SUMMARY

The World Trade Organization released on August 31, 2003 the text of a letter sent by the Chairman of the General Council, Ambassador Carlos Perez Del Castillo, and the Director General, Dr. Supachai, to the Foreign Minister of Mexico, Dr. Louis Derbez, who will Chair the Ministerial Conference of the WTO in Cancun on September 10-14. The purpose of the letter is to convey and comment on the “Draft Cancun Ministerial Text” issued on August 24, which will be the basis for the negotiations in Cancun and for the final declaration which will emerge from it.

The letter and the draft text are the product of intensive consultations among delegations that have taken place in Geneva throughout the month of August. The product of these negotiations demonstrate that time has not been wasted; one major issue has been resolved (i.e. TRIPS and Public Health) and the remaining problems facing Ministers at Cancun have been clarified, so that the danger of a manifest failure (or washout) at the Cancun Conference, which many feared, is now greatly reduced.

Nevertheless, it is also clear that all of the major elements of the Doha Development Agenda on which decisions will be required at Cancun remain unresolved, and that Ministers will face the greatest difficulty in reaching agreement on them in a five-day meeting. The outcome is unclear - perhaps the result will be neither success nor failure, but enough progress in some key areas to provide the basis for intensified negotiations in the next phase. This implies, in our view, that the official deadline of December 2004 for conclusion of this Round will become clearly unattainable (although Governments may find it impossible to say this explicitly at this stage). If the 2004 deadline is missed, the most likely date for conclusion of the Round will be December 2006.

ANALYSIS

I. Draft Ministerial Text: A Basis for a Deal?

The draft declaration sent forward to Ministers covers 25 separate issues - that is, all of the issues contained in the Doha Development Agenda. Not all of them require decisions at Cancun. On TRIPS and Public Health, for example, Ministers will simply welcome the decision already taken, and on many other subjects (e.g. services, rules and dispute settlement negotiations, etc.) they will just take note of the progress made in negotiations so far.

However there are three areas of major importance and difficulty on which it is necessary for Ministers to agree on negotiating “modalities” in order for the phase of substantive and binding negotiations to begin. These are (i) Agriculture; (ii) Non-Agricultural Market Access, which means essentially tariffs and non-tariff barriers on industrial products; and the (iii) “Singapore Issues” - Investment, Competition Policy, Trade Facilitation and Transparency in Government Procurement.

The covering letter by Ambassador Castillo and Dr Supachai makes it clear that there is no agreement as yet on any of these issues. It was not possible during the final days of consultations in late August in Geneva to improve on the text of the draft declaration which had been circulated on August 24. Thus, delegations in Geneva have forwarded the text unchanged to Cancun. Ministers meeting from September 10-14 must now take up the issue.

II. TRIPS and Health: Done Deal a Boost to the Round’s Recovery

The issue which preoccupied Members and dominated the consultations at the end of August was agreement on the conditions under which poor countries should be allowed to use compulsory licenses to import generic copies of patented medicines for which they have no production capacity. Agreement had been delayed since December 2002 (the original deadline) because of fears that drugs produced for this purpose would be diverted onto world markets, thus damaging the revenues and research capacities of the pharmaceutical companies which own the patents.

Members concluded a deal on August 30 after several failed attempts during the week. A deal between the United States and African countries which are likely to be the major beneficiaries of such an agreement was derailed at the last moment by objections from the Philippines and Argentina. Withdrawal of these objections following strong pressure from African countries eliminated what would have been a serious embarrassment at Cancun: though it is not a major commercial issue its symbolic importance. If it had appeared that the US or other developed countries were impeding access by the poorest countries to essential medicines, could have prejudiced the entire Ministerial Conference.

The Decision taken on 30 August (WT/L/540) is accompanied by an explanatory statement by the Chairman of the General Council which in effect interprets the decision. It was the wish of certain countries to insert their own interpretation which caused the final crisis. The success of this deal clearly depends to some extent on good-faith implementation: “all reasonable measures” should be taken by governments to prevent the diversion onto other markets of medicines produced under compulsory license for distribution in the poorest countries. (Please see our first Special Report on Cancun.)

