The overarching theme of the seventh WTO ministerial conference was ‘no surprises’. It was agreed months in advance that there would be no negotiations, that ministers would make brief statements at a plenary and review the gamut of the WTO’s activities, as well as its contribution to recovery, growth and development. Only items on which the entire membership had agreed in advance would be on the agenda, and the discussions would be reflected in a ‘balanced and factual’ chair’s summary. The promise of no surprises was kept to the letter.

What Happened…

Well-known positions and priorities got a re-airing as minister upon minister made three-minute statements in an often empty plenary hall. Parallel sessions provided some latitude for an exchange of views, but no ministerial guidance emerged on the issues debated. True to the script, Chile’s Trade Minister Andrés Velasco, who chaired the conference, summed up the discussions in very general terms and less than a thousand words (see page 4 for excerpts).

According to the summary, “ministers reaffirmed the need to conclude the round in 2010 and for a stock-taking exercise to take place in the first quarter of next year.” The stock-taking, scheduled for the last week of March, will focus on whether concluding the Doha Round in 2010 remains doable (see page 5 for further details).

Despite the non-event nature of the ministerial conference, WTO Director-General Pascal Lamy said the event had “sent a strong signal of convergence on the importance of trade and the Doha Round to economic recovery and poverty alleviation in developing countries.”

The convergence did not extend to the substance of the negotiations, however. US Trade Representative Ron Kirk never wavered from the key message that his country was looking for a substantial increase in market access, and needed to know what was on offer before engaging further. In order to conclude the round, “advanced developing economies must step up,” he said, adding that it was more important to get the right result than a quick one. This does not point to a revitalisation of negotiations in Geneva, where many have blamed the lack of US engagement as the main factor holding up the talks.  Off the record, however, many delegates admit that other governments also have reservations about trade liberalisation that could affect jobs at a time of fragile recovery from the worst recession since World War II.

The only (pre-agreed) formal decisions of the ministerial meeting were an extension of a moratorium on so-called ‘non-violation’ disputes in the field of intellectual property rights, and the maintenance of the practice of not imposing customs duties on e-commerce. Both issues have been under consideration at the WTO for years, and the moratoria have been prolonged from one ministerial to the next.

…and What Did Not

Least-developed countries (LDCs) had proposed an ‘early harvest’ package of actions in their favour, including duty-and quota-free access to developed country markets, a waiver covering preferential treatment for their service providers, a solution to cotton subsidies and improving the accession process for LDCs (see page 6). However, this proposal was not on the formal agenda and thus none of the measures were adopted. The chair’s summary noted briefly that “LDC-specific issues were underlined as needing particular attention.”

Eighteen developed and developing countries had proposed that the outcome document include a request from ministers for the WTO’s General Council to “establish an appropriate deliberative process to review the organisation’s functioning, efficiency and transparency and consider possible improvements.” This proposal, aimed at strengthening the WTO as an institution, did not make it to the official agenda either, and ministers did not request a review. Instead, the chair reported ‘broad convergence’ on the need to improve notifications, data collection, analysis and dissemination. He also noted that enhancing the WTO’s effectiveness “should not compromise the principle of transparency and inclusiveness.”

These, and a host of other issues and challenges faced by the multilateral trading system, such as climate change, were subject of substantive debates at the Geneva Trade and Development Symposium, which ran parallel to the official conference (see page 23).

Climate Change Summit Dashes Hopes

If the WTO ministerial conference was a deliberate non-event, the Copenhagen climate summit held a week later was anything but. Eleventh-hour negotiations between heads of state, protesting activists and delegate walkouts captured the attention of the media, as well as the public.

Ambitions had been scaled down before the conference, and no one expected agreement on binding new commitments to reduce greenhouse gas emissions. Many, however, still hoped for progress toward that goal. Those hopes were dashed when the only outcome of the two-week gathering turned out to be a non-binding political statement with no quantified targets and no deadlines for achieving future cuts. The Copenhagen Accord was signed by 20 countries, and supported by many more, but not officially adopted (see page 17).

The Trade and Climate Nexus

How the world responds to climate change has significant implications for international trade. The Copenhagen Accord does not even mention two of the most contentious issues at stake here, i.e. border tax adjustments on carbon-intensive imports (strongly opposed by developing countries) and the role intellectual property rights in keeping climate-friendly technologies out of reach of poor nations (a no-go zone for many developed countries). Both were subject to fierce debate in the negotiations throughout last year, and remain unresolved.

Some, including WTO Director-General Lamy, view the Copenhagen Accord as a step forward since, unlike the Kyoto Protocol, it could eventually encompass the majority of world emissions. The ever-optimistic WTO chief noted that although the memberships of both the WTO and the UN were divided on the use of border adjustment measures, “the more we move toward a multilateral framework on climate change, the more unilateral trade measures will be difficult to explain.” But what if a multilateral framework cannot be agreed? Will the WTO be called to arbitrate whether unilateral trade measures imposed in the name of fighting climate change are consistent will international trade rules? Pitting the trade and climate regimes against each other would be the worst possible outcome for sustainable development.

Next Stop Mexico

The Executive Secretary of the Climate Change Convention admitted that the Copenhagen Accord was short on ambition, but also said it was a ‘letter of intent’ that was “not precise about what needs to be done in legal terms. So the challenge is now to turn what we have agreed politically in Copenhagen into something real, measurable and verifiable.”

Negotiations will continue, but momentum has undoubtedly been lost. Many fear that the Copenhagen Accord’s lack of a commitment to reaching a binding treaty at the next conference of the parties - to be held in Mexico City late in 2010 - will make postponing action easier. Just one negotiating session is scheduled before Mexico, during the first two weeks of June in Bonn.

