Posted on Tuesday, September 9, 2003

WTO conference in Cancun:
Facing the devil’s alternative

By Dave L. Llorito, Research Head

Editor’s note: Part 1 of the story detailed how the country’s negotiating position evolved on the way to the Cancun WTO ministerial conference.

(Second of four parts)

Philippine negotiators left the country with heavy hearts last week to attend the September 10-14 fifth Ministerial Conference of the World Trade Organization (WTO) in Cancun, Mexico. They knew they were going to face the devil’s alternative.

It appears there are only two choices. Concede to the draft prepared by the WTO General Council chair, Carlos Perez del Castillo, that took heavily from the proposals of the European Union and the United States. Or leave the negotiating table once it becomes apparent that the rich countries will not yield to reforms in agricultural trade.

Either way, Filipino farmers will suffer.

The Castillo draft, named after the WTO general counsel, is soft on the removal of the $1-billion-a-day export subsidies and domestic support lavished by rich countries including the EU, the US, Canada and Japan on their farmers, thus hurting exports from poor countries like the Philippines. And it’s silent on special safeguard measures that developing countries feel they need to deal with surges of imports from subsidy-laden exports from rich countries.

“The Castillo draft is a step back from the spirit of the Doha Declaration,” says Noel Padre, one of the senior technical staffers of the Department of Agriculture that is working on WTO negotiations.

Padre feels, however, that walking away from the negotiations would gain nothing.

Eight days into the conference, Australia, New Zealand, South Africa, Canada, Argentina, Brazil, Chile, Colombia and Costa Rica threatened to walk out of the negotiations if the EU and the US would resist reforms in agricultural trade.

“If we can’t achieve our ambitions, an acceptable level of improvement in the global trade in agricultural commodities compared to what we’ve been asked to pay for in other areas, we will not agree with it and we will walk out,” the Mark Vaile, Australian trade minister, was quoted by Agence France-Presse as saying.

Padre countered: “But what are they going to achieve by walking out? That means the old regime under the Uruguay Round that has been vastly unfavorable to poor countries will continue.”

Lately, the Philippines has joined the G-20, a group of developing countries like Brazil, to lobby for concessions including the removal of rich-country farm subsidies and the use of special safeguard measures. Philippine negotiators hope that the new “movement” could generate a bandwagon.

But people in the Department of Agriculture are not optimistic. If a stalemate occurs, some of these vocal countries might eventually cave in to political pressures.

“Things are so uncertain,” says one Agriculture official. “Negotiations are highly political. It’s so frustrating.”

Uruguay Round betrayed

The frustrations of Philippine negotiators can be traced back to the outcome of the GATT-Uruguay Round Agreement that launched the WTO in 1995.

“The Uruguay Round yielded no meaningful reduction in protection in industrial countries,” says the World Bank in its September 1 report on the global economic prospects. “In many cases, in fact, industrial protection may have increased as a result of dirty tariffication.”

Dirty tariffication meant that some rich countries removed quantitative restrictions on imports from poor countries and replaced them with very high tariffs. Rich countries also resorted to tariff peaks, the practice of reducing average tariffs while increasing specific tariffs for certain products (mostly agricul­tural commodities), thus effectively barring exports from poor countries.

Besides, rich countries provided increasing amounts of export subsidies and domestic support to their farmers, thus distorting world trade. These countries are supposed to reduce them under the Uruguay Round.

“Japanese support to rice producers amounts to 700 percent of production cost, which effectively shuts out exports from Thailand and other producers,” says the World Bank in its report Global Economic Prospects 2004: Realizing the Development Promise of the Doha Agenda, released in October 28. “Direct subsidies to producers by the EU cost around $100 billion annually, and depress world market prices in sugar, dairy, and wheat. . . . The US spends $50 billion annually on direct support to its agricultural sector alone.”

Officials of the Department of Agriculture explain that with the export subsidies, American and European farmers could sell chicken, beef, pork, cereals, sugar and any other stuff at basement prices. Domestic support for rich-country farmers would ensure that Filipino farmers could never hope to sell in the rich-country markets.

“Progress in the Uruguay Round was more formal than real,” concluded the World Bank report.

Sleepless in Seattle

Serrano explained that the perception that rich countries got most of the benefits from the Uruguay Round has created a political backlash all over the world. Thus, when trade ministers met in December 1999 in Seattle to start talking about the next round of trade reforms, demonstrators—denoun­cing the inequities in global trade—mobbed and corralled them in their hotels.

“We were sleepless in Seattle,” said Serrano. Demonstrators blocked their way to the conference site. “The confrontations between the police and the demonstrators turned violent. The talks collapsed.”

Fearing that WTO’s credibility could be dented, trade ministers met again in Doha, Qatar, in November 2001. This time they hammered out a declaration calling the new round “the development round.”

