WTO Hong Kong WTO Hong Kong ministerial conferenceministerial conference(13-18 December)(13-18 December)

5 December 20055 December 2005

Levente Császi, DG ExPo Policy Levente Császi, DG ExPo Policy DepartmentDepartmentlcsaszi@europarl.eu.intlcsaszi@europarl.eu.int

Topics for discussionTopics for discussion

What is trade and What is trade and why is trade why is trade important?important?

What is the WTO?What is the WTO? TimelineTimeline What is new in this What is new in this

round?round? The stakes of the DDA The stakes of the DDA

and Hong Kongand Hong Kong The structure of the The structure of the

negotiationsnegotiations

The main actorsThe main actors The EU agendaThe EU agenda AgricultureAgriculture NAMANAMA ServicesServices Is it a Is it a

“Development” “Development” round?round?

The EP and Hong The EP and Hong KongKong

What is trade and why is What is trade and why is it importantit important 8000 billion $ in goods 8000 billion $ in goods

and servicesand services Trade policy: incentive Trade policy: incentive

to produce certain to produce certain goodsgoods

Theory:Theory:– link between freer trade and link between freer trade and

economic growtheconomic growth– Comparative advantageComparative advantage– Positive sum gamePositive sum game

BUT:BUT:– Trade is NOT enoughTrade is NOT enough– not magic panacea!not magic panacea!

Myriad of instruments, Myriad of instruments, policies and tools policies and tools Tariffs (tariffication, binding tariffs, tariff peaks, Tariffs (tariffication, binding tariffs, tariff peaks,

tariff escalation, tariff reducing formula), quotas, tariff escalation, tariff reducing formula), quotas, tariff rate quotas (TRQs), standards, non-tariff tariff rate quotas (TRQs), standards, non-tariff barriers, subsidies, investment rules, intellectual barriers, subsidies, investment rules, intellectual property rights (IPRs), geographical indications property rights (IPRs), geographical indications (GIs), environment, labour standards, services (GIs), environment, labour standards, services regulation, movement of people, export credits, regulation, movement of people, export credits, enforcement of the rules, technical assistance, enforcement of the rules, technical assistance, trade facilitation, aid for trade, customs trade facilitation, aid for trade, customs valuation, rules of origin, implementation issues, valuation, rules of origin, implementation issues, dispute settlement, anti-dumping, sanitary and dispute settlement, anti-dumping, sanitary and phytosanitary measures, investment…phytosanitary measures, investment…

Trade policy and overall Trade policy and overall economic impacteconomic impactTrade liberalisation: uni-, bi-, pluri-, Trade liberalisation: uni-, bi-, pluri-, multilateralmultilateral

Trade Policy

Domestic

policies

Geography

Direct effects

on trade flows and

growth

Indirect effects through

Economic growth

Trade policy is foreign policy!

What is the WTO?What is the WTO?

Creation in Uruguay round (1995)Creation in Uruguay round (1995) 148+ Members148+ Members Member-driven intergovernmental Member-driven intergovernmental

organisation?organisation? Champion of free trade? Champion of free trade? Negotiating mechanism to create economic Negotiating mechanism to create economic

opportunities?opportunities? "Unidentified object of global governance"? – "Unidentified object of global governance"? –

no common understandingno common understanding Development organisation?Development organisation? Obscure organisation with 23 agreements Obscure organisation with 23 agreements

where fisheries are discussed under the where fisheries are discussed under the “Rules” chapter “Rules” chapter

Basic principles Basic principles

Non-discrimination (MFN principle) Non-discrimination (MFN principle) Transparency of rules Transparency of rules

(e.g.“tarrification”, notification (e.g.“tarrification”, notification system)system)

Progressive liberalisation through Progressive liberalisation through multilateral trade roundsmultilateral trade rounds

ConsensusConsensus Enforcement of rules (Dispute Enforcement of rules (Dispute

Settlement)Settlement)

Year Place/name Subjects covered Countries

1947 Geneva Tariffs 23

1949 Annecy Tariffs 13

1951 Torquay Tariffs 38

1956 Geneva Tariffs 26

1960-1961

GenevaDillon Round

Tariffs 26

1964-1967

GenevaKennedy

Round

Tariffs and anti-dumping measures

62

1973-1979

GenevaTokyo Round

Tariffs, non-tariff measures,“framework”

agreements

102

1986-1994

GenevaUruguay

Round

Tariffs, non-tariff measures, rules, services, intellectual property,dispute settlement, textiles,

agriculture,creation of WTO, etc

123

WTO roundsWTO rounds

Globalisation and the Globalisation and the WTOWTO ““Asymmetrical economic order”Asymmetrical economic order” WTO: part of the problem - part of the WTO: part of the problem - part of the

solution? solution? The world without the WTO…The world without the WTO…

– ““rules based system” vs “rule of the jungle”rules based system” vs “rule of the jungle”– asymmetrical trade regime would exist asymmetrical trade regime would exist

without the WTO (bilateral and biregional without the WTO (bilateral and biregional agreements)agreements)

– DSU – protects the weak?DSU – protects the weak?– consensus?consensus?