The round was born in Qatar in the wake of the collapsed WTO ministerial meeting in Seattle. It has absorbed the energies of many capable and public-spirited officials and diplomats, and considerable resources of the WTO secretariat, but has produced little in the way of results. The idea that it will all come together in some last minute high-pressure negotiating session, with enough pressure being put on the leaders of the major powers, is nothing but a fantasy.

Political capital is invested elsewhere, dealing with the immediate demands of the financial and economic crisis - the restabilisation of national economies and the normalisation of domestic and international financial systems. The Doha talks have stalled, but preferential trade arrangements have proliferated. Even countries that had traditionally opted for multilateralism have now begun aggressively to pursue regional trade liberalisation. While the Doha agenda remains dominated by issues left over from the Uruguay Round, the world has moved on and issues not on the Doha agenda (except indirectly and peripherally), such as the relation of climate change to trade, have taken on a greater urgency and significance than many of those that are being discussed pursuant to the Doha Declaration.1

But it is not only subject matter of WTO negotiations that needs to be reconsidered; the structure of negotiations and of WTO agreements also needs to be rethought. In particular, we must reflect on the extent to which the current impasse is a product of what might be called the ‘single undertaking’ mentality:  the notion that the WTO must move forward through comprehensive rounds of negotiations, resulting in a package of agreements to all of which most WTO must adhere more or less on the same terms. Even in the Uruguay Round itself, this rigidity was not fully followed - the Government Procurement Agreement is plurilateral and the GATS permits individual WTO Members to tailor many of their obligations, based on what they are prepared to commit. Today more than ever the WTO membership exhibits enormous diversity in levels and trajectories of economic development, political systems and capacities. In these circumstances we need to re-imagine the round in more flexible terms.

Re-examining Some Key Assumption

First of all, why not simply admit that some elements of the Doha package are much harder to obtain agreement to than others?  It is quite feasible to re-conceive the ‘conclusion’ of the round as an on-going process, rather than a grand finale where everything is agreed at once. An assessment needs to be done of which areas are close to agreement and which areas represent a greater challenge to achieve common ground. Moving forward to agreement on the former, while simply admitting that the latter are not ripe, will give the Doha exercise a sense of greater momentum on the one hand, and greater realism, on the other. In defining these different areas, and taking stock of where things really stand, the Director-General with his senior counsellors and officials, has the opportunity to exercise real leadership.

Second, a similarly hard-headed assessment needs to be done of whether in certain areas it is simply not realistic to expect all WTO Members to agree. It might be the case that a wide range of agreement already exists among a considerable number of Members, but certain others are simply not ready to proceed (one possible example is liberalisation of trade in environmental goods and services). In such cases, it may make sense to imagine a plurilateral outcome:  an agreement among the Members who are ready to agree, while leaving it open for others to join. This is what happened with basic telecommunications and financial services in the Uruguay Round, although official WTO theology does not admit that these arrangements are genuinely plurilateral.

Third, a careful examination needs to be undertaken of the way in which various kinds of flexibilities can be built into new accords to address the needs and concerns of particular Members, whether for policy space or capacity-building, for example. The existing flexibilities in WTO agreements needs to be inventoried and examined for their effectiveness in managing diversity within a multilateral framework. These include safeguards, exceptions and limitations provisions, phase-in periods and obligations to provide technical assistance, and so forth. In the heat of the negotiations themselves, there is little opportunity to consider carefully these structural possibilities, or to think about basic design choices:  for instance, which flexibilities need to be offered on a general basis, and which can be tailored to particular Members or groups of Members?

Fourth, one dimension of the current negotiations that limits the range of options for achieving agreement is resistance among a number of key players and supported by what appears to be the overall outlook of the WTO as an institution to adjusting or amending the Uruguay Round Agreements - as if they were some kind of divine, or super-constitutional law set in stone. On the one hand, the Doha Round has been billed as a development round. On the other hand, it is not supposed to be possible to use this round to open up aspects of the Uruguay Round settlement that have been sources of considerable grievance and grief for a range of developing countries.

The instruments on access to medicines are an illustration that there is nothing actually impossible about adjusting the Uruguay Round bargain, where there is sufficient political will. Moreover, there are options in between a formal amendment of Uruguay Round provisions and complete inaction, for example through interpretative understandings, where the clauses in question are open-ended or ambiguous, or capable of more flexible readings than would seem to be currently the case.

This could be used to fix some of the difficulties of the Dispute Settlement Understanding, particularly in the relationship between compliance panel actions and the imposition of countermeasures. It would even be possible to have interpretative understandings that would apply as between a sub-set of WTO Members, provided these do not diminish the rights of Members who do not subscribe to the understanding in question. Such inter se agreements between some of the states parties to a multilateral accord are explicitly contemplated in the Vienna Convention on the Law of Treaties. Even if not in the form of treaties, understandings along such lines would constitute relevant practice to guide the Appellate Body in disputes to which adherents of the understandings in question are parties.

If the legitimacy of the dispute settlement organs is not to be stretched to the limit, there must be some way of addressing gaps and ambiguities in the existing law other than through judicial activism or comprehensive renegotiation. Here, one immediate step would be to attempt to identify those issues and areas where more rapid and satisfying progress can be made through interpretative understandings or similar devices that fall short of formal legal amendments. Fixing some of the concerns about the existing law in this way could build confidence and momentum for new accords, and might be considered in some instances as an intermediate step.

None of these proposals will guarantee a successful Doha result, obviously; good timing and an appropriate investment of political capital both by developed and developing countries remain crucial. But in world of enormous and increasing diversity, where new issues and challenges demand more rapid cooperation among states and other global actors, it is important to keep multilateralism alive and relevant. The tangled web of regional and other preferential accords already poses formidable challenges to global governance, in areas such as investment for instance. A more flexible WTO architecture can still draw on the organisation’s strengths as an open forum for deliberation and exchange of ideas and views, as well as a rule-of-law based system for settling disputes, with an elaborate jurisprudence and a final court of appeal.

