US embassy cable - 05PRETORIA4757

UNCLAS SECTION 01 OF 04 PRETORIA 004757 
 
SIPDIS 
 
E.O. 12958:  N/A 
TAGS: ETRD, ECON, SF, XA 
SUBJECT: SOUTH AFRICA: SPEECH ON RECLAIMING THE 
DEVELOPMENT CONTENT OF THE DOHA DEVELOPMENT ROUND 
 
REF: NONE 
 
1.  (U) Deputy Minister of Trade and Industry Dr. Rob 
Davies delivered the following speech entitled: 
Reclaiming the Development Content of the Doha 
Development Round.  Davies delivered this speech to 
the National Consultative Conference on the WTO 
Ministerial in Hong Kong on 17 November, 2005.  The 
text of this speech is provided below. 
 
Begin Text: 
 
Reclaiming the development content of the Doha 
Development Round by Dr Rob Davies Deputy Minister of 
Trade and Industry 
 
17 November 2005 
 
Recent proposals by some major industrial countries 
in the World Trade Organisation (WTO) are threatening 
the developmental content of the Doha Development 
Agenda (DDA). These proposals seek both to sow 
division among developing countries and to re- 
interpret the framework and trajectory of the 
negotiations that in a self-serving manner, narrow, 
limit and ultimately - undermine the developmental 
objectives of the DDA. It is thus timely to reclaim 
the developmental content of the Round. 
The Ministerial Declaration that launched the Doha 
Round proclaimed that the needs and interests of 
developing countries, who make the majority of WTO 
members, would be placed at the centre of the 
negotiations. This was not an act of charity but was 
based on an understanding that promoting development 
in developing countries is an essential impetus to 
sustained global economic growth from which all 
countries can benefit. A key to sustained global 
growth lies in unlocking the growth potential of 
developing countries and we have consistently argued 
that, to achieve this, developing countries must 
pursue economic development and industrialisation in 
sectors where they possess comparative advantage. The 
strategic objective for the negotiations is thus for 
industrial countries to undergo structural adjustment 
by reducing a range of protective and support 
measures in inefficient sectors in their economies. 
Such adjustment will open up new flows of trade and 
investment, promote industrialisation, trade and 
development in developing countries and establish a 
virtuous cycle of global economic growth. 
 
An early conclusion of the current round of 
negotiations, consistent with the mandate agreed in 
Doha in 2001 would deliver the best overall context 
for such an outcome. More open and undistorted 
international trade would create an environment in 
which developing economies may diversify their 
exports by destination and in higher value production 
and deepen their integration into the global trading 
system. These were the strategic considerations that 
underpinned South Africa?s support for the launch of 
negotiations in Doha in 2001. In reclaiming the 
development content of this round of negotiations in 
the WTO, we also need to reassert the essential 
principles of proportionality, asymmetry, less than 
full reciprocity and special and differential 
treatment in favour of developing countries. These 
principles underpin South Africa?s approach to 
development and are expressed along three main 
dimensions. 
 
First, the DDA must provide enhanced access to 
industrial country markets for the exports of 
developing countries. This should cover exports in 
agriculture, industrial goods and services. On 
industrial tariff negotiations, the developmental 
objectives of the round require the reduction and 
elimination of tariff peaks and tariff escalation on 
products of export interest to developing countries. 
While the average tariff rate in industrial countries 
are low, the level and the frequency of tariff peaks 
(higher than 15%) and escalation (tariffs that 
increase with value added) remain a matter of concern 
in a number of key sectors of direct interest to 
developing countries. In general, the growth of 
industrial exports from developing countries to 
industrial countries is inversely related to the 
degree of tariff protection in the latter. The 
critical issue is how fast producers in the North 
move out of these sectors where they have lost 
comparative advantage. 
 
