WTO’s Hong Kong Declaration

The below mentioned article provides a summary on WTO’s Hong Kong declaration.

After failures at Seattle and Cancun, the ministerial meeting in Hong Kong in December 2005 negotiated trade liberalisation to conclude Doha Round on Development.

In Nov. 2001 in the Ministerial meeting at Doha the developed countries (the US and EU) and developing countries, it was agreed to start new round of talks to promote development through trade liberalisation.

Hence the name ‘Doha Round on Development’. The two successive ministerial meetings at Seattle and Cancun failed to arrive at an agreement acceptable to the LDCs and developing countries. It may be noted that Uruguay Round of 1994 resulted in setting up of WTO in Jan. 1995. It may be further noted that the agenda of Uruguay Round as well as its outcome discriminated against developing countries.

The trade negotiations of Doha Round are meant to remove this discrimination against the developing countries’. During the negotiations developed countries have been raising irrelevant issues so as to protect their agriculture and textiles industry through tariffs and non-tariff barriers (NTB) so as to prevent free and fair trade from the viewpoint of developing countries.

On the other hand, at the conclusion of Uruguay Round, the developed countries succeeded in extracting an agreement regarding the inclusion of services and intellectual property rights – the two issues which concern them most. In return for this agreement on services and intellectual property rights – they agreed to eliminate over a period of 10 years high tariff and non-tariff barriers on textiles, agricultural products, sugar- the products which are of special interest for developing countries.

However, the developed countries did not fulfill promise on one pro-text or the other. Commenting on this duplicity on the part of developed countries Stiglitz writes, “When the Uruguay Round began there was a grand bargain to expand the trade agenda to include services and intellectual property rights—the two issues which are of particular concern to developed countries”. In return developed countries were to make major concessions on agriculture—the livelihood of the vast majority of peoples in developing countries — and textile quota the only trade area (besides sugur) in which quantitative restrictions persist.

In the end developed countries got what they wanted, and developing countries were told to be patient: eventually the developed countries would fulfill their part of the deal. Even as the rich countries urged developing countries to make quick adjustments, they claimed that they needed a decade to make the transition to a quota-free- textile regime. In truth they were buying time; they did nothing for a decade and when the quota finally ended last January (i.e., Jan. 2005) they pleaded they were still not prepared and thus concluded a three year extension with China.

Singapore Conference was meant to negotiate trade issues relating to agriculture, non- agriculture services and intellectual property rights so as achieve trade liberalisation for promoting economic development. The problem with regard to agriculture is that the developed countries, the US and EU provide export subsidies and also give financial support on a large scale to their agriculture resulting in cheapening of their agricultural products.

This distorts trade between the countries as it prevents market access in developed countries for products of developing countries which have comparative advantage in their production. Developing countries discovered that their gain from trade with developed countries were far less than they were made out to be and LDCs (Least Developed Countries) felt than they were actually worse off by agreeing in Uruguay Round of talks resulting in establishment WTO. Thus developed countries lost their credibility.

With the above in background the Ministerial Conference at Hong Kong adopted a declaration which called for conclusion in 2006 of trade negotiations launched at Doha in Nov. 2001. This Hong Kong declaration established timeframe and targets in specific areas of trade liberalisation.

The following agreement which addresses some of the concerns of developing countries related to agriculture was reached:

1. First it was resolved to complete Doha Round on Development in 2006 and conclude negotiations for liberalisation of trade between members of WTO.

2. Elimination of Agricultural Export Subsidies. The agreement was reached in Hong Kong that export subsidies given by the developed countries will be eliminated by the year 2013 in a phased manner. While the earlier proposal was to phase these export subsidies by 2010, the EU the largest provider of export subsidies sought a longer phase-out period.

Thus, the agreed end-date of 2013 gives the EU a level of comfort of phasing out its export subsidies as a part of its next phase of reforms of the common agricultural policy (CAP). This is an achievement of the developing countries as it was contended earlier by its the earlier Trade Commissioner of WTO Pascal Lamy that Doha declaration had not mandated elimination of export subsidies in the developed countries. It may be noted further that under the agreement developing countries like India will continue to have the right to provide marketing and transport subsidies on agricultural exports for 5 years beyond the date for elimination of all forms of subsidies.

Agricultural Tariffs:

To increase market access in the developed countries for the agricultural products of developing countries, the Hong Kong declaration has agreed to banding approach suggested by the group G-20 of developing Countries, According to this approach, agricultural tariffs have been put in four bands ranging from the lower to the high level, with the provision that tariff in the higher band will be subject to deeper cuts.

The extent of cut in agricultural tariffs in each band is yet to be agreed upon in future negotiations. The higher cuts in tariffs in the higher bands will greatly bring down the agricultural tariffs of the developed countries and will therefore improve market access for agricultural exports of the developing countries in the developed industrialized economies.

However, it will also mean substantial reduction in agricultural tariffs of developing countries such as India who have higher tariff bindings. India’s tariff bindings for agricultural products are in the range 100 to 150 per cent and will therefore require to reduction about 35 per cent which is quite large.

