The Road to the WTO Hong Kong Ministerial - a View from Europe

Date August 2, 2005
Speaker Tim ABRAHAM(Director International Trade Policy, Department of Trade and Industry, UK)
Commentator NAMENAME(titletitletitle)
Moderator KAWASE Tsuyoshi(Faculty Fellow, RIETI / Associate Professor of Law, Graduate School of Law and Politics, Osaka University)


The Doha Development Round was launched at Doha, Qatar in November 2001. What distinguished it from any other round was the idea that development was at the heart of the negotiations. There was a perception that previous rounds of trade negotiations had not benefited the developing countries and that they were mainly aimed at the industrialized countries. The Doha Round was also the first round properly launched by the World Trade Organization (WTO), rather than the General Agreement on Tariffs and Trade (GATT), with two thirds of WTO members being developing countries.

The round was launched with much optimism and the negotiations moved on to the next ministerial in Cancun two years later where the negotiations failed, particularly with some of the poorer developing countries essentially walking away from the negotiations. Much of the progress that was hoped to be made in Cancun was achieved later on in Geneva, but there is now a challenge at the meeting in Hong Kong in December to ensure that there will not be two failed ministerials in a row and that real progress is made. While estimates vary as to the actual amounts, it cannot be disputed that an ambitious result of the round will actually make real differences to the global economy.

For its part, the United Kingdom is very keen on the development dimension, especially efforts made to reduce the number of those living in poverty, currently estimated at 144 million people. Of course, it is not a simple equation because it depends greatly on the individual policies of the countries involved.

At the Hong Kong Ministerial, it is hoped an agreement will result, or at least enough progress to allow the round to end sometime during next year. This is particularly important because it is vital for the Doha Development Agenda (DDA) to be agreed on in order for it to be passed by the U.S. Congress. However, the so-called Trade Promotion Authority (or fast track) given by Congress to the administration to negotiate trade deals will end in June 2007. Therefore, quite conveniently there is a credible target date to work toward, which is the end of 2006, to allow enough time for the U.S. administration, not to mention other administrations, to ratify the agenda.

As for the European point of view, the European Union (EU) has a common EU trade policy and the European Commission (EC) negotiates on behalf of all member states against an agreed mandate given to it by those member states. Strictly speaking, the priorities are those of the EU rather than any particular member state with the EC taking account of the differing priorities within the EU. These priorities are to secure an ambitious and balanced outcome at the Hong Kong Ministerial, for the outcome to have a clear development focus, and for the final agreement to happen by the end of 2006.

2005 from an EU/UK point of view is very much a year of opportunity. The UK presidency of the Group of Eight (G8) industrialized countries this year reached its peak last month at the G8 Summit in Scotland where the two priorities that British Prime Minister Tony Blair gave to the summit were climate change and Africa, with one of three main elements of the Africa part being trade. As a result of the summit, there were various conclusions on trade, primarily urging trade ministers to reach ambitious and early resolution to the Doha Agenda as it is seen as the best vehicle for trade to help both development and in increasing international wealth. Building further on the political momentum provided by the G8 Summit, the UN Summit on the Millennium Development Goals in New York in September is another opportunity for heads of government to address all sorts of issues relating to development, including the Doha Agenda. Then of course, there is the Hong Kong Ministerial in December.

Looking at the DDA itself, it consists broadly of issues on agriculture, non-agricultural market access (NAMA), services, trade facilitation, and special and differential treatment. At Cancun, transparency in government procurement, trade and investment, and trade and competition-three of the four so-called "Singapore Issues"-were dropped as a result of political pressure. The politics of the Doha Agenda means that progress has to be made in all of the five remaining areas if an agreement is to be made.

However, there are particular challenges; and no challenge is greater than that in agriculture, where the EU and Japan are in quite similar circumstances. Both have problems in terms of established agriculture and a wish to at least protect and allow agriculture to continue in various forms. In Japan, this is mainly in rice production and sugar. In the EU, there are similar issues about maintaining the countryside in agricultural production and helping less competitive areas to produce. These policies are difficult to maintain while also trying to liberalize as obligated as WTO members.

