Bridges Weekly Trade News Digest • Volume 10 • Number 23 • 28th June 2006

Lamy Says ‘Magic Number’ 20, As Ministers Arrive In Geneva


WTO Members have only a few days left in which to save the Doha Round trade talks by striking a framework deal on cutting farm subsidies as well as tariffs on both agricultural and industrial products, said Director-General Pascal Lamy on 28 June.

The end of June is "the moment of truth," Lamy told journalists. Pushing back the decisions any longer, even to the end of July, "would put the entire project at risk."

Trade ministers from dozens of Member countries are arriving in Geneva for four or five days of intensive talks aimed at brokering an agreement on ‘modalities’ — formulae and figures for tariff and subsidy cuts, as well as exceptions to them. Members are rushing to conclude the negotiations in time for the beginning of 2007, when the Bush administration is set to lose its ability to negotiate and submit trade agreements to Congress for a straight yes-or-no vote without the possibility of major amendments.

Lamy reiterated his view that breaking the deadlock in the negotiations would require parallel progress on a ‘triangle’ of issues: the US would have to agree to make deeper cuts to domestic farm support; the EU to lower farm tariffs further, and developing countries such as Brazil and India to offer more on industrial tariffs.

During the upcoming meetings, Lamy said, "ministers need to put improved numbers on the table." He said that Members would have to agree to "real" subsidy cuts and the creation of "new trade flows" in both agricultural and industrial products.

For the first time, the WTO chief expressed his "own intuition" about how far each camp would likely have to go to strike an agreement. "If I were looking for a magic number," he said, "I would probably look around the number 20. Like G-20, Swiss 20, or below USD 20 billion in US OTDS [overall trade-distorting support]." A possible modalities accord, he appeared to suggest, could follow the parameters of the G-20’s proposed cuts to farm tariffs, a Swiss formula with a coefficient of 20 for reducing developing country industrial tariffs, and reducing the ceiling for US overall trade-distorting farm support to below USD 20 billion.

Lamy cautioned that simple numbers alone would not be sufficient for a modalities deal, since market access flexibilities would have "formidably important" effects. For instance, he said, the treatment of ’sensitive’ farm products (which Members will be able to shield from the full force of tariff reduction) will have a substantial effect on the amount of new market access created by an eventual agreement.

Magic numbers: G-20, Swiss 20, USD 20 billion

Making USD 20 billion the upper limit for US OTDS may not actually force Washington to reduce spending from current levels. As part of a simulation exercise in May, it was estimated that in 2005, US OTDS payments amounted to USD 19.67 billion (see BRIDGES Weekly, 24 May 2006).

The US’ own proposal to cut OTDS by 53 percent was projected to slash its current ceiling level from USD 48.22 billion to roughly USD 22.5 billion. Nudging this offer up to about 58.5 percent would be sufficient to bring the ceiling to USD 20 billion — still some USD 300 million beyond current expenditures.

The other two ’20s,’ however, would require all parties concerned to give up on some of their longstanding demands.

The G-20 has proposed an average farm tariff reduction of 54 percent for developed countries, a figure described as unacceptably high by both the EU and the G-10, and unacceptably low by the US, which has sought a 66 percent reduction (see BRIDGES Weekly, 21 June 2006). The EU claims that its own proposal would entail a 46 percent cut, although other countries insist that the real change would amount to only 39 percent.

Whether Brussels or Washington could accept the G-20’s proposed cuts remains unclear. In recent weeks, the EU has hinted that it would sweeten its market access offer, but maintained that it would not go as far as the G-20. EU member states such as France and Finland have warned EU Trade Commissioner Peter Mandelson not to offer any further concessions (see related article, this issue). On 23 June, 57 of the 100 members of the US Senate signed a letter to President George W. Bush saying that it would be unacceptable to ask US farmers "to give more [on agriculture subsidies] while getting less in market access."

A Swiss formula with a coefficient of 20 would require India to cap its industrial tariffs at 20 percent, and, according to WTO Secretariat calculations, cut its bound tariffs by an average of 57.9-65 percent (depending on its ability to shield some products from the formula). It would force reductions to the applied tariffs on 57.2-84.4 percent of products and slash India’s average applied rate from 19.5 percent to 11.8-17.3 percent. The same ‘Swiss 20′ would reduce Brazil’s average bound duty by 55.4-58.6 percent, biting into the applied rates on roughly half of all products.

