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Background Note

November 2003

Thematic File: Post-Cancun Agenda
WTO Situation Report: November 2003

There has been no lack of commentary on the setback of the Fifth Session of the WTO Ministerial Conference (Cancun, Mexico, 10-14 September 2003). The analyses, spanning those of the WTO negotiating community, as well as those by international observers, have been numerous and from a wide variety of perspectives have delved mostly on the reasons why this meeting was a setback, almost comparable to that of the Seattle Ministerial Conference. The focus of this situation report is not to add new elements into these views, most of them convincing from the different perspective they come from, but to set them in the context of their implications for the successful continuation of the negotiations under the Doha Work Programme.

The Unravelling at Cancun
The Issues at Stake
In the Wake of Cancun
Consultations Post-Cancun and Preparations to Meet the 15 December Deadline

1. The purpose of this Background Note is to give a rundown of the elements and circumstances that led to the Cancun debacle. Some would argue that the Cancun failure was a predictable outcome. Not only had most deadlines set at Doha been missed, but the Draft Ministerial Text, submitted to members prior to Cancun under the Chairman of the General Council’s own responsibility [Note 1], was not only a non-agreed document, but had been heavily criticised from all sides as being imbalanced. Although recognising the difficult task of the Chairman of the General Council, members launched a frontal attack on the text from several fronts. According to some, the Chairman’s Draft Ministerial Text (DMT) lacked ambition on fundamental issues such as agriculture, mirroring too closely the Joint EC-US Paper [Note 2]. For others, mostly those who expected a substantial industrial market access improvement across the board, the section referring to the non-agricultural market access negotiations (NAMA) was not ambitious enough. For most developing countries the Annex on NAMA was unacceptable as it had not taken into account the special and differential treatment for developing countries nor the less than full reciprocity dimension the modalities should have included. Moreover, they argued that further liberalisation and tariff reductions on both agriculture and NAMA would erode developing country preferences. Additionally, the “solution” found by the Chairman for the Singapore issues in the DMT, i.e. to include the two extreme positions: on the one hand to start negotiations on the basis of modalities agreed in separate annexes to the DMT and on the other hand to recognise that no basis had been possible for the commencement of negotiations and to revert to work on the clarification of the issues. However, the contrast between the starkness of the second position and the first, which included annexes on modalities that had either been broadly rejected or not been the subject of extensive discussions, was considered by all developing countries as an unacceptable imbalanced solution. 

2. Additionally, in general terms, the DMT lacked time limits; it was bracketed on fundamental issues and had not done justice to what members considered the essential elements that could move the negotiations forward. In short, the text reflected the lack of progress that had taken place since the Doha meeting in November 2001. There was however general agreement that having the DMT was perhaps better than arriving at Cancun empty-handed. The DMT was at least a starting point from which ministers could decide what to take on board. Obviously, although better than nothing, it did not fulfil these expectations: it did not provide a good starting point. On most issues the positions were so polarised as to make it extremely difficult to reach the middle ground, whether by negotiators or by ministers. Cancun was the continuation and culmination of the deadlock in Geneva.

II. The Unravelling at Cancun

3. No disaster has only one cause. In Cancun, several circumstances compounded to lead to the ultimate debacle: institutional, procedural, and substantive (or issue-related). The institutional cause can be attributed to the bizarre nature, structure and development of the WTO. An upshot from the GATT, the WTO although formally an institution, still maintains the “contractual” nature of the GATT, and logically, its unwritten rites and conventions. The GATT and the rounds of multilateral trade negotiations under its aegis were possible thanks to a shared “culture”. Although it is commonplace to refer to the GATT as a “rich nations club” the first part “rich nations” is more a myth [Note 3], as less than half of the original members were what could now be considered “developed”. The “club” part of “rich nations club” is perhaps an image closer to reality. Few members were active and took the hard-core decisions. Even when the last round under the GATT—the Uruguay Round—was negotiated, few developing countries participated. At present, for a number of reasons, developing countries are no longer passive. But they are new to the system and not bred in the GATT culture. Thus, the  “clubby” atmosphere of the GATT, that made it possible to strike deals by consensus, has disappeared. Consequently, many believe the reform of the WTO—and of its Ministerial Conferences—is a sine qua non condition for the continuation not only of the negotiations, but for the survival of the WTO as a viable organisation.

5. Although the DMT and DMT Rev.2 had a wide coverage of all negotiating issues provided for in the Doha Ministerial Declaration, at Cancun four main issues monopolised the attention of ministers and negotiators. The inability to bridge the wide divergences of views and the intransigence of all concerned contributed to the breakdown. These four issues, agriculture, the Singapore issues, non-agriculture market access negotiations and cotton are those on which the Chairman of the General Council, with the active participation of the WTO Director-General, have focused in Geneva and in consultations with capital-based officials to put the negotiations back on track. What follows is a brief overview of the main sticking points on each of these and how these were treated at Cancun.