Robert Howse is a professor at New York University (NYU)  and a specialist in International Economic Law.

endnote

1 See Susan Esserman and Robert Howse, Rethinking the WTO, Forbes.com, September 4, 2008. A number of the ideas that follow have been developed in my collaboration with Esserman; but I alone am responsible for the views expressed in this article.

Ministers reaffirmed the need to conclude the Round in 2010 and for a stock-taking exercise to take place in the first quarter of next year. [...] Gaps remain on substance and there was wide acknowledgment of the need for leadership and engagement on the remaining specific issues over the coming weeks.

There was wide support for building on progress made to date [and] for not attempt-ing to reopen stabilised texts. While priority is being given to agriculture and NAMA, it is important to advance on other areas on the agenda, including services, rules and trade facilitation.

LDC-specific issues were underlined as needing particular attention, including duty-free quota-free market access, cotton, and the LDC waiver for services.

There was broad agreement that the growing number of bilateral and regional trade agreements is an issue for the multilateral trading system, and that there is a need to ensure that the two approaches to trade opening continue to complement each other.

There was wide recognition that providing market access to developing countries and LDCs  is not enough on its own. Capacity-building was seen as vital to addressing supply-side constraints. The importance of keeping up the momentum of Aid for Trade, including the Enhanced Integrated Framework, was stressed.

Ministers had a wide-ranging discussion on enhancing the institutional effectiveness of the WTO. Its monitoring and analytical work was widely seen to have been of particular value in helping to stave off protectionist responses to the crisis. There was substantial convergence on the need to improve notifications as well as data collection, analysis and dissemination.

High value continues to be placed by members on transparency and inclusiveness in the WTO. Improving the institution’s effectiveness should not compromise this principle.

Numerous comments were made on other current and future issues facing the WTO. Climate change was raised by many. The contribution the WTO can make through removing barriers to trade in environmental goods and services was widely endorsed. There were also warnings against ‘green protectionism’. Food security and energy security were also highlighted.

At the time of writing, information on what the ‘stock-taking exercise’ would entail was extremely sketchy. WTO Director-General Pascal Lamy told the General Council on 17 December that his sense was to “keep open the format and exact content of the stock-taking while keeping in mind that, at this stage, the aim of such an exercise is to assess whether 2010 remains doable.”

Several options are reportedly under consideration. The most ambitious one, a ministerial gathering in Geneva, has been all but discarded. A postponement of the stock-taking has also been evoked, but the chance of that happening appears remote.

Another, more realistic, option is that the chairs of the negotiating groups on agriculture and industrial market access will produce overviews of the state of play, or perhaps some partial texts to supplement the draft modalities released in December 2008. However, no revisions of the entire negotiating drafts are expected.

Whatever comes out of the exercise will feed into the G-20 meeting in Toronto next June (the group requested in September that trade ministers take stock of progress early in 2010; see page 20).

The question is what will happen once the stock-taking is done. If there is a sense of insufficient progress, senior officials, or the WTO membership as a whole, could just acknowledge that the talks will not conclude this year. A new ‘deadline’ could be set, possibly for mid-2011.

Some, including the head of the American Farm Bureau Federation Bob Stallman, have suggested that the negotiations be suspended for a while, but sources say this is unlikely even if many delegates are increasingly frustrated about spending so much time on slow technical work while nothing happens on the substantive issues that divide the membership. This is particularly true for the capital-based senior officials who have come to Geneva once a month and departed with no concrete results.

As has been case at previous times of crisis, the idea has resurfaced of requesting Mr Lamy himself to draw up a comprehensive negotiating draft that would clearly show trade-offs across different sectors. The WTO chief has rejected the similar suggestions in the past, and sources close to the negotiations said it was highly unlikely that he would agree to take on the task at this point.

Agriculture Update

WTO negotiations on agriculture made scant progress in 2009 despite the involvement of capital-based officials in the talks. Much time was spent on the preparation of ‘templates’ that Members would use to calculate their new tariffs and subsidy cuts once a modalities agreement has been reached on the overall shape of the deal. The main focus of this highly technical work in 2009 was on what base data would be needed and how it should be presented. In early 2010, delegations are expected to start designing the actual templates that will be used for scheduling commitments.

Technical work advanced on the special safeguard mechanism (SSM), under which developing countries will be able to temporarily raise tariffs in order to protect farmers in the event of import surges or price declines. Exporters Australia, Brazil, the US and Uruguay, which tend to view the SSM with suspicion, presented simulations on how the mechanism would affect trade in specific products. While welcoming the studies, the SSM’s proponents emphasised that the mechanism would need to be simple and easy to use. Chair David Walker said the presentations highlighted the need for further ‘analytical contributions’ from Members.

In early February and March,  Ambassador Walker will hold two weeks of consultations on substantive outstanding issues in the December 2008 modalities  draft in preparation for the stocktaking exercise. Among major points of contention are ‘sensitive’ products, the SSM and tariff quota creation.

If Members decide to push ahead with the Doha Round, future negotiations on tropical products and preference erosion may be less contentious following the agreement reached between the European Union, Latin American banana exporters and ACP countries, which have preferential access to the EU (see page 7).

NAMA Update

Work on non-agricultural market access (NAMA) proceeded on two tracks. In formal and informal sessions of the negotiating group, delegates inched forward in considering proposals on reducing/eliminating non-tariff barriers submitted by Members. This process is continues. According the DG Lamy, ‘one, or even a few’ of the NTB proposals are “almost ripe for a text-based discussion.” In contrast, no progress was made on the most divisive issues, including the size developing country tariff cuts and linking the depth of those cuts to the use of flexibilities.

