| As an event itself,
the Hong Kong Ministerial was inconclusive. However,
it provides U.S. state/local officials with a number of insights
into the global trading system:
a) The basic shape of the global trading system
was essentially confirmed. More than a decade after
the completion of the Uruguay Round, countries are still
primarily fighting about unfinished business from that round
of trade talks. Thus, while it remains important for states
and municipalities to track on-going WTO negotiations —
particularly in relation to services and agriculture —
it is perhaps of even greater importance to understand what’s
already been agreed to:
- Definition of trade-related terms and their
impacts on state/local governance, including new limits
imposed on governing authority;
- The role of the states in implementing
the rules and disciplines agreed to by the federal government,
and federal expectations of states/cities in complying with
those new requirements;
- Implications for local economic development
programs/incentives, including the potential impacts of
trade rules on state procurement;
- In general, how these new global rules
may impact the role of states and municipalities within
the U.S. constitutional system of federalism.
b) The “major media story” from the
Hong Kong Ministerial was European intransigence on agriculture.
But the EU tried to deflect attention from its intransigence
by:
- focusing on US food aid, where the United
States was resisting the move to a “cash only”
system;
- calling on developing countries to make
new market access offers on services and industrial goods
if they wanted to see EU movement on agriculture; and
- pushing the United States to agree to
new disciplines on “domestic
regulation” as part of the General Agreement on
Trade in Services (GATS) negotiations. Both the EU and
Japan continued to reflect their basic intolerance of
state authority over services under US federalism.
c) Developing countries view the “Doha Development
Round” of negotiations mostly as a chance to correct
the problems of the Uruguay Round. Developing countries
contend that the United States and the European Union made
promises on agriculture as part of the Uruguay Round that
still haven’t been implemented. Thus, for southern
countries, the Doha negotiations do not start from movement
on services trade or industrial tariffs; they start from
movement in the northern countries on agricultural subsidies.
d) The Hong Kong Ministerial text is a “Rorschach
Inkblot Test” for fair trade. At the conclusion
of the Ministerial, U.S. Senators Grassley and Chambliss
both issued statements arguing that the text was unbalanced
in favor of developing countries. Grassley: “The text
calls for more concessions from developed countries with
few, if any, commitments from the developing world.”
Meanwhile, a number of southern countries and NGO groups
bemoaned the agreement reached in the Services arena that
allows for the launch of new “plurilateral”
negotiations, which they argue undermines the core principle
of the GATS that allows countries to choose the pace and
timing of liberalization in various economic sectors.
e) The WTO Secretariat itself is becoming an important
player in the global trade talks. At first, the
WTO secretariat described itself as just a neutral facilitator
of national positions. That guise is no longer remotely
true. Led by former EU trade ambassador Pascal Lamy, the
WTO secretariat is pushing aggressively for completion of
the Doha Development Round. It has abandoned its former
“neutrality” with respect to negotiations and
is itself becoming more prominent as an international bureaucracy.
f) Still, most of the important movement in the
global trading system is happening outside of the WTO structure.
Since the collapse of the last WTO Ministerial in 2003,
the United States, Europe, China, and others have devoted
substantial energy to negotiating bilateral and regional
trade agreements that go beyond provisions found in existing
WTO Uruguay Round agreements. This includes new definitions
on intellectual property rights, particularly for medicines
and seeds, as well as an expansion of investor rights through
“Investor-State” mechanisms, for which NAFTA
provided the template.
g) There was movement at Hong Kong on one area
of critical importance to states and municipalities: “domestic
regulation.” Cleverly buried in a footnote
to the Ministerial declaration were a set of “illustrative
examples” for GATS disciplines on “domestic
regulation” that can be used to limit the traditional
regulatory powers of states and cities.
What did Hong Kong mean for U.S.
states? The negotiating process prior to Hong Kong,
and the resulting statement that came out of this ministerial
meeting, provides importance guidance regarding where, and
how, states should focus their oversight attention in 2006.
a) Federal-state consultation. U.S. negotiators
prepared for Hong Kong by giving state officials only two
weeks notice of some of the proposals that would affect
state regulatory authority. Many public officials, including
USTR’s own advisory committee for cities and states,
have called for much deeper consultation and have asked
USTR to give states/cities more time to analyze proposed
commitments.
b) Existing commitments generally. Hong
Kong serves as a reminder that commitments made under the
Uruguay Round, including disciplines on procurement and
on services, have tremendous implications for state and
local governance. To date, states have received very little
assistance in understanding what is expected of them in
implementing these commitments. Even basic issues, like
whether state tax measures are covered by WTO disciplines,
have still not been made clear.
c) Agriculture. The only substantive agreement
on agriculture at the Hong Kong Ministerial was an agreement
to phase out export subsidies by 2013. But the United States
uses very few subsidies in this category, and in fact the
U.S. had argued (against the EU) for an earlier, 2010 phase-out
date. More importantly, nothing at Hong Kong changed the
position of developing countries that commodity subsidies
and direct payments to farmers violate existing trade rules.