Timeline of Timeline of negotiationsnegotiations 2001 - Launch of Doha Development Agenda 2001 - Launch of Doha Development Agenda 2003 - EU-US renewal too late, Cancun failure2003 - EU-US renewal too late, Cancun failure 2004 - July framework agreement2004 - July framework agreement 2005 – August: “approximations”2005 – August: “approximations” 2005 – November – draft ministerial text2005 – November – draft ministerial text 2005 - December - Hong Kong Ministerial – 2005 - December - Hong Kong Ministerial –

“recalibration” & new road map“recalibration” & new road map 2006 - Countries table offers based on Hong Kong 2006 - Countries table offers based on Hong Kong

guidanceguidance 2006 - December – negotiations conclude2006 - December – negotiations conclude 2007 - Submit implementing legislation to US Congress2007 - Submit implementing legislation to US Congress 2007 - July – 2007 - July – US Trade Promotion Authority expiresUS Trade Promotion Authority expires 2007 - New domestic reforms? (Farm Bill Renewal, CAP?)2007 - New domestic reforms? (Farm Bill Renewal, CAP?) 2010 - Most reforms start to kick in2010 - Most reforms start to kick in

What is new in this What is new in this round?round? Growing membership (China, DCs)Growing membership (China, DCs) Growing agenda affecting policy Growing agenda affecting policy

spacespace Increasingly inflexible negotiating Increasingly inflexible negotiating

positionspositions Grand bargain: agri vs NAMA and Grand bargain: agri vs NAMA and

servicesservices Developing countries split (G20, G33, Developing countries split (G20, G33,

G90)G90)

What is at stake in the What is at stake in the DDA and at Hong DDA and at Hong Kong?Kong? Economic terms – expectations on gains Economic terms – expectations on gains

from DDA scaled down (World Bank from DDA scaled down (World Bank projections)projections)

Credibility of multilateralism - key Credibility of multilateralism - key concern for Europe (alternative: concern for Europe (alternative: bilaterals…)bilaterals…)

Reducing global trade asymmetry – Reducing global trade asymmetry – what about the Dwhat about the DDDA?A?

Policy space?Policy space? Paradigm shift in agriculture?Paradigm shift in agriculture?

The structure of the The structure of the negotiationsnegotiations July framework – basic guidelinesJuly framework – basic guidelines ““Single undertaking”Single undertaking” General Council, TNC, CommitteesGeneral Council, TNC, Committees defensive and offensive interestsdefensive and offensive interests issue-based coalitionsissue-based coalitions shifting power constellations, G-20 shifting power constellations, G-20

emergingemerging Core group, “green room deals”?Core group, “green room deals”? consensus – developing countries have consensus – developing countries have

“negative power”“negative power”

Main actorsMain actors Five interested parties (FIPs - EU, US, Five interested parties (FIPs - EU, US,

Australia, India, Brazil)Australia, India, Brazil) Quad (EU, US, Japan, Canada)Quad (EU, US, Japan, Canada) New Quad (EU, US, India, Brazil)New Quad (EU, US, India, Brazil) Cairns groupCairns group G10G10 G20 (Brazil, India, China – marriage of G20 (Brazil, India, China – marriage of

convenience)convenience) G33 – one issue: special products and SSMG33 – one issue: special products and SSM G77/90 – Africa + LDCs - defensiveG77/90 – Africa + LDCs - defensive Who else is driving negotiations? (NGOs, Who else is driving negotiations? (NGOs,

multinationals…)multinationals…) Parliamentarians???Parliamentarians???

Cairns GroupArgentina*AustraliaBolivia*Brazil*CanadaChileColombia*Costa Rica*Guatemala*Indonesia*MalaysiaNew ZealandParaguay*Philippines*South Africa*Thailand*Uruguay

*These countries have overlapping memberships with the G-20

G-20 (G-21)ArgentinaBoliviaBrazilChileChinaColombia*Costa Rica*CubaEcuador*EgyptEl Salvador*Guatemala*IndiaIndonesiaMexicoNigeriaPakistanParaguayPeru*PhilippinesSouth AfricaThailandTanzaniaVenezuelaZimbabwe

*These members have left the G-20 since its formation, due to the CAFTA negotiations with the US.