The other track consisted of bilateral and plurilateral discussions among Members on tariff elimination (or deep cuts) in certain sectors, including chemicals, electrical appliances and industrial machinery. Participation in such initiatives is voluntary, but developing countries are under great pressure to join as many developed countries consider that standard formula cuts, and the flexibilities associated with them, will not result in enough new market access. None of the 14 sectoral liberation proposals is anywhere near to garnering the support of a ‘critical mass’ of WTO Members.

The Dar es Salaam Declaration, adopted by trade ministers of least-developed countries (LDCs) in October, calls for ‘quick results’ on three core priorities: duty- and quota-free market access, preferential treatment for LDC services requests, and an ‘ambitious and rapid’ elimination of cotton subsidies.

WTO Director-General Pascal Lamy, who attended the meeting, said that there was no ‘early harvest’ mandate for the Doha Round and predicted that LDCs would have to have to wait until the entire round concludes before they can reap any benefits.

The Early Harvest Proposal

• Duty-free and quota-free market access The 2005 Hong Kong Ministerial Declaration committed developed countries to providing duty-free and quota-free market access (DFQF) for all LDC products no later than the start of the Doha Round implementation period. Countries that face difficulties in granting full DFQF at that time must offer it to at least 97 percent of tariff lines and gradually increase coverage thereafter.

LDCs called upon developed countries to grant DFQF to at least 97 percent of their exports by 2010, and to broaden the coverage to all products at the start of the Doha Round implementation period. Developed countries should promptly inform them of the specific tariff lines that would be eligible, as well as establish a product-by-product timeline for granting DFQF to the 3 remaining percent.

The issue remains divisive, however, even among LDCs. For instance, Sub-Saharan beneficiaries of the African Growth and Opportunity Act - most are LDCs - are actively lobbying against proposed legislation that would give all least-developed countries full duty- and quota-free access to the US (Bridges Year 13 No.3 page 13). Some other developing countries also fear that DFQF access to all rich country market for all LDC products would have a negative impact on their exports.

• Services WTO Members have already agreed on ‘modalities’ for special treatment of LDCs with regard to services trade (WT/S/13), but these lack firm timelines and specific commitments. In Dar es Salaam, LDCs asked for an immediate waiver of the GATS most-favoured-nation provision so that trading partners may offer least-developed countries’ services industries and service providers better market access than they do to those from other WTO Members.

Despite the modalities, some disagreement remains among the membership over preferential treatment for LDC service workers, as this is the key gain that many other developing countries are hoping to secure in the services negotiations.

• Cotton This is on the Doha agenda due to four African LDCs’ efforts to highlight the devastating consequences that rich country subsidies are having on the world price of cotton. They have claimed that heavily subsidised cotton, particularly from the US, is displacing their exports despite low production costs.

In July 2004, WTO Members agreed that cotton would be addressed ‘ambitiously, expeditiously and specifically’ within the agriculture negotiations. Since then, virtually nothing has happened. The ‘cotton four’ - Benin, Burkina Faso, Chad and Mali - have proposed a formula that would phase out domestic support for cotton faster and more ambitiously than subsidies for other agricultural products. The US, which is the main country targeted here, has so far refused to enter into negotiations on numbers and timelines, insisting instead that the issue cannot be settled until a deal has been struck on agriculture as a whole, including on market access.

The Dar es Salaam Declaration requests that an ‘ambitious, expeditious and specific’  solution to the problem be included in an ‘early harvest’ agreement, together with a ‘safety net’ that would assist LDC cotton farmers faced with declining international prices in the wake of the global economic and financial crisis.

• Acccession In addition, the ministers requested that LDCs’ accession to the WTO be placed on the agenda of the forthcoming ministerial conference.

Other Issues

The Dar es Salaam Declaration also stated that the Special Safeguard Mechanism (SSM) that will allow developing countries to raise tariffs to ward off import surges of farm products should be more flexible for LDCs, notably by letting them increase import duties beyond their current bound levels. The extent to which SSM tariffs may be raised is among the most controversial elements in the Doha Round agriculture negotiations.

As for the erosion of long-standing trade preferences, LDCs stressed that agreements on agriculture and industrial market access must not affect their export interests. They called for an ‘efficient mechanism’ that would minimise any negative effects that the ‘fullest liberalisation’ of trade in tropical products might have on LDC exports. The two main products concerned by the preference erosion versus tropical products debate are bananas and sugar (see related article on page 7).

LDC ministers also said that their countries should be completely exempt of any commitments to reduce or eliminate tariffs on environmental goods and services, and should be given a 10-year grace period before having to grant patents in this area. Environment-related technology and equipment should be provided to LDCs in grant form, the ministers said.

Since the early 1990s, a number of Latin American countries have successfully challenged different aspects of the EU’s banana import regime, including import quotas and licensing procedures, the level of the bloc’s ‘most-favoured-nation’ (MFN) tariff, and trade preferences granted by the EU to its former colonies in Africa, the Caribbean and the Pacific (ACP countries). While the latter have limitless duty-free access to the lucrative European market, Latin American bananas were subject to an MFN duty of €176 per tonne until the deal was struck in December 2009.

In response to adverse rulings, the EU had already tweaked the regime several times. Quotas were eliminated and import licensing procedures were reformed. That left the level of the import duty and related procedural issues. The latest verdict in 2008 found that the €176/t MFN tariff, set unilaterally by the EU, was still inconsistent with its WTO obligations.

Outline of the Agreement

The Geneva Agreement on Trade in Bananas (WT/L/784) settles a host of issues bitterly fought over for nearly two decades. First, it sets out a schedule for annual tariff reductions until the EU’s MFN duty stands at €114 per tonne (see table below). The initial cut, worth €28/t, went into effect on 15 December 2009.