III. Agriculture: Tackling the Three-Hundred Pound (Pillar) Gorilla

It is universally recognized that the critical issue is agriculture and that if there is no agreement on this there will be none on any other of the controversial subjects. For many countries reform and liberalization of agricultural policies is the major priority in this Round and therefore at Cancun. Members intended at Doha to have already agreed at Cancun to the modalities which will govern the final stage of bargaining, and some hoped that if they were sufficiently precise it would be possible to complete the deal by the end of 2004.

However, the draft modalities proposed in March 2003 by the Chairman of the agriculture negotiations, Stuart Harbinson, proved too detailed to be acceptable to any of the major interest groups. Leaving aside specific objections, of which there were many, their acceptance would in effect have determined the outcome of the entire negotiation but for relatively minor outstanding points. No participant, and particularly traditional protectionist Members like the EU, Japan and others under heavy pressure from domestic farm lobbies, could have made such concessions at this half-way stage of the Round.

The objective for Cancun has therefore been modified. Recognizing that detailed modalities are not attainable, what is now proposed is a “framework” which will “direct the subsequent work towards establishment of full modalities.” The objective, therefore, is clearly less ambitious but nonetheless important in order to add momentum to these difficult negotiations.

The draft submitted by Ambassador Castillo is based mainly on a joint proposal submitted by the US and the EU, but also takes into account a counter-proposal by a group of 20 developing countries (“G-20”) led by Brazil, China and India. The Chairman’s draft presents options in all “three pillars” of agricultural reform (i.e., market access, domestic support and export competition) and other issues (e.g. non-trade concerns, extension of geographical indications, etc.), but leaves open a wide range of possible outcomes.

Members from both major groupings have criticized the Chairman’s draft for not containing specific figures for the reduction of export subsidies, domestic support and tariffs - but leaving these up for negotiation after the framework is agreed. Also, the extent of special and differential treatment for developing countries, and the tariff reduction formula to be applied by them, are left open, as are the conditions and coverage of a special agriculture safeguard mechanism which is to be established for use by developing countries. (Please see our second Special Report on Cancun.)

Agreement on such a framework at Cancun would clearly leave a great deal to be decided, and there is much discussion in Geneva of the possible need for a further Ministerial meeting, perhaps in January 2004, at which detailed modalities would be agreed. Alternatively - and perhaps preferably, given the complexities of Ministerial conferences - such a meeting might be held at high official level. In either case, if the real decision on agricultural modalities were to be deferred in this way it seems unlikely that final decisions could be taken at Cancun on the modalities for tariff negotiations and the Singapore issues.

IV. Non-Agricultural Market Access: A Less Ambitious Framework

The draft Ministerial text also contains a “framework” for the negotiations on tariffs and non-tariff barriers, on the basis of which detailed modalities will be established. This also therefore represents a scaling-down of ambitions for Cancun. The framework is closely based on the draft modalities proposed by Ambassador Girard of Switzerland, the Chairman of the negotiating group, but again excludes much of the detail. There is disagreement on two key issues: (i) the nature of the tariff-cutting formula to be employed; and (ii) which sectoral negotiations will be covered.

Regarding the tariff cutting formulas, developing countries in general seek a fairly low level of ambition, especially where their own tariffs are concerned, while the developed countries look for more. On the sectoral component of the negotiations, it is accepted that there should be some sectors, particularly involving products of export interest to developing countries, on which tariffs should be eliminated. Girard had proposed seven product groups (i.e., electronics and electrical goods; fish and fish products; footwear; leather goods; motor vehicle parts and components; stones, gems and precious metals; and textiles and clothing) for zero duties. Though these were selected as being advantageous to developing countries, it is being argued, by developing countries, that the elimination of tariffs on them should be voluntary, not mandatory (which would seem to defeat the object of the exercise; any country can voluntarily eliminate tariffs at any time).

Developed countries, including the US seek a far more ambitious approach to tariff liberalization and attention to non-tariff barriers. Although they support flexibility for developing countries to some extent, they have warned that they will not support a double standard in which developing countries could take advantage of far less ambitious tariff reduction formulas.