EU MembersAustriaCyprusCzech RepublicBelgiumDenmarkEstoniaFinlandFranceGermanyGreeceHungaryIrelandItalyLatviaLithuaniaLuxemburgMaltaNetherlandsPolandPortugalSlovakiaSloveniaSpainSwedenUnited Kingdom

G-33Antigua and BarbudaBarbadosBelizeBotswanaCubaDominican RepublicGrenadaGuyanaHaitiHondurasIndonesiaJamaicaKenyaMauritiusMongoliaNicaraguaNigeriaPakistanPanamaPeruthe PhilippinesSaint Kitts and NevisSaint LuciaSaint Vincent and the GrenadinesSurinameTanzaniaTrinidad and TobagoTurkeyUgandaVenezuelaZambiaZimbabwe(China*)(India*)

*These countries (formal G-20 members) are actively participating in G-33 meetings and support the Group in the negotiations.

Recently Acceded MembersAlbaniaChinaCroatiaGeorgiaJordanMoldovaNepalOman

G-10(Bulgaria)Chinese TaipeiIcelandIsraelJapanKoreaLichtensteinMauritiusNorwaySwitzerland

G-90 (AU/ACP/LDC)This is a combination of the 54 African Union countries, 77 African, Caribbean and Pacific (ACP) countries and 49 least-developed countries (LDCs), which are Members of the WTO

GroupGroup CountriesCountriesAgricultureAgriculture

Industrial Industrial GoodsGoods ServicesServices

SubsidiesSubsidies AccessAccess

United StatesEuropean Union

Free traders (Cairns)

Australia, New Zealand, Chile

Ag resistant countries

G10: Japan, Korea, Taiwan, Switz,

Norw

G-20 main players

Brazil, Argentina, Thailand

China

India

Developing: SP, preference

erosion G-90 and G-33

Developing: net food

importers LDCs and others

Doha Interest GroupsDoha Interest Groups

= Offensive position = Defensive position

The EU Agenda IThe EU Agenda I

Starting off with a broad “post-Starting off with a broad “post-modern” agenda modern” agenda

(Seattle to Doha, “Singapore issues”)(Seattle to Doha, “Singapore issues”) Defensive interests:Defensive interests:

Agriculture: CAPAgriculture: CAPGoods: footwear, textiles and clothingGoods: footwear, textiles and clothingServices: transport, audiovisual, education, Services: transport, audiovisual, education,

healthcarehealthcare Offensive: services & goodsOffensive: services & goods(professional services, e-commerce, etc)(professional services, e-commerce, etc)

The EU Agenda IIThe EU Agenda II

Trade facilitation (other 3 Singapore issues Trade facilitation (other 3 Singapore issues dropped)dropped)

Trade and the environment + core labour Trade and the environment + core labour standards controversialstandards controversial

Development: global EBA, openness to S&D, Development: global EBA, openness to S&D, phasing out export subsidies phasing out export subsidies

Challenge: “preference erosion” (ACP)Challenge: “preference erosion” (ACP) Agriculture is the sticking point – locking in Agriculture is the sticking point – locking in

2003 CAP reform2003 CAP reform Policy linkages: CAP, budget, developmentPolicy linkages: CAP, budget, development Three-level gameThree-level game

Agriculture IAgriculture I

July framework:July framework: market access: substantial tariff reductionsmarket access: substantial tariff reductions exports subsidies: reductions of, with a view exports subsidies: reductions of, with a view

to phasing out, all forms of these (in the to phasing out, all forms of these (in the 1 August 2004 “framework” members agreed 1 August 2004 “framework” members agreed to eliminate export subsidies by a date to be to eliminate export subsidies by a date to be negotiated)negotiated)

domestic support: substantial reductions for domestic support: substantial reductions for supports that distort trade (in the supports that distort trade (in the 1 August 2004 “framework”, developed 1 August 2004 “framework”, developed countries pledged to slash trade-distorting countries pledged to slash trade-distorting domestic subsidies by 20% from the first day domestic subsidies by 20% from the first day any Doha Agenda agreement is implemented.any Doha Agenda agreement is implemented.