However, in the Hong Kong declaration, the developing countries have been provided some special safeguards in connection with the cuts in agricultural tariffs. Firstly, the developing countries have been given the flexibility to self-designate an appropriate number of tariff lines as special products (SPs). However, the self-designation of a number of tariff lines as special products will require the satisfaction of some criteria such as needs of food security, livelihood security and rural development.

Secondly, under Hong Kong agreement on agriculture (AoA) the developing countries are also entitled to adopt Special Safeguard Mechanism (SSM) based on import quantities and price triggers. This means under special safeguard mechanism, developing countries can raise their tariff on imports of agricultural products in the event of a sudden increase in imports or fall in prices of imports. However, they are not allowed to reintroduce quantitative restrictions (QRs) which both the developed and developing countries have already eliminated

Domestic Support for Agriculture:

In Hong Kong developed countries agreed to the proposal of G-20 (i.e., the group of developing countries including India and Brazil) for reduction of trade-distorting agricultural subsides with higher linear cuts in higher bands.

However, the extent of reduction in these subsidies was left for future negotiations. It may be noted that Blue Box and Green Box agricultural subsidies have been excluded from the scope of reduction. But there is a provision for review of the criteria of the Green Box subsidies in which most of the EU domestic subsidies are included.

In Doha Round on development it was agreed to reduce the minimum level of support (de minimis) allowed to be exempted from reduction for both developed and developing countries. Developing countries are entitled to a de minimis of 10 per cent of the value of total production. In Hong Kong it was agreed that those developing countries whose domestic support to agriculture was below 10 per cent of the value of production and therefore no commitment to reduce them will be exempt from reductions in de minimis as well as overall trade-distorting agricultural subsidies.

Under the Hong Kong agreement export subsidies on cotton will be eliminated by developed countries in 2006 and trade distorting domestic subsidies on agricultural products will be reduced drastically over a starter period of time.

Non Agricultural Market Access (NAMA):

The Hong Kong declaration provides for the reduction or elimination of tariffs including peak levels of tariffs, high levels of tariffs and tariff escalation on non-agricultural goods, particularly on the products of exports which are of great interest for the developing countries.

In this context of market access for non-agricultural products it has been agreed to apply Swis formula. According to this formula, deeper cuts in tariff rates on a line-by-line basis have to be made by countries levying higher tariffs. How larger will be the cut in tariff levels will depend on the coefficients to be agreed.

However, in Hong Kong declaration the provision for special and differential treatment (S&DT) and less than full reciprocity for developing countries have been included. According to this provision, a certain proportion of tariff lines of the developing countries may be subjected to tariff cuts lower than that permitted by applying Swiss formula and a ascertain percentage of the tariff lines of these countries may be kept unbound (that is, without any binding for tariff reduction).

Thus flexibilities granted under S&DT include the longer implementation period as well as applying less than Swis formula cuts or no cuts for a specified list of tariff lines as unbound. These have been declared as an integral part of the modalities for negotiations under NAMA. On the sectoral initiatives, India and most of the developing countries has emphasized that formula approach should be the main modality for negotiations and sectoral initiative can only be a voluntary exercise.

Services:

In the Hong Kong declaration it has been decided to achieve a higher level of liberalisation of trade in services and towards that negotiations will be intensified. New date lines have been fixed for submission of revised offer and draft schedules of commitments by the member countries.

These negotiations on trade in services will be conducted in accordance with principle of GATS and the Guidelines and Procedures for the Negotiations on Trade in Services. According to GATS and these guidelines, the developing countries are required to liberalise the service sectors and modes of supply of their own choice and determine the extent of liberalisation.

India is particularly concerned with liberalisation of trade in services as it wants to increase its access to the markets of developed countries for the services such as ITES in which it has a comparative advantage. In services, India submitted its Revised offer in August 2005. Eleven service sectors and 94 sub-sectors are covered in the Revised offer.

It is thus clear that with regard the services much depends on revised services offer by the member countries and the future negotiations.

Market Access for LDCs:

An important feature of Hong Kong Declaration is that it was decided to provide duty-free and quota free market access for all LDCs (Least Developed Countries) products to all developed countries. The developing countries which are in a position to provide such access to LDCs are expected to do so.

Agreement on TRIPS:

On December 6, 2005, the General Council of WTO adopted the amendment to the TRIPS to address public health concerns of developing countries which was reaffirmed by Hong Kong Declaration. This amendment enables manufacturing and export of pharmaceutical products under compulsory license to countries with limited or no manufacturing capacities in the pharmaceutical sectors.

On Trips, CBD (Convention of Bio-Diversity) on relationship and protection of traditional knowledge, India along with a number of other developing countries which are rich in bio-diversity proposed that the Trips Agreement of WTO should be amended to provide for:

(i) Disclosure of source of the traditional knowledge used in the invention;

(ii) Disclosure of evidence of prior informed consent under the relevant national regime; and

(iii) Disclosure of evidence of benefit sharing under the relevant national regime. With this amendment the use of India’s natural herbs such as Neem, Arjuna, Ashavgandha and others for preparing medicines and also certain plant varieties such as Basmati rice will get protection from the use by multinational companies.