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WTO Draft Ministerial Text An « Empty Package »

  • OMC

WTO draft ministerial text: empty “development package” in exchange for takeover of developing countries’ agriculture, industrial and services markets

By Aileen Kwa with contributions from Jacqies Chai Chomthongdi
and Joseph
Purugganan, Focus on the Global South

GENEVA, 28 November) For the developing world, the draft
Ministerial text for Hong
Kong is a recipe for creating industrial graveyards, destroying small
livelihoods and their production capacity, and decimating local
services suppliers. It
forces open the agricultural, industrial and services markets of the
global south, way
before these producers and suppliers are able to withstand the
rigorous competition
from the giant multinationals of the US, EU and others. Indeed, it is
a step by step guide
to widespread unemployment and eventually, political instability
and conflict in the

The main thrust of the text is to distract the African and least
developed countries
(LDCs)with a so-called « development package » whilst extracting
onerous commitments
through the main issues under negotiations – services, agriculture
and industrial tariffs.
These liberalisation commitments will completely whittle down the
policy space
developing countries require to steer their economic development.
Without the ability to
manage and strategically protect their services, agriculture and
industrial sectors (the
way the US and EU still do), a development package, no matter its
shape, will not be
able to deliver on its promises.

The big win for the US and EU in this text is in the services
section, where developing
countries are being forced into aggressive liberalisation, a major
deviation from the
GATS architecture of voluntary liberalisation. In the areas of non-
agricultural market
access (NAMA) and agriculture, the Chair’s reports, although
written in a seemingly
objective manner, are biased in favour of the positions of the major
players – the US
and EU. There is silence on some key issues raised by the Africa,
Caribbean and
Pacific (ACP) countries. Whilst these are draft texts are called
« status reports », they set
the framework for the negotiations post Hong Kong.


The Development package that Lamy is offering African and LDCs
include the following
components which are devoid of any real value:

1. Special and Differential Treatment (S&D)

Until now, no progress has been made on S&D measures. The text
completely waters
down S&D negotiations. Paragraph 17 of the draft refers to a
« review » of the S&D
provisions, rather than S&D negotiations.

If something should emerge by Hong Kong for developing countries
(beyond LDCs) they
will be those 28 provisions classified under « Category I » which the
African Group
already rejected two years ago in Cancun. There is no value in
these provisions and, if
they are agreed, will simply be a public relations exercise by the
major players in Hong
Kong. The main S&D provisions with any commercial value are
those classified in
« Category III », which have not even been specifically mentioned in
the draft text. S&D
was promised as an « early harvest » (to be completed before the
other negotiations) in
Doha. But this promise has long been forgotten and does not
feature in this draft.

2. S&D for the LDCs

There are five S&D provisions for LDCs. Members were on the
verge of agreement in
July 2005, but the US and EU retreated at the last minute. Judging
from Annex F, they
are intending to pull this out of the bag in Hong Kong so that they
can make a huge
publicity event out of it. But interestingly, whether it happens is still
uncertain (Annex F
is in brackets in the draft text). Clearly, therefore, the majors are
intending to exact a
price for these in Hong Kong. That price will probably be the LDCs
agreeing to very
aggressive frameworks in agriculture, NAMA and services. Of the
five provisions, only
two have any potential value. They are « bound » duty and quota-free
access to other
markets, and a grace period before LDCs are required to implement
the TRIMS n(trade
related investment measures). Whether LDCs finally get « bound »
duty free is still
uncertain since two options are proposed in paragraph provided for
36a (the alternative
is simply quota and duty free access). Given that LDCs have less
than one per cent of
world trade, providing this costs the developed world nothing. In any
case, the extent to
which LDCs will be able to avail of even « bound » duty and quota
free access is
questionable in a highly liberalized environment which will be
dominated by the most
competitive producers.


Quite a lot of space in the draft ministerial is devoted to the
enhanced Integrated
Framework and Aid for Trade. This is a distraction that will divert
many countries’
attention in Hong Kong, whilst the main prize for US and EU –
agriculture, services and
NAMA – is being wrestled from developing countries.

Since the Gleneagles G8 summit, it has become established
amongst donors
(developed countries with huge exporting interests that want to a
major breakthrough in
market access) that Aid for Trade will be offered to developing
countries. The intention
is to help developing countries agree to commitments in Hong
Kong that they would not
otherwise have agreed. The actual mechanism of how this aid is
channeled is not yet
clear, however, it is likely that this will be an « enhanced integrated
framework » using
the existing integrated framework (IF) mechanism for LDCs and
expanding it also to
non-LDC developing countries.

