More than 70 developing countries yesterday announced their refusal to go ahead with WTO negotiations on investment and other new issues, potentially creating a serious obstacle to agreement at this week’s ministerial meeting in Cancun, the Financial Times reports.

Rafidah Aziz, Malaysia’s veteran trade minister, said on behalf of the group said the group was not prepared to trade negotiations on the new issues for gains on agriculture. The EU said yesterday it would not back down. A spokeswoman for Pascal Lamy, trade commissioner, said the EU would continue to insist that negotiations on the four Singapore issues be launched in Cancun. „We think we have a good case,“ she added.

The news comes as AP notes that WTO members struggle for agreement on how to open markets to international trade, one of the biggest fights likely will be whether to even start more negotiations. The European Union and Japan are urging trade ministers to consider adding four new issues to the current round of treaty talks, which are scheduled to be completed by the end of next year. The four topics are known jointly as the „Singapore issues.“

The Economist writes that the EU wants rules on investment, competition policy, government purchases and customs clearance. Some of these rules make sense on their own terms but they would be costly for poor countries to implement and monitor. Worse, if poor countries signed up to the rules, then failed to meet them, they would be vulnerable to trade sanctions.

The Globe and Mail (Canada) meanwhile notes that the US and Europe, the giants of WTO talks that are used to steering negotiations to suit their interests, may have finally met their match in Cancun. A new G21 bloc of developing countries led by Brazil — and backed by China, a growing economic
powerhouse that recently joined the WTO — has emerged as an immovable object to the usually unstoppable force of will that is Washington and Brussels.

The Guardian (UK) notes that the EU, meanwhile, warned [some countries] in Africa and in the Caribbean that their joining the so-called Group of 21 could well endanger their privileged access to Europe’s single market. Washington told Costa Rica, El Salvador and Guatemala that if they left the G21 they would get a „sweetheart deal“ giving them increased access to America’s $10 trillion economy.

Business Day (South Africa) reports South Africa’s lead negotiator at the WTO talks in Cancun, Xavier Carim, said yesterday that the Group of 20 was experiencing a groundswell of support which could be the factor that could spur much needed movement in the current world trade talks, which had reached a stalemate. Carim was commenting on a report yesterday that the South Africans were contemplating withdrawing from the group. Carim said that, as a founding member of the group, South Africa was „absolutely committed“ to the cause. „We feel there is a possibility that this group could generate the movement that is needed in negotiations,“ said Carim.

Meanwhile, US Trade Representative Robert Zoellick told US industry representatives that a stalemate over how to proceed with agricultural negotiations could continue into tomorrow and delay progress in other crucial areas such as lowering industrial tariffs, the Wall Street Journal reports. Mr. Zoellick so far has had little luck wooing key developing countries to support his push for wider market liberalization. The US has promised to slash its huge farm subsidies and eventually to eliminate its tariffs on all goods — but only if other countries show a willingness to lower their trade barriers, too.

Il Sole 24Ore (Italy) reports that the Italian Presidency of the EU warned that if developing countries were to ask the EU to make additional cuts to agricultural subsidies, Italy would threaten to re-discuss the Common Agricultural Policy, declared Gianni Alemanno, the Italian Agriculture Minister. Should an agreement not be reached in Cancun, „everything could happen, including a CAP review asking for less sacrifices to European farmers, “ he said. The Italian idea however does not seem to speak for other EU ministers and EU negotiators. EU trade commissioner Pascal Lamy and EU agriculture commissioner Franz Fischler said that „the Union has no intention at all to modify the CAP reform“.

Kyodo reports that ministers from member states of the WTO failed to bridge gaps in global agricultural trade liberalization talks Thursday as the coordinator of a farm working group planned to draw up a draft paper to deepen discussions. Singaporean Trade and Industry Minister George Yeo Bon, a facilitator for discussions by the working group, will distribute a document on agricultural measures Friday, Japanese officials said. A final version of the text will be included in a WTO ministerial statement to be issued at the conclusion of the ongoing WTO meeting in Cancun on Sunday. A Japanese official said the text cannot be an alternative to an earlier released draft and is aimed at promoting discussion, the officials said.

In a separate piece, Kyodo notes that Japan proposed an alternative Thursday to a liberalization plan on nonagricultural products drafted by the WTO, Japanese Economy, Trade and Industry Minister Takeo Hiranuma said. The alternative proposal calls for „a limited flexibility“ to allow member economies to exempt certain sensitive non-farm products from tariff cuts. The proposal is apparently aimed to protect domestic industries such as leather and fishery products from imports.

