Evian Group Eleventh Hour Appeal for October 2005

The Evian Group Eleventh Hour Appeal For the Hong Kong WTO December Ministerial Meeting – “Learn from Cancún” Michael Garrett, Valérie Engammare & Jean-Pierre Lehmann*

Summary In August 2003 The Evian Group issued an “Eleventh Hour Appeal for Cancún”. We gave a number of prescriptions and priorities, including the one that the Singapore issues should not be used as bargaining chips and that they should, at the very least, be unbundled. We also argued that agriculture was the absolute priority. It is clear that in a “development” round this is the sector that counts the most and it is also the area in which the greatest anomalies and injustices stand out. The purpose of a “development round” is not to transform the WTO into a development institution; however impediments (of which there are many) to developing countries accessing industrialised countries’ markets should be removed; and developing countries should be given a leg-up (aid for , , special and differential treatment, as circumstances may require). As the business leaders of the Evian Group have repeatedly stressed, we need an economically growing developing world, not simply for reasons of humanity, but also because this is where future markets and opportunities lie. A richer developing world is to the benefit of, not at the expense of, the rich nations. However, following the of 14 November 2001, not only has the agenda not moved forward, but protectionist practices of two decades ago have been resurrected: for example, in the VERs (“voluntary” export restraints) proposed in the EU- textiles kafuffle, which made the trade policy system look its anaemic and hypocritical worse. Above all, there has been overwhelming attention given to often seemingly trivial technical details of the negotiations, while losing sight of the bigger picture, the major challenges and the spirit of the Doha Declaration. The US, EU and Japan are, justifiably, accused of gross hypocrisy. It is crucial that all the technical issues should be resolved well before Hong Kong, so that ministers can address an ambitious agenda focused on the real issues and, in the process, act ministerially! The WTO Cancún meeting was a dismal failure and an unseemly spectacle. All efforts must be made to avoid the Hong Kong meeting repeating the errors of Cancún. This is important not only for reasons of substance, but also for the legitimacy and respectability of the WTO. The throngs of bureaucrats and hangers-on in Cancún were neither necessary, nor edifying. Trade ministers should be accompanied by a limited number of delegates, whose presence and participation is necessary, in order to prevent intra-delegation negotiations from overshadowing the real negotiations. This will ensure greater decorum, greater seriousness and more actual inter-action between the ministers. If the Hong Kong Ministerial fails, multilateral trade liberalisation is unlikely in the foreseeable future to retrieve the impetus that enabled the launch of the Doha Round. Such a failure would be detrimental to the very existence of the global multilateral rules-based trading system, and consequently to global prosperity, stability and security. There is a very great deal to lose. *Michael Garrett is Chairman of The Evian Group, Valérie Engammare is Associate Fellow of The Evian Group, and Jean-Pierre Lehmann is Founding Director of The Evian Group.

