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The WTO Conference in Hong Kong :
What are the stakes for the European Union and France?

Author : Emile-Robert Perrin : Civil Administrator (Ministry for the Economy and Finance), at present Deputy Secretary General of the High Council for International Co-operation (Prime Minister).


Summary

The WTO ministerial conference that is to take place in Hong Kong, is a stage in the Doha Cycle negotiations that will be finalised at the end of 2006. However significant progress is expected to launch them on the path of success. The Doha programme for development is part of the work undertaken by the international community to promote growth – that the gradual liberalisation of trade over the last fifty years has enabled – and the reduction of poverty, notably via the improved integration of poor countries into the world economy. It is therefore question of continuing the liberalisation of trade in industrial goods, services, the main drivers of growth in the rich countries, to open up their agricultural markets and to plan for specific and differentiated approaches for the developing countries. The stakes of these negotiations are considerable: European Union Member States, especially France take full advantage of the opening up to trade whilst the WTO and the multilateral trading system have their credibility in the balance. And the developing countries have everything to lose in the case of failure. There is a margin for success, as long as the rich countries just like the poor ones succeed in identifying their true interests.

Mots clefs :
European Union - Trading Policy - World Trade Organisation

The representatives of the 148 Member States including a majority of developing countries of the WTO are meeting in Hong Kong between 13th and 18th December 2005 for their sixth inter-ministerial conference. The aim of this meeting is to progress multilateral trade negotiations that were launched during the ministerial conference in Doha – with the adoption of the “Doha Development Programme” - in November 2001, for these to be concluded at the end of 2006.

The task ahead and stakes at play are considerable. Since they were initiated the negotiations have encountered numerous obstacles that until now have prevented the settling of any type of agreement. The obstacles emanate from the complexity of the subjects in hand: deepening the liberalisation of exchange of industrial and agricultural products and services; ensuring an improved involvement of developing countries in the world economy, especially the poor countries.

These trade negotiations are part of a consensual drive on the part of the international community to put an end to poverty – 2.7 billion people live with less than two dollars per day – by 2015 and to make globalisation more all-embracing. Hence trade must therefore help in accomplishing the Millennium Development Goals.

The failure of the Hong Kong conference would be extremely detrimental in terms of the liberalisation of trade both for developing countries and for the credibility of the WTO which is undertaking its first ever worldwide set of negotiations.

This would be all the more regrettable since the international trading system and the development of trade have until now been beneficial for all countries.

Hence to overcome the dangers of failure it would be both appropriate to refocus negotiations on the initial aims and to consolidate them by adequate complementary policies in non-commercial areas.

I. The aims of the Doha programme: to contribute to world growth and to reduce poverty by the liberalisation of trade and to improve the inclusion of poor countries in the world’s economy.

1. World Trade Today: concentration of trade, explosion of the South.

Essentially all of the world’s trade occurs in Western Europe, Northern America, Japan and the emerging economies of Asia. Hence in 2003 Europe and America represented nearly half of world’s exports in merchandise and this proportion reaches nearly three quarters if we integrate Asia. At the other end of the scale Africa represents 2.3% of world merchandise exports, of which 0.5% for South Africa alone. Africa’s share has constantly decreased since 1990 even though its exports have increased in volume. The preponderance of the developed countries and those emerging in Asia can be explained notably by the development in the composition of trade: a low share in agricultural products (less than 10%), strong growth in manufactured goods and services. Moreover two thirds of world trade is undertaken between multinational companies and one third between these companies and their subsidiaries. And foreign investments mainly benefit emerging economies, developed countries apart. With the investment climate being what it is in Africa this continent holds little attraction for the latter reducing its capacity to offer manufactured goods on an international level.

It remains that for the last fifty years the progression of world trade has always remained higher than production (over the period 1990-2003, 6.02% per year on average versus 2.77%), hence comprising an important growth factor).