The Bangkok Post reports that sugar exporters want negotiating parties at the WTO talks to speed up efforts to reform farm trade including sugar. The Global Alliance for Sugar Trade Reform and Liberalization issued a statement yesterday after meeting in Cancun last weekend, ahead of the fifth WTO ministerial meeting that opened yesterday and runs until Sunday.

The news comes as the FT reports that the EU is chipping away at some of the last unreformed bastions of its common agricultural policy in a move that will also target the EU’s heavily-protected sugar sector. The European Commission is preparing reform proposals for [Tobacco, cotton, olive oil and sugar], though none will be as keenly followed as its plans for the sugar regime. According to draft papers seen by the FT, the Commission is likely to focus on three different policy options ranging from full liberalization to retaining the status quo. However, the most plausible advocates a cut in the guaranteed sugar price and an eventual phasing out of production quotas.

Meanwhile, UzReport.com notes that world cotton trade shows severe policy distortions, but, unlike sugar, the distortions come through producer support rather than from border measures such as tariffs and quotas, according to World Bank’s Global Economic Prospects 2004 report.

In other news, Xinhua reports that the WTO announced on Thursday that 301 disputes have been initiated under the dispute settlement system of the WTO since its creation in 1995. This compares to the roughly 300 disputes brought to its predecessor, the General Agreement on Tariffs and Trade (GATT), during its entire existence of almost 50 years, show the WTO figures.

The New York Times reports that the director general of the WTO said Thursday that he would intervene to address the grievances of four poor African nations whose cotton farmers have been hurt by rich nations‘ farm subsidies.

The Economic Times notes that Lee Jong-Wook, the director-general of the WHO today Thursday that the world body would be willing to offer a helping hand to those who find the conditions attached to the recent WTO deal on access to cheap drugs cumbersome.

The Far Eastern Economic Review notes that a recent World Bank study projected that a new trade agreement would have a giant impact on the global economy. It estimated that an accord promoting free trade would produce annual income growth of between $290 billion and $520 billion and lift 144 million people out of poverty by 2015. In East Asia alone, free-trade policies on agriculture, services, logistics and trade facilitation would create annual benefits of $300 billion, or 10 percent of GDP, within a decade.

Meanwhile, World Bank President James Wolfensohn writes in an op-ed in Le Monde (France) that on average, those living on $2 a day or less — more than 2.7 billion people — face double the trade barriers confronting the wealthy. Yet many rich countries continue jealously to guard trade-distorting policies. Rich countries‘ total farm subsidies, for example, are greater than Africa’s gross domestic product. In the absence of meaningful steps by rich countries, developing countries have been reluctant to liberalize their markets further. Having already made great strides in opening their markets, they want first to see reciprocal action by developed nations. The fate of the Doha agenda does not rest solely in the hands of rich countries. All must play a part.

The Wall Street Journal writes in an editorial that we’ll all be better off if the folks at Cancun keep in mind that the point of trade talks is to get out of the subsidy and import restriction business altogether. The scandal of European and US protectionism is how it assists the politically well-connected rich. The scandal of protectionism in developing countries such as Mexico is how it ensures that those without connections will always remain poor.

The World Bank announced a new multi-million dollar initiative in Cancun to loan funds to poor countries implementing trade accords and to support investment in roads, ports and customs facilities to speed the flow of imports and exports, Agence France Presse reports.

„The program is designed to support progress on the Doha
Development Agenda and will increase assistance to countries that
take on development-promoting trade reforms,“ World Bank
Managing Director Shengman Zhang said. Bank officials said the
initiative was drafted in the realization that poor countries can
be disrupted when far-reaching trade reforms are put into effect
and will need additional funds to make new investments to improve
competitiveness.

Developing countries might lose preferential access for their
exports to industrialized markets while reduced subsidies in rich
countries could raise prices for nations that are net food
importers. „For most countries this will mean new
investments to improve competitiveness and expand exports,“
the Bank said in a statement.

A second component of the initiative could increase lending by
as much as $800 million annually to help developing countries
improve trade-related infrastructure such as ports, roads and
customs facilities. Uri Dadush, head of the Bank’s
international traded department, said the project was designed to
transport costs. „Whether these are costs in getting goods
to ports, getting them through customs, or getting them through
the harbor, reducing these overheads by 10 percent has the same
effect as reducing a tariff by 10 percent,“ he said.

