# Hong Kong Ministerial - Entering Dangerous Waters at the WTO

Date October 26, 2005 Jeremy HOBBS(Director, Oxfam International) URATA Shujiro(Faculty Fellow, RIETI/Professor of Graduate School of Asia-Pacific Studies, Waseda University)

## Summary

The methods through which Oxfam and many other civil society groups are fighting against poverty this year include the white arm band demonstrations, and the G8 and LIVE 8 functions. The Millennium Plus Five Summit (hosted by the United Nations) in September was another instance in which there was a lot of mobilization in civil society to try and get movement and support for the U.N. Millennium Development Goals. The next event this year will be the Hong Kong Ministerial Conference. There will be a big mobilization of the public in order to emphasize to politicians that ordinary people care about poverty and injustice. The critique that we have put out for both the European Union and the United States is that the current proposals for fighting poverty would actually not make much of a difference in terms of the numbers. It only makes a difference in terms of the perception since what both political bodies would be giving away is water. The Hong Kong Ministerial Conference is enormously important, and ambitious results are a necessity. Oxfam is not a non-governmental organization (NGO) that would want to spoil trade negotiations; we are fully committed to supporting multilateralism and the multilateral rounds, as well as being devoted to getting good development results.

Public mobilization against poverty shows that the people really do care about development. There are 70 large coalitions around the world where civil society is mobilized. In Japan some 4 million people participated in the white armband campaign as a belief that we can and should tackle poverty. This is an extraordinary and unprecedented expression of interest on these particular issues. The setbacks in the European Union (EU), in France and the Netherlands, show that there is very little trust in the political elites and in their promoting of globalization. Generally the public trusts NGOs more than the government or private business sectors.

Many people do not believe that globalization has been good for them, nor for poorer countries. This comes from the mixed results of trade liberalization in their own countries and from the blatant hypocrisy of the countries which preach "free trade" while practicing protectionism. For example, the protectionist reactions of the U.S. and the EU to Chinese textile imports expose this fact. They have had 10 years to implement the multi-fiber agreement but chose to backload the adjustment. As a result, China has made some painful internal adjustments since they have joined the World Trade Organization (WTO). The benefits of globalization will not be shared equally or fairly in this setting. Inequality among and within countries has increased globally. Poverty still kills more people each week than the Asian tsunami did, and Oxfam believes that a meaningful agreement to mitigate this problem is possible and could be reached in Hong Kong.

The key to the Doha Development Agenda is agriculture. Over 90% of the world's farmers live in the developing world. These farmers constitute the bulk of the world's poor people and live on less than a dollar a day. The livelihoods of millions of people are kept marginal by agricultural subsidies of rich countries as well as by high tariffs against products where poor countries have a comparative advantage, particularly in agriculture. That is why agriculture is so important to this round. In July, Oxfam released its A Round for Free paper on northern agricultural subsidies and dumping. This showed that last year's July framework agreement has effectively given the EU and the U.S. too much leeway. Unless these offers are substantially improved, the leeway built into agreements would allow substantial reallocation and therefore maintenance of subsidies. Many of the products most affected in the July framework can be put into the mooted slow-track reform, meaning maintaining their subsidies until possibly 2016.

The Organisation for Economic Co-operation and Development (OECD) is showing that the EU reforms of 2003 did not substantially reduce subsidies. Oxfam believes that decoupling is unlikely to make a major dent in the levels of production, and therefore in the levels of dumping. Even the EU itself predicts that the cap reforms will have fairly minor reductions in production. Yet this is the big offer on the table for Hong Kong. The U.S. offer on agriculture of a 60% cut in domestic support actually amounts to quite modest cuts. We are in discussion with the United States Trade Representative (USTR) about what exactly the numbers are but Oxfam thinks it is around US$2 billion out of US$17 billion.

The world trade rulings against the EU on sugar and against the U.S. on cotton focus on the two most egregious examples of how subsidies work against the interests of taxpayers, businesses, developing country farmers, and also the small farmers that they are supposed to help. The implementation of these rulings has an important bearing on the future credibility of the WTO. Oxfam is being quite critical of the EU implementation on rulings for sugar. Oxfam hopes that Japan will lend its support to developing countries to allow them genuine special differential treatment in agriculture.

The developed countries' strategy is to claim that they have already made a great deal of concessions last year. There is persistent and strong rhetoric from the EU and the U.S. that G20 countries (i.e. China, Brazil, India, and South Africa) have to "make an effort" because they are not really "developing countries" anymore, and they should be treated differently. They are taking all of the benefits that should go toward the poorest countries. Some Indian states, such as Bihar, are actually poorer than some least-developed countries (LDCs). Nevertheless some of the large G20 countries are looking to provide duty-free and quota-free market access to LDCs.

