Learning the rules: The WTO and EPAs
EPA negotiations have been underway since September 2002 and must be completed by the end of 2006. On 25 July 2005, at a meeting of the World Trade Organisation's (WTO) Negotiating Group on Rules, WTO members will debate the introduction of flexibilities and special treatment for developing countries into rules governing regional trade agreements (RTAs). This is a crucial area for the ACP group of countries with regards negotiations over EPAs, writes Christina Weller.
On 25 July 2005, at a meeting of World Trade Organisation's (WTO) Negotiating Group on Rules, WTO members will debate the introduction of flexibilities and special treatment for developing countries into rules governing regional trade agreements (RTAs).
For the African, Caribbean and Pacific (ACP) group of countries, these are high-stakes issues: effective provisions for special and differential treatment will mean that development can truly be put first in economic partnership agreements (EPAs) and that trade reforms can be made to fit with national and regional development strategies. Without them EPAs will be bound to impose arbitrary and stringent timeframes for the elimination of tariffs on the majority of imports from the EU.
Over the last two months, there has been a flurry of activity in a notoriously difficult and slow area of WTO negotiations in recognition of the need to address this important anomaly in WTO rules.
Last month, the African Union (AU) called for WTO Rules governing regional trade agreements (RTAs) to be 'appropriately amended to allow for necessary special and differential treatment, less than full reciprocity principles and explicit flexibilities that are consistent with the asymmetry required to make EPAs pro-development' (AU 2005).
The European Commission (EC) only a few weeks previously made its own submission which, while it contains no concrete proposals, recognises that 'the developmental dimension of regional trade agreements must also constitute an integral part of the clarification and improvement of WTO rules for RTAs' (WTO 2005b) The WTO secretariat's paper of the same month (Crawford and Fiorentino 2005) describes the application of criteria of reciprocal and comprehensive trade liberalisation as a 'peculiarity' and recognises the 'formidable challenge of transition' that such RTAs would pose, citing EPAs as a case in point. These issues will be discussed this month when the EC's submission and redrafting of the ACP's initial paper on the topic (which put these issues on the table back in April 2004) will be debated by the Rules Negotiations Group.
The momentum for addressing this problem has not come too soon. EPA negotiations have been underway since September 2002 and must be completed by the end of 2006. Some regions are already well into substantive negotiations. Until the systemic issues of these WTO rules are resolved, negotiators are at best negotiating blind and at worst being obliged to look for least worst options that might allow them to protect their most important sectors now, even though this might leave their hands tied for the future.
What needs to change?
By some quirk of WTO history, flawed rules have meant that up until now the well-established principles of special and differential treatment and less than full reciprocity have not been applied to an area where they are strongly justified, that is in RTAs between unequal trading partners (see especially Onguglo and Ito 2003).
Because RTAs between developed and developing country partners were not envisaged when these rules were devised, developing country governments are constrained by overly strict rules from obtaining in negotiations the necessary flexibility to pursue agricultural and industrial development strategies, with the result that their producers and traders are pitted against competition from more powerful, efficient and frequently subsidised counterparts in developed countries.
Just as in RTAs between two (sets of) developed countries, developing countries are currently legally required to liberalise 'substantially all trade' in goods over a 'reasonable' period of time (interpreted as 10–12 years). Note that RTAs between two developing country groupings are governed by the Enabling Clause of 1979 and are therefore exempt from these requirements. GATS Article V, also under review as part of the Doha Round, already contains provisions for flexibility for developing countries within north–south agreements, although these have also been criticised as ineffective.
The Doha Declaration (para 29) mandated members to clarify and strengthen the provisions of Article XXIV of the GATT 1994, taking into account development aspects of RTAs.
Although there is an emerging consensus to introduce special and differential treatment into RTA rules, the nature of this special treatment is not agreed. The ACP's first proposal was considered too extreme by some, including the EC. Some countries, for example Japan, questioned the inclusion of 18 years as 'indicative' of an extended transition period.
The EC's approach is to 'clarify the flexibilities already provided within the existing WTO rules on RTAs, in order to give greater security to developing country parties to RTAs'. In the case of EPAs, the EC (and academics) have calculated that using this asymmetry, ACP countries could exclude their sensitive sectors from liberalisation. The EC often cites the example of the EU's own Trade and Development Cooperation Agreement with South Africa whereby the EU liberalised a greater percentage of its own trade so that South Africa needed only to liberalise 86%, the averaging out of coverage being deemed sufficient to comply with WTO rules. A number of RTAs have also exceeded the accepted 10–12-year transition period.
However, this approach does not take into account the differing regional interests in negotiations, and therefore undermines the process of regional integration that EPAs are intended to support (Stevens and Kennan 2005). The asymmetrical option also takes a static view, the need for flexibility being calculated on current trade flows. To develop, ACP countries need to have flexible trade policies that will allow them to diversify into value-added production. This will require them to be able to raise tariffs in the future in some areas currently not important to their external trade.