Xinhua adds that the World Bank also urged all countries to
recognize the importance of assuming responsibilities under the
development agenda, and stressed that rich countries should take
appropriate action, such as reducing agriculture tariffs and
trade-distorting subsidies, to make the world trading system more
supportive for poor people’s effort to escape poverty.

„The outcome of the meeting, and those that follow in
pursuit of the Doha Development Agenda, will determine whether
the international community, working together, can take
collective actions that will stimulate global growth and lift as
many as an additional 140 million people above the two-US dollar
daily poverty line,“ Zhang said. According to the World
Bank, the additional loan program will support projects for
protecting workers and vulnerable groups, assist countries to
implement development-related trade reforms, and finance
infrastructure projects.

Meanwhile, the IHT reports that a group of 21 countries,
including Brazil, India, Thailand, Mexico, Argentina, the
Philippines, Chile, Pakistan and South Africa, demanded that
their proposal for deep, specific changes in agriculture be
debated at the five-day World Trade Organization talks this week
and not be shunted aside through a parliamentary procedure.
Flexing their collective muscle for the first time in a setting
normally dominated by the United States and Europe, the group
said it would not be silenced. At least 8,000 protesters, many of
them Mexican farmers, but including delegations from Italy and
Africa, marched toward the convention center Wednesday, saying
they were encouraged by the proposal from the developing
nations.

The Indian Express notes that what is being seen as heartening
for India is the fact that as G-20 became G-21, the group also
got support from the Cairns group of 18 countries. The two groups
have zeroed in on common points to push for joining forces for
faster reforms by the US and the EU. The Cairns groups and the
Group of 20 want the Cancun meeting to set a firm date for
eliminating all forms of export subsidy and big reductions in
trade-distorting domestic support. However, they differ over how
far poorer countries should have to open their markets.

AFX notes that the EU said an agricultural proposal put
forward by 21 developing countries at key WTO talks here is
unbalanced, leaving wealthier countries to shoulder the greater
burden.

The US sees the demands of the Group of 21 as an emerging
threat to the success of the Cancun talks. In remarks to
delegates, U.S. Trade Representative Robert Zoellick repeated his
insistence that the talks had to be a „two-way street“
and that the U.S. could not further open its own market without
other countries dropping their tariffs, the Wall Street Journal
report.

Dow Jones reports that the US and other major industrialized
countries can be convinced to reduce farm subsidies and open
markets to developing countries through talks at the WTO, but the
process will be gradual, Brazilian Vice-president Jose Alencar
said Wednesday. „The US government, for example, is under
strong pressure from farm lobbies and we understand that,“
Alencar said. „It’s not going to happen overnight, but
we think they’ll come around eventually as soon as they see
it is in their interest.“ Alencar Wednesday said that
investment opportunities in developing economies would far make
up for losses incurred by opening markets in fully developed
industrial economies.

Meanwhile, the Guardian (UK) reports that the European
commission was last night secretly preparing to sabotage plans to
help poor countries trade their way out of poverty, as backstairs
wrangling dominated the opening day of the WTO’s talks in
Cancun. A confidential paper not shown even to member
governments, including the UK, revealed that the commission was
planning to water down the already modest concessions on offer to
the world’s poorest countries in the talks. In an attempt to
safeguard the interests of its six million farmers, the
commission is seeking to remove all mention of eliminating export
subsidies from the WTO meeting’s final declaration. The move
has enraged developing countries, who won a pledge from the west
two years ago that phasing out payments which allow subsidized
western produce to be dumped on world markets would form a
centerpiece of the so-called Doha development round.

Xinhua reports that WTO Director-General Supachai Panitchpakdi
signed an agreement with the United Nations Industrial
Development Organization (UNIDO) on Wednesday, in an effort to
help developing countries participate in international trade. The
agreement, in the form of a memorandum of understanding, will
provide a framework for the two organizations to work more
closely. UNIDO’s Director-General Carlos Magarinos said,
„Until Doha, trade related technical assistance was almost
synonymous with WTO-related technical assistance. „Now it is
increasingly understood that to be effective, trade-related
technical assistance has to attend to the whole „product to
market“ chain,“ he added.

In another piece, Xinhua notes that United Nations
Secretary-General Kofi Annan said Wednesday that the
liberalization of trade is not the cure-all for the developing
countries because, in fact, it causes considerable adjustments
and social expenditure. Developing nations need help to establish
institutions and infrastructure, acquire technology and knowledge
and create legal regimes that allow them to move on this path,
according to the text read at the opening of the five-day event
in Cancun. Annan said that the less-advanced countries tend to
need a truly special and differentiated treatment, and not only
more time to fulfill new rules.

