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European Commission

MEMO

Brussels, 29 November 2013

Ninth WTO Ministerial Conference (Bali, Indonesia, 3-6 December 2013)

The Ninth World Trade Organisation (WTO) Ministerial Conference (“MC9”) will be held in Bali, Indonesia, from 3 to 6 December 2013.

Main issues on the agenda

Work is underway with a view to reaching an agreement on a series of issues that would constitute a first step towards the conclusion of the Doha Round (the Doha Development Agenda – DDA). The three main pillars of work are:

  1. Trade Facilitation: this would be a new WTO Agreement that would improve customs procedures and transparency with a view to accelerating the cross-border movement of goods.

  2. Agriculture, including food security, export competition, and other tariff-related issues (“Tariff Rate Quota” (TRQ) administration);

  3. Development, including several provisions beneficial, in particular, for Least Developed Countries (LDCs) in areas such as rules of origin, services etc.

A separate strand of work is that of negotiations of a review of the Information Technology Agreement (ITA), where we hope to see progress.

The conference is also expected to approve the accession of Yemen to the WTO. Yemen will become the 160th member of the organisation.

Trade Facilitation

Potential benefits

In most developing countries, the cost of trade procedures is up to 4-5 % of the overall costs of trade transactions. This negatively compares with the cost of current average tariffs on trade in industrial goods of industrialised countries at just 3.8 %. In some cases, from 27 to 30 parties, and up to 40 customs documents, are involved in a single import or export operation. Possible savings brought about by trade facilitation for developing countries amount to around €325 billion per year. According to the OECD an ambitious Trade Facilitation agreement could reduce total trade costs by 10% in advanced economies and by 13-15.5% in developing countries. Even small reductions in global trade costs have a significant impact on global income.

In some developing regions, it is still more difficult, lengthy and expensive to transport goods across the region, than from the region to Europe. The situation is particularly difficult for landlocked countries – take, for instance, Chad, Malawi or Uganda. Trade facilitation could result in expanding services such as customs transit warehouses in ports of entry: such facilities have already proved useful in West Africa for landlocked countries such as Mali, Niger or Burkina Faso.

The implementation of the Agreement, and of ambitious trade facilitation measures in general, would bring about increased overall trade flows, both for exports and imports; higher revenue collection (due to increase in trade volume, and higher detection rates of fraud); a fast return of initial capital costs for modernising procedures; improved efficiency of customs administrations. Moreover, rule of law contributes to stable business environment and attracts Foreign Direct Investments.

Main features of trade facilitation

According to the OECD, “trade facilitation” entails the "simplification and harmonisation of international import and export procedures (e.g. customs valuation, licensing procedures, transport formalities, payments, insurance); support to customs departments; and tariff reforms".

Trade facilitation means modernising trade and customs procedures, cutting red tape, training customs officials, improving customs facilities, and technology, so as to make trade easier and faster. It includes better dialogue with the business community and harmonisation of customs standards at regional level. The objectives of trade facilitation are to boost trade flows across developing countries and to help developing countries integrate into the international economy.

The aim of the Trade Facilitation agreement would be to boost cooperation in the field of customs, including by supporting modern customs techniques and technology, and simplified procedures for entry and release of goods; by implementing international tools and standards in the field of customs and trade; and by adopting automated / online customs and other trade procedures. Industrialised and developing countries may share information, exchange best practices, create and link up databases, adopt single administrative documents, and simplify appeal procedures. All these measures will increase transparency, efficiency, integrity and accountability of operations and ensure non-discrimination.

Costs of trade facilitation

Infrastructure and hardware costs would be limited, as the focus would not be on building new facilities (ports, airports, motorways), but on making better use of existing ones. It would be more about re-engineering of management techniques and better training and conditions for instance for customs services.

However, in terms of support for phasing in and implementing trade facilitation measures, in 2011, the EU and its Member States collectively dedicated €163 million to trade facilitation support programmes, or 60% of global support to trade facilitation. The EU itself is the world's leading provider of Trade Facilitation support with 48% of the total in 2011. Over the period 2008-2011, the EU and its Member States have provided on average €159 million worth of trade facilitation support every year.