Evian Group Eleventh Hour Appeal for Hong Kong October 2005

I. Introduction The history of the Doha Round has been one of great hopes, followed by equally great disappointments. Launched shortly after “9/11”, the ideals underlying the new Round were reconciliation, cohesion and solidarity; it seemed especially important that the shambles of Seattle should be relegated to history and a definite page turned. It was recognised that the multilateral trading system had it in its power to create opportunities and that developing countries should be put in a position to benefit much more fully from these opportunities. Two years later, in September 2003, after a series of missed deadlines and failed consensus, talks collapsed at the WTO Cancún Ministerial. An overloaded agenda, a lack of commitment from the part of industrialised countries, the increase in the number of member states, the content of the Doha mandate, the inclusion of the controversial Singapore issues, and the functioning of the multilateral system itself were deemed responsible for the failure. Cancún killed the hopes that the world was moving towards a more open, dynamic, sane, robust and equitable global trading environment. It was clear that the driving force, especially among the industrialised countries, was unbridled mercantilism dominated by the power of generally quite small, but entrenched, sectoral interests – for example, American cotton plantation owners. A new impulse was given to the Round in July 2004 with the adoption of the “July Package” that set priorities in order to move forward with liberalisation. However, over the last year, trade negotiators failed to give substance to the Package and at the end of July 2005, the overall conclusion was that it would be a Herculean – if not impossible – task to make a success of the Hong Kong Ministerial in December 2005. Prospects for the Cancún Ministerial were far from encouraging. However, the fact that the 2003 Ministerial was only a mid-term review and the argument that, consequently, a failure in Cancún did not imply a failure of the Round, provided some comfort. The situation is clearly different today. If the Hong Kong Ministerial fails to deliver substantial results, chances for the Round to succeed will become more remote. Cancún was marked by the absence of trust, dialogue and coherence between the member states and a quite blatant disregard of the principles of the global trading system in general and of the Doha Declaration in particular. Unless these elements are restored, no substantial, development-oriented, long-term and forward-looking trade liberalisation will be possible. The discussions of the past months have focused on technical details, notably concerning agriculture. It is high time to get serious about the development orientation of the Round, to remember the broader context in which the Round is taking place and, keeping this in mind, to move negotiations forward on substantive issues. A successful and development-oriented Doha Round would bring significant benefits to developing countries, not only by generating revenue, but also by enabling them to seize the opportunities provided by global economic integration. However, industrialised countries have so far failed to bring words into action and often conceive of development in terms of aid, as opposed to trade. Sharing opportunities is not a matter of altruism: OECD economies are stagnating and their populations are aging. Protecting their markets from products, services and human resources from developing countries will prove no more than a very short-term solution, and could instead have long-term quite negative repercussions. According to the United Nations, today 95% of population growth takes place in the developing world. Creating welfare for the people in developing countries is the only long-term solution for the global economy as a whole. For the industrialised world, a genuinely development oriented trade policy is a matter of enlightened self-interest. In this context, priorities in the perspective of the Hong Kong Ministerial in December 2005 must be the following: 1. Negotiations must get to the point. Since the beginning of the Doha Round, too much time has been lost on peripheral issues while core questions remained unanswered. Structure, frameworks, formulas are indeed important and necessary to take further commitments. But when technical issues outweigh substantive issues, broader objectives tend to be forgotten

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Evian Group Eleventh Hour Appeal for Hong Kong October 2005

and the result is counterproductive and inequitable. It also makes it impossible to have a clear view of where negotiations are going. The July 2004 Package prevented the WTO agenda to widen by setting a certain number of priorities. It must now be ensured that the agenda deepens, i.e. that concrete progress is achieved on the priority issues. 2. A clear commitment to agricultural liberalisation must be made well ahead of the Ministerial Meeting. This is NOT a matter to be left for negotiating in Hong Kong; it will then be too late, as Cancún definitely demonstrated. Agriculture is the Gordian knot of the Doha Round, and therefore substantial results in terms of market access and domestic support must be achieved beforehand if negotiations on other issues are to be successful. 3. Most substantive issues must be solved before the Hong Kong Ministerial. This is an important lesson that trade officials and ministers must learn from the failure in Cancún. The role of the Ministerial is to finalise the agreements that have been worked beforehand in Geneva. A couple of days are not enough to solve all substantive issues. Thus, the preparatory work that must be done in the coming months is of utmost importance. 4. The Hong Kong Ministerial must retrieve gravitas that was totally lacking in Cancún. With ministers of trade in most cases accompanied by other ministers and huge delegations, Cancún gave every appearance of a circus. The fact that it failed is not surprising, and though there were many reasons, the too many cooks spoil the broth syndrome applied. Hong Kong must be a maximalist meeting on substance and a minimalist meeting in terms of people and rhetoric (ie the opposite of Cancún). Hong Kong is TOO late for detailed technicalities. The size of delegations should be limited, so that “intra-delegation” negotiations do not overshadow – and as a result impede – real negotiations between WTO members. 5. Multilateral trade liberalisation must be given more prominence at the domestic policy making level. The ignorance and misunderstandings in respect to trade in society generally (and especially among politicians) are enormous and a big hindrance to soliciting popular support for policies that generally benefit the greatest numbers. The perceptions on the EU- China textile wrangle (and the same applies to the US) were primarily on how predatory Chinese enterprises were invading European markets and destroying jobs, as opposed to the huge benefits that consumers were gaining – especially poorer ones – from cheaper garments! Business, academe, civil society, the media must all contribute to informing the public and galvanising political leadership.