AFP notes that African cotton growing countries on Wednesday
demanded at a key WTO meeting here an end to subsidies paid by
wealthier countries to their own farmers, as well as compensation
for losses resulting from those subsidies. West and Central
African countries lose an estimated 250 million dollars a year in
export revenue, they said, adding that the figure increases to a
billion dollars if one takes into account losses suffered by
people whose income is indirectly linked to cotton production and
exports.

AP adds that EU Trade Commissioner Pascal Lamy said he had
„sympathy“ for the problem of African cotton farmers,
but stressed that the bloc produces less than 3 percent of world
cotton and is the world’s largest importer of cotton. The US
stresses that subsidies are not the only problem. The cotton
trade is also affected by import tariffs that are sometimes as
high as 100 percent, lengthy customs procedures, complicated
labeling requirements and policies that promote the development
of manmade fibers.

Meanwhile, Lamy writes in an op-ed in The Guardian (UK) that
the [WTO] rules are far from perfect. But I do not agree that
they are intrinsically unfair to poor countries, he writes. The
Uruguay round was not a bum deal for the developing world: since
its conclusion, EU imports from developing countries have
doubled, for instance. In agriculture they have grown by 5
percent annually, and we are already the world’s largest
importer of agricultural products from developing countries. In
textiles EU imports from developing countries have soared by 60
percent since 1995. But more needs to be done. This is the big
prize of the Doha agenda: the World Bank estimates that an
additional 300 million people could be lifted out of poverty by
2015 if the WTO secures a comprehensive deal. The EU is ready to
accept that challenge, whether in market access or rules. Lamy
further writes a true development round will require both
developed and developing countries to open up.

World Bank President James Wolfensohn writes in anotehr op-ed
in the Manila Times that reducing trade barriers alone will not
fulfill the development promise of Doha. Trade must be part of a
larger strategy for each country that includes attention to
macroeconomic policy, infrastructure, education, health and
governance. One small example is reforming customs procedures.
Reducing port and customs transit times by one day has nearly the
same value as reducing tariffs by one percent. The World Bank is
committed to helping developing countries take advantage of any
new market access that emerges from the multilateral
negotiations, Wolfensohn writes. We are adapting existing tools
and designing new programs that will provide resources for
countries reforming their trade regimes, improving their
trade-related institutions, and investing in the infrastructure
needed to get the products of the poor and others to markets.
This op-ed also appeared in the Der Tages-Anzeiger (Switzerland),
Irish Times (Ireland), BusinessWorld (Philippines) and the
Philippine Star.

In another op-ed in The Guardian, Joseph Stiglitz, Columbia
University’s Novel prize laureate, writes that the African
farmer may not have a college education, but he may well know as
much about the meeting that is happening in Cancun as the average
American or European-because his life is far more dependent on
the outcomes. While something should be done about existing
problems such as the proliferation of non-tariff barriers,
America is also making new demands on developing countries-that
they open up to destabilizing speculative capital flows. Just as
the IMF has recognized that such flows do not promote growth, but
actually result in greater instability, and have accordingly
scaled back pressure on developing countries for capital market
liberalization, America is trying a new forum, the WTO, to push
this agenda, which may be good for Wall Street but is bad for
developing countries.

John Vidal of The Guardian writes in a commentary that the
reform of Trips will be at the heart of the Cancun talks.
African, Asian and Latin American countries propose that all
patenting of life forms should be banned worldwide, but because
this would mean a complete reversal of the present Trips rules it
will be unacceptable to the US and a non-starter. The best that
developing countries can hope for is reform of the rules so
anyone wanting to patent a life form would have to disclose where
the genetic material was gathered, or where they came by the
knowledge to use the plant.

The Bangkok Post writes in an editorial that Thailand, as one
of the world’s largest agricultural producers, has a very
real interest in seeing farm liberalization move forward. Thai
farmers produce much more each year than is needed locally, with
the surplus going to export markets. Without exports, the net
effect would be a virtual collapse of market prices as excess
rice, sugar, fisheries and other farm commodities go to waste,
unused and unwanted. There will always be winners and losers
involved in any liberalization policy. But in this case, it
remains in the country’s best interest to hope that the goals
of Cancun and Doha are ultimately met.

„What is the EU’s position on the draft modalities paper tabled by the WTO?“, other questions and answers from the commission.