There are several problems:

1) If this is not a bribe by the developed world, the timing to offer
this aid is highly
questionable. The fact that these promises are made in Hong Kong
makes it clear that
this is being used as a tool to arm-twist developing countries to
agree to liberalisation
commitments they otherwise would prefer not to.

2) Money offered to help developing countries, even to increase
their supply capacity,
as stated in paragraph 37 of the draft, will not be effective since
countries are being
forced, at the same time, to open up their economies. If there is
genuine interest in
helping developing countries nurture their local producers and
suppliers as the draft
text seems to imply, it will be necessary to also protect these
same suppliers from
aggressive competition for a period of time, until they are
competitive enough to
withstand liberalisation.

3) By almost all accounts, the IF has been a failure. It has not
helped countries increase
their supply capacity. For most countries, it has been aid to help
them implement their
Uruguay Round liberalisation commitments. The money offered has
been too little, and
there have been huge problems around « ownership ». Most
recipients have not felt that
the programmes which donors put together were in line with their
own objectives.
Unless the IF is fundamentally changed, an « enhanced » IF will
suffer the same plight.

4) There may not be any new money. Developing country trade
negotiators in Geneva
suspect that « aid for trade » may simply be about shifting money
that has already been
promised to developing countries under existing channels of
support into a new

5) Under the section on Aid for Trade, paragraph 37, there seems
to be the implication
that at least part of this aid will be provided to countries as loans,
rather than grants,
given the reference to « concessional terms ». It is puzzling why
developing countries
should accept, for example, reduced revenue because of the
NAMA negotiations, in
exchange for receiving loans which they will have to find alternative
revenue sources to


LDCs have asked for the TRIPS Council to extend the transition
period before they
implement TRIPS to 15 years. This decision has been placed in
brackets (paragraph 28
of the draft text), signaling again that there will be a price to be paid
for this in Hong
Kong. The US, in Geneva negotiations, has offered LDCs one year
and the EU has
offered them five years. This is completely unsatisfactory,
especially given that the rich
industrial countries did not abide by patent laws during their period
of economic
development, where copying technology was critical for US,
Germany, Japan etc.


The text on this is to be filled in depending on the outcome of the
final TRIPS council
meeting on 29 November in Geneva. The negotiations are between
bad options.

Firstly, the decision adopted on 30 August 2003 has not allowed
any country without
production capacity to import the necessary generic drugs. The
Indian generic industry
has found the legal red tape mandated by the decision too onerous
to make any export
of generic drugs commercially viable. The decision was only
endorsed in Geneva in
2003 due to huge amounts of political pressure exerted by
Washington on key
developing countries such as Kenya, Philippines and Venezuela,
that otherwise would
not have consented. Worse than the decision is the chairman’s
statement which was
read out in the General Council at the time the decision was
endorsed. The statement
was never approved by the Members, containing even more
conditions and red tape.
After the decision had been adopted, the WTO Secretariat – clearly
manipulated by the
US and EU – surreptitiously introduced a footnote in the decision to
the chair’s
statement, elevating the legal status of the chairman’s statement.
A large part of the
fight in Geneva is now over this footnote. The US wants the entire
chair’s statement to
be annexed to the decision. The EU, playing good cop, is asking
for the footnote to be
retained – so that any WTO disputes settlement panel decision will
have to take into
account the chairman’s statement as the « context » in which the
decision will be
interpreted. The Africa Group in their proposal of December 2004
would like to open up
the decision and improve on it so that it is a workable solution for
them. They would
also not like to have the reference to the chairman’s statement.

Given the intransigence of the US and EU, it is unlikely that a
decision of any real value
to poor countries will be taken in Hong Kong. The options on the
table are likely to be a
choice between bad options, yet there will be huge publicity on this
issue – that the
developed world will be saving the developing countries from the
plight of AIDS, malaria
etc. It is better, given this situation, that there is no solution in
Hong Kong on this matter
and that a decision on a permanent solution is deferred until after
Hong Kong. Countries
should be fighting for a workable and appropriate solution without
lengthy conditions,
rather than an expeditious solution that will be unusable and will for
forever foreclose
countries’ ability to access cheap medicines.

The « development package » – comprising S&D, aid for trade and
TRIPS and health –
amounts to nothing. But the price extracted is exorbitant.