The NAMA-11 group, which includes Brazil, India, and South Africa, has argued that developing countries should not have to make percentage reductions to their bound tariff ceilings that exceed those undertaken by industrialised countries.

A coefficient as low as 2 would cut the EU’s bound tariffs by 48 percent. This would, however, cut the EU’s applied rates by a similar amount — bringing them from 4 percent to 1 percent — since the EU actually levies duties at rates that are close to the bound ceiling levels it agreed to during the Uruguay Round. The EU and the US support a ‘Swiss 10′ for developed countries. This would cut their own respective bound and applied rates by an average of around 23.4 percent and 21.2 percent respectively. They have been calling for developing countries to use a ‘Swiss 15′ rather than a ‘Swiss 20.’

In the past, Brazil has suggested that its preference would be for a "Swiss 30" and the gentler tariff cuts this would entail.

End-June important

Lamy emphasised that agriculture and non-agricultural market access (NAMA) modalities needed to be finalised now because there was a very real risk that negotiators would otherwise simply run out of time to conclude the round.

Some delegates have suggested that in light of the huge number of issues that they need to resolve, ministers might to try to lock in agreement on the key aspects of both the agriculture and NAMA negotiations, and then try to finalise modalities in July. Nevertheless, Lamy said that failing to do so now would risk denying delegates the time they need before the end of July to resolve crucial issues in areas such as services, fisheries subsidies and trade facilitation.

Furthermore, the process of translating the modalities into thousands of product-specific tariff and subsidy liberalisation commitments is technically complex and time consuming. WTO officials estimate that it will take as many as six months for Members to prepare and verify these ’schedules’ of commitments. Some additional negotiations might also prove necessary during the scheduling process, for instance over Members’ choice of sensitive products.

Lamy sets out schedule for ministers

Immediately prior to the press conference, Lamy spoke to an informal session of the Trade Negotiations Committee (TNC), primarily about the schedule for the upcoming ministerial-level meetings. He announced that there would be no WTO meetings on 29 June, so as to allow ministers to coordinate with each other.

From the morning of 30 June on, Lamy indicated that he would hold a series of informal TNCs open to all delegations, small group consultations, and meetings of the invitation-only ‘ministerial consultative group’ — the so-called ‘green room’ of ministers from some 30-35 Members. He stressed the need to ensure transparency so that developments in the smaller group sessions would be communicated to the entire Membership during the informal TNC meetings.

The green room generally includes the most influential countries as well as representatives from every major regional or interest-based bloc such as the G-20, the G-33, the African Group and the least-developed country (LDC) group. Sources report that Lamy has strongly urged them to communicate the proceedings to fellow alliance members left outside the room. "We have to avoid any notion of a privileged circle," he said.

Lamy also reported to Members on the order in which ministers will address different issues in the agriculture and NAMA negotiations — a first round focusing on some central issues which would then pave the way for other areas to be discussed (see related stories, this issue). This list of issues emerged from a series of green room discussions on 26-27 June. Lamy took pains to stress that the list of issues was "purely a question of sequencing, and not a ranking by importance."

A formal TNC meeting has been scheduled for the morning of 1 July, but would likely be placed on standby, to be reconvened pending progress in the various informal gatherings. Sources suggest that ministers may continue to meet through 3 July, if the talks appear to be proceeding well during the weekend. Sources report that EU Trade Commissioner Peter Mandelson has invited a select group of 22 ministers for a stocktaking exercise on the services negotiations early on 1 July, in advance of the formal TNC later that morning (see related story, this issue).

Lamy emphasised that in spite of the need for key Members to "top up" their offers in the negotiations, there is already a great deal on the negotiating table. Existing proposals for subsidy reform as well as cuts to agricultural and industrial tariffs already go significantly further than what was agreed to during the Uruguay Round, he suggested. In addition, the Doha Round promises to address tariff peaks, fisheries subsidies, and trade facilitation. Several negotiators appear to share this impression, and have expressed concern that this could be lost if Members cannot reach a deal soon.

Some trade observers believe that Members will not be able to bridge their differences unless presented with a comprehensive agreement text akin to the December 1991 ‘Dunkel Draft’ put forward by the then Director-General of the GATT. When asked if he would consider attempting something similar if consensus continues to elude ministers, Lamy replied "we are not there yet and I hope we won’t get there."

ICTSD reporting; "Lamy outlines schedule for ‘moment-of ‘truth’ meetings," WTO NEWS, 28 June 2006.