Q. What is the EU’s position on the draft modalities paper tabled by the WTO?

A. We are supportive of Chairman Perez del Castillo’s process and appreciate the work he has done. There has been progress in some areas. However, the „Perez de Castillo Draft“ is flawed, although not so fundamentally flawed that it cannot be repaired in Cancún. We need burden sharing amongst participants. This is what we do not see so far. As the draft
stands, it is only the developed countries who have to pay – all
the others just cash in.

Some examples:

• On domestic support: we are prepared to make huge efforts in this negotiation, but it is excluded that we commit ourselves to further reductions beyond the implementation period of this agreement.
• On export competition: the draft is weak on state trading enterprises. These and all other forms of export subsidisation need to be disciplined in an equivalent manner to the disciplines proposed for our type of export subsidies. We have to see a level playing field.
• On Market Access: the proposal effectively concentrates all market opening efforts in the developed countries. Major net food exporters will be able to maintain high tariffs, while gaining hugely improved access to developed importing countries This is neither justified nor is it in the interests of the developing countries themselves. What is the logic of this proposal?

• The reference to non-trade concerns is far too weak.

Q. What is the EU/US framework proposal proposal about?

The US and EU were asked to work together and try and unblock the logjam the negotiations had reached in July. In response the two partners worked very hard, and made major efforts to find a convergence of views. In reaching agreement on a common proposal the two partners showed their commitment to the success of this round and their determination to close some of the gaps that had stalled the negotiating process on agriculture. Further gaps and obstacles remain; it is now up to other WTO members to assume their responsibilities too by engaging in the negotiations in a flexible and constructive manner.

In short: the US/EU framework proposal deals with the « three pillars » of domestic support, market access and export competition, while making it clear that a number of other elements remain to be addressed. For each of the three pillars the paper provides an outline of how to carry the negotiations forward, while leaving the details, and in particular the extent of the future commitments, to be negotiated.

For domestic support, the paper provides a framework to substantially reduce the most trade distorting support (amber box and de minimis) and it creates a box for less trade distorting support (previously blue box) which is subject to a cap.

It recognises that those who subsidise more will have to reduce more, but ensuring that all make efforts.

For market access, there is a formula which takes on board both the formulas discussed to date (Uruguay Round and so-called „Swiss“ formula), while fully preserving the elements of flexibility and recognition of the existence of sensitive products, which is an element of great importance to developing countries.

In fact, recognising their importance to developing countries, flexibility and the recognition of the concept of sensitive products for reasons of development and food security are essential points in this paper. Furthermore, a special safeguard is envisaged for developing countries to protect import sensitive products. The paper also provides for lower tariff cuts and longer implementation periods for these countries. In addition, the importance of existing and future preferential access for developing countries is recognised. Finally, there is a commitment from developed countries to seek to provide duty free access for a certain percentage of their imports from developing countries.

On export competition, the framework paper provides several elements. Firstly a clearly defined parallelism between the disciplines imposed on export subsidies and exports credits. Secondly, it provides partial elimination of export subsidisation for a common list of products of interest for the developing countries. Thirdly, it provides a path for parallel reduction of export subsidisation for the products for which subsidies are not eliminated. In addition to that, there will be clear discipline on food aid programs to prevent misuse and disciplines also on the transactions of state trading enterprises.

Finally, the paper notes a number of elements of interest but not agreed, including non-trade concerns, the peace clause and GIs.

Q. Do the June reforms strengthen the EU’s hand in the WTO?

A. Yes, they do. Thanks to the June decision on reform, we can support our political arguments with clear evidence that we are continuing to practise what we preach, with a policy that meets society’s broader needs, while significantly cutting back on trade distorting support and keeping our market open to trade with third countries. In fact, the reform greatly facilitated the work to find convergence with the US in the framework proposal, particularly on domestic support. In this sense it has already shown its value in terms of a positive contribution to the negotiations.

Q. What is decoupling and what will it achieve in WTO terms?

A. Decoupling means cutting the link between production and subsidies, and support given in this way does not distort trade. The move to single farm payments strengthens the position of the EU since decoupling changes the significance for the WTO of direct payments. They will no longer be classified as blue box, but as green box. This latter (green) box includes those forms of domestic support which are not, or are only minimally, trade-distorting.

Q. What is in it for developing countries?

A. The June 2003 CAP reforms will improve the long-term coherence between the CAP and the Doha Development Agenda. The main adjustments are expected to reduce the potential for EU surpluses to weigh on world markets, by reorienting the CAP towards less trade-distorting domestic support and more extensive agricultural practices.