Of the main issues – agriculture, NAMA and services – the draft
text in services is the
most ambitious in terms of already forcing countries to take
decisions that will imply
deep liberalisation commitments. In comparison, the texts in
agriculture and NAMA,
although still dangerous, imply that decisions are still a step or two


Analysis Of Paragraph 9 And Annex C

Annex C is highly controversial and there is widespread opposition
to virtually all parts
of the text. However, WTO director general Pascal Lamy and the
Chair seem determined
to force this non-consensual text down the throats of delegations.
Unlike in agriculture
and NAMA, where the draft text makes reference to the Chairman’s
reports which
Members are to « take note of », the services text (Annex C) is not a
report, but a mandate
to « intensify the negotiations » in ways which are completely at
odds with the GATS

If the draft text is endorsed as is, services liberalisation will be the
trophy the
developed countries will bring home from Hong Kong. Paragraph 9
of the draft
ministerial declaration will be the entry point for sectoral
negotiations – such as those of
basic telecoms and financial services (in 1997) – to take place,
stretching even after the
Doha Round has concluded. The US would like up to 15 such
sectoral negotiations to

The numerical targets the EU has been flagging, whilst dangerous,
is a red herring and
a distraction from US’s and EU’s real objectives – sectoral
negotiations. Sectoral
negotiations require much deeper liberalisation commitments. They
go right to the heart
of disciplining countries’ regulation – enforcing legislation that give
foreign companies
equal rights to local suppliers. This will see the back-door entry of
investment and
competition agreements in the WTO.

Paragraphs 2 and 7 of Annex C are also entry points for sectoral
Paragraph 2 states that « in order to provide guidance for the
request-offer negotiations,
the sectoral and modal objectives as identified by members may
be considered ». There
is a footnote at the end of that sentence making reference to a
controversial report by
the Chairman of the Council for Trade in Services (TN/S/23). This
report contains a list of
liberalisation objectives of the exporting countries (mainly
developed countries) across
a whole range of sectors – legal services, telecoms, financial
services, distribution,
transport, environmental services etc. If this reference in Annex C
is maintained, these
liberalisation objectives will be the yardstick by which a country’s
GATS offers will be
measured. This will provide developed countries the platform they
want to exert a lot of
pressure in the negotiations.

Paragraph 7 in Annex C under « approaches » elaborates on the
plurilateral request-offer
approach. This paragraph is an ambush for countries. While many
think of the
plurilateral request-offer as informal negotiations between several
countries mandated
by the negotiating guidelines, 7b goes way beyond the language in
the negotiating
guidelines. It says that those that receive requests « shall enter into
negotiations ». The US and EU would like a critical mass (80-90%
of world trade in a
sector) to enter into these negotiations, and thereby change the
nature of negotiations
into formal sectoral negotiations along the lines of telecoms and
financial services.
The objective is to have a framework of regulatory commitments
which all those
involved would sign on to in part or whole, such as the Telecoms
Reference Paper.
Once this baseline of commitment in each sector is enshrined in
the WTO, it affects all
WTO members, even those outside these sectoral negotiations,
since foreign investors
will judge countries according to their endorsement of what will be
seen as a basic
liberalisation / regulatory framework. Paragraph 2 of Annex C
should be deleted, as
should paragraphs 7a-c.

« Modal » coverage or modal targets in paragraph 9 of the draft text
and paragraph 2 of
Annex C complements the sectoral negotiation. Within each
sector, countries are asked
to remove limitations in the cross border (mode 1) and commercial
presence (mode 3)
modes of supply. Deep liberalisation in mode 3 is equivalent to a
competition and
investment agreement in GATS. India has been asking for the
expansion of « modal
coverage » in the hope of getting a better deal especially in mode 4
(for their information
technology professionals). Perhaps they may be in some position
to obtain this.
However, other developing countries are more interested in the
opening up of mode 4
categories which include low to mid-level skills. This is not
adequately reflected in
paragraph 1d of Annex C dealing with Modal objectives. Paragraph
1 of Annex C
prescribing modal objectives should be deleted.

An Agreement on Government Procurement in the GATS

The third Singapore issue that will creep back into the WTO
through the backdoor is in
paragraph 4b of Annex C. 4b says that « on government
procurement, Members should
engage in more focused discussions and in this context put greater
emphasis on
proposals by Members, including on proposals for a possible
framework for
government procurement. » Currently, the proposal on the table is
the EC proposal
advocating market access in government procurement in the
GATS. If this language is
not removed, post Hong Kong, exporting countries will push for
such a framework based
on the EC’s position. All government purchases in the services
sector will then have to
be bided for internationally, and countries will not be able to give
contracts for national
projects to local firms over foreign companies.

In short, this text completely undermines the current GATS flexible
architecture and will
radically open up developing countries’ services sectors before they
are ready to
compete with the services multinationals of the developed world.
The potential for
developing countries to develop their services sectors, as the new
area of economic
growth will be obliterated. In fact, unemployment will be on the rise
as existing service
providers come under threat. Access to services for all will also be
in question since
the liberalisation / privatization process will not prioritise universal


Analysis of Annex A

Both the NAMA and agriculture texts purport to be part of a
« bottom up » process, and
claim to be « factual » reports of the negotiations. However, both lean
towards the
positions of the developed countries.