If a ‘modalities’ agreement is reached in the Doha Round agriculture and industrial market access negotiations before end-2013, the final €114 tariff will apply as of 2017. If there is no agreement by that deadline, the duty will be frozen at its 2013 level (€132/t) for two years at most. Cuts will resume earlier if an overall modalities deal is struck in the Doha negotiations.

Second, the EU will bind the tariff cuts in its schedule of market access commitments. Although trading partners may contest the proposed changes until mid-March, the Latin American signatories of the agreement - Brazil, Colombia, Costa Rica, Ecuador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Peru and Venezuela - have agreed not to raise objections.

Third, upon certification of the EU’s modified schedule, Latin American complainants will formally terminate all pending disputes. However, since formal certification could take several months, all dispute settlement actions will be suspended in the meanwhile on condition that the EU sticks to its tariff reduction timeline.

Fourth, Latin American MFN banana suppliers accept the agreement as the EU’s final market access commitment for bananas in the Doha Round farm negotiations.

US, EU to Drop Dispute

The EU and the United States also initialled a separate agreement on 15 December, under which both committed to taking no further action on their pending dispute on the EU’s banana import regime. Immediately after all other parties to the dispute have submitted to the Dispute Settlement Body a notification that they have reached a mutually agreed solution, the EU and the US will do so as well.  The EU also promised not to apply any measures that discriminate between suppliers of banana distribution services based on the ownership or control of the service supplier or the origin of the bananas distributed. Although the US does not export bananas to the EU, it had joined the dispute to defend the interests that its transnational marketing companies, such as Chiquita, hold in banana plantations in Latin America.

Preference Erosion and Tropical Products

The dispute was complicated by two intrinsically linked issues. The first was ACP exporters’ strong opposition to further liberalisation of the EU’s banana market, sparked by fears that without a significant preferential margin they would be unable to compete with the more efficient Latin American producers. The second complication arose from the Doha Round negotiating mandates, which provide for the ‘fullest liberalisation’ of trade in tropical products, but also recognise that action should be taken to guard against the erosion of long-standing preferences.

The problem is that many of the products that could be considered ‘tropical’ are among those for which ACP countries have preferential access to the EU. Tensions have run high in WTO negotiations on the products that will be classified as tropical (and therefore subject to deeper and faster tariff cuts), and those that will fall into the ‘preference erosion’ category (subject to standard tariff reductions over a longer implementation period).

If other WTO Members accept the proposed changes to the EU’s market access schedule, the stand-alone agreement effectively removes treatment for bananas - the most controversial issue - from the tropical products vs preference erosion debate.

New Tariff Compromise Proposed

As part of a broader package linked to the banana agreement, the EU, the ACP and Latin American countries have also agreed on tariff cuts on a number of other tropical/preference erosion products that will be undertaken after the conclusion of the Doha Round. The parties will ‘jointly promote’ this approach in the negotiations, but at least India and Pakistan have already expressed some reservations with regard to the proposed extent of tropical product tariff reductions and the length of the implementation period for cutting duties on sensitive products on the preference erosion list.

The tri-partite deal provides for ‘tropical treatment’ for 65 percent of developing countries’ bound agricultural tariff lines contained in the lists of tropical products in Annex G of the 6 December 2008 draft modalities for agriculture (TN/AG/W/4/Rev.4). Developed countries would reduce duties higher than 20 percent by 80 percent, and the tariff lines involved would be negotiated with the exporting developing country concerned. Duties lower than 20 percent would be eliminated.

It would appear from the text that developed countries could include products already bound at zero within the 65 percent of Annex G tariff lines to which they would apply ‘tropical treatment’.

The proposed ‘preference erosion modality’ contains two lists of preference erosion products - a long one (62 items) for the EU and a shorter one (18 items) for the US. These countries would make standard formula tariff cuts on the listed products over eight to ten years, but no reductions would occur in the first two years. Importantly for ACP exporters, sugar, rum, cut flowers, ground-nut oil, tobacco and orange juice figure on both the EU and the US lists of preference erosion products.

More controversially, the modality also proposes an exception for those preference erosion products that either of the preference-giving countries has designated as ‘sensitive’. If the imports of such products are higher than 10 percent of domestic consumption in 2003-2005, the preference-giving country would have seven years to phase in new quotas and to reduce out-of-quota tariffs. The December 2008 modalities draft had set a five-year implementation period for sensitive product tariff reductions.

The tariff package was presented to the General Council on 17 December in a letter addressed to WTO Director-General Pascal Lamy and the chair of the agriculture negotiations, New Zealand’s Ambassador David Walker. Although the United States did not sign the letter, it has not raised any objections so far. Negotiations will continue at the WTO.

Aid for ACPs

The EU committed to providing ACP banana exporters financial assistance worth s200 million over the next three years to help them adjust to the new tariff. The so-called ‘banana accompanying measures’ (BAM) will be additional to regular development aid, and will be “country-specific, build on past support and help tackle the deal’s broader consequences.”

Market Implications

In 2008, the 27-member European Union imported bananas worth €2.9 billion (US$4.2 billion), more than half of the world total. Latin American MFN exporters supplied 72.5 percent of the 5.4 million tonnes of the fruit bought by European consumers, while 17 percent came from ACP countries. The rest were grown in EU territories.

Ecuador, Colombia, Costa Rica and Panama are the largest Latin American suppliers, leaving just over 3.5 percent of the EU’s total MFN imports to be shared between other Latin and Asian exporters. The big four are likely to reap the most benefits under the deal.

Cameroon, Côte d’Ivoire, the Dominican Republic and Belize dominate within the ACP group, and their banana industries are likely to survive, although they are expected to lose market share to MFN suppliers. Many Caribbean countries are preparing to see their banana exports dwindle or cease altogether.