The alternative view is that there should be no compulsion for developing countries to 'offer' concessions on market access to 'win' increased market access from developed countries. This is the view shared by EU and ACP civil society. It is consistent with the findings of the Commission for Africa that countries should not be forced to liberalise, including through trade negotiations. It is the only way to properly ensure that trade agreements are supportive to development strategies and that the declaration by ACP ministers that 'RTA rules should take into account the specificities and development needs' of ACP states can be addressed.
Since developing countries have already undertaken a large amount of 'autonomous' liberalisation under the influence of the Bretton Woods institutions and donors, the idea that they should offer more access to, for example, the EU in return for market access that should be (and for the ACP countries already was under previous Lomé arrangements) unilaterally granted by developed countries, is perverse.
The limited flexibility that remains to these countries is important and should not be further curtailed. Their ability to raise as well as lower tariffs as industrial development progresses needs to be maintained and strengthened. This development is difficult to predict and the inexorable lowering of tariffs over a fixed transition period has proven harmful in the past. These damaging effects far outweigh the already questionable benefits of encouraging foreign investment through 'locking in' reforms. Instead market opening should be linked directly to development needs – benchmarks instead of arbitrary timeframes should govern liberalisation commitments and 'escape clauses' should be introduced so that harmful policies can be reversed as necessary.
The concept of less than full reciprocity, used by the African Union in its statement, is not well defined. This terminology in the enabling clause exempted developing countries from obligations to offer any concessions in market opening. Under current market access negotiations, the same terminology implies that developing countries will make some concessions, but that these would be significantly lower than those for developed countries. The tenor of the AU's statement suggests that the onus is on maximising flexibility within the current political realities.
Is a consensus likely to emerge?
As with other areas of the Doha agenda, the chair of the rules group will be required at least to make a progress report at the WTO General Council meeting this month. At the time of writing, there is much speculation about expectations for July. The idea of 'first approximations' is a vague one, and as progress is painfully slow in key areas, it is unclear whether anything as ambitious as draft agreements can be expected. Yet the intention still holds that the Hong Kong ministerial meeting should not be the forum for significant brokering of agreements.
Rules talks are notoriously slow and difficult as they tinker with the infrastructure of international trade rules, tend to open up controversial issues, inconsistencies or lack of definitions that may have benefited some members over others. This is certainly the case for RTA rules. The number of RTAs has increased dramatically over recent years (World Bank 2004). These RTAs have varied significantly in scope and transitional arrangements (WTO 2002). If proposals for 'grandfathering' (i.e. retrospective application) of changes in rules are accepted, then these talks could be opening Pandora's box.
A further political complication is posed to the ACP countries by the EC’s agenda to target larger developing countries, such as India and Brazil, in this round. In its submission, the implied quid pro quo for special and differential treatment provisions is that there be an acceptance that RTAs between larger developing countries become subject to stricter disciplines and no longer be governed by the enabling clause (WTO 2005b).
The position of the USA is not yet clear. Their main interests in rules negotiations lie elsewhere (for example in anti-dumping). In theory, they could have an interest in also seeking provision of special and differential treatment in RTAs, as their own trade arrangements with developing countries, for example AGOA (the African Growth and Opportunity Act), are not in conformity with current rules. However, the seeking of waivers for these arrangements suggests that this might not be the case in practice.
Despite this, there does seem to be convergence around the need to introduce special and differential treatment in these rules, with even 'hardliners' who are looking for their most strict application now accepting this principle (WTO 2005a).
ACP countries with other WTO members now face a greater challenge of making this principle work in practice. The EC must hold firm to its commitments to put development first in EPAs and to ally with the ACP countries to make any necessary changes in WTO rules to ensure their legality. [Article 36, Cotonou Agreement]
* Christina Weller works for Christian Aid on issues of trade.
* Please send comments to [email protected]
References
African Union (AU) (2005) 'Ministerial declaration on EPA negotiations', 5-9 June 2005, Cairo, Egypt
Crawford J-A and Fiorentino R (2005) 'The changing landscape of regional trade agreements', Discussion Paper 8, WTO, Geneva
Onguglo B and Ito T (2003) 'Towards special and differential treatment in Article XXIV of GATT 1994 in the context of economic partnership agreements', Brussels: ACP Secretariat
Stevens, C and Kennan J, 2005, 'EU–ACP economic partnership agreements: the effects of reciprocity', Briefing Paper, June, Institute of Development Studies (IDS), University of Sussex
World Bank (2004) Global Economic Prospects 2004, Washington DC: World Bank
World Trade Organisation (WTO) (2002) 'Coverage, liberalisation process and transitional provisions in regional trade agreements: background survey by the secretariat, Geneva: WTO, Geneva
World Trade Organisation (WTO) (2005a) 'Submission on Regional Trade Agreements by Australia', TN/RL/W/180. Geneva: WTO
World Trade Organisation (WTO) (2005b) 'Submission on regional trade agreements by the European Communities', TN/RL/W/179. Geneva: WTO