II. The Doha Round – Where do we stand? After the failure in Cancún, talks were resumed, with the July 2004 Package providing a backbone for negotiations by setting out priorities and guidelines for negotiations; this in fact was nothing more than what could and should have been achieved at the Cancún Ministerial. As was repeatedly mentioned the “devil lies in the details”, and the details in question are crucial to deliver liberalisation as such. But the role of statesmen is to exorcise the devil and ensure that society in general obtains the best possible outcome. Considering that no concrete progress has been made so far, these fundamental “details” will have to be settled in the coming months. They should be completed by November, at the latest, to ensure that the Hong Kong Ministerial in December is productive. Trade ministers will have to do so in a context that is not particularly favourable. Whereas there have been positive steps towards liberalisation since Cancún, such as the end of the and the phasing out of the Multi-fibre Agreement, these steps result from previous commitments embedded in the system and not from more recent commitments or initiatives; they have also been far outweighed by less encouraging developments. First, as we feared, in the aftermath of the Cancún debacle, preferential trade agreements proliferated. Even though these deals have clearly shown their limits (notably as far as agriculture liberalisation is concerned), they challenged the idea of the multilateral trading system as the best route to trade liberalisation. Second, recently, the trading environment has become far more contentious. In

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Evian Group Eleventh Hour Appeal for Hong Kong October 2005

particular, tensions have arisen between the EU and China concerning post-Multi-fibre Agreement import of Chinese textiles, resulting in a quota system unsatisfactory to both Chinese suppliers and European retailers and consumers. Agricultural disputes have also been brought to the WTO Dispute Settlement Mechanism, such as the cotton case where Brazil challenged US cotton subsidies, and won. Now, the EU in what can only be described as a loud raspberry to the rest of the world, proposes to dump two million tonnes of sugar on world markets! And on top of that, the climate between the US and the EU has become notably stormier, especially in view of the Boeing-Airbus conflict. Such an acrimonious trading environment makes it even more difficult for WTO members to negotiate in a constructive way. Although the Dispute Settlement Unit seems to be working well, it is nevertheless distressing that so many disputes should be brought to it. Global trade is portrayed as an arena for confrontation. And all this exacerbates the mercantilist mindset. In this current bind, what should be noted is that groups of countries can play a crucial role in facilitating negotiations and bringing more cohesion to the process. Without doubt APEC played such a role in reviving the and accelerating its conclusion. The G20 proved that it had a raison d’être beyond Cancún and that it was also able to elaborate constructive proposals, as was the case on agricultural market access. Groups of countries can effectively transcend national concerns and merge them into broader common objectives. Groups of countries can also gather countries with diverging interests in order to negotiate on particular issues; this was the case with the “Five Interested Parties” (FIPs: the United States, the European Union, Australia, Brazil and India) that played an important role in achieving a consensus in July 2004. Whereas such groups pose problems in terms of legitimacy similar to that of the “green room” in the past rounds, because they are not open to all, they can also be critical in delivering results. Priority areas have been outlined in the 2004 July Package and again by then WTO Director General in July 2005. Substantive results must be achieved by the time of the Hong Kong Ministerial in December.

III. Priority areas The purpose of the following paragraphs is to underline the broader objectives that must be achieved in order to deliver the promises of the Doha agenda. 1. Agriculture In OECD countries, agriculture employs less than 5% of the labour force and corresponds only to 2 % of GDP. In low-income countries, agriculture employs around 70% of the labour force and contributes 36% to GDP1. Market access barriers and massive subsidies in the agricultural sector in OECD countries are beyond both economic efficiency and common sense. As a result, competitive exporters are unfairly kept away from justified gains. It is time for the industrialised world, and the EU in particular, to stop hindering progress and to get serious about agricultural liberalisation. It took months to negotiate the technical issue of the conversion of specific agricultural tariffs based on quantities imported into ad valorem equivalents. Meanwhile, negotiations on the real issues of market access liberalisation were kept at a standstill. This is absurd. Commitments made in Doha must be kept. Consensus on agriculture must be achieved before the Ministerial. There is no use sending dozens, let alone hundreds, of people from different ministries to the Ministerial to pursue detailed discussions and negotiations. Market access must be the priority. Market access barriers, unlike subsidies, do not imply direct costs for countries; they are thus much favoured as an instrument of protection. Industrialised countries must stop using the preferences argument, saying that they already offer preferential market access to poor countries. Preferences most of the time concern

