable in a fair and compatible WTO system.

1 Para 16 of the Framework states: Green Box criteria will be reviewed and clarified with a view to ensuring that Green Box measures have no, or at most minimal, trade-distorting effects on production. Such a review and clarification will need to ensure that the basic concepts, principles and effectiveness of the Green Box remain and take due account of non-trade concerns. The improved obligations for monitoring and surveillance of all new disciplines foreshadowed in paragraph 48 below will be particularly important with respect to the Green Box.

2 Paragraph 8 of the framework states:

We agree that developing country participants shall have longer implementation periods for tariff reductions. In addition they shall be given the following flexibility:

(a) applying less than formula cuts to up to {10} percent of the total value of a Member's imports; or

(b) keeping, as an exception, tariff lines unbound, or not applying formula cuts for up to {5} percent of tariff lines provided they do not exceed {5} percent of the total value of a Member's imports.

3 The text says that the mark up approach is for the purpose of second indent of paragraph 5 of the NAMA framework which reads:

tariff reductions or elimination shall commence from the bound rates after full implementation of current concessions; however, for unbound tariff lines, the basis for commencing the tariff reductions shall be {two} times the MFN rate in the base year;

4 Martin Khor, WTO Ministerial Outcome Imbalanced Against Developing Countries", Hong Kong 20 December 2005.

5 See Footnote 2.

6 In Paragraph 28 of the Doha Declaration, Members agree to negotiations aimed at clarifying and improving disciplines under the Agreements on Implementation of Article VI of the GATT 1994 and on subsidies and Countervailing Measures, while preserving their basic concepts, principles and effectiveness of these Agreements and their instruments and objectives, and taking into account the needs of developing and least developing countries. In the initial phase of the negotiations, participants will indicate the provisions, including disciplines on trade distorting practices that they seek to clarify and improve in the subsequent phase. In the context of trade negotiations, participants shall also aim to clarify and improve WTO disciplines on fisheries subsidies, taking into account the importance of this sector to developing countries. Article 29 also provides for negotiations aimed at clarifying and improving disciplines and procedures under existing WTO provisions applying to regional trade agreements. The negotiations shall take into account the development aspect of regional trade agreements.

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