2. Trade negotiations aim to stimulate a growth in exchange

After developing countries have achieved the withdrawal or marginalised several themes included in the negotiations (competition, investment, public procurement, social and environmental standards) they concentrate on major themes:

agriculture, with the specific stakes involving access to markets, internal support and export competition, as well as bananas, sugar and cotton ;

access to non-agricultural markets that involve tariff and non-tariff obstacles notably in the sector of textiles and clothing but also in terms of access to the markets of developing countries and to trade between countries;

services and the closely related question of the temporary mobility of staff thereby created;

the facilitation of trade that covers a number of subjects such as the conditions for the circulation of merchandise, notably customs procedures, the trading capacities of developing countries and the technical assistance to provide them with, anti-dumping rules and regional agreements, “geographic indications” (a type of labelling of products), the agreement on intellectual property rights linked to trade, that notably raises the issue of access to medicines by developing countries;

the particular and differentiated treatment to grant to countries is a transversal issue in comparison with the other themes that include all positive discrimination – compensatory measures – with regard to these countries.

3. The main stakes of these negotiations

Apart from the technical aspects these trade negotiations have several matters at heart. Firstly the ability of the WTO – whose creation in 1995 introduced in depth changes in comparison with the GATT (General Agreements on Customs Tariffs and Trade, signed in 1947 between 23 countries) which became an almost universal organisation with 148 members and 27 candidate countries – to produce a consensus and yet bring about the development of the international trading system in terms of themes that are no long directly linked to trade. This points to the problem of a compromise between the requests made by the rich countries who wish to make progress in the liberalisation of industrial goods and services and those made by the developing countries who all claim – along with some developed countries – the liberalisation of the agricultural sector and for the poorest amongst them, the introduction of allowances in the agreements to enable them to adapt. But it is a question of knowing whether the exceptions to the general regime of international trade generate or not the risk of marginalisation rather than opportunities for integration.

II. The international trade system, globally a public good and a factor of world integration and therefore of stability, security and progress.

1. Trade, a consolidating factor of peace

Globalisation is an old phenomenon but it truly took off in the second half of the 19th century, drawn along by industrialisation of Europe and the USA. It was then typified by high growth in trade and the importance of the flow of capital and massive migration. This trend was halted by the “thirty years war” (1914-1945). Overall the ratio of trade over the GDP dropped from 22% in 1913 to 9% in the 1930’s whilst the world economy stagnated with an annual growth rate under 1% with a number of crises that led to disastrous social repercussions.

After the Second World War a new international consensus was created. It gave rise simultaneously with the UN to a new international economic and financial structure: a monitoring of monetary and financial relations ensured by the International Monetary Fund, whose task it is to encourage the growth of trade and the creation of the World Bank to ensure the reconstruction of economies after the war, and later to support developing countries, a failed attempt to create an international trade organisation which led nevertheless to the GATT. It provided the framework for global trade negotiations that led to major reductions in customs rights. This then led not only to an extended period of peace but also to the strong growth of trade, both in terms of volume and a relative share in world production. This procedure underwent a more marked development in Europe with the creation of the Common Market and the European Communities.

2. This positive development is the expression of the ratchet effect of the liberalisation of trade and the economic integration on growth and development.

The link between trade and growth is the subject of debate between economists, likewise the link between the GATT, then the WTO and the growth of world trade. Moreover liberalisation and globalisation generally are often believed to have helped in accentuating inequality. With these observations no one has come to the conclusion of questioning the idea of free exchange.

Without entering this debate however we must point out that inequalities between countries are above all the expression of differences in development on an historic level: since the industrial revolution that occurred in England in the middle of the 18th century countries progressed technically at varying paces. This has led to cumulative divergence in productivity and growth, with the result productive countries constantly increasing their investments. It has been the most open economies which have developed the mostly rapidly: China as from the 1980’s highlighted their opening up to external trade and foreign investments, India, likewise in the 1990’s, as well as Uganda and Vietnam, two countries with low revenue. Whilst the open countries experienced a rise in their growth levels, 5% an average annually in the 1990’s, non-open countries have witnessed a drop in their growth rates (0.8% in the 1980’s, 1.4% in the 1990’s). Finally although growth does not always equate with a reduction in internal equalities within countries, i.e. an improved distribution of revenue, it does however lead, as shown by Vietnam to an improvement in the standard of life of the poor and a decrease in the share of the population living below the poverty line.