1 Food and Agriculture Organisation of the United Nations (FAO), 2003. 4

Evian Group Eleventh Hour Appeal for Hong Kong October 2005

products that do not compete with goods produced locally and thus only cover a limited scope of exports relevant to developing countries. Arranging flexibilities for certain products is important, but it must not overshadow the general objective of liberalisation. Subsidies still amount to over $300 billion per year in OECD countries, which is equivalent to about 6 times the amount of public aid for development. A cow in Europe receives an annual subsidy of about $900 – and about $1400 in Japan – which is much more than the annual per capita GNP of Sub-Saharan Africa, estimated at $461 in 20012. Cotton, sugar, rice, nuts and dairy products subsidies in OECD countries result in an unacceptable situation for competitive exporters in developing countries. Domestic support must be drastically reduced and unconditionally eliminated especially in sectors where developing countries have a competitive advantage. Benefits of such liberalisation will accrue not only to producers in developing countries, but also to consumers in industrialised regions who pay the price of heavy subsidisation. Non-trade concerns – such as animal welfare, preservation of the rural landscape, lifestyle and rural employment – which (supposedly) underlie European agricultural policy are important and legitimate. However, developing countries must not be made to pay. Industrialised countries have a duty to inform their consumers and address these issues through non trade-distorting measures. Cotton must be seen as a symbol of the . In 2001, US cotton subsidies amounted for more than $3 billion, which corresponds to the GDP of Burkina Faso – one of the world’s most efficient cotton producing countries. The fact that the United States lost a case against Brazil on cotton subsidies last spring underlines the fact that resistance is unfounded. Abolishing these subsidies must be seen as non-negotiable. The Doha Round cannot succeed if no real progress is made on agriculture. At this stage of the negotiations, procrastination, hypocrisy, defensiveness have made it difficult to find a way out of the deadlock. Agricultural liberalisation is crucial to development, and there will be no “development Round” unless the outcome of the negotiations provides a real contribution to development. 2. Non Agricultural Market Access (NAMA) Industrial exports count for an ever-increasing share of developing countries’ exports. According to UNCTAD, in 1999-2003, manufactures accounted for approximately 70% of developing countries’ total exports. Between 1980 and 1998 the share of all electronic and electrical products in developing country exports rose from 5.3% to 22%. However, as UNCTAD underlined in its Trade and Development Report 2002, the income earned from these exports does not grow accordingly, because of tariff and non-tariff barriers. If in absolute terms industrial goods face lower tariffs than farm products, developing countries’ industrial exports face higher tariffs than the goods produced in the developed world. For instance, tariffs on imports from Scandinavia to the US (notably cars and cell- phones) amounted to 0.7%, whereas tariffs on imports from Sri Lanka (mostly textiles) corresponded to 13%3. It is really unacceptable that basic products from developing countries should be taxed more heavily than up-market items from industrialised countries, thereby penalising both producers in developing countries and consumers (especially less affluent ones) in industrialised countries. Important barriers exist to South-South trade in manufactured goods as well. A reduction of tariffs on manufactured goods in developing countries would bring significant gains to the

2 World Bank. 3 Progressive Policy Institute, Trade Fact of the Week, March 30, 2005. 5

Evian Group Eleventh Hour Appeal for Hong Kong October 2005

developing world as a whole. This is no doubt true, but it cannot serve as an excuse to industrialised countries to procrastinate. In particular, industrialised countries must, for the entire course of the Doha Round, abandon any attempt at seeking “reciprocity” or exchanging “concessions” for “gains” from developing countries. First, level the playing field, then, after Doha, we see. Negotiations on NAMA have led nowhere so far. This must change before the Hong Kong Ministerial. Again, there have been too many discussions on the structure and the framework of liberalisation. It is time to enter real negotiations and come up with real numbers. 3. Services While services account for approximately 50% of developing countries’ GDP, the share of developing countries in the world’s services exports is only 25%4. The primary reason for this disparity is the insufficient degree of liberalisation of services that are relevant to developing countries. More focus should be set on unskilled and labour intensive services. In particular, too little progress has been achieved on Mode 4 of the GATS that deals with the movement of natural persons, whereas Mode 4 would be of critical importance to developing countries. Temporary migrants can gain skills and know-how that can prove very useful back home. Temporary movement of labour is also a source of capital for developing countries, thanks to the remittances that the workers send to their home countries. Developing countries must be given the means to benefit from this opportunity. Liberalisation of trade in services is not a matter of quantity, but of quality. It is useless to liberalise a huge number of sectors if they are not significant. Liberalisation must be comprehensive, both in terms of sectors and in terms of modes of supply. If progress on agricultural liberalisation is key to the completion of the Doha Round, progress on services liberalisation is crucial to keep business interested in and committed to multilateral trade liberalisation. Business is a key stakeholder of the Round, its support is necessary for the relevance of trade policies.