There are also examples of substantial unilateral tariff reductions, such as those of South Africa, which have opened up in the textile and government sectors. South Africa has paid a big price for these tariff reductions with some 100,000 jobs lost in the backdrop of a 40% unemployment rate, high levels of poverty, and the tragedy of some 650 deaths from HIV/AIDS each day. The view of some developed countries' trade ministers and officials is that once the larger developing countries become competitive exporters, like Brazil or China, that they should be treated very differently to other developing countries, and forced to make much bigger concessions. This argument, referred to as differentiation applies both to the unresolved question of special and differential treatment for developing countries on agriculture.

On the question of non-agricultural market access (NAMA) for industrial products, where developed countries such as the EU and Japan, are pursuing a progressive agenda to open up developing country markets on industrial products; they are seeking to bind 100% of tariff lines, and apply cuts across the board. Japan is still pushing the Swiss formula, which will impose high caps on high tariffs, which Oxfam believes would be much harder on developing countries. Oxfam does not agree that this is consistent with the Doha commitment to less-than-full reciprocity, or their commitment to special differential treatment for developing countries. These issues around differentiation, NAMA, and services have the potential to become like the "Singapore-issues" of the Hong Kong Ministerial Conference, meaning issues which become iconic deal-breakers.

If the developed countries really want to deal in Hong Kong then they should not push unacceptable proposals on these issues. The Doha declaration committed members to put development first and not narrow-mercantilist interests. Many developing countries now feel that they have been tricked into another round of liberalization where they are expected to make the major concessions. Oxfam would argue that developing countries and LDCs deserve the same rights to decide the pace and the scale of their liberalization that was enjoyed by developed countries. Developing countries also seek the possibility of the kind of orderly transition negotiated between the EU and China over textiles in the last few months.

By contrast, the rapid and forced liberalization which is usually under International Monetary Fund (IMF) or World Bank conditionalities has been a disaster in many countries, and is not a good model for development. The risk of a no-deal situation in Hong Kong is very high, and Oxfam is very concerned that another failure would be terminal for the rules-based, multi-lateral trading system. The last thing that we need is dissent in more regional trade agreements and European partnership agreements whereby rich countries simply get what they want by the back door. By the same token, fear of failure should not push developing countries into unacceptable deals where the human costs are simply too high. The current political mood seems to be about the usual short-term thinking in the political process including the U.S. deficit, rather than seeing poverty reduction as a means to achieving long-term global growth and security. Lifting the gross domestic product (GDP) per capita of developing countries like China and India is a good way to create new markets; but keeping those markets poor is not. It is in everyone's interests to work at the compromises necessary, and that will take patience and leadership.

Q: What can governments universally do to make this meeting in Hong Kong a success?

A: There needs to be a clear end-date to export subsidies. The G20 wants it to be 2010, and Oxfam agrees with that, while the Europeans want it to be as late as 2016. Export subsidies have to be dealt with, as do export credits. There need to be disciplines on domestic support. There needs to be capping and transparency of the green box, and disciplines on the blue box. Those are the things that are on the floor in terms of subsidies. From our point of view, we want to see niches that will lead to lower production, and an end to dumping. Dumping, for Oxfam, is the problem because of the impact that it has on rural economies.

Regarding market access, Oxfam thinks that the G20 proposal on the tiered bands is sensible. From our point of view the developing countries did thorough research on agricultural market access. It means that countries like Japan have to give some ground. The distance between Japan's position, G20 and the U.S. leaves too much of a stretch and that is going to be quite hard on discussion. It is very important that Japan does not buy out of the discussion. The feeling is that because Japan is defensive on agriculture, that it cannot be aggressive in anything else, whereas in fact what is needed is a broader vision of leadership. That is a matter for the Japanese government.

On special and differential treatment, developing countries keep saying that developed countries forget about their issues. Among developed countries, there is plenty of discussion around sensitive products, but not much talk about special products, which are products of interests to the developing countries. I think it is interesting that G20 has adopted the G33 agenda on special products and special safeguard measures. There is currently too much of a gap between special and differential treatment between developing countries and the U.S. and Australia. Concerning agriculture, these seem to be the key issues.

For NAMA, if developed countries try to use trade-offs in agriculture to leverage concessions on tariffs in NAMA, then the round will not go anywhere. The fact is that developing countries have already agreed to bind 100% the tariff lines, which is a big concession that was not there before.

