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EU Offer Threatens Developing Countries

Who really speaks for Europe?

The latest set of proposals by the European Union at the World Trade Organisation which seeks to impose extreme levels of liberalisation on the developing countries is in stark contradiction to a recent speech made by the Trade Minister of the United Kingdom, which presently holds the Presidency of the European Union. This begs the question: Who really speaks for Europe? By Martin Khor.

* First priority for Hongkong
"My first priority for Hong Kong is that we must not force liberalisation on developing countries," said Alan Johnson, the UK's Secretary of Trade, in a speech in London on 20 October. "This is a development round. We must make sure that this is true. Developing countries must have flexibility to plan development in line with their own national priorities. We can't demand shock treatment liberalisation from them, when we have cherished old fashioned protectionism for ourselves."

Explaining what he meant by rejecting forced liberalisation, Johnson said: "We won't demand concessions from least developed countries" and for other developing countries "we must not prevent them engaging in deals that could offer huge opportunities. Instead, we should pursue policies that require less liberalisation from them than we concede to them; and ensure that they have the flexibility to plan and sequence liberalisation in line with national development plans."

Johnson did not link any EU agriculture offer to liberalisation in the South. On the contrary, he concluded his speech this way: "So, these are the three areas which I think can form the basis of a deal at Hong Kong. No forced liberalisation on the poorest countries. Big steps to cut trade distorting agricultural subsidies in the developed world. And abolishing all developed countries' trade distorting agricultural export support by 2010."

* Extreme and harsh demands
However, nine days later, on 28 October, the EU's Trade Commissioner Peter Mandelson, who is also British, announced the EU's latest proposal on agriculture, in which he made clear that a condition for its offers is that the developing countries take on extreme liberalisation commitments in services and non-agricultural market access (NAMA). If these EU demands are accepted, even in dilute form, they would threaten the business and the very survival of local manufacturing and services firms in developing countries.

Mandelson's demand for NAMA is that the developing countries slash their industrial tariffs using a Swiss formula with a coefficient of 10, which means that all their tariffs, except for a few, will be reduced to a range of 0-10%. For example, tariffs that are now 10% would be brought to 5%; tariffs that are 30% would be cut to 7.5%; tariffs that are 60% would now be 8.6% and tariffs above 60% would go down to about 9%. This drastic Swiss formula with coefficient 10 in NAMA is in stark contrast to the tariff formula proposed by the EU to cut its own tariffs in agriculture.

Some limited "flexibilities" would be available to developing countries to reduce a few of their tariff lines by less than this formula, said the EU paper. But in any event, all tariffs cannot exceed the level of 15%.

The EU also proposed a very harsh treatment of unbound tariffs. At present, countries are allowed not to "bind" in the WTO the tariffs of some of their products (usually sensitive items which need the most protection). Since they are not "bound", these tariffs can be set at or raised to any level.

The EU proposed to remove this flexibility in the harshest way. It wants all tariffs to be bound, and at very low levels. It proposed a system to mark up the applied rates of the unbound tariffs by 10 percentage points and then reduce them by the formula.
For example, a product with an applied tariff of 40% that is not bound would have 10 percentage points added to give it a base value of 50%. This would then be slashed by the formula, giving the result of the new tariff (now bound) of 8.3%.

Although many countries have liberalised their imports in recent years, they still keep moderate to high tariffs (some exceeding 50% or even 100%) for sensitive products to protect local industries. If all tariffs have to be brought down to the low levels demanded by the EU, many local firms would lose a large part of their business, or close down.

* Benchmarkingg in services
The EU demand in services is equally extreme. The present WTO rules on services allow developing countries the right to commit to open up various sub-sectors to the extent they consider appropriate, according to their national policies and interests.

Using this flexibility, developing countries have been cautious and have not opened up in many sectors in which local firms are unable to compete. Also, they have committed to open up only partially in some sectors, retaining some controls such as limits on foreign ownership.

Recently, the EU launched a campaign to establish a new "benchmarking" system in which developing countries must compulsorily commit to open up at least a certain number of services sub-sectors. Last Friday, it revealed the extent of its demands. It wants developing countries to increase liberalisation in 93 out of the 163 services sub-sectors (or 57%) classified in the WTO.

Further, it wants the WTO to launch "sectoral negotiations in key sectors to achieve quality offers for critical masses of WTO Members." By this it means that there will be additional efforts by (and thus pressures on) countries to open up in the most important sectors. The EU mentions financial services, telecommunications, distribution services, construction, computer and related services, environmental services, financial, maritime transport plus certain sub-sectors of professional and business services. According to the EU proposal, developing countries have to participate in sectoral negotiations in 8 out of 16 selected sub-sectors.

At many WTO meetings, the developing countries have voiced strong opposition to the benchmarking proposals of the EU and other developed countries. A joint statement was also issued by 14 developing countries issued a joint statement opposing any attempts to include the "benchmarking approach" (or the setting of targets) in the Ministerial Declaration that will be adopted at the WTO's Hong Kong meeting. Many others spoke in support of the 14 countries.

Despite this, the EU is insisting that its demands on services as well as on industrial tariffs be accepted, otherwise it will not keep to its agriculture offers.

* Dangerous blame game
The EU move is seen by many observers as deliberately asking for a "package", in which other partners have to accept its extreme demands in other areas (especially services and NAMA) so that it can shift the blame to them if its agriculture offers are rejected for being inadequate. The scene is thus set for continuing the "blame game" in which each party uses public relations to try to shift responsibility to the other parties in the event that the Hong Kong Ministerial meeting does not succeed.

It is an extremely dangerous game, because the future development of the developing countries is being used as pawns in a high-level bargaining process that at the moment involves only a few countries. The Doha talks have gone a long way down the hill from the high rhetoric of the Doha Declaration that launched them in 2001, when the Trade Ministers declared that the needs and interests of developing countries would be at the centre of the negotiations.

The developed countries keep talking about how this is a Development Round to benefit the developing countries. But in their concrete proposals and demands, they are cynically doing the opposite, as the EU's latest paper revealed. It could be that the UK Minister meant what he said. If so, the EU Trade Commissioner and his negotiators are doing the direct opposite of what the Minister, who chairs the EU Presidency on trade, is advocating.

(This paper has been presented by Martin Khor, Director of the Third World Network to a Public Hearing under the patronage of the Intergroup on Globalisation in the European Parliament in Brussels, organised by Friends of the Earth Europe, WIDE and Heinrich Böll Foundation, 9 November 2005.)

(Posted: 14 November 2005)

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