They agreed to negotiate on the following:

• Market access: substantial re­­­duc­­tion of barriers to trade;

• Exports subsidies: reduc­tions of, with the view to phasing out, all forms of export subsidies;

• Domestic support: subs­tantial reduction; and

• Special and differential treat­ment for developing countries throughout the negotiations.

On its website the WTO explained that the outcome of the negotiations under the Doha Round “should be effective and should enable developing countries to meet their needs, in particular food security and rural development.”

What frustrated Philippine negotiators, however, was that as negotiations wore on, the original vision of Doha as the “development round” gradually vanished into thin air.

As early as February this year, Stuart Harbinson, chairman of the WTO committee on agriculture, recommended the elimination of export subsidies within nine years, a reduction in tariffs on agricultural imports by developed countries from 40 percent to 60 percent over five years, and a reduction in trade-distorting domestic support by 60 percent over five years.

Leonardo Q. Montemayor, former secretary of agriculture, is skeptical of the Harbinson Report because it departed from the original Philippine “interlinkage proposal” that would link market access issues with other pillars of the Doha Round like subsidies and domestic support.

“[It] closely hewed to the original Uruguay Round Agreement, which has been criticized by many member-countries for its perceived bias in favor of developed nations,” he noted.

Different interpretations

Other countries also have different interpretations of market access and reduction of domestic and export subsidies proposed by Harbinson.

“The US and the Cairns Group advocate a harmonization approach that would drastically bring all tariffs down to no more than 25 percent in five years,” notes the briefing paper prepared by the WTO section of the Philippine Permanent Mission in Geneva. “…While the EU, Japan, Switzer­land and Norway strongly prefer the less liberalizing Uruguay Round formula consisting of a 36-percent overall average tariff rate and a 15-percent minimum cut per tariff line.”

Serrano said the Department of Agriculture wanted something that would not further reduce tariffs, because the Philippines has already made deep tariff cuts ahead of its WTO commitments under its Tariff Reform Program.

Special and differential treatment for developing countries has also been a sticky issue.

The Harbinson Report opened the possibility for developing countries to designate “special products” relevant to “national security, rural development and livelihood security.” These products may have an average reduction of 10 percent and the minimum reduction per tariff line of 5 percent. The US rejected this provision and Australia proposed that it should be governed by strict criteria.

“For the Philippines, the concept of special products is crucial to a number of its sensitive products, foremost of which is rice,” noted the Philippine briefing paper. “If a policy decision has been taken to tariffy rice, the concept of special products would become the applicable modality.”

The country’s rice industry is protected by quantitative restrictions. There are growing pressures from the country’s trade partners to remove the restrictions and replace them with tariffs.

Department of Agriculture offi­cials welcomed the Harbinson draft, noting that at least it allows poor countries to provide “special safeguard measures.” For depart­ment officials, these measures could probably take the form of a levy on top of the negotiated tariff in times of heavily subsidized imports to prevent injury to local products.

A step backward

The US and the EU, however, rejected the Harbinson draft. The report underwent several revisions but eventually died down after the US and EU submitted their own proposals in August for consi­deration as the outline for the new trade agreement.

Some technical people at the Department of Agriculture said that the US-EU proposal appears to be harmless on the surface. It also calls for special safeguards and the reduction of subsidies and supports. Unlike the Harbinson draft, however, the US-EU proposal neither provided numbers on the depth of subsidy reduction nor specified the timetables for the phaseout.

The proposal text also acknowledged the importance of the special safeguards for developing countries but stressed that they should be put under negotiation. Most of the text of the US-EU proposal ended up being adopted by the recent ministerial draft, the so-called Castillo report.

In effect—according to Department and Industry sources privy to the negotiations—the US and the EU got all what they wanted.

“Talks about modalities or framework are now gone. Countries will now just have to fill the blanks after negotiating the numbers,” says a department technical staffer, explaining that this process could make individual countries vulne­rable to political pressures from rich countries. “It’s a step back from the spirit of the Doha Declaration, where special and differential treatment, special safeguards are given importance. It’s a great setback.”

What further riles the Department of Agriculture negotiators is that while talks about the concerns of developing countries were hardly addressed, rich countries have been insisting on other issues like investments, competition policy, government procurement, and trade facilitation to put on the negotiating table.

“These issues largely concern rich countries,” said a reliable source from the Department of Trade and Industry. “Agreeing to have a multilateral framework on this would deprive us of policy space, which we need as a developing country.”

“For instance, if they think our exports are not processed fast enough through our Bureau of Customs, are they going to take us to the dispute settlement mechanism of the WTO?” he asked.

“We have NGOs around campaigning to stop the talks,” noted one Agriculture official. “Honestly, they have my sympathy. It they succeed, I would be happy because that would mean we could negotiate again to bring back the spirit of the Doha Declaration.”
(To be continued)