The key players in the negotiations, known as the G6, are Brazil and India (representing the G20 group of developing countries), the EU, the US, Australia (representing the Cairns group of agricultural exporters) and Japan (representing the G10 group of net agricultural importers). The major sticking points in their discussions are:
Agricultural market access:
The US currently has much lower agricultural tariffs than the EU or advanced developing economies. It therefore wanted a 90% reduction of highest farm tariffs and an average tariff cut of 66% for developed countries. While the EU agreed to raise its initial offer (of a 39% average tariff cut) to close to the G20 proposal of 54%, this was deemed insufficient by the US.
The US also accused the EU of using sensitive products to counterbalance the level of new market access it was offering, because the EU wished to maintain higher protection levels for 8% of its farm products. The EU insists that it is already very open to agricultural exports from the developing world, providing tariff and quota free access to the 50 LDCs through its Everything But Arms system and absorbing more farm goods from LDCs than the rest of the developed world combined.
Although agriculture makes up only 8% of world trade, it represents the main income source for about 2.5 billion people, mainly in developing countries. However, farmers from poor countries are unable to compete with vastly subsidised exports from the EU, US and Japan.
The EU agreed to slash its overall trade-distorting subsidies (OTDS) by 75%, as the G20 group of developing countries were requesting. This would have seen EU OTDS levels reduced from €58.1 billion in actual spending in 2004 to a future cap of around €28 billion.
The US proposal to reduce its OTDS by 53% would have cut its WTO-permitted spending limit from $48.2 billion to roughly $22.7 billion, but the EU and G20 complained that this could actually lead to an increase in US farm subsidies as the latter actually only paid out $19.7 billion in such payments in 2005. They demanded minimum cuts of 60% and 75% respectively, but the US refused to give in.
Industrial market access:
Negotiations on non-agricultural market access (NAMA) were pushed forward by the EU and US who were looking to gain access to the huge markets of emerging economies like China and Brazil. Meanwhile, developing countries were keen to protect their infant industries and maintain their preferential access to rich countries.
Negotiators finally agreed that industrial tariffs should be cut according to the so-called ‘Swiss formula’, entailing higher cuts for the highest tariffs and the introduction of a tariff ceiling; but they failed to agree on the actual structure of the reduction formula or on the level of the cap. The EU and the US had suggested that maximum rates on manufactured goods should be 10% for developed countries and 15% for developing countries. Developing countries, on the other hand, wanted a tariff cap of 30% for themselves, which would entail softer average cuts.
While the EU was prepared to permit an intermediate tariff cap of 20% for developing countries, the US continued to call for a maximum difference of 5 percentage points between developed and developing country coefficients.
An ambitious deal on service liberalisation was of key interest to the EU because trade in services makes up 75% of its economy. Increased trade in services would also contribute to development goals as improved transport, IT and telecommunications, banking and insurance sectors form the backbone of a growing economy.
However, trade in services faces considerable restrictions, mostly based on national regulations, such as technical standards or licensing requirements and procedures.
According to a study by CEPII, more could be gained, for developing and developed countries alike, from a 25% cut of the barriers in services than from a 70% tariff cut in agriculture in the North and a 50% cut in the South. The World Bank estimates that developing countries could gain nearly $900 billion in annual income from elimination of their barriers to trade in services.
Discussions in the WTO focused on establishing disciplines to ensure that domestic regulatory measures do not create unnecessary barriers to trade. Significant progress was made in this area but negotiations on market access stood still as a result of the lack of movement on agricultural and industrial market access.
Numerous studies show that trade facilitation is a ‘win-win game’. Greater transparency and procedural uniformity at country borders could generate twice as much gain to GDP than tariff liberalisation, especially for developing countries because of their comparatively less efficient customs administrations.
Despite the suspension of the DDA, EU Trade Commissioner Peter Mandelson has called for WTO Members to pursue negotiations on a trade facilitation agreement and on an Aid for Trade package to address developing countries’ capacity constraints and help them deal with the costs of customs modernisation.