Globalisation therefore offers economic chances even though the opening up to trade, a necessary condition for growth, does not suffice alone to encourage it. Innovations are the main drivers of growth, trade and investments being the means of distribution.

3. For the European Union as for France the Doha negotiations represent a decisive stake in terms of their interests.

The European Union is the leading trading power in the world with the Euro Zone achieving alone 15.3% of world exports, in the ilk of the USA. The latter is Europe’s leading trading partner with whom it accomplishes one quarter of its exports and 17% of its imports. Direct European investments in the USA amount to 860 billion dollars (in 2001); those undertaken by the USA in Europe represent 700 billion dollars. Finally both of these are essentially service economies. Asia represents another major market with a high growth level where the Europeans are in the main inadequately established. China is however the European Union’s third biggest trading partner – behind Japan and the USA – which is also the leading import country amongst the developing countries.

In terms of the importance of France’s international integration there is a plea in favour of the liberalisation of trade as there is of investments. It is the 5th export country in the world; one French person in four works directly or indirectly for the export industry. It is also one of the leading host countries for foreign investments as well as being one of the world’s leading investors. In 2001 foreign companies represented 17% of production and foreign investments 4% of the GDP. One employee in three worked for a company that was at least partly owned by foreign capital. Finally French companies, notably those on the CAC40 acquired a number of foreign companies via which they achieve a great share of their profits. With this a revival of protectionism in France would, due to the reciprocal action that it would create, have negative effects on the French economy. As for the dangers of relocation – not only is this overestimated, but it is only the counterbalance to the changes in productive systems in industrialised countries and to a certain degree, to the restrictive migratory policies and positively, to the survival process of a certain number of under-developed countries. The latter in return request goods and services from the rich countries that have a positive effect in terms of employment, as long as they adapt their production systems.

In the trade negotiations the European Union is therefore in favour of a gradual opening up of the markets on a multilateral basis, if this is governed by rules and the quest for coherence between trading policies and development to help developing countries to integrate into the world economy. One of the main stumbling blocks in these negotiations lies in agriculture whereby developing countries are demanding the dismantling of domestic and export subsidies which distort trade, as well as the opening up of the European market.

On this issue France has adopted a mainly defensive stance. It falls back on the reforms of 2003 on the uncoupling of subsidies with regard to production and on the logic of the “multifunctional nature” of agriculture (urban development, foodstuffs security) ; this position is shared by the European Union and the G10 (a group of 10 countries including notably, Switzerland, Norway, South Korea, Japan) and which is to be protected. This issue is biased; on the one hand we are now no longer living in a time when the Common Agricultural Policy was established, when foodstuffs security was the order of the day, whether this means supply or the protection of public health (the Union has an satisfactory normative tool) and undoubtedly there are other means to protect the countryside than running the risk of maintaining populations of Third States in a situation of destitution especially since in France the CAP only benefits a minority of farmers (25% of the biggest farms, concentrating 70% of subsidies); on the other hand it is however obvious that the opening up of the European market would be more to the benefit of the richest agricultural countries in the Cairns Group (that includes both developed and developing countries) than to poor countries. Finally France has an agricultural industry whose competitiveness across Europe enables it to take best advantage of an audacious reform to the CAP.

III. Giving ourselves the means to conclude the negotiations

1. Rising above the obstacles of content and form

Although opposing interests do not facilitate the achievement of a consensus – many groups of countries, with dual and even triple practices are an illustration of this -, the ongoing negotiations also reveal an enormous confusion of misunderstandings and stances. With regard to these developing countries is the greatest example: they try to maintain a common front by refusing, especially under pressure from China and India, any differentiation between their countries, whilst in the agricultural area as in services and industrial products some are major exporters whilst others are poor countries unable to benefit from the opening up to trade. The problem of cotton is a good example: however unfair American subsidies are to their producers, the extremely low level of production on the part of West African producers is such that they cannot meet the challenge of international competition, notably on the part of other developing countries. Likewise the reticence on the part of European countries and the USA to commit themselves to a process of reducing domestic support and subsidies to export in the agricultural area, which has now become the key issue in the negotiations – although American and European interests are different according to the sector – does not make the establishment of a compromise an easy task. And yet at the same time the offers to liberalise the services area, notably on the part of the developing countries have seemed insufficient in the eyes of the “rich countries.” This is largely due to the very mechanism of negotiation whereby “nothing is agreed as long as everything has not been agreed upon,” which leads everyone to withholding their concession until the last minute in an attempt to obtain the maximum in return.