The EU would be ready to go the extra mile to ensure the success of the Trade Facilitation agreement and aims at maintaining at least its current level of support to trade facilitation over a five-year period starting from the signature of the Trade Facilitation Agreement, namely €400 million over five years,. Ensuring compliance with the Trade Facilitation Agreement itself will imply limited costs unlikely to exceed €1 million per country. Overall, an estimated €100 million worth of funding are needed to implement the procedural elements of the Agreement. Also taking into account the cost of equipment and staff, funding needs would climb to roughly €1 billion over five years.

The EU's support responds to demands for help from countries most in need to comply with and draw the full benefit of the deal for growth and development. It will primarily be provided through regular EU aid channels, though the EU stands ready to make a contribution of up to €30 million to a dedicated international trade facilitation facility for the most urgent actions for aligning legislation and procedures in developing countries to the new Agreement.

EU support will be provided in the framework of its regular Trade-Related Assistance to developing countries. The EU is currently working on the allocation of its development aid for the period 2014-2020, and time is therefore ripe for developing countries to reflect their trade needs, including for trade facilitation, into their development strategies and include them in their priorities for EU aid for the period 2014-2020. EU aid will be financed partly from the EU budget, subject to the approval of the necessary legal instruments and partly from the European Development Fund (EDF), currently in the process of ratification by EU Member States.

Examples in trade facilitation

High transactions costs hamper developing countries' export potential. For instance, transport costs in East Africa are on average 80% higher than in the US and Europe. It costs as much to move a container from Mombasa to Kampala as it does from Mombasa to Shanghai. Competition is just as critical in trucking. Often it is not the distance, but the competition in the market that determines prices. Traders in landlocked developing countries may be confronted with bad infrastructure or long distances, but higher costs are in a large part due to inadequate transit procedures.

In Chad, importing of goods takes 100 days, in the best-performing EU countries an importer needs 5 days to receive his goods. That is why trade facilitation is key in boosting developing countries’ export capability. For instance, reduced border delays can greatly increase efficiency: the Trade Investment Facility in Lesotho (a "One Stop Shop" supported by the OECD and the EU) now processes applications in 15 minutes rather than 7 days, and exporters fill in 2 pages of forms instead of 23. Best practices, with one-stop border posts, are also on display in Zambia and Zimbabwe at the Chirundu border, or at the South Africa – Mozambique border between Ressano Garcai and Lebombo. Improved customs performance is also key: the potential benefits from reforms to facilitate trade are not limited to higher exports. The public treasury could be a big winner. The former commissioner of customs in Uganda, Peter Malinga, said his country’s reforms to improve customs administration and reduce corruption helped increase customs revenue by 24%.i

Other examples: in Morocco, releasing a container in the port of Casablanca required 18 to 20 days in 1996. After a number of reforms, this dropped to just two hours on average – an increase in processing capacity equivalent to a very significant expansion of port facilities. In Costa Rica, customs clearance fell from six hours to around 12 minutes after a comprehensive overhaul of procedures.

Agriculture

Agriculture has always been a cornerstone in this Doha “Development” round. There are four proposals on the table at MC9 as well as the trade aspect of cotton which is otherwise part of the development package:

Public stockholding for food security purposes

The WTO Agreement on Agriculture deals with subsidies to farmers ("domestic support") by capping expenditure on potentially trade-distorting measures (called "Amber Box"). Non- or minimally-trade distorting measures ("Green Box") are exempt from these caps.

Some developing countries run public stockholding systems where they purchase products from farmers at fixed ("administered" - i.e. non-market) prices. This is considered as market price support inside the Amber Box and it needs to be accounted for inside the Amber Box cap. Some are concerned that they might be at risk of breaching their caps. Negotiations have focused on a time-limited (4 year) protection from being taken to WTO Dispute Settlement (i.e. protection from "panel" action in the WTO) for such programmes which purchase traditional staple crops. This solution (an "interim due restraint clause") would be conditional on enhanced reporting requirements for any country wishing to use it, as well safeguards to ensure that there were no spill-over effects of the stocks on to world markets. The scope of the safeguards, the duration of the clause and the extent to which the permanent solution should be discussed in a wider context were the most difficult issues.

General Services

Another proposal on the table at Bali includes suggestions to add a list of programmes related to land reform and rural livelihood security to the list of "General Services" considered as non-trade distorting Green Box measures. These programmes, aimed at promoting rural development and poverty alleviation, are of particular relevance to developing countries. The list of General Services was already open-ended, so what would be done here would be to clarify the Green Box status of such programmes.