4. Development Development is the raison d’être of the Round. Its importance is two-fold: first, it must impregnate all dimensions of negotiations and second it must lead to the elaboration of specific disciplines to the benefit of poorer countries. So far, negotiations have failed on both fronts, which is unacceptable given that the Doha Round has been explicitly called a Development Round. Development is a much used and misused word. Whereas there is wide acknowledgment that development is of crucial importance, attempts to translate good intentions into concrete actions and measures have failed so far. Concrete steps must be taken so that special and differential treatment is not an empty word. A mercantilist approach is not appropriate if the objective is to achieve development-oriented liberalisation. Whereas the Doha Round is not about charity, reciprocity cannot be an absolute concept, and no one-size-fits-all approach will succeed in delivering pro-development liberalisation. The WTO is not a development organisation. Whereas it can achieve tremendous work in terms of technical assistance and capacity building, there is a lot it cannot do. Therefore, it is critical to establish better coordination of WTO actions with the work of other international organisations and development agencies.

4 Stiglitz J./Charlton A. (2004), The Development Round of Trade Negotiations In The Aftermath of Cancún, Commonwealth Secretariat, p. 40. 6

Evian Group Eleventh Hour Appeal for Hong Kong October 2005

5. Other Issues Many other issues are on the WTO agenda, notably rules (anti-dumping, disciplines on regional trade agreements, subsidies), trade facilitation, extension of geographical indicators, intellectual property rights, dispute settlement and the link between trade and environment. All these issues are important. However, even though it is pointless to establish a hierarchy between the different items on the agenda, achievements in crucial areas such as agriculture should not be hindered by dissensions on less important (or less symbolic) issues for the Round. Therefore, the objective should be in the coming weeks and well before the Ministerial to achieve a reasonable degree of consensus and to avoid by all means that these issues become contentious. The experience in Cancún showed that secondary but very controversial issues – such as investment – can hamper progress and even lead to a failure of the negotiations. IV. The Road to Hong Kong The Ministerial Meeting in December in Hong Kong cannot afford to fail. After the debacle experienced in Cancún, another failure of the multilateral trading system might prove lethal for the Doha Round. The consequences of such a failure would have repercussions well beyond trade. Failure would further erode trust between the member states and the different regions of the world. It would be especially unfortunate in respect to the impact of China’s massive entry into the global trading arena. A solid multilateral rules-based trading system is absolutely crucial to seeking a smooth entry of this mammoth new player5. Developing countries will feel betrayed if the Round does not deliver its promises regarding development. Tensions and disputes will in all likelihood intensify, which in the end has a negative impact on multilateral cooperation in other forums and on global stability. If multilateral trade negotiations do not lead to satisfactory results, the trend to bilateralism will intensify. A network of bilateral agreements applying different rules of origin will make it more difficult for business to pursue global strategies and economies of scale and important issues such as agricultural liberalisation will have little chance to be addressed in these agreements. Lastly, a failure of the Doha Development Round will give a very negative signal to other development initiatives, notably the Millennium Development Goals. For all these reasons, the Hong Kong Ministerial Meeting cannot afford to repeat the Cancún experience. Little time is left until the WTO Ministerial takes place in Hong Kong in December. However, one obvious lesson that must be drawn from what happened in Cancún in 2003 is that key issues must be solved before the Ministerial. The Ministerial Meeting is meant to be a political event addressed by statesmen, not a forum for minor technical disputes between bureaucrats. In the coming weeks and months, three elements are thus crucial: 1. Work on concrete solutions at the WTO. All momentum must be given in order to prepare the ground for consensus on key issues. This implies a high degree of interaction with national ministries, and their commitment as well. 2. Work on concrete, creative and constructive solutions within groups of countries. This is not to create negotiating blocs, but to use cooperation in a flexible and dynamic manner, as was the case with APEC in the early 90s. 3. Work on consensus internally. This implies the mobilisation of local politicians and media in order to inform the broader public. Multilateral trade liberalisation must not be perceived as a fait accompli. Its stakeholders must be more actively involved in the process.

5 Meg Jones, « Evian Group I China Meeting, Summary Report », June 2005. 7