This fact will influence the way that Congress crafts the
next U.S. Farm Bill—which will run until 2012. The
real “wild card” for 2006 in agriculture is
whether WTO member countries, like Brazil, will continue
to use the WTO Dispute Settlement process to challenge U.S.
domestic subsidies on agriculture.
d) On-going negotiations in services:
WTO negotiations on services cover many of the economic
sectors that are regulated by states and providing by cities.
Three separate negotiations affect state and local governments
under GATS, the WTO’s General Agreement on Trade in
Services:
- Specific sector commitments.
The Annex on Services was indeed the most controversial
part of the entire Hong Kong ministerial declaration. The
text suggests that the developed countries, with the most
fully-developed service sectors, may push other countries
to make new sector-specific commitments. But these new commitments
could impact states and cities, as well: among the sectors
where negotiations are on-going are commercial zoning, education
funding, renewable energy, LNG terminals, gas pipelines,
etc.
- Domestic regulation. The
GATS authorizes the WTO to implement rules that strike at
the heart of state and local regulatory authority, including
qualification requirements for professionals, technical
standards, and licensing requirements. The new rules might
apply to those sectors where countries have made specific
commitments—but some of the “domestic regulation”
rules could apply more broadly to all economic sectors,
including those which have traditionally been within the
regulatory purview of states and cities.
- Procurement and subsidies.
The WTO is stepping up the pace of negotiations on new rules
for procurement and subsidies of services. These negotiations
bear careful scrutiny because they could cover local public
services such as education, energy, health, libraries, and
water services.
It is very important for states to communicate their concerns
and expectations regarding USTR’s ongoing negotiation
of GATS disciplines in the post-Hong Kong period.
Prognosis for Completion of the
Doha Round in 2006: POOR. It appears unlikely that
the Doha Development Round will be completed in 2006. Why
not?
a) Agriculture remains the linchpin of negotiations,
and the EU Trade Ministry is unlikely to persuade European
countries to give up more in this area. Going into
Hong Kong, the European Union proposal was much less ambitious
than that of the United States. The Hong Kong Ministerial
asks for completion of “modalities” on agriculture
in the first half of 2006. But the EU waited until the very
last minute at Hong Kong even to put forward the 2013 export
subsidy expiry deadline — and that only impacts about
2.5% of total subsidy support in Europe. Also, unconfirmed
reports have emerged this week that the European Union has
lost a major WTO dispute with the United States, Canada,
and Argentina. The EU has wanted to treat genetically modified
foods as different from non-GMO foods. If indeed the reports
are true, we predict that public opinion in Europe toward
the WTO will be undermined. Whatever the case, the United
States will most likely wait to see whether or not Europe
puts a new proposal on the table regarding agriculture.
b) Completion of the Doha Round is likely to draw
services and manufacturing sectors into the Farm Bill debate.
This is because of the impasse on agriculture (>2% of
U.S. gross domestic product) is blocking negotiations that
are desired by the coalition of service industries (75%
of GDP) and manufacturers (19%).
Will the Doha Round ever be completed?
a) It is possible that developing countries will decide
that it is better to complete the Doha Round at a time when
the U.S. Congress still has a chance to consider its ratification
under “Fast Track” rules, and that as a result,
they will “give way” on services and industrial
tariffs. The WTO Secretariat is aggressively pushing this
line of thinking. Fast-track expires in mid-2007.
b) It is possible that the service sector will succeed
in lobbying the USTR so that the U.S. agrees to implement
tough disciplines on agriculture—whereupon this Doha
package will be submitted to Congress, whether under Fast
Track rules or not.
c) Although there has been some discussion of extending
Fast Track after it expires, it is unlikely to be reapproved
until after the 2008 Presidential election.
For more information contact:
(Director, Forum on Democracy and Trade)
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