Protection is Still High Protection is Still High and Mostly at the Borderand Mostly at the Border

0

20

40

60

80

100

120

140

160

US OECD OECDdeveloping

EU Japan QUADManufacturing

Tariffs

Prot

ecti

on R

ate

(%)

Subsidies

Border Protection

Source: OECD

Tariff Peaks Are Very HighTariff Peaks Are Very HighU

gan

da

To

go

Mal

awi

Bra

zil

Co

sta

Ric

a

Ind

on

esia

US

Can

ada

Mo

rocc

o

EU

Ko

rea 0

100

200

300

400

500

600

700

800

900

1000

Du

ty (

%)

MaximumTariff (% )

Source: WTO IDB (MFN Applied Duties)

Tariffs Escalate in Final Products Tariffs Escalate in Final Products

0

5

10

15

20

25

30

35

40

45

50

tari

ffs

(%)

QUAD Canada Japan US EU LargeMiddleIncome

OtherMiddleIncome

LowerIncome

Average MFN Applied Out-of-quota Duties (%)

RawIntermediateFinal

Source: WTO IDB (MFN Applied Duties)

Agriculture: Three PillarsAgriculture: Three Pillars

EU87,8%

U.S.1,8%

Rest of World3.0%

Switzerland6,4%

Norway3.0%

2. Direct Export SubsidiesEU(over $2 billiona year)

1. Market Access Average WTO Allowed Ag Tariff

3. Domestic Support – amber box: WTO

allowed (gold) and Projected (yellow) 2005 Aggregate Measurement of Support (AMS) Levels. Billion $ at current x rates

0102030405060708090

100

U.S. EU - 25 Japan

Other

United States

Switzerland

Norway

12%

31%

51%

66%

114%

62%

0%

20%

40%

60%

80%

100%

120%

Current

US EU Japan Korea India Global

Agriculture: Proposals for market Agriculture: Proposals for market accessaccess

Market Access: Average WTO Allowed Ag Tariff

12%3% 5% 6%

31%

6% 9% 13%

51%

7%12% 15%

66%

14%

29% 29%

114%

28%

70% 70%

0%

20%

40%

60%

80%

100%

120%

Current U.S. Proposal G-20 Proposal EU Proposal

US EU Japan Korea India

(1% sensitive products)

(1% sensitive products) (8% sensitive products)(Based on WTO AVEs)

Domestic subsidiesDomestic subsidies

EU offer: 70 percent reduction in trade-distorting EU offer: 70 percent reduction in trade-distorting subsidies (conditional, US wants 83 percent)subsidies (conditional, US wants 83 percent)

Non-agricultural market Non-agricultural market access (NAMA)access (NAMA)

Z= AX/(A+X) Z= AX/(A+X) The magic The magic harmonisingharmonising Swiss formula – different from Uruguay! Swiss formula – different from Uruguay!

X= old tariff X= old tariff A= coefficientA= coefficient Z=new tariff Z=new tariffDebate is about the coefficient + smaller coefficient for Debate is about the coefficient + smaller coefficient for

developing countries (2/3 of developed country commitments)developing countries (2/3 of developed country commitments)

Sw iss form ula. Coeffi cient=25

0

20

40

60

80

100

120

140

160

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

Tariff

S tart 150%S tart 125%S tart 100%S tart 75%S tart 50%S tart 25%S tart 10%

Services IServices I GATS flexible “offer-request” processGATS flexible “offer-request” process The 4 modes of supplyThe 4 modes of supply::

1.1. cross-bordercross-border (trade that takes place from the (trade that takes place from the territory of one country into another, e.g. e-territory of one country into another, e.g. e-commerce or telecoms)commerce or telecoms)

2.2. consumption abroadconsumption abroad (consumption of services in (consumption of services in another country e.g. tourism)another country e.g. tourism)

3.3. commercial presencecommercial presence (establishment of a firm (establishment of a firm from one country in the territory of another – from one country in the territory of another – particularly important for financial services and particularly important for financial services and professional services)professional services)

4.4. movement of natural personsmovement of natural persons (the ability for (the ability for nationals to work overseas for a temporary period to nationals to work overseas for a temporary period to provide services, which is not a synonym for cross-provide services, which is not a synonym for cross-border labour movement in general border labour movement in general

Services IIServices II

Significant gains possible from Significant gains possible from services liberalisationservices liberalisation

No progress so farNo progress so far EU proposed benchmarks: EU proposed benchmarks:

– Voluntary commitments according to Voluntary commitments according to certain criteriacertain criteria

– Smaller commitment from DCsSmaller commitment from DCs– Not forced liberalisation or privatisationNot forced liberalisation or privatisation

Resentment from DCs and NGOsResentment from DCs and NGOs

The EU position before The EU position before HKHK Agri tariff cuts between 35% to 60%Agri tariff cuts between 35% to 60% Sensitive products (6-8% off tariff lines), cap Sensitive products (6-8% off tariff lines), cap

of 100% for developed and 150% for of 100% for developed and 150% for developing countriesdeveloping countries