Amidst Rejoicing, ‘Historic Accord’ Bitter Pill for ACP Countries

Latin American MFN exporters expressed satisfaction that a deal had finally been reached. César Montaño of the Ecuadorian mission called it “an historic accord because it puts an end to a misunderstanding among developing countries.” Panama’s Commerce and Industry Minister Roberto Henriquez said his country was feeling “very optimistic regarding the end of these difficult negotiations, where we can say with pride that the Panamanian negotiation team has played a fundamental role.”

Costa Rica’s Ambassador Ronald Saborío Soto noted that the agreement represented “a good equilibrium for the Latin American countries, who will enter into the European market more easily, and because it allows the ACP countries to continue exporting their products.” He also stressed that the deal was a success for “an important number of developing countries that want to have market access as a result of this round. This shows they can obtain the results they seek.”

European Commission president Jose Manuel Barroso professed to be “delighted that we have finally found a way to solve the bananas dispute with a compromise that works for all sides. This is an important boost for the multilateral (trading) system.” The sentiment was echoed by WTO Director-General Pascal Lamy, who applauded the ‘good will and a spirit of compromise’ shown by the protagonists, adding that he hoped “the same pragmatism, creativity and diplomacy will help move forward the Doha Round negotiations.”

ACP countries have been less enthusiastic. Reflecting wide-spread feeling across the bloc, and the Caribbean in particular, a disillusioned editorialist wrote in the Jamaica Observer on 30 December that the real beneficiaries of the deal were “the multinational corporations which dominate the world market. The small farmers of the Caribbean will be worse off and the workers in Latin and Central America will certainly be no better off. The affluent consumers in Europe will get cheaper bananas. No wonder there are so many who question the fairness of the rules of the WTO and there is so much angst about the implications of globalisation for small developing countries.”

At the WTO’s year-end General Council meeting, Côte d’Ivoire cautioned that the package - including bananas, tropical products and preference erosion - was ‘indivisible’, and that unbalancing any of the three pillars must entail a reopening of all parts of the global solution. He also said that further development of African countries’ banana sectors was compromised, and that they would have great difficulty in avoiding decline.

The General Council ‘took note’ of the banana agreement, but did not formally adopt it.

The Council for Trade-related Aspects of International Property Rights (TRIPS) again heard arguments for and against amending the TRIPS Agreement so that it would require patent applicants to disclose the origin of genetic material and any associated traditional knowledge involved in their inventions. The topic has been discussed in the council for years, but there is no sign of the two camps moving closer.

A large group of developing countries continues to push for a mandatory disclosure requirement, which they see as necessary to prevent biopiracy, or the granting of patents on erroneous grounds of novelty. India, for instance, had to spend millions of dollars on legal fights to get the European and US patent offices to revoke patents on anti-fungal neem tree derivates and wound-healing turmeric. Both plants have been known for similar (and other) uses in India for centuries.

At the October TRIPS Council meeting, several other countries, including Japan and the US, maintained their position that a disclosure requirement would be ineffective in preventing biopiracy or inappropriate patenting.

In July 2008, more than 100 countries - including the ACP and African Groups, as well Brazil, China, India, Indonesia, the EU, Switzerland and others - co-sponsored a draft ‘modalities’ decision on three TRIPS-related issues. The proposal requested the start of formal negotiations, as part of the Doha Round, on a mandatory disclosure requirement and stronger protection for geographical indications (GIs, or product names associated with a particular location or tradition). It also called for an intensification of ongoing negotiations for a register for GIs denoting wines and spirits.

Many of the sponsors argued in favour of this proposal in October, while Argentina, Australia, Japan, the US and others said that linking the three issues would complicate the discussions.

Non-violation Complaints

WTO Members agreed to seek a decision at the upcoming ministerial conference on whether ‘non-violation complaints’ - i.e. disputes alleging the nullification of benefits that could reasonably be expected rather the a breach of any specific provision - should be allowed under the TRIPS Agreement.

A moratorium on such complaints - extended by trade ministers several times in the past - is currently in place, and most countries would like to see it prolonged again in December. However, the US told the TRIPS Council that in could not agree to another extension. The conflict was subsequently resolved, and ministers prolonged the moratorium.

Generic Drug Seizures

India complained that two more unlawful seizure of legitimate generic drugs in transit through European airports had taken place this year, one in Frankfurt and the other in Paris. The first shipment - about three million tablets of Amoxillin - was destined for Vanuatu, and the second - 1.74 million doses of the blood thinner Clopidogrel - was heading for Venezuela.

India told the council that, by permitting such seizures, the EU’s Customs Regulation 1383/2003 violated GATT Article V on the freedom of transit, as well as the TRIPS Agreement and the Doha Declaration on TRIPS and Public Health.

India also expressed concern about a deliberate effort by developed countries to amalgamate the issue of sub-standard drugs (a regulatory concern) with intellectual property protection as part of an ‘orchestrated campaign’ to impose TRIPS-plus enforcement norms on other Members.

In response, the EU stressed the importance of preventing exports of dangerous fake medicines, and said that the ‘detention’ - rather than ‘seizure’ - of medicines (even in transit) at the border was ‘legitimate and necessary’ to allow right holders to verify products. It also suggested that attention to the issue was maintained artificially for political reasons.

WTO Dispute Looms

In related news, the WTO ambassadors of India and Brazil confirmed in October that their governments intended to file formal WTO complaints on the detention of generic medicines in transit through the EU, but did not say when the requests would be submitted.

The two countries have contemplated a WTO challenge ever since a shipment of the generic anti-hypertension drug Losartan, en route from India to Brazil, was detained by Dutch customs officials in December 2008 (Bridges Year 13 No.1 pages 12 and 13).