Q. How does the EU justify CAP expenditure that amounts effectively to $2/day per cow?

A. This argument is irrelevant. It distracts attention from the key issue at stake: the question is not how much a country supports its farming community, but rather what part of that support is trade-distorting. This is what matters for developing countries. The June 2003 CAP reforms clearly move the bulk of agricultural support to non trade-distorting decoupled single farm payments.

Q. The EU is shifting support to new mechanisms but the same amount of money goes to farming doesn’t it?

A. This argument is missing the point. What really matters in the context of the WTO and especially for developing countries is the impact of farm subsidies on production and trade. Here CAP reform is clearly positive. Take a look at the recent OECD study which shows the trade effects of various policy options. It is clear that thanks to the reform, the bulk of EU subsidisation of agriculture will move to less or non-trade distorting mechanisms. This means that they will no longer impact negatively on world markets.

Unfortunately, some of our trading partners and some NGOs are deliberately or not blurring the real issue in the WTO talks. Not all farm spending is evil. This is confirmed by OECD research, and by the fact that the WTO itself differentiates between trade distorting (amber box), less trade distorting (blue box) and non trade distorting (green box) agricultural support.

The common objective in the WTO is to reduce farm subsidies, including those of the EU, which distort international trade and harm the interests of developing countries. The rest is rhetoric. And it is this common objective that we are pursuing in our reforms.

Q. Aren’t Geographical Indications just another form of trade barrier, serving EU interests only?

A. No, GIs are not trade barriers as they do not concern imports. The EU simply wants to ensure that its exports are not impeded, either because they fall foul of trademark rules or because they are forced to compete on the same markets with non-EU products bearing similar names but which do not meet the same quality criteria. It is simply not acceptable that the EU cannot sell its genuine Italian Parma Ham in Canada because the trade mark „Parma Ham“ is reserved a ham produced in Canada. Caused loss for Italian Parma producers: € 3.5 million a year.

Q. Is Europe alone with its bid to step up protection for regional quality products?

Clearly not. This is also close to the heart of many developing countries. India, Pakistan, Sri Lanka, Thailand, Kenya, Jamaica and other developing countries have demanded better GI protection. They are worried about multinationals patenting and selling „Basmati“ rice, „Ceylon“ tea, „Blue Mountain“ coffee, „Jasmine“ rice. The EU proposal would help these countries reap the benefits of the TRIPs Agreement. Today, 6000 million pounds of „Antigua Coffee“ are produced in such region of Guatemala but 50000 million pounds are sold under that name around the world. Similarly, 10.000 million kg of „Darjeeling“ tea are produced in India, but 30.000 million are sold under the same name around the world.

Q. How do export credits distort trade?

A. It is not widely recognised, but is nevertheless true that EU export refunds are by far not the only trade distorting tools to boost exports. Some WTO Members resort to state supported export credits for a significant part of their trade in order to capture market share in developing countries. According to an OECD study, the US used about US $ 4 billion of officially supported export credits in 1998. These practices, which are highly trade-distorting, should be disciplined in the same way as other forms of export subsidy. The OECD identified US payments and long-term credits as the source of 97 % of the world’s trade-distorting export credit subsidies. US credit subsidies are made on commodities which are already cheap, owing to the effects of counter-cyclical subsidies, giving considerable additional leverage to this instrument.

Q. And single desk selling (state trading enterprises)?

A. State trading enterprises (and other forms of single desk seller) that have been granted special rights or privileges by their Government should also be disciplined. Their practices, such as cross-subsidisation and price pooling, which are not in accordance with commercial practices, and which therefore distort export trade, should be addressed in the WTO negotiations.

Q. How have food aid systems been used to distort trade and how can they harm developing countries?

A. Irresponsible deployment of commodities under the cover of food aid programmes is an abuse of the concept. Dangers include: disturbance of local markets; undermining local agriculture; displacement of legitimate importers; and circumvention of WTO rules on subsidised exports. The EU does not at all question the granting of genuine food aid. We question the use of food aid donations used as surplus disposal measures. Some WTO members have used food aid donations more as a production and commercial tool to dispose of surpluses and promote sales in foreign markets than as a development tool tailored to the needs of the recipient countries. It is ironic that the amount of food aid given by some countries tends to increase significantly when prices are low whereas levels are much lower when prices are high – and food aid is most needed.

Q. Why does the EU want clarification of the ‚Precautionary Principle‘?

A