The agriculture report is particularly cleverly drafted. The Chair puts
various options on
the table without reference to which countries these options are
from nor the weight
behind certain positions. For example, it puts the position held by
50-60 ACP countries
on par with the position held by one country (e.g. the US). As
such, the balance in the
negotiation is tilted in favour of the one country since there is an
implicit expectation in
the Chair’s report that the solution must be found in some sacred
middle ground. For
many developing countries, agriculture is not an issue where there
can be compromise,
since it involves livelihoods and employment. The parameters of the
negotiations post
Hong Kong are thus being redrawn in a direction that is not
favourable to developing

Domestic Supports

The provisions and options in domestic supports are highly
disappointing and will not
rebalance the current distortions in agricultural trade. In fact, cuts
in de minimis and
aggregate measure of support (AMS) will hit developing countries
hard. For the most
part, the cuts offered by the developed countries are only about
cutting « water » in their
subsidies i.e. cutting what is between their bound and applied
levels of support.

In overall domestic support cuts (paragraph 8 of Annex A), it is the
developing countries
providing AMS supports that will be in danger of trimming
drastically their supports. The
EU (which falls under Band 3) is already moving their supports out
of the « trade
distorting » support categories as a result of their common
agricultural policy (CAP)
reform, and will be unscathed by even 70-80% of cuts. Their
supports will migrate to the
untouched Green Box. The US will fall under Band 2. It was the US
that offered to cut
overall supports by 53%. Unless these cuts move upwards – for
example, up to 70%,
there will be no change for the US in terms of their current applied
levels of support.

The text endorses the expanded blue box enshrined in the July
2004 Framework. Whilst
the US will cut « trade-distorting subsidies », this new blue Box (even
if capped at 2.5% of
the value of production) will allow the US to house an addition five
billion dollars of
supports, mainly its distorting counter-cyclical payments in its
Farm Bill, nullifying to a
large degree the cuts in AMS. In fact, this new Blue Box is the
equivalent of another
trade distorting amber (AMS) box.

Under AMS (paragraph 9 Annex A), the US falls under Band 2,
since their AMS is bound
at $19.1 billion and the EU under Band 3, with bound AMS at $67
billion. For both, the
cuts entailed will again be about cutting « water » and there will be
no effect on applied
levels of supports.

Under the AMS section, there is also a critical omission. In
bilateral discussions, the US
has promised to cut product-specific domestic supports by 50%.
This will be key if there
are to be real cuts in domestic supports in certain critical products
such as cotton.
However, this US promise is not reflected in the Chair’s report. The
text merely
suggests that there may be some kind of product specific caps.
And the issue it
highlights is the base periods to be used for calculation of these
caps, 1995 – 2000 or
1999-2001. The former has been suggested by the G20 and the
latter the US. 1999-2001
is the period where prices were low and supports were one of the
highest in recent

On the green box (paragraph 10, Annex A), there is no language on
the need to tighten it,
only to « review » it. Even the language on the « review » amounts to
nothing since it says
that the review should be carried out « without undermining ongoing
reform » – referring to
protecting the EU CAP reform and the US Farm Bill. This is very
disappointing. It means
that the results from the cotton and sugar WTO dispute panels and
the gains for
developing countries from those panels have not been translated
into gains in the main
agricultural negotiations. These panels found certain subsidies
housed under the Green
Box trade distorting, for example market loan assistance, market
loss programmes and
counter cyclical payments.

With the CAP, the EU is moving the bulk of its overall supports into
the green box – from
25 – 90%. The US has about 75% of its supports in the green box.
The US provides
about 50 billion in the Green Box, as opposed to about 21 billion
under the « trade
distorting » boxes – AMS, Blue and de minimis. Therefore, whilst
export subsidies are
decreasing, hidden export subsidies are on the increase through
the Green Box and
New Blue Box. Unless the Green Box is tightened, disciplined and
capped, a large part
of the imbalance in agricultural trade and dumping will be retained.

On export competition, no dates have been provided – not even a
range of dates! This is
clearly uneven treatment as compared to the range of numbers
given in tariff reduction.