The Americans, and the Europeans to a lesser degree, have another negotiating weapon: the regional trade agreements which enable the bilateral negotiation of the clauses that are most in harmony with their interests. There are about 200 in application.

In Europe the most well known is the Cotonou Agreement with the ACP countries (Africa, Caribbean, and Pacific), that plan for the signature of economic partnership agreements designed to establish totally free trade with the EU by 2020. American Congress has for its part just ratified an agreement of free trade with Central America. This highlights the interest, particularly for the developing countries to maintain the multilateral trading system under the patronage of the WTO, whose ombudsman has enabled them to defend their rights more than the developed countries have done.

In a context such as this the WTO management will have quite a task in refocusing negotiations on the essential issues – the continuation of liberalising trade in all areas, the adoption of transitory measures and therefore for a limited period of time, in favour of the poor countries – and to help the latter in identifying their true interests; this means a differentiation between developing countries according to the trade and production capabilities. With regard to the TSD after thirty years of failure on the part of poor countries and in view of their poor economic results, of a regime that has made trade asymmetry a permanent principle of exception it is clear that the exemptions to be planned in schedules and periods of adaptation must only be for short periods of time and be applied to restricted areas.

2. Creating conditions for success via support policies

Both the developed and developing countries need greater policy coherence to bear eventual costs of opening up to trade in order to take advantage of this.

In the European Union and more particularly in France the acceptance of the dangers of opening up to trade in order to take advantage of its benefits must be made via the reform of goods and services markets and the financial sector in order to promote the economy of knowledge that is the only means to encourage innovation, productivity and growth. This also implies the reform of social protection systems to improve incentives to work, protect and support those who “lose out” due to the reforms and safeguard these systems financially. This is what the Lisbon Strategy adopted in March 2000 by the European Council of Lisbon is about – but which until now has produced little result.

It is also up to the developed countries and the EU to keep their promises by increasing public development aid to achieve the Millennium Goals for Development. It will enable the funding of the reforms and investments designed to promote growth and the reduction of poverty in developing countries and help them take advantage of the liberalisation of trade.

>From this point of view France has agreed to increase significantly its public development aid. But the reserve demonstrated by other countries, notably the USA does not help in encouraging a favourable context for trade negotiations. In addition to this the rich countries should compensate, for a transitory period only, for the losses on the part of the poor countries due to the erosion of the trading preferences. In any case the effectiveness of aid is an issue here on which the rich countries must make progress within the ongoing work by the OECD.

It is up to the developing countries themselves particularly the poor countries to undertake all types of reform – investment climate, internal government, structural reform, investment in human capital and infrastructures etc …- with a view to encouraging growth and to enter the world economy. With regard to this it is also the task of the international financial institutions beyond the WTO to support this trend and help it with the transition costs, which they already do in part.

The means of reaching a conclusion at the trade negotiations are quite narrow. Nevertheless an agreement does seem possible on a multilateral liberalisation of markets, including the agricultural one, support of the poorest countries to enable them to improve their productivity and competitiveness as well as assuming the costs of adaptation that result from liberalisation. All of this will require deployment schedules, transition periods but the aim must clearly be to integrate all countries into a regulated world economy, and not to maintain them apart.

Even if the Doha Cycle succeeds the work of liberalising trade will not be complete however. There are a number of subjects that still have to be dealt with, including: monetary policies and exchange, public procurement, competition issues, social and environmental standards, investments...

For Europe and France if the choice made by developing countries lies in aid and trade it still remains that if these countries develop and succeed in producing the same amount as the developed countries and in selling these products this must be considered positive. It will reduce or phase out the need for aid by the achievement of its primary objective. So the rich countries will then be responsible for promoting innovation and positioning themselves on new activity niches.