It is clear that final agreement on, and the level of ambition of, the tariff modalities will depend on the outcome on agriculture, as will the results in negotiations in other areas, such as trade in services. Major developing countries like Brazil have made it explicit that their contribution in all other areas will depend on a satisfactory outcome in agriculture.

V. Singapore Issues: To Launch or Not to Launch? - Those Are the Four Questions

The four “Singapore Issues” - Investment, Competition Policy, Trade Facilitation and Transparency in Government Procurement - have hitherto been treated alike at the insistence of the EU and Japan, which have been the main demandeurs for negotiations on investment and competition and have feared that to separate them from the less controversial issues of trade facilitation and government procurement would be to surrender any hope of agreement to negotiate on them.

Investment in particular is strongly opposed by some developing countries, notably by India, which has said that in no circumstances will it agree to launch negotiations on the subject in Cancun. The United States, while not a demandeur for either investment or competition, has until now given quiet support to the EU - as for example at the Doha Ministerial in 2001. The US has now broken ranks, indicating that it does not wish to see negotiations on trade facilitation and government procurement held up by disagreement on the other two. The first question regarding these subjects at Cancun will therefore be whether to unbundle them.

The draft Ministerial text contains virtually identical texts on each of the four issues, presenting two stark alternatives - to commence negotiations on the basis of modalities annexed to the declaration or to remit the subject to officials for further clarification. The draft modalities are in each case very short: all of them stress the needs of developing countries for technical assistance and capacity building and for flexibility in the application of any agreements to them. Only the draft on investment contains any detail on the elements to be contained in an agreement.

It is believed by most Geneva delegates that there is no possibility of agreement at Cancun to launch negotiations on investment. Competition policy will also be difficult. Much will depend on the tactics of the EU and Japan, as to whether trade facilitation and procurement will be allowed to go forward while investment and probably competition are held back for further study. If the EU and Japan continue to insist on keeping the four issues together, them Members might be resigned to relegate all four issues to further study without any negotiating mandate.

VI. Special and Differential Treatment: Not Special and Different Enough?

The draft Ministerial text contains 21 decisions for adoption by Ministers regarding the special and differential treatment of developing countries under various WTO Agreements. These are the product of intensive consultations carried out by Ambassador Perez Del Castillo. Although many of the issues and demands raised by developing countries over the past four years regarding the “implementation” of agreements remain open, the decisions to be taken at Cancun should suffice to prevent disagreement over the implementation agenda from becoming a major problem and a threat to the conference. Nevertheless, some developing countries and groupings are still reluctant to adopt the 21 issues on which consensus has been achieved, and seek additional flexibility on up to an additional 70 outstanding issues identified in the Doha Ministerial texts.

OUTLOOK

Although the level of ambition for this Cancun Ministerial Conference has been substantially reduced by the adoption of the “framework” approach to agriculture and industrial tariffs, there will still be intense difficulty in reaching agreement on these issues and the Singapore Issues in only five days.

Success at Cancun will depend on the handling of agriculture - by far the most critical and difficult issue next week, if not the Round as a whole. Early progress on agriculture negotiations, perhaps facilitated by movement on the part of the EU, would generate progress on the other difficult issues. However, if agriculture is allowed to drag until the final day in the normal manner of WTO Ministerial meetings - the issue could become impossible to resolve simply for lack of time.

Members intend to use at Cancun the technique at Doha (successfully), of inviting some Ministers to act as “Friends of the Chair” in leading consultations on key issues. This enables work to proceed simultaneously on several different fronts. Nevertheless, it will still be agriculture which sets the pace of all other negotiations.

At least, Members will succeed in welcoming Nepal and Cambodia as new Members - important developments, but not the same magnitude of publicity as China concluding its membership at Doha.

Ministers from 146 WTO Members will soon proceed to the sandy shores of Cancun to either make waves and give much needed momentum to the Round, or face an embarassing wipeout. If Cancun turns out to be a wipeout, Members might have to wait a long time to catch the next big wave