Deadline Extended for TRIPS Public Health Amendment

In a rare show of consensus, Members agreed to extend until end-2011 the deadline for accepting an amendment to the TRIPS Agreement that would allow countries lacking the capacity to produce generic drugs to import them under compulsory licence from abroad. The decision is of minor importance, however, as a provisional waiver will cover the arrangement until two-thirds of the membership have approved the permanent amendment. At the time of writing, fifty-two of the WTO’s 153 member countries had done so.

Representatives of the African and LDC Groups argued that the system was inefficient. Since the adoption of the waiver in August 2003, the procedure has been used only once, by Rwanda, which has imported a generic HIV/AIDS drug from Canada. The chair of the TRIPS Council will hold consultations on whether the system is too cumbersome.

In August, WTO arbitrators awarded Brazil the right to slap trade sanctions worth US$294.7 million due to the United States’ continued use of cotton subsidies that have been repeatedly found illegal under WTO rules. Half of the award is a fixed annual amount (US$147.3 million) for actionable subsidies, such as marketing loans and counter-cyclical payments. The other half corresponds to harm caused by prohibited subsidies under the GSM-102 programme, which provides export credit guarantees. The arbitrator based the award on 2006 subsidy data, but said the level of sanctions on prohibited subsidies could vary according to the amount of US government support actually granted in a given year. The Dispute Settlement Body (DSB) authorised Brazil to undertake countermeasures on this basis in November.

Although the award is the second largest ever granted by the WTO, it is far less than the US$2.6 billion sought by Brazil.  The main reason is that the arbitrator did not accept Brazil’s argument that the level of retaliation should reflect the global impact of the US subsidies on cotton prices, production and the market share of other exporters. On the other hand, the award is nearly ten-fold the US estimate of US$30.4 million.

Brazil: Sanctions Could Exceed US$800 million

In December, Brazil told the DSB that, based on complete data for the year 2008, the total amount of authorised countermeasures would amount to US$829.3 million. This means that, according to Brazil’s calculations, the United States spent US$682 million on prohibited subsidies in 2008, or more than four and a half times the amount estimated by the arbitrator on the basis of 2006 figures. Brazil also said that, based on 2008 data, US$561million of the US$829.3 million total would fall under the threshold established by the arbitrator for retaliation in the goods sector, i.e. tariffs or other countermeasures on imports from the US (see below). The remaining US$268.3 million could be applied to other sectors.

Cross-retaliation Will Depend on Annual Amount

Brazil had argued before the arbitrator that it needed the latitude to extend countermeasures beyond raising tariffs on goods due to the asymmetries in the two countries’ economies. It therefore proposed to suspend some of its WTO commitments on intellectual property rights and services as well. Measures could include the suspension of protection for some copyrights, patents and trademarks, as well as suspending market access commitments in services sectors of particular interest to the US, such as communication, distribution and financial services.

The arbitrator followed this argument in principle, but set a relatively high threshold for taking such action. It estimated that if the United States’ share of Brazil’s imports of a given consumer good was less than 20 percent, Brazil would be likely to find alternative sources of supply. Applying trade sanctions to those goods would not harm the domestic economy, the panel said, and should therefore be the first course of action. Only if the annual amount of prohibited subsidies - calculated on the basis of GSM-102 disbursements - exceeded the 20-percent threshold, could retaliation be extended to IPRs and services, the arbitrator concluded. Based on 2006 figures, the arbitrator had estimated that Brazil had US$409.7 million worth of US goods to choose from.

Negotiated Solution Unlikely, Sanctions Decision Expected in February

When the award was made public, both sides said they were open to a negotiated solution. It was widely speculated that Brazil would seek the elimination of US ethanol duties, as well as better market access for some other key exports, such as orange juice. However, at the time of writing this possibility appeared to have stalled, and there were no indications that the US was ready to eliminate its WTO-illegal support for cotton. Brasilia was yet to decide whether it would resort to trade retaliation, but if it does, the list of countermeasures, their starting date and the definitive amount of the sanctions will be announced in February.

Both disputes concern regulations that affect food trade. Canada and Mexico separately requested a WTO panel on the United States’ mandatory country-of-origin labelling law, while the US has challenged the EU’s prohibition of certain methods of cleaning chicken carcasses.

On 19 November, the Dispute Settlement Body established panels on both complaints. A single panel will hear the Canadian and Mexican challenges. In principle, panels should issue their reports within six months, but this deadline is rarely kept.

How Cool is COOL?

As of 16 March 2009, the US country-of-origin labelling (COOL) law requires companies in the United States to notify to their customers the country of origin of a number of food commodities, including beef, lamb and pork, as well as fish, shellfish, perishable farm products, ginseng, and peanuts, pecans and macadamia nuts. Such notifications must be made at every stage of transaction, starting from the first import and ending in a label at retail stores.

Canada and Mexico consider that the labelling law is designed to tilt US meat processors toward favouring goods of domestic origin. The two complainants are particularly concerned about the legislation’s impact on their exports of live animals (beef and hogs).

Under COOL, beef, pork, lamb, chicken and goats can qualify for a US origin label only if they are “derived from animals exclusively born, raised and slaughtered in the United States.” Since the law’s entry into force, the complainants have experienced significant export losses, which they put down to US processors and packers’ reluctance to face the cost of segregating operations for US and foreign origin meat. Their panel requests also noted that COOL requirements had reduced the price of their livestock exports, as well as increased costs for exporters, importers and processors.

