Published:The News, September 11, 2005

By Pradeep S Mehta and Pranav Kumar

“WTO’s new Director General Pascal Lamy had a stormy relationship with G-20
while he was working as European Union’s trade commissioner. Will this change now?”

By the time this piece is published, G-20’s Bhurban ministerial meeting will be over. The meeting was held in the backdrop of two major developments — one negative and the other positive. First, the General Council (GC) meeting in July 2004 ended without World Trade Organization members agreeing to the ‘July Approximations’ that would have prepared them for the Hong Kong Ministerial Conference. Secondly, a new director-general, Pascal Lamy, assumed office at WTO on September 1, 2005. Unlike in the past, people had eagerly awaited Lamy’s arrival as new DG. This is due to the fact Lamy in his capacity as the European Union’s trade commissioner was deeply involved in WTO negotiations ever since the launch of the Doha round of international trade talks in November 2001. In fact, he was one of the main campaigners for the launch of a new round of trade negotiations at Doha.

It would be interesting to see how G-20 goes along with the new WTO chief. Lamy, in his earlier incarnation as the EU Trade Commissioner, had to face some tough time because of G-20 and its member countries. At Doha, though at that time G-20 had not come into being, he had to fight a tough battle with India (one of the leaders of G-20) over the launch of a new round. The end result went in his favour. Two years later at the Cancun Ministerial Conference in 2003, it was again Lamy versus G-20. This time, however, Lamy couldn’t sustain the G-20 pressure, which resulted in the failure of the ministerial meeting. Lastly, two of his three contenders for the post of WTO’s director general came from G-20 member nations — Brazil and Uruguay.

Lamy on his part left no stone unturned to break this formidable alliance of developing member nations. At Cancun, he never missed an opportunity to make India and Brazil realise their diverse interests on agriculture. Unlike India, Brazil being a member of the Cairns group wants ambitious trade liberalisation in agriculture. In addition, both the US and the EU tried to bully Argentina out of G-20. Argentina was facing serious economic crisis at that time and as a result relying heavily on IMF support. The EU even tried to divide G-20 ranks by taking up the route of a bilateral free trade agreement with Mercosur — a Latin American group which combines Brazil, Argentina, Paraguay and Uruguay. It’s no coincidence that all the members of Mercosur are also the members of G-20.

Now, the situation has changed. It is significantly different from what it was at Cancun. Lamy is no more the chief trade negotiator of the EU. Rather his main role as the WTO chief is to broker a deal through consultations. This is exactly what he said in his statement to the media upon taking office. “Members have the decision-making power. We can catalyze, we can broker. Sometimes, we can lead, but at the end of the day they take the decision, and that’s why I have to start this series of contacts,” Lamy said.

G-20 has also gained strength in the meanwhile. The group has got stronger by the day and is fast taking the shape of an institution instead of merely being an alliance.

The G-20 ministerial meeting at Bhurban, followed by similar sessions on other WTO-related agreements, is likely to prepare the groundwork for next month’s General Council meeting. After the failure of the July General Council meeting to produce ‘July Approximations’ WTO members as well as the secretariat of the organisation are under immense pressure to release a draft ministerial declaration at the next GC meeting in October.

Tim Groser, the outgoing chair of committee on agriculture special session, in his last status report on agriculture negotiations did not hesitate from admitting that the agriculture negotiations were stalled and this was a reality. Given this fact, the Burbhan G-20 meeting and agriculture negotiations special session taking place thereafter are of extreme importance not only for agriculture but for other issues as well.

Agriculture negotiations are facing problems in all their three pillars, but more so on market access and domestic support. On market access pillar, the chairman of the session used a G-20 proposal for a tariff reduction formula, submitted at the mini-ministerial in Dalian, China, as a starting point for the most recent consultations. The ministers too agreed to consider the G-20 proposal as a basis for future negotiations. But later G-10 (led by Switzerland, Norway and Japan) rejected the G-20 proposal and the EU proposed a substantially different structure. The end result on market access by July end was that the negotiations were back to the square one.

The G-20 proposal is really being seen as the middle ground between the two polarised camps in the market access negotiations. The EU and G-10 favour a more flexible Uruguay Round formula while the US, Australia and New Zealand favour the more difficult Swiss formula. The G-20 proposes to use a linear formula, which would involve cutting each tariff line, on each product, by an agreed percentage within each given band. The G-20 proposes five bands for developed countries and four bands for developing countries. Tariffs will be grouped according to their levels and put into the bands, accordingly (for instance, one band may consist of tariffs less than 20 per cent and another of those between 20 per cent and 40 per cent, etc).

Domestic support is another issue on which there has been no progress since the July agreement last year. The US and the EU rotate between stalling and playing a game of tit-for-tat. The EU sometime ago categorically said that since it had agreed to phase-out export subsidies, the world should not expect much from it on domestic support.

Chairman Groser in his status report released last month underlined the need for two decisions. First, in the amber box, where most trade-distorting support is classified, the questions remain where to place the three largest contributors — the US, the EU and Japan — in relation to each other before agreeing to the percentage cut to their subsidies. Secondly, decisions need to be taken on the disciplines to apply on Blue Box payments that will reinforce the reform objective. However, the US has resisted negotiating additional disciplines which will determine just how broad the new blue box will be.

In the green box, it is unlikely that any tighter disciplines will be put on developed country spending, although a number of programmes eligible for green box status have been shown to encourage production (and thereby distort trade). The chairman in his report only urged the countries already using heavy green box payments to examine some proposals sympathetically for clarifying the criteria that will not undermine their reforms. This is like asking them to make their best endeavour, which has not yielded results in the past.

Unlike the other two pillars, the picture is relatively clear on export competition. The commitment by the EU to agree to a credible end date for the elimination of export subsidies remains an important step. However, the EU rejected the G-20 call for elimination of direct export subsidies within a five year time period. Parallel commitments in area of export credits are likely to follow but outstanding issues remain in relation to State Trading Enterprises (STEs) and food aid. On food aid, the US is proving the major stumbling block to reform and in particular to discipline the commercial displacement that results from some food aid imports. The US is joined in this position by some of the recipients of US food aid, such as Mongolia, which fear that without food aid they will lack access to food on concessional terms, something on which they are now dependent to meet their food security needs.

Agriculture negotiations are really in a mess. With time these negotiations are getting further complex as more formulas and proposals are popping up every time. This was one reason why people were so eagerly waiting for the arrival of Lamy as the WTO head. Other than him, who else would know the intricacies of agriculture trade negotiations? Now, it remains a challenge for Lamy as to how he unties the Gordian knot of agriculture trade negotiations. He can use his influence to win over the US the EU and G-10 countries so that the imperiled Doha round is brought back on track. At the same time he will have to team up with the G-20 to win over other developing countries.