Regarding services, this seems to be going nowhere. There is a push to aggressively open services in developing countries. If this happens again then there will be a risk of gridlock. One of the things that developing countries are very unhappy about right now is the language around what is called "benchmarking." Services currently work on the request and offer, and Europeans particularly feel, and Japan supports them on this, that that is not giving enough critical mass to the services debate. So if we have benchmarking where we can identify what is an acceptable level of commitment, then that will help move things forward. Developing countries feel that they are being pushed into something that is actually contradictory to the rules of the General Agreement on Trade in Services (GATS) and this makes it an opt-in process. Those are the main issues. The politics of these issues are as important now as the technicalities behind them. The politics as they stand now are concerning whether real and sufficient concessions are being made to developing countries, and whether they will lead to high or low ambition. From Oxfam's standpoint, after talking to countries in G33, G20 and G90, these concessions are not being well-prepared.

Q: How do you evaluate the extent to which governments take civil society's perspectives into account? Also how do you approach the negotiators in the EU and in developing countries?

A: I will answer the second question first. Oxfam connects very closely to its partners in developing countries. The reason we do this is because, when by doing work on livelihoods in India or the Philippines one can see where the blockages are. That resonates with the public and with the media. The way that we get access is initially through pressure and making sure that we have a strong story that is based on solid research. The goal of this research is to link northern and southern publics which the media understands, and which they can use.

Some governments are naturally open and the European Commission is very open. Meetings can be arranged with commissioners quite easily. Oxfam thinks that it is important in terms of public accountability that politicians are prepared to engage in tough debate, and that public debate is good for public policy. For the U.S., Oxfam has quite good access. The U.S. government does not always like what Oxfam has to say, but we have been able to speak with United States Trade Representative (USTR), and often they call Oxfam for information.

For developing country governments, if you have a mission with three people, you would have to be superhuman to try to do the whole range of trade issues. It is obvious that big missions have big advantages over little missions. So it is certainly not a level playing field. Oxfam has tried to provide support to the missions on technical issues, but is very careful not to run an agenda as an NGO or to cross the line. Most of the time, Oxfam can tell when ministers are making things more positive than they really are. Part of what Oxfam does is to puncture that image when it is not true. Therefore, even though Oxfam works very closely with officials, it is important for those officials to recognize that Oxfam is going to be critical of them.

Q: Do you have any comments on the Japanese government?

A: We have had good access with the Japanese government. We do not have regular ministerial access and I do not think any international NGO necessarily should. Oxfam Japan is establishing itself as a useful actor in civil society, and there are regular meetings with officials in different parts of the Japanese government. What is interesting is that the Japanese government is becoming more NGO-friendly.

Q: What is your financial base? That is to say, who is funding your organization? I ask this question because I understand that you have a very broad foundation of support. Why do you think it happens that when you are having so much support that your views are not heard by developed countries? Secondly, with respect to agriculture, what is your view on rice growing as a part of Japanese culture?

A: Different Oxfams get different levels of government support. Oxfam America does not take government money for political independence reasons. The second largest of Oxfam's offices, in the Netherlands, gets 50-60% of its money from the government. The largest Oxfam, in Britain, gets about 80% of its money through public donations. Overall, most of the funds come from public donations. A number of Oxfam members have an electoral system for the board so that the governance is accountable.

In terms of why they are not listening, I think they are listening to some extent. However, we are only one voice, and we are not as powerful a voice as business. The problems are probably connected with people at banks who have got an interest in subsidies which keep land prices up. So it is quite complex and I think that business needs to get much more involved in debate. All that can be done is to make the argument publicly and powerfully, and to look at alliances both in civil society groups as well as across business and government. It is short-term politics vs. long-term vision. The electoral cycle basically makes it very difficult for a politician to say to his or her farmers, "Sorry, your subsidies are going," but that is what needs to happen.

On your point about farmers, one of the strongest arguments against domestic subsidies in the U.S., Europe and Japan is equity. In Japan you can justify small farm holdings and payments because they have a social benefit. The problem is when it leads to overproduction and dumping. From Oxfam's analysis these effects come largely from big farms. Oxfam's analysis suggests it could be possible to come up with a payment regime which met social policy, environmental policy, was equitable, and did not have the outcome that is present now.

Q: How do you evaluate the government side in terms of developing countries? Also, what are the goals of your activities at Oxfam to promote social reforms?