A. Agriculture

6. On agriculture, after negotiations overseen by the facilitator [Note 5], the DMT Rev.2 (Annex A) issued on 13th September introduced some important changes to the General Council Chairman’s DMT [Note 6]. On domestic support, the terms of reductions by developed countries were refined to include a provision to cap product-specific AMS. Conditions for blue box payments were unchanged from the DMT text, which reflected the language of the Joint EC-US Paper. Reductions based on the sum of AMS, blue box and de minimis payments were subject, additionally, to an initial minimum cut in the first year of implementation. Green box criteria were to be reviewed to ensure measures included had no, “or at most minimal” trade or production distorting effects. With respect to domestic support commitments, the Annex A in the DMT Rev.2 stayed relatively close Joint EC-US paper: it did not include “product-specific” reductions as proposed by the G-20 and rejected the G-20 proposal to cap or reduce green box direct payments. Developing countries were excluded from reducing their de minimis limits and additional special and differential treatment, in the form of lower reductions on trade distorting support were included.

7. On market access, the DMT Rev.2 retained the EC-US blended approach for tariff reductions by developed countries. It called for tariff escalation to be addressed without putting forward any modality. The use and duration of the special agricultural safeguard, as it affects developed members, was left subject to further negotiations.

8. Developing countries would enjoy special and differential treatment on market access, in part through lower tariff reductions and longer implementations periods. Two alternative approaches were put forward. The first would consist only of average tariff cuts (and minimum reductions) applied to three different groups of tariff lines. The first group would be “import-sensitive” products and might include the designation of Special Products (SP) to be subject to minimal cuts and no new tariff quota commitments.

9. On export competition, the DMT Rev.2 retained the two categories used in both the EU-US and G-20 papers. Thus, export subsidies on “products of particular interest” to developing countries would be eliminated over an agreed period. For the remaining products, the Chairman’s paper reverted to Doha Declaration language: envisaging reductions in budgetary and quantity allowances “with a view to phasing out”. The end date for phasing out all forms of export subsidies was to remain under negotiation. Among elements of special and differential treatment for export competition, in the context of new disciplines on export credits, appropriate provisions should be made for least-developed countries (LDCs) and net food-importing developing countries.

10. Finally, the issues that had been swept under the carpet since the Joint EC-US Paper, the DMT Rev.2, reiterated that the extension of the peace clause as well as further work on modalities, including the “issues of interest but not agreed”, i.e.: non-trade concerns, sectoral initiatives, and geographical indications, among others would be left for further discussion at a later stage.

B. Singapore issues

11. With respect to the Singapore issues in consultations with the facilitator [Note 7]several options were floated, among others that dispute settlement would not be included in the modalities or that members would be able to opt-in opt-out if the negotiations resulted in plurilateral agreements. The facilitator also gave indications that negotiations could start on some of them and to delay them on others. However, when the DMT Rev.2 was circulated, much to the surprise of negotiators, the commencement of negotiations was contemplated outright on trade facilitation and transparency in government procurement. On investment the DMT Rev.2 stated that negotiations on a multilateral investment framework were to begin on the basis of modalities to be agreed at an unstated date. Thus, the DMT Rev.2 included de facto negotiating mandates on three out of the four Singapore issues, and in particular on the highly contested trade and investment framework.

C. The cotton initiative

12. To add to the anxiety of developing country members, the paragraph on cotton in the DMT Rev.2 provided that cotton be considered within the whole value chain, including textiles and clothing and man-made fibres and that the problem of cotton-producing countries be linked to diversification programmes supported by the Bretton Woods institutions, the FAO and the International Trade Centre.

D. Non-agriculture market access negotiations

13. On NAMA, developing countries had been focusing since Geneva on the erosion of their preferences as an inevitable consequence of tariff cuts. Given some countries heavy reliance on tariffs as a source of revenue there was reluctance to accept a tariff reduction formula and/or sectoral tariff harmonisation or elimination. Although the DMT Rev.2 (Annex B) recognised the difficulties of erosion of preferences and the implications of tariff problems faced by the tariff-revenue dependent countries, no solution was offered not even hinted at, it only instructed the Negotiating Group to take into consideration these particular needs. For the LDCs, although they were exempted from participating in the sectoral initiative and were not required to apply the formula, they were expected to increase their level of tariff bindings.

IV. In the Wake of Cancun

14. As was stated above, the abrupt conclusion of the Cancun Ministerial meeting came almost unexpectedly. The concluding Ministerial Statement was short and curt. On the positive side, there was no more than the first-time accession of two LDCs in the existence of the WTO. As for the roadmap for the future, ministers instructed the Chairman of the General Council to work in close co-operation with the Director-General to coordinate future work and “to convene a meeting of the General Council Senior Officials level no later than 15 December 2003 to take the action necessary at that stage to enable us to move towards a successful and timely conclusion of the negotiations [Note 8].”