Developing countries are prepared to make a 
contribution to the industrial tariff negotiations in 
this round, provided that their concessions are 
commensurate with their levels of development in a 
full expression of the principle of special 
differential treatment. This is essential to ensure 
that the reform processes are carefully managed for 
sectors that are for employment or industrial policy 
reasons. Thus, negotiations on industrial tariffs 
must accomplish two things simultaneously: (i) ensure 
that the remaining high tariffs, tariff peaks and 
tariff escalation in developed countries are 
eliminated and (ii) ensure sufficient flexibility 
that accommodates the sensitive sectors and 
adjustment needs of developing countries. 
 
Second, the removal of anti-development structural 
distortions in international agricultural trade is a 
central objective of the DDA. Through a combination 
of high tariffs, massive domestic support and export 
subsidies, industrial countries are able to retain 
inefficient agricultural production at the cost of 
promoting agricultural development in developing 
countries. At the same time, developing countries 
cannot be expected to pay for this needed reform in 
agriculture by acceding to overly ambitious demands 
by industrial countries for concessions in industrial 
tariffs and services that do not take into account 
the realities of their levels of economic and 
institutional development. Larger economies, 
responsible for most distortions need to make the 
larger adjustments. 
 
Third, it must be acknowledged that not all 
developing countries stand to gain from the DDA in 
the short to medium term. Indeed, least developed 
countries (LDCs) and small, weak and vulnerable 
countries do not have the supply capacity to obtain 
the benefits that will arise from new export 
opportunities of the DDA. Moreover, many will face 
significant adjustment costs including from the 
erosion of preferences. An ?aid for trade? package 
should be established to address these concerns. For 
those economies that face adjustment costs, 
assistance must be provided to cushion the negative 
effects of the reform process. Assistance will also 
be required to advance efforts at diversification and 
competitiveness in order to take advantage of new 
trade opportunities in the medium term. The programme 
could also focus on building capacity to meet 
international product standards as well as any new 
WTO obligations that emerge from this round (trade 
facilitation, for example). For LDCs, a package of 
specific measures to foster their integration into 
the world trading system is required particularly 
that industrial countries make a commitment to grant 
LDCs duty free quota free market access. 
 
Recent developments 
 
The WTO Mini-Ministerial held in Geneva on 8-9 
November was considered important to provide further 
impetus to negotiations in advance of the 6th 
Ministerial Conference in Hong Kong scheduled for 13- 
18 December 2005. This followed a meeting on 10 
October 2005 where the United States (US) submitted 
its agricultural proposal. This was a significant 
move by the US because agriculture has always been 
understood as the key to unlocking progress across 
the DDA. The US offer generated momentum in the 
process but deeper analysis indicated that it did not 
meet the objectives of the Doha mandate for 
substantial reductions in domestic support. Although 
it was inadequate, as an opening gambit, the proposal 
set the stage for further engagement and 
negotiations. On 12 October 2005, the G20 submitted 
its detailed proposal indicating a range of targets 
for agriculture. The proposal was balanced - a 
genuine middle ground - that aims to eliminate export 
subsidies and achieve substantial, real reduction in 
the trade distorting domestic support provided by 
industrial countries to their farmers. 
Tariff reduction in the agricultural sector offers 
over 90% of the overall benefits for developing 
countries that would arise from a combination of 
subsidies elimination, reductions in domestic support 
and lower tariffs. In this respect, the G20 proposed 
a reasonable target for agricultural tariff reduction 
in industrial countries (54%) and offered 36% tariff 
reduction for developing countries on the basis of 
fundamental principles underpinning the negotiations 
- special and differential treatment and less than 
full reciprocity for developing countries. Following 
the proposals by the G20 and the US, the European 
Union (EU) came under considerable pressure to make 
its proposal as soon as possible. At the Zurich 
meeting, the European Commission (EC) made an 
improved offer on domestic support reduction and 
indicated it would submit a comprehensive response by 
27 October 2005. Between the Zurich meeting and 27 
October 2005, the EC came under severe pressure from 
some EU Members to remain within the mandate and 
framework set by its agreed reform of the Common 
Agricultural Policy (CAP) reform. 
 