A: I think that Oxfam makes no apology for pushing the interests of developing countries. We are interested in development. Our legitimacy is to critique our own governments on the extent to which they are an impediment to the aspirations of poor countries. Oxfam is about rights, and a big part of our job is to focus on policies that are unfair and which block the rights of poor people. That said, trade is not a panacea and will not fix everything. At the same time, we do not want to see the WTO become the place where everything gets fixed. One of the reasons not to put labor into the WTO is that I think developing countries would get handed a rather bad deal. I would rather see the International Labour Organization given more strength. However I also feel that local trading rules have to be met with proper national policies where we have less legitimacy to critique national governments. While I do not think that I have the legitimacy to talk to the government in India, Oxfam does support NGOs in India and look at national policy questions.

Another issue for development is supply side constraints. Even if these rules were perfect, many developing countries could not take advantage of them. It is not always simply a trade issue. Globally we have a terrible history in both adjustment costs and the supply side. The key thing that Oxfam can do to add value on the trade debate is on the WTO.

Q: I was just wondering if you could give a read out on (breaking it up into the developing countries, developed countries and NGOs) the thoughts about where this Ministerial is going to go. I know that there are a lot of different positions and issues but, on a consensus basis on those three levels, what do you see is going to happen?

A: I think the problem is that it is incredibly fluid right now because of what is happening in Geneva. Oxfam saw Pascal Lamy the week before last and he was quite optimistic about the U.S. offer being enough to get things moving. Then there was a pushback from the Europeans. There are a lot of other things which have not gone anywhere yet. Everyone at the Ministerial knows that if they do not get a certain amount of these things done in Hong Kong then there will be real trouble. When we talked to one of the Japanese officials yesterday, he pointed out that if agriculture is approached before trying to discuss NAMA and services then there will just be an inevitable backlog. There is not much appetite for taking care of these issues simultaneously because of the lack of trust. So I think that Oxfam is pessimistic for realistic reasons. I do not think anyone wants another collapse but it is looking very difficult. I do not think there is a cogent view in civil society. I just do not know.

Q: When we have a discussion about developing countries, I think that we need to devise degrees of development, for example, in phases one, two and three. Do you have such a philosophy concerning development?

A: What we look at is the history of development. There is no question that in China and other parts of Southeast Asia, where there has been massive poverty reduction, that there are different models of industrialization in other parts of the world. I suppose what Oxfam is interested in is the model of industrialization which is adopted. This is why we are nervous about the interest in NAMA. If industrial sectors are opened too quickly does that make it harder to industrialize? I am not sure that there is one size which fits all. I think it depends on independent industrial contexts, and whether or not some kind of localized agriculture is desired. A big fundamental question is what model of liberalization is best: a commercial model, or one which respects the sovereignty of individual countries. I think that this is an unresolved issue.

Q: I have a question about the role of foreign firms in development after hearing what you have to say about trade policies. Foreign companies were not playing such a role in the past. Now, in my view, foreign companies play a very important role despite some problems which may arise. Overall, I find their role to be positive, therefore having protectionist policies may not work in the globalized economy.

A: I think that goes back to the question of what kind of liberalization we are talking about. Some liberalization has been speculative and exploitive, especially in textiles and agriculture, where market power is used to squeeze deals out of developing country governments, and accordingly workers are abused. What Oxfam can do in those situations is to mobilize consumers. The issue for foreign investment is the quality of the investment. Is it transferring technology, creating jobs, paying enough tax and honoring and respecting environmental and social legislation? Answers to these questions determine the quality of investment.

Q: I understand the importance of discussing developing countries as well as the importance of the Doha round, but in Japan bovine spongiform encephalopathy (BSE) is now causing a great argument about Japanese-U.S. beef importing. So my view is that the price is not the only barrier. Safe and environmentally wise agricultural products are also very important. What do you think about those aspects of agriculture outside of tariffs and subsidies?

A: I am a consumer too and I understand that. The flipside of that argument is to ask the question: which barriers are genuine, and which ones are really just protectionist? If we make progress in this round on the key issues then one of the things that will still be on the table is non-tariff barriers and the extent to which they become the real impediment for poor countries. I do not have the answer and Oxfam does not have a very full position on this but I think that this will become one of the very big issues. It will come down to what is a fair balance between public safety and access.

Q: So, you are against the labor issues being taken up by the WTO. The very difficult issue then is to differentiate between a protectionist and a human rights attitude. Do you not support the humanist kind of approach?

A: I do not think that there is enough political convergence of how one would treat the social cause for it to be realistically dealt with in the WTO. It is necessary to go back to a broader view of what local governance is. The WTO has sway because it is commercial, but ILO does not have such an advantage. In the global government system we put a high premium on commerce and a low premium on labor rights. Oxfam suggests strengthening the ILO to get policy coherence between local governments. More linkage between WTO and ILO would be better. If labor came into the discussion right now, however, it would be difficult to get progress on these other issues.

*This summary was compiled by RIETI Editorial staff.