15. The frustration of the failure to advance in the negotiations was a stark reminder that it would not be by any means possible to finish the negotiations by the deadline of 1 January 2005 set at Doha. The Cancun outcome also led to a wave of reactive statements. The US and the EU stated that although committed to the multilateral trading system they might favour “going bilateral” given the collapse of negotiations at Cancun. However, as the dust has gradually settled, the knee-jerk reactions after Cancun gave way to more sober, though not necessarily more flexible approaches to the negotiations. All members paid lip service to their commitment to the multilateral trading system and consultations resumed in earnest, without showing the necessary flexibility or political will to make concessions.

V. Consultations Post-Cancun and Preparations to Meet the 15 December Deadline

16. The “de-bundling” of Singapore issues had been proposed prior to Doha, in view of the stern opposition of many developing countries to their inclusion as part of the negotiating package that was eventually launched. It was thought that it would be easier for developing countries to accept them gradually, instead of all four, including investment and competition as part of a single package. A compromise solution reached at Doha was that all four would be included, but with the caveat that negotiations would not start until modalities were agreed by “explicit consensus”.

17. On the negotiating sessions prior to Doha the alternative floated informally by some was that if opposition was so unyielding, it could be contemplated to have negotiations leading to plurilateral agreements. However, those in favour of the single undertaking squarely rejected then, as they would seem to do now, the plurilateral approach. However, in Cancun, negotiations got to the point where the US and the EU agreed to take off investment and competition from the negotiating table and agreed to go ahead with trade facilitation and transparency in government procurement. However, this “flexibility” did not fly in the end, as many developing countries refused to accept the Singapore issues at all.

18. The proposed solution to the impasse by the Chairman of the General Council was to “unbundle” the issues and proposed a 2 + 2 approach, i.e. to launch negotiations on trade facilitation and government procurement. However, as was the General Council Chairman reported at an informal meeting of Heads of Delegation on 18 November 2003, despite a willingness of all members to get the negotiations back on track, the Singapore issues remained the main sticking point. It was certain that they could no longer be accepted as a package, but that the unbundling was the only way by which the Singapore issues would move to the negotiating mode.

19. Other alternatives that have been informally mentioned include: to start negotiations on all four issues on a voluntary basis, i.e. among those WTO members who feel ready and willing; the agreement that resulting from these negotiations would be on a most-favoured nation (MFN) basis, thus not jeopardising the single undertaking Doha commitment.  This would make the agreements on the Singapore issues resemble the Information Technology Agreement (ITA), which has not been subscribed by all members, but where the principle of MFN applies.  Another variant is negotiations between all members and then agreements to be subscribed on a voluntary basis. An option that would perhaps appeal to developing countries is that these agreements would not be subject to the Dispute Settlement Understanding for developing countries and LDCs. All these “adjustments” would presumably be part of the modalities to be agreed by “explicit consensus”. 

20. Consultations are proceeding, not only on the Singapore issues but also on agriculture. An “early harvest” on the cotton initiative does not seem viable; realistically it cannot be expected that cotton be totally extricated from the agriculture negotiations. Consultations are also continuing on non-agricultural goods. A first assessment of the results of these consultations may take place by 5 December, giving an idea of the level of specific advances. 

21. Although the 15 December 2003 deadline may not be met, there is optimism that this would not be a major loss, provided that the willingness to show flexibility takes on concrete forms early in 2004. Indeed, some negotiators feel that it is better to start on a firm basis early next year than to risk major setbacks if negotiations are started on a flimsy foundation. However, it would perhaps be a constructive strategy to admit that it is a tall order to keep the deadline agreed at Doha for finalising the Doha Work Programme, i.e. by 1st January 2005. An explicit admission that more time is needed for successfully finalising the negotiations, and making sure that when deadlines are set they are realistic, would assist the negotiating process to go forward on a firmer basis. Most members have realised that the stakes are high: the credibility of the Doha Work Programme and indeed of the multilateral trading system are in the balance.

Note 1: JOB(03)/150/Rev.1, 24 August 2003. (return to text)

Note 2: JOB(03)/157, 13 August 2003. (return to text)

Note 3: Of the 23 original Contracting parties, nine were developing countries at the time and at present; three others, Lebanon, Southern Rhodesia (now Zimbabwe) and the Union of South Africa are now in the developing country category. (return to text)

Note 4: JOB(03)/150/Rev.2, 13 September 2003. (return to text)

Note 5: George Yeo Yong-Bon, Singapore’s Trade and Industry Minister. (return to text)

Note 6: AITIC Background Note: “Agriculture in the Doha Work Programme: Where we are and How we Got There”, November 2003, provides a more comprehensive analysis of the agriculture negotiating process. (return to text)

Note 7: Pierre Pettigrew, Canada’s International Trade Minister. (return to text)

Note 8: WT/MIN(03)/W/24, 14 September 2003. (return to text)