On 27 October, the EC submitted its proposal that has 
precipitated the current impasse in the negotiations. 
Whereas the US proposed to reduce tariffs by an 
average of 75% and the G20 proposed 54%, the EU 
offered only a 45% reduction along with a series of 
caveats that would, by all accounts, empty their 
offer of any meaningful content in the most important 
aspect of the agricultural negotiations. Furthermore, 
the EU made its offer conditional on a series of 
demands that imply enormous adjustment burdens on 
developing countries particularly the so-called 
advanced developing countries (India, Brazil, China, 
South Africa among others) in the areas of industrial 
tariffs and services. 
 
While offering ?constrained flexibility? for 
developing countries, the EU proposed a 10% ceiling 
of industrial tariffs for both developed and 
developing countries. This would have the perverse 
effect of requiring massive tariff reduction by 
developing countries but minimal adjustments for 
industrial countries whose tariffs levels are already 
low (3-4% average). Though not alone on services, the 
EU has explicitly proposed that developing countries 
meet certain predetermined numerical targets and 
benchmarks in making commitments in the services 
sector. This would eliminate existing flexibilities 
for developing countries and would fundamentally 
alter the accepted negotiating format for services 
negotiations. Moreover, the proposal reflects a 
profound insensitivity to real world conditions in 
developing economies not least that service 
regulations in developing countries are evolving 
through ongoing assessments - in a dynamic manner - 
to ensure they meet a complex set public policy 
objectives. 
 
The EU proposal in fact goes beyond the negotiating 
mandate agreed in Doha. The EU also called - 
implicitly - for further differentiation among 
developing countries (so-called advanced and 
vulnerable developing countries) and re-introduced 
the issue of Geographic Indications. Both issues 
polarise the WTO membership. Finally, contrary to 
spirit of any negotiation at this stage, the EU 
indicated that this was its final offer for Hong 
Kong. In retrospect, the EU proposal and subsequent 
engagement appears designed to cause impasse because 
of an extremely limited negotiating mandate in 
agriculture. Following the meeting, it appears the EU 
has managed to shift - or at least share ? 
responsibility for the impasse. The impression is 
being created that the impasse is a result of 
intransigence - in equal measure - by several WTO 
Members. It is this distortion of perspective on the 
process that needs to be corrected. 
 
Way Forward 
 
The prospects for the 6th Ministerial Conference in 
Hong Kong do not appear promising. WTO Members are 
keen to avoid a re-run of the Cancun debacle. At this 
stage there are two possibilities. First, the EU 
makes an improved agricultural offer and reduces its 
ambition in industrial tariffs and services in 
advance of the Hong Kong Conference. This appears 
unlikely. Second, expectations for Hong Kong may have 
to be effectively managed. In this respect, the key 
objectives would be four-fold: (i) to avoid a 
complete breakdown of negotiations and recriminations 
as had happened following the failure in Cancun; (ii) 
to capture and consolidate the considerable and 
important work that has been undertaken in the last 
year through a status report to the Conference; (iii) 
to deliver some tangible benefits for the poorest WTO 
members with some decisions in favour of least 
developed countries (LDCs), an agreement on the ?aid 
for trade? package and a final solution on the TRIPS 
and Public Health issue and (iv) to agree to continue 
and intensify work in 2006 without compromising the 
Doha mandate. 
 
Development must remain the essential measure for 
defining success in this round of WTO negotiations. 
This should be understood as providing enhanced 
access to the goods and services exports of 
developing countries and removing the structural 
distortions in agriculture through the elimination of 
export subsidies and substantial real reductions in 
domestic support. Developing countries will make a 
proportional contribution by reducing barriers to 
trade in a manner that is consistent with their level 
of institutional and economic development. For the 
weaker and more vulnerable economies, a package of 
measures under a strengthened aid for trade package 
should be implemented to meet transitional adjustment 
costs and to boost their capacity to take advantage 
of new trade opportunities in the medium term. The 
immediate obstacle to meeting these objectives is the 
EU failure to make a meaningful offer on market 
access in agriculture. 
 
Issued by: Ministry of Trade and Industry 
17 November 2005 
Source: Department of Trade and Industry 
(http://www.dti.gov.za) 
 
 
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