Canada and Mexico maintain that COOL results in their exports being treated less favourably than products of US origin (violation of the national treatment principle). Specifically, they claim that the legislation violates the Agreement on Technical Barriers to Trade (TBT Agreement), because it is more trade restrictive than necessary to fulfil a legitimate objective, should such an objective exist. They also allege that the legislation breaches the WTO Agreement on Rules of Origin, which prohibits the use of such rules as ‘instruments to pursue trade objectives directly or indirectly’.

In addition, Mexico claims that, in the preparation and application of the legislation, the US did not take into account Mexico’s special development, financial and trade needs as a developing country, as mandated in Articles 12.2 and 12.3 of the Agreement on Rules of Origin.

Both countries also warned that they would invoke violations of the Agreement on Sanitary and Phytosanitary Measures if the US chose to defend the law as a public health measure.

The US delegate told the Dispute Settlement Panel in October that WTO Members had “long recognised that country-of-origin labelling is a legitimate policy. Indeed, that recognition predates the entry into force of the WTO Agreement. It is common for WTO Members to require that goods be labelled as to their origin.” He also emphasised that the US was “confident that our measures provide information to consumers in a manner consistent with our WTO commitments.” Danni Beer of the US National Cattlemen’s Beef Association defended COOL in an op-ed not so much as a consumer information tool, but as measure necessary to “improve our market arenas. Without COOL, US ranchers are forced to participate in an international commodity market where [...] the global market goes to the lowest-cost producer.”

How to Wash Chicken?

The US objects to the European Union’s ban on poultry imports processed with chemical washes, or so-called ‘pathogen reduction treatments’. These involve cleaning chicken carcasses with mostly chlorine-based washes to reduce the level of microbes. The dispute has been simmering since 1997, when the EU began prohibiting such treatments domestically, as well as in imported poultry.

Under EU rules, slaughterhouses may use only water or other ‘approved substances’ to rinse meat products. The four substances most commonly use by US chicken processors are not on the EU’s approved list.

The US argues that the prohibition of these treatments has ground its poultry exports to the EU to a virtual halt, and maintains that the methods used by US processors are safe. It cites two reports by the EU Scientific Committee on Veterinary Measures Relating to Public Health that did not find ‘any scientific basis’ for prohibiting the use of the treatments.

The US alleges that the EU ban on imports so treated is not based on a risk assessment as required by Articles 2 and 7 of the Agreement on Sanitary and Phytosanitary Measures, and also violates the national treatment principle under the GATT.

The EU expressed regret over the panel request. Litigation, a European Commission spokesperson said, was “not the most appropriate way to deal with complex issues such as this one. However, since the US has chosen this path, we will defend our food safety legislation, which does not discriminate against imported products.”

Last year, the commission floated a proposal to lift the import ban, but requiring chlorine-washed chicken to be labelled as ‘treated with antimicrobial substances’ or ‘decontaminated by chemicals’. This was rejected by EU member states, as well as US farmers, who said it would stigmatise their products and could lead to consumer boycotts.

The three members of a WTO dispute settlement panel on China’s complaint on US restrictions on its processed poultry exports were appointed on 25 September, setting the clock ticking for a ruling within six months. China contends that US measures to prevent imports of Chinese poultry are inconsistent with several provisions of the Agreement on Sanitary and Phytosanitary Measures (SPS), as well as the Agreement on Agriculture.

The origin of the dispute dates back to 2004, when both countries banned each other’s chicken exports due to health concerns arising from avian flu. China subsequently revoked the embargo, but the US kept it in place, notably by prohibiting the US Department of Agriculture (USDA) from using government funds to implement measures that would result in resumed Chinese poultry imports. The US also decreed a moratorium on the consideration, granting and implementation of approvals for Chinese poultry imports.

China alleged that, inconsistent with the SPS Agreement’s Article 2, these administrative measures were not based on scientific principles and constituted a disguised restriction on international trade. In addition, they were not based on a risk assessment within the meaning of SPS Article 5, and failed to conform to the control, inspection and approval processes established under SPS Article 8, China maintained.

On 1 October, the US requested the panel to issue a preliminary ruling on the admissibility of China’s SPS claims, which the defendant said were not properly covered in the initial consultation request. While this could have meant a considerable delay in the proceedings, US Congress may have defused the dispute by approving a new USDA spending bill, which allows the import of Chinese poultry under stringent health and quality controls.

US Changes Law, But Requires Equivalent Safety Standard

The US Senate approved the Agriculture, Rural Development, Food and Drug Administration, and Related Agencies Appropriations Act 2010 on 8 October. Under the legislation, poultry products may be imported from China if the department of agriculture takes a number of steps that allow the agriculture secretary to determine that China’s poultry inspection system, and its enforcement, achieve a ‘level of sanitary protection equivalent to that achieved under US standards’. Those steps include inspection system audits, as well as on-site reviews of Chinese slaughterhouses, laboratories and other control operations before USDA certifies that a facility is eligible to export poultry products to the US. Port-of-entry re-inspections must also be reinforced. USDA must report to Congress twice a year on actions taken toward certification and the determination of equivalence.

These provisions - contained in Section 743 of the 2010 appropriations act - will replace those challenged by China at the WTO once President Obama signs the bill into law. At the time of writing, China had not withdrawn its complaint, possibly because it could take years before USDA has completed its investigations, and the outcome is uncertain.

One the other hand, the US might have a stronger hand in defending the new import regime since it is clearly premised on public health grounds. The inspection system audits and on-site reviews of facilities could be used as elements of a risk assessment under the SPS Agreement, which provides that relevant processes and production methods, as well as inspection, sampling and testing methods, are among the factors to be taken into account in the assessment of risk.

In related news, China announced in mid-September that it was launching anti-dumping and anti-subsidy investigations into some US chicken and auto imports. The move came in the wake of hefty tariffs imposed by the Obama administration on Chinese tyres (see opposite), but Beijing said the trade remedy probes were a response to complaints from domestic industries.