Reflections on the Occasion of the VI Ministerial Conference of the World Trade Organization, Hong Kong, 13-18 December 2005
The following paper was distributed by the Vatican representatives to the WTO meeting in Hong Kong, December 2005.
The Holy See follows with great interest the ongoing trade talks and desires on this occasion of the VI Ministerial Conference to express some reflections on key issues in the discussions of the Doha Development Agenda (DDA). In so doing, the Holy See strives to make its contribution in keeping with its nature.
The Doha Round of negotiations offers an occasion to pursue the common good of the entire human family. By the common good is intended the good of the whole human person and of all human beings, something quite different from an individualistic conception of well-being. Indeed, the common good does not consist in the simple sum of the particular goods of each subject of a social entity. Belonging to everyone and to each person, it is and remains “common” because it is indivisible and because only together it is possible to attain it, increase it and safeguard its effectiveness, with regard also to the future(1).
At the core of all social and economic relations, and hence of trade relations, is found the human person, with dignity and inalienable human rights. Trade liberalization is not to be enthroned as an end in itself but as a means for achieving ultimate objectives such as the integral development of each and every person along with the reduction of poverty. Therefore, international trade rules should be aligned with a wider commitment to human development and to the lifting of living standards of the poor.
At the core of the Doha Development Round is “development” and it is development that must be the thread that runs through WTO negotiations. All States should maximize the development outcome of every sector and of the Doha Round as a whole.
Nations involved in the international trade system are far from equal in their economic and human development conditions. Uniform rules for unequal trading partners produce unequal outcomes. WTO rules, to be fair, should be a function of the varying economic conditions and stages of development of the States.
Therefore in keeping with the common good, Special and Differential Treatment provisions should allow flexibility to developing countries for joining in, or opting out, of proposed rules of the WTO. Rules are essential that permit greater policy space for them to pursue their development needs and priorities in the areas of food, health, education, employment, environment, etc.
Technical assistance and capacity building is also needed by these countries to implement their WTO obligations and to have equal opportunities of achieving trade benefits. In this regard,
consideration should be given for an “Aid for Trade Fund” to provide developing countries with the finances needed to address adjustment costs arising from the Doha negotiations as well as their supply side constraints. Indeed, weak economies urgently need support for improving their supply capacity and trade-related infrastructure in order to be able to translate improved market access into increased ports.
The successful delivery of technical assistance from developed to developing countries is of particular importance for what concerns trade facilitation. Improved and modernized customs procedures are the key for a deeper integration of poor countries in the international trade system and, hence, a tool for greater trade benefits.
Agriculture still represents a key economic sector of developing countries and has the potential to lift millions of the world’s poorest out of destitution. It is the moral and economic litmus test for a successful Doha Round. Progress has been made but more must be done. Agriculture is today not only crucial for the lives of so many small farmers and their families, but also for the wider economic growth and sustainable development in developing countries.
2.1. Market Access
At present, high tariff barriers to market entry for agricultural products from developing countries are particularly harmful, since most of these countries have comparative advantage in the production and export of such products. Remaining faithful to the Doha commitment of improving substantially market access, States should converge on the structure of a tiered formula for tariff cuts together with the elaboration of certain flexibilities, in particular
the selection and treatment of sensitive products and of Special Products (SP).
In this context, developing countries would not be required to make commitments incompatible with their economic status and development needs. Special and differential treatment provisions would function to prevent developing countries from liberalizing imports at a rate inconsistent with their development needs.
Moreover, least developed countries should be granted bound duty-free and quota-free access to markets for all exports. Developing countries in a position to do so should also offer preferential market access to Least Developed Countries (LDCs). Further, such a bound duty-free and quota-free treatment should be coupled with standards-related capacity building in LDCs.