Reduction of trade-distorting subsidies (up to Reduction of trade-distorting subsidies (up to 70 percent)70 percent)

Export subsidies: phasing out + full Export subsidies: phasing out + full parallelism: US to get rid of export credits, parallelism: US to get rid of export credits, commercial food aid, etccommercial food aid, etc

Ambitious tariff reduction in NAMAAmbitious tariff reduction in NAMA Services: “benchmarks“ – less flexible?Services: “benchmarks“ – less flexible? Development packageDevelopment package

– Global EBAGlobal EBA– Special and differential treatment (flexibilities)Special and differential treatment (flexibilities)– TRIPs – better access to drugsTRIPs – better access to drugs– CottonCotton– Aid for tradeAid for trade

Key Elements of U.S. Key Elements of U.S. ProposalProposal Stage 1Stage 1 (5-year implementation): (5-year implementation):

– Substantial reductions in trade-distorting domestic Substantial reductions in trade-distorting domestic support support (“Amber Box”: 60 percent cut for U.S., 83% cut for EU (“Amber Box”: 60 percent cut for U.S., 83% cut for EU and Japan)and Japan)

– Substantial reductions in tariffs, with deeper cuts for Substantial reductions in tariffs, with deeper cuts for higher tariffshigher tariffs

Developed countries: tariff cap and cuts ranging from 55% Developed countries: tariff cap and cuts ranging from 55% to 90%to 90%

Developing countries: slightly lesser cuts, focus on emerging Developing countries: slightly lesser cuts, focus on emerging marketsmarkets

– Limits the number of “sensitive products” eligible for Limits the number of “sensitive products” eligible for smaller tariff cut to only 1% of total tariff lines, and smaller tariff cut to only 1% of total tariff lines, and ensures meaningful access through large quotas.ensures meaningful access through large quotas.

– Total Elimination of export subsidies by 2010Total Elimination of export subsidies by 2010

Stage 2Stage 2 (5 years after Stage 1 implemented): (5 years after Stage 1 implemented):

– Phase out remaining tariffs and trade-distorting support Phase out remaining tariffs and trade-distorting support measures over 5 yearsmeasures over 5 years

Development???Development???

Market access and rebalancing rules on domestic Market access and rebalancing rules on domestic and export support;and export support;

The recognition, "operalisation" and The recognition, "operalisation" and implementation of implementation of special and differential special and differential treatment (S&D) and flexibilitiestreatment (S&D) and flexibilities for for developing countries (e.g. separate treatment of developing countries (e.g. separate treatment of cotton, a development box in agriculture);cotton, a development box in agriculture);

Mainstreaming the development dimension into a Mainstreaming the development dimension into a wider range of policies that are not "classical wider range of policies that are not "classical trade instruments" but are covered by one of the trade instruments" but are covered by one of the 23 WTO agreements or could be added to the 23 WTO agreements or could be added to the WTO agenda (TRIPs, TRIMs, Singapore issues, WTO agenda (TRIPs, TRIMs, Singapore issues, standards, social and environmental standards, social and environmental requirements).requirements).

EU: Round for free + global Everything But Arms?EU: Round for free + global Everything But Arms?

Development II – Development II – demands from DCsdemands from DCs lesser and lower obligations for developing countries lesser and lower obligations for developing countries

(asymmetric tariff cuts, exemptions for special and (asymmetric tariff cuts, exemptions for special and sensitive products and unbound tariffs);sensitive products and unbound tariffs);

longer implementation periods;longer implementation periods; subsidies allowed on non-trade concerns (vulnerability, subsidies allowed on non-trade concerns (vulnerability,

food security and environmental issues);food security and environmental issues); a definition of "small and vulnerable economies"; a definition of "small and vulnerable economies"; special treatment for single commodity producers;special treatment for single commodity producers; trade facilitation and technical help;trade facilitation and technical help; support measures for implementation;support measures for implementation; a ban on certain trade defence measures applied by a ban on certain trade defence measures applied by

developed countries with regards to specific countries developed countries with regards to specific countries and/or product categories;and/or product categories;

special safeguard possibilities for developing countries special safeguard possibilities for developing countries under certain conditions under certain conditions

The EP and Hong KongThe EP and Hong Kong

44thth Parliamentary Conference on Parliamentary Conference on the WTO – IPU + EPthe WTO – IPU + EP

30 MEPs30 MEPs Meetings with senior Meetings with senior

representativesrepresentatives Two main topics: Two main topics:

– Concluding the roundConcluding the round– International coherenceInternational coherence