In the EU, considerable steps have been taken to amend the common agricultural policy (CAP) which supports agriculture in the EU. In doing so, the aim has been to maintain help where it is needed, but in a way that does not distort international trade. Over the last few years, this has been successful up to a point. Most notably, support for agricultural production (i.e. for farmers) has been separated from the actual production itself. Instead of paying for units of production, the payments have more or less been split off from the actual production and relate to the size of the farm or production in the past. It has also been agreed in principle to get rid of export subsidies as they distort global prices and the markets for developing countries.

While the EU, Japan and a number of other countries are finding agricultural reform to be actually quite hard, it is absolutely necessary in order to make progress on the non-agricultural market side, i.e. industrial tariffs on the whole as well as the three other areas. The larger of the developing countries, led by Brazil and India, essentially are refusing to negotiate on NAMA or services unless the agriculture issues are settled. The trick over the next few months will be to negotiate a way forward so that those countries get something on agriculture and that the EU, Japan and others get something in return on NAMA and services.

Services is a particularly difficult area. The process has been particularly slow and the offers of greater liberalization have not been very forthcoming. Work is being currently being done to come up with a slightly different approach to secure better results because services, certainly in the developed world, are a large proportion of gross domestic product (GDP). Likewise, services are a very good way toward development and liberalization for the developing countries. Thus, achieving a "balanced result" at Hong Kong means progress in all these areas.

On agriculture, there are three pillars to the agriculture negotiations in the Doha Round. One is export competition where the EU with some pain has agreed to the principle of giving up export support on the condition that all other industrialized countries do the same. The second is domestic support where the EU has led the way in offering a certain level of reduction in the sort of support that distorts trade. In this area, more is needed, particularly efforts from the United States. The third area of agricultural negotiations is in market access, which is the most sensitive and most difficult because it essentially means bringing down the tariffs that have reduced or even prevented the imports of certain products. It is clear that both the EU and Japan will have to move on this.

Furthermore, NAMA is a huge economic opportunity. With manufacturing products accounting for close to 75% of developing country exports and a lot of those exports going to other developing countries, there are real opportunities for increased South-South trade, because it is the developing countries whose industrial tariffs are still pretty high. This would lead to disproportionate benefits to developing countries, but even with the low tariffs in the developed world, because of the sheer volume of trade, the economic gains of cutting those small amounts are pretty enormous.

In terms of the present situation, the so-called first approximations that were hoped for did not fully materialize at the end of the negotiations in Geneva before the summer holidays. They were not approximations by any means; they were summaries of what had happened. Nevertheless, there was a clear sense of momentum prompted by the arrival of a deadline, both on agriculture and on NAMA. It will be vital to pick up on this when negotiations resume in September. There was certainly a feeling that there had been a step change in the level of activity.

The third area of services, as mentioned before, is very important in terms of GDP, but actually rather difficult to secure in negotiations. The great virtue of tariffs on goods, in particular industrial tariffs, is that they are broadly very simple. It is fairly clear what the tariff barrier is. In services, the barriers are of all different sorts and not tariffs, and the method of offering up concessions and liberalization on services has not frankly been working very well. In the next few months, the priority will be to find better ways of promoting those offers with an idea of agreeing at Hong Kong on the method of putting it into practice, before it is actually implemented next year.

Trade facilitation was the only Singapore Issue that survived and it is actually the area where most progress has been made so far in the negotiations, mainly because it is actually fairly uncontroversial. Everyone is in favor of making the process of trading easier by improving standards. Although a number of developing countries were initially reluctant to do this, they are actually the ones that benefit most from this. That should be a good encouragement for developing countries to participate in the negotiations as a whole.

Finally, special and differential treatment is an element that needs to be incorporated in each of the dossiers on arguments about how to differentiate between developing countries and what is given to developing countries. In "WTO speak", developing countries can range from the very poorest to less poor developing countries. The philosophy of the DDA, and indeed WTO more generally, is that trade liberalization is an essential part of a country becoming more prosperous, but it has to be locked into an overall development strategy, which means that liberalization may need to be delayed. In incorporating trade liberalization at their own rate, however, countries should not be allowed a completely free ride either. History has shown that liberalization, as long as it is properly sequenced, is the best guarantee for development.

Finally, I would like to highlight some risks that will come up on the road to Hong Kong. Dr. Supachai, the Director-General of the WTO, expressed his concern last month that the WTO members were "sleepwalking to failure." Since then, the rate of progress has been turned up, but there is still real concern that it has been left too late to get a successful ambitious outcome in Hong Kong.

