Oxfam: Outline WTO deal has major flaws for poor countries

“Rich countries have made some concessions but developing countries are being made to give much more.”
Isabel Mazzei
Head of Oxfam International’s office in Geneva
Published: 26 July 2008

The deal emerging in WTO talks has some serious flaws and falls far short of the pro-development reform that was originally promised, said international agency Oxfam today.  


Only half the critical issues have been addressed and while there have been some improvements in rich country positions, the demands on developing countries are still disproportionate and their potential impact uncertain until further details emerge.


Isabel Mazzei, Head of Oxfam International’s office in Geneva said: “There are some potentially serious pitfalls lurking in this outline agreement and it represents a serious watering down of original ambitions for trade reform to reduce poverty. For a deal to be worth welcoming there must be tighter disciplines on developed countries’ agricultural spending and poor countries must have proper flexibilities to promote rural livelihoods and adequate space to develop their industries.”


The highlights of the framework agreement, hammered out between 7 key players and then consulted on with a wider group, are as follows:


•    Cap on overall trade distorting farm subsidies of $14.4bn for the US and €22bn for EU


•    Developing countries can designate 12% of agricultural tariff lines as ‘special’, which means they will be subject to lower tariff cuts. 5% will face no cuts at all. These are products deemed vital for food security and rural livelihoods.


•    Developed countries can designate 4% of agricultural tariff lines as ‘sensitive’, again meaning they are subject to lower cuts. These are likely to include dairy and beef. 


•    The proposals on the Special Safeguard Mechanism (SSM), designed to allow poor countries to protect small farmers against agricultural import surges, would allow tariffs to go above Uruguay Round levels only if imports increased by 40% or more, and then only on 2.5% of tariff lines in any year.


•    Developing countries like India, Brazil, Indonesia, South Africa and Venezuela will have to cut industrial tariffs by around 57% on average, with no flexibilities. If they opt for slightly higher overall cuts (60% or above) they will have some more room to move, but still not enough to ensure they will be able to successfully industrialize.


•    Crucially and controversially, the flexibilities in the industrial market access deal (known as NAMA) cannot all be used for the same sector (‘anti-concentration’). At least 9% of the total value of the trade in any sector and 20% of tariff lines must be exempt from protection. This means a country could not amass flexibilities to fully protect its automobile industry, for example.


•    Countries are under pressure to open certain industrial sectors faster or deeper than others. They will be given fewer flexibilities if they don’t do this. This is despite the fact that participating in these so-called ‘sectoral’ initiatives was meant to be optional.


•    There will be a separate meeting on services liberalisation today. This includes sectors like banking, insurance, communications. Countries will be asked to signal the offers they intend to make.


Oxfam analysis:


•    The draft text caters to and reflects the concerns and sensitivities of major developed countries, while granting inadequate or ineffective instruments of flexibility for developing countries.


•    The US agriculture offer is an improvement but still a ‘glass half full’. A cap of $14.4bn will not require them to cut a cent from current spending, which stands at around $7bn. EU cap of €22bn may cut into current spending but there is still room for them to move.


•    Clearer disciplines on rich countries’ subsidies, including for specific products, are very important (and the details of these are yet to emerge). This is because both the EU and US are very good at exploiting loopholes in WTO rules. They have both used the WTO box system to reclassify subsidies rather than cutting them.


•    The so-called ‘Green Box’, for allegedly non-trade distorting subsidises, is being exploited by the EU in particular, which has shifted a huge amount of spending into this category. Oxfam analysis suggests subsidies in this box will still distort trade and hurt poor countries’ farmers.


•    The new US Farm Bill, recently passed by the US Congress, also exploits flexibilities in the box system, with the result that the overall level of subsidy spending may actually increase in the US.


•    Earlier in the week, the US indicated that it wanted immunity from future legal challenge at the WTO – a request which, if granted, could completely undermine the minimal benefits of reform by rendering WTO rules unenforceable.


•    The flexibilities for developing countries are inadequate. They are not what they were asking for and not enough in light of recent food price volatility.


•    The G33 group of food importing countries wanted 20% of tariff lines to be designated Special Products, with half of these subject to no cuts.


•    The SSM proposals are very problematic and far from what developing countries need.


•    The SSM has so many conditions attached as to render it operationally ineffective.


•    The WTO principle of Special and Differential Treatment for poorer countries is violated across the board.


•    The issue of US cotton subsidies has not been addressed, even though it was meant to be fast tracked as a priority and is of vital significance for the economies and people in a number of African countries, notably Burkina Faso, Mali, Chad and Benin.


•    The non-agricultural market access (NAMA) deal is very bad for poor countries. It is a direct violation of the principle of less than full reciprocity, in that it would require developing countries to make significantly bigger tariff reductions than developed.


•    The NAMA deal will undermine future industrial development in poor countries, locking them into low value economies. All now-industrialized countries, including the EU, US, Korea and Japan, used tariffs to protect infant industry. The imposition of big cuts and limited flexibilities now for poor countries is a case of “do as we say, not as we did”.


•    The International Trade Union Confederation (ITUC) estimates that the NAMA deal could lead to substantial job losses in developing countries – 200,000 in Argentina, as 1.2m in Brazil and 150,000 in Tunisia.


•    The link between sectorals and flexibilities is very problematic


Mazzei: “Rich countries have made some concessions but developing countries are being made to give much more. This is turning a ‘development round’ on its head.”


Ministers will continue negotiating in Geneva, with talks possibly lasting until Wednesday.