In market access, a critical proposal made by the ACP Group has
been omitted. A
number of ACP countries have harmonized tariffs at high levels (i.e.
about 100% of their
tariff lines have been bound at the same level). For example, Kenya
has all its bound
tariff lines at 100% and Nigeria at 150%. These countries have
taken the position that
they would distribute their tariff lines across the lower tiers of the
formula on the basis
of their own sensitivities and that, irrespective of the tiers to be
agreed, they would not
be expected to undertake the level of cuts required in the highest
tiers. Their tariffs cuts
instead would be guided by an overall average tariff reduction,
which the ACP proposed
to be 24% for developing countries. The chair failed to include this
in his report.

On « proportionality » the chair has said that there is a proposal for
developing countries
to consider 2/3 the cuts made by developed countries. The G20
proposal in fact states
that developing countries should undertake less than 2/3 the cuts
made by developed
countries. Even so, when proportional cuts are applied to
developing countries, the
results are not proportional. Since developing countries have much
higher tariffs than
developed countries, even the 2/3 cuts they make would in effect
be a steeper tariff cut
than developed countries. For example, cutting 90% tariff to 30%
for developing
countries whilst developed countries may be cutting a 4% tariff to


There is blatantly unequal treatment between the sensitive
products and the special
products. There is almost no discussion on how sensitive products
will be designated.
It is assumed that developed countries will decide this themselves.
On the contrary, for
the special products, there is a big debate on how they will be
designated and reference
is made (page A-5 of Annex A) to the need for a « non-exhaustive
and illustrative criteria
-based indicators » to be established.

On the SSM, the more useful « price-based » trigger for developing
countries is said to be
controversial. A volume based trigger, though less controversial will
not be of much
practical use.

Cotton. Even though it was promised in the July Framework that
cotton will be
addressed « ambitiously, expeditiously and specifically », there is
nothing offered to
countries producing cotton in this chair’s report.

In sum, the text reflects negotiations that are pushing in a direction
favourable for the
US and EU – no real cuts in domestic supports, and in fact, they
have a ticket to
legitimize their huge supports and dumping. The domestic support
provisions for the
US and EU amount to nothing more than a box-shifting exercise.
At the same time, there
are mandatory cuts in tariffs, even for developing countries. (No
mention is made of
making cuts in tariffs by developing countries conditional upon cuts
in domestic
supports in developed countries.) In the context of continued
dumping, forced tariff
reduction in developing countries will eliminate the only tool
countries can use to
protect their small farmers from this unfair competition. Rural
unemployment and
poverty are the likely outcome.


The NAMA text (Annex B) has been widely criticized for not
capturing fairly the status of
the negotiations for developing countries. The chairs’ report
attempts to reduce the wide
debate on NAMA to a mere numbers game when in fact the debate
is over a more
fundamental issue between the aggressive push for liberalization
by highly
industrialized countries on the one hand and the defensive position
of developing
countries who fear the spectre of de-industrialization on the other

First, the chair makes claims that there is increasing convergence
on the Swiss formula
and that there are two main options. By doing so, he has
eliminated the formula the
Caribbean countries have put forward. The Caribbean formula
provides developing
countries with an additional coefficient to take into account
economic vulnerabilities.

Second, unlike what has been suggested by the chair, there is no
convergence that the coefficients for developing countries should be
between the 15-30
range. Many countries have said that should they be forced into a
Swiss formula (rather
than a Swiss type formula such as the Caribbean one), they would
need a much higher
coefficient (over a hundred). This picture painted by the chair is
therefore highly
misleading and dangerous since it could severely narrow down
countries’ negotiating
options post-Hong Kong.

Third, the chair gives a completely one-sided report when he says
that there is « good
progress » on the sectoral negotiations. In fact, the Africa Group
position is that these
negotiations should not be taking place and that African countries
have never agreed to
sectoral negotiations.

Instead, the Chair says that some have questioned the rationale of
engaging in sectoral
negotiations before having the formula finalized, completely
misrepresenting the level
of objection and resistance.

Finally, the LDCs have requested « bound » duty free and quota free
market access. This
has not been reflected in the LDC paragraph, which only refers to
duty free and quota
free access.

The negotiations in NAMA have been extremely controversial.
Many developing
countries have expressed concerns regarding the drastic formula
presented, as well as
the across the board bindings they have been asked to commit to.
Most negotiators are
worried that their industries will be wiped out completely with such
a formula, and
provisions stipulating tariff bindings at very low tariff rates, possibly
at rates which are
even lower than their current applied levels. No one-size-fits-all
formula can deal with
the concerns of a large number of countries. Countries require
policy space – the US and
EU have claimed that for textiles with their over 50-year transition
period. Limiting this
policy space for developing countries and disallowing the nurturing
of fledging
industries is a sure road to unemployment and deindustrialization.

Link to draft ministerial text

Focus on the Global South (FOCUS)