Another risk is that the outcome is unbalanced. Countries are concerned that progress is being made on agriculture without progress in other areas. For a positive outcome from Hong Kong, it needs to be balanced.

The final risk is the lesson learnt from Cancun where too much was left to be done for the actual ministerial conference. Almost all the preparation has to be finished before Hong Kong, which means coming to provisional agreements so that the ministers are left with a small amount of work and few difficult political decisions at Hong Kong. If not, Hong Kong could go the way of Cancun, which is something in everybody's interest to avoid.

Therefore, it will be a busy time until December, and the UK as president of the EU for the six months from July has a particular role, mainly to ensure that the coordination within the EU is sound and that the EC make decisions in a way that they have the full support of member states. Japan, too, always has a big role to play as a regional player in Asia, a member of the G8, a leading provider of industrial goods and services and as a different kind of player on agriculture.

Questions and Answers

Q: A lot of the optimism from the July framework seems to have evaporated and there appears to have been somewhat of a hardening of positions in many areas, including agriculture. Do you think that this is something to be concerned about and what are the root causes of this calcifying effect?

A: If I were answering this a month ago, I would be more concerned than I am now. It seems that both in the agriculture and the NAMA negotiations, the moderate results of the mini-ministerial in Dalian and the discussions in Geneva have created a sort of momentum and willingness on behalf of all the major players to be thinking about the next move and being prepared, however informally, to reciprocate.

As for the causes, at least in Europe, the EC has the very difficult job of coming forward with a negotiating mandate and actually negotiating in a way that maximizes the support of member states. As I have said, there are different priorities and although the broad thrust of the EU trade policy is clearly a liberal agenda, there are sensitivities. Unlike individual countries where that can be sorted out within the country, the EC has to negotiate on these. I do not think, however, that the no-votes in the referendums on the EU constitution in certain countries will have long-term effects on the governments' positions, but clearly there was greater uncertainty and less willingness to take risks.

Q: The EC has now made a proposal on sugar reform leading to a substantial reduction on domestic support. Is the EU ready to make further policy reform in order to offer concessions in the current Doha Round? Also, with upcoming elections, for example, in France in 2006, do you think this will pose difficulties for the EU discussions?

A: Since June 2003, the EU has attempted to complete the reform of the CAP and the most significant part of that is the sugar proposals which are designed to greatly reduce EU sugar prices. This proposal will hopefully be agreed on in November, which is not an easy task. After that, the EC would feel that the bulk of the CAP reform has happened. It is publicly known that the UK is a keen proponent of still further changes in the CAP, so we would hope to see those go forward in the coming years, but it is not a view shared by all EU members. Our assessment is that it should be possible to come up with a satisfactory package for Doha, broadly within the current regime.

In terms of the political scene, there are elections in France in 2007, but of course there are elections somewhere almost all the time, so you get used to it. There will be elections in Germany next month which may well change things there. The elections in France in 2007 are yet another good reason to end the Doha Round by the end of 2006.

Q: The United States seems to follow the line that any domestic policy should be made in Washington rather than in Geneva. Since agricultural policy is stipulated clearly in the Farm Bill, it is up to the U.S. Congress to decide whether to continue the countercyclical payments. Unfortunately, the Farm Bill is effective until the end of 2007, but if the U.S. Congress clearly signals before that to cut down on domestic support, it will accelerate the successful conclusion of the Doha Round. What do you think?

A: The Americans might say that. It is frankly unrealistic for the United States to say that they will do their agricultural policy domestically and not look at the pressures from elsewhere. It is clear that, for instance within Europe, CAP reform has been helped by the WTO Doha Round there, and I just do not think you can divorce those. I believe the Americans are putting together another Farm Bill perhaps for later this year, which seems like a positive step to me and also seems like they are reacting, albeit without perhaps admitting to the pressures of the Doha Round.

Q: One of the reasons you gave for keeping to a deadline is that the U.S. fast track policy will end. What is your assessment of what will happen in the United States if the deadline is not met? Do you think it will be possible to negotiate another fast track?

A: Fast track went through by one vote; the Central American Free Trade Agreement (CAFTA) went through by two votes with three members having been persuaded to change their votes after they had voted. This shows that trade legislation in America is quite a risky business, so I think you are taking a bit of a risk. Genuinely, it would be very uncertain, but the fact that you have got a deadline which provides a challenging but possible deadline for the Doha Round is very useful to focus minds. In the G8 conclusions of the summit last month it was said that the aim should be 2006 as the deadline. The rhetoric has stuck since, so now we have got to do it.