The Agreement on Sanitary and Phytosanitary Measures (SPS) and the Agreement on Technical Barriers to Trade (TBT) pursue the aim of protecting health and security of agriculture and food products. However, LDCs often lack the resources and capability to implement these technical standards. Further, they lack the institutional capacity to participate effectively in the international organizations and programs overseeing these standards. Hence, such technical standards on products are experienced by LDCs as non-tariff barriers to market access. Assistance to developing countries is needed so as to allow for their efforts to adjust to the product standards.
Liberalization in agriculture can reduce or eliminate the benefits experienced by some developing countries within preferential trade schemes. Such countries will be exposed to competition from more competitive suppliers and this can result in substantial losses. The
challenge is to maintain those preferential trade schemes without harming other poor countries, until beneficiary members are able to transform their rural economies.
2.2. Domestic Support
While acknowledging the legitimacy of national policies for agricultural development, agricultural support is no longer accepted at its actual levels in developed countries. Paradoxically, such support still may have an importance for the agricultural development of the poorest countries and as a provisional help to gain a competitive edge in international markets. In this case, the agricultural sector of LDCs needs more support, while the developed countries need less.
The Doha Declaration committed States to substantial reductions in trade-distorting domestic support. Subsequent decisions provided that the reductions were to be achieved on the basis of a tiered formula for final bound total levels of the Aggregate Measure of Support (AMS), and on this permitted minimis levels. Further, it was decided that the Blue Box and the Green Box would be reviewed and clarified. However, the review process of Green Box and Blue Box criteria should not enable developed countries to continue their support policies simply by restructuring, rather than cutting, overall support. The Green Box criteria review should rather be an occasion for making this Box more development-friendly.
2.3. Export Competition
Together with domestic support, export subsidies in developed countries distort trade in agricultural products. Such unfair trade measures are responsible for lowering the prices for such products on the world markets.
Many developing countries and LDCs face the problem of falling prices for non-oil commodity exports and these falling prices threaten their food security and the livelihood of their citizens. The majority of these countries depend on agricultural exports for more than half their export earnings. Although many factors have an influence on the declining trend of non-oil commodity prices, agricultural protectionism tends to severely aggravate the problem. For example, subsidies from the developed countries have driven down world cotton prices and negatively affected the lives of cotton farmers, their families and communities. These farmers are unable to compete on the global market against heavily subsidized northern products. This is particularly harmful to them since they depend on cotton as their main, and in some cases, only source of income. Recent studies on the issue have demonstrated that the removal of protection and support in the cotton sector could increase Africa’s cotton exports by 13 percent(2).
WTO States have committed themselves to eliminate export subsidies by a date to be determined. However, it is of vital importance that export subsidies maintained by developed countries be totally and definitely eliminated within a short period of time. In a parallel process export state trading enterprises, export credits and excessive food aid must be addressed.
In emergency situations food aid can do much good for recipient countries. However, it should not be used by donor countries so as to result in commercial displacement of food commodities. In the long-term, food security problems will not be solved by increasing food aid dependency of entire populations. ”[I]t is also important for the populations burdened by the effects of malnutrition and hunger to receive an education that prepares them to provide healthy and sufficient foodstuffs on their own” (FAO Headquarter, 5 December 1992, n.4).
3. Non-Agricultural Market Access
Tariffs between industrialized countries have fallen sharply. Still, industrialized countries reserve some of their highest import barriers for industrial goods from the world’s poorest countries. At the same time, developing countries tend to impose high trade barriers on trade in industrialized products with each other.
The capacity of the poor world to use trade as a means for lifting the living standards of their citizens depends on the value-added to the volume of their production and export. It is the value- added through manufacturing production that has the greatest influence on the distribution of global income. Hence, in order to have equal opportunities to benefit from trade, as that of developed countries, developing countries should have wider access to valued-added markets for manufactured goods.
Developed countries apply low tariffs to raw commodities but rapidly rising tariff rates to intermediate or final products. Such tariff escalation hinders the efforts of developing countries to add more value to their production and exportation. Moreover, export of value-added manufactured goods by developing countries is also indispensable for financing imports of new technology and know-how, necessary for their movement towards skill-intensive manufactured goods.