Tariff Rate Quota administration

Under the existing WTO Agreements, many countries negotiated concessions to permit imports of specific products at a lower import tariff than usual for specified quantities. These quotas are administered by importing countries in a variety of ways. The proposal deals with this administration, with a view to fleshing the existing general obligation to make it possible to fill these quotas with some more detailed rules.

First, it contains a number of provisions on procedural and transparency aspects. Second, it provides for an "underfill" mechanism. Where a quota has a consistently low fill rate then a country could be asked by another WTO Member to change the management method to "first-come first-served" for a trial period to see if the fill rate increased. However this underfill mechanism also had a clause on "special and differential treatment" ("S&D") which completely exempts all developing countries from it, so it would only apply to developed countries.

The proposal now on the table in Bali contains an agreement to look again at the S&D treatment after 6 years linked with a complex mechanism which would allow individual developed countries to declare that they would opt-out of the underfill mechanism after that period expired.

Export competition

Export competition is another of the pillars of the WTO agriculture negotiations. It covers in particular export subsidies ("payments contingent on export performance") and "all export measures with equivalent effect" which include export credit, export credit guarantee and export credit insurance schemes (where transaction risks in the importing country are underwritten by subsidies from the exporting country); international food aid (where this is given "in kind" rather than in cash or where it is tied to purchasing the donor country's products); and the behaviour of exporting state trading enterprises ("STEs" - i.e. government owned- or sponsored- monopolies, where they have special powers or their actions include subsidy elements).

At the WTO's 2005 Hong Kong Ministerial Conference, ministers set a target date of 2013 for the elimination of export subsidies and the imposition of disciplines on the other elements, to be achieved in the context of an overall outcome in the DDA negotiations. Since the DDA has not yet been completed, these steps have not occurred yet. The original proposal for Bali was for cuts to the permitted limits for the value of export subsidies and a standstill provision on the volume, and some provisions on the maximum repayment term for export credits, and provision for S&D treatment for developing countries.

The draft text on the table for Bali comprises a political Ministerial Declaration reaffirming the commitment for the parallel elimination of all forms of export subsidies and all export measures with equivalent effect, encouraging reforms in that direction, and providing for restraint in the their use. It also contains provisions on enhanced transparency covering all export competition measures with a view to informing the further negotiations on the subject.

Development

Both negotiations on trade facilitation and agriculture are largely aimed at developing countries. However, additional provisions are under discussion, targeting more specifically developing, and in particular least developed countries (LDC).

The “development” chapter of MC9 includes four decisions directly aimed at LDCs:

  1. Guidelines providing orientations regarding the criteria for preferential rules of origin applicable to imports from LDCs and giving guidance on documentary requirements and transparency. This is the first time that steps are taken on this issue in the WTO since the Ministers’ call in Hong-Kong to ensure transparent and simple rules. The EU simplified scheme of preferential rules of origin for LDCs which entered into force in 2011 was referred to as an example of good practices in the preparation of this decision.

  2. A decision on the “Operationalization of LDC Services’ Waiver”: at the last WTO Ministerial Conference (MC8) it was decided to allow WTO Member countries to grant preferential market access conditions to suppliers of services from LDCs – this decision provides a roadmap on how WTO Members can make the waiver operational in favour of LDCs. LDCs are in particular invited to submit a collective request in order to provide a basis for further discussions.

  3. A decision in support of efforts to improve the trade environment in which cotton producing developing countries, in particular LDCs, operate and to ensure effective assistance to these countries. The EU and its Member States are the world’s largest donor to the African cotton sector.

  4. A decision encouraging WTO Members to go an extra mile in providing access to markets free of duties and quotas for LDCs (a system which already exists in the EU since 2001, under the “Everything but Arms” scheme).

Finally, a decision is on the table on procedures to monitor the implementation of special provisions for developing countries in existing WTO agreements (“Monitoring Mechanism on Special and Differential Treatment”). The Monitoring Mechanism will therefore provide a new tool to review the functioning of the flexibilities available to developing countries and contribute to their integration into the multilateral trading system.

Success in Bali would pave the way for progress in other multilateral negotiations, and set the basis for further negotiations on the entire Doha Development Agenda (DDA) process.

For further information

http://ec.europa.eu/trade/policy/eu-and-wto/

i :

Source: L. Alan Winters, Chief Economist, DFID, London, Professor of Economics, University of Sussex; Doing Business 2010, World Bank


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