Q: With regard to the services negotiations, I read that the EU failed to liberalize services within its own membership, so just how realistic is it to expect them to offer significant concessions to a global group like the WTO? Also, as to the explosion of free trade agreements (FTAs), what do you think about the opinion that they take away a lot of the negotiating energy from the WTO and probably are dangerous to the trading system?

A: You are right that the best efforts of the EU to try and pursue the so-called Services Directive have so far been quite hard to make any progress on. What is being proposed in it is some quite radical liberalization of activities, but it does show that there are sensitivities of a broadly political nature that make the negotiations difficult. It is not always easy to liberalize, but I think that the gulf between the very modest offers at the moment and the sort of thing that the EU internally is still trying to do is quite big. It is a signal, but it does not mean that we should give up on the WTO.

Certainly in this region, FTAs are becoming common. I read that Japan and Thailand have almost come to a free trade agreement, although I do wonder how "free" it really is, because there seem to be quite a few things that have been left out. The economists will tell us that FTAs can easily be trade-distorting and reduce benefits rather than increase them. There is certainly an argument about distraction of negotiating capacity, particularly for smaller countries. There is the economic argument. There is the argument that actually it is only in the multilateral sphere that you get the difficult decisions being made, mainly about agriculture.

Having said all that, FTAs are not just economic. There are political elements to FTAs. The Americans certainly see this, as does the EU. It is EU policy that there are non-trade elements in FTAs that future FTA partners will have to subscribe to. I think that if FTAs are going to happen in the future, they should as far as possible cover a vast majority of trade as required in the WTO, but frankly there have been a number of them that have failed that test.

Q: I noticed with interest that the UK is represented by four ministers at the ministerial meeting, which is somewhat similar to the situation of Japan. Oftentimes, the mass media in Japan criticizes the government about the lack of political leadership and about the growing sectionalism among individual ministries that are pursuing only their own interests. What is the situation like in the UK?

A: I will try not to sound too complacent but I think it is different. I am sure that the mass media will question the need of having four ministers going to Hong Kong. It is a fair question, but I would argue that the UK has a fairly good system of making sure that we have an agreed policy and that all the individual ministries sign up to it. We have the advantage of a situation in which there actually is not a great deal of difference between the agendas of the main ministries, led by the Department of Trade and Industry (DTI).

However, when it comes to agriculture in the Doha context, or any trade policy context, the views of the Department for Environment, Food and Rural Affairs (Defra) are taken into consideration, but at the end of the day it is the DTI minister who takes the decisions. It is less of a problem in the UK than I sense here in Japan at the moment, because Defra is fairly liberal in trade terms on agriculture. The third ministry that would be involved is the Department for International Development (DFID) where again there is not a great deal of difference.

The lessons here is that it is important to have a strong coordinating role, but I appreciate that we are lucky in the UK that we have it and it is established. That is not even true of all our EU partners, never mind the rest of the world.

Q: With such people as Pascal Lamy arriving in September, the new United States Trade Representative (USTR) or Peter Mandelson, how much of a difference are certain personalities going to make?

A: I think that personalities are important and that is why there is the proposal to have smaller ministerial gatherings. As in all negotiations, personalities are important. It is well known that Pascal Lamy and Bob Zoellick, the former USTR, got on very well and that could only have helped push through the post-Cancun consensus. We now have Peter Mandelson as the EU Trade Commissioner and Rob Portman as the new USTR. All the signs are that they are developing a good relationship. They are both different people from their predecessors, but they are both similar in that they are primarily politicians, whereas their predecessors were primarily technocrats. Fortunately, it has worked out that they have both been appointed at the same time.

Pascal Lamy as the new Director-General of the WTO is good news because he has the authority and the right attitude to ensure that things happen because he is very results-orientated. He knows what is going on, so he will not need as much preparatory time and will be ready to go. Some countries may be concerned that because he was the European trade commissioner, he will favor the EU. I do not think he will. Indeed, there are those in the EC and in member states who are slightly concerned because Pascal Lamy knows where all our weaknesses lie. His reputation is too valuable to be seen to be favoring the European cause, so I suspect that he will bend over backwards to make sure that he does not do that.

*This summary was compiled by RIETI Editorial staff.