In the end, these are the products whose export can most favor the economic growth and poverty reduction in poor countries. Hence, in accord with the duty of solidarity WTO Member States, especially the developed countries, should promote the transfer of technology and know-ledge to the weak economies in order to increase their competitiveness in the world markets.
Successful trade liberalization and deepening integration in the world market are often outcomes of a sustained high growth with countries lowering tariffs as they become richer. Only a gradual import liberalization can foster gains in productivity for poor countries. Hence, in establishing modalities for the reduction of tariffs, this special need of developing and least developed countries should be taken into account.
In addition to tariffs, non-tariff measures, such as anti-dumping, have been on the rise. It is important to prevent the abuse of anti-dumping measures as this can constitute a barrier to market access. Anti-dumping rules need to be clear and transparent. The ability of developing countries to pursue or defend anti-dumping measures needs to be further strengthened.
Negotiations in services should aim at liberalizing the areas that present the greatest potential to generate gains for poor countries such as Mode 4 on the natural movement of persons, in particular semi-skilled and skilled workers. Easing restrictions on temporary movements of labor would offer developing countries the opportunity to exploit one of the areas of their strongest comparative advantage: low wages linked, in many cases, to high skills(3). To date the negotiations on Mode 4 have witnessed little progress.
For the other service modes further consideration to developmental, environmental and social impacts of service liberalization is needed. This is true for all countries, but particularly in the case of developing countries, which should not be forced to open up their service market at a rate inconsistent with their developmental needs. The right to regulate and maintain policy flexibility is essential for developing countries to ensure that their own development priorities and strategies are advanced. These countries should, for sound reasons, be able to exclude agreed upon service sectors from the negotiations. Member States should increase efforts for developing negotiation methods that realize the fullest participation of developing countries in the service negotiations.
In areas such as water, education and health, which have been traditionally a State responsibility and viewed as a common good, liberalization could be best tempered by the State in the interest of the well-being of its citizens, rather than through multilateral trade rules.
5. A Vision of WTO
If one could assign virtues to institutions, justice should be the first virtue of any institution. Justice for WTO could mean: equal rights of benefiting from trade to all Member States and addressing the economic and social inequalities to the greater well-being of the least developed. What is needed is an abandonment of special interests that disregard the common good. Special interests need to be overcome by a global solidarity, where the rich and more powerful States recognize and assume responsibility towards the destiny of those who are poor and weak. Marginalised countries must be included in the international trading-system, which in turn must be seen as having not only economic but also ethical values.
The ministerial meeting in Hong Kong could provide not only an important chance to restore confidence in the Doha Development Round, but also to restore full credibility and legitimacy of the WTO system. Despite all its functioning constraints, the WTO remains unique in its genre of international organizations.
The presence of an effective Dispute Settlement Body (DSB) guarantees the equality of all countries in front of the law, regardless of their economic power and protects virtually all Member States from unfair, unilateral commercial actions. The decision-making procedure, one country one vote, gives in principle all countries the same value and weight in the decision to be taken as well as the same right to veto decisions. The poorest countries, however, do not have the institutional capacity to follow all negotiations or to use the system of dispute settlement.
Efforts should be undertaken to guarantee all countries, especially LDCs, equal opportunities of participating and influencing the negotiations and equal opportunities of defending their rights. Equity in the negotiations and in the whole WTO system is an indispensable element for a long-term, sustainable outcome of the Doha round.
In its aspiration to become a “universal” organization, the WTO should not pose to the acceding countries liberalization demands inconsistent with their development status. The accession to the WTO should be for the acceding countries a means for achieving the integral development of their citizens, rather than a hindrance in this objective.
1 Cf. Compendium of the Social Doctrine of the Church, N.164, Pontifical Council for Justice and Peace (2004).
2 World Bank: Global Economic Prospects, 2004 (Washington, D.C., 2003).
3 Cf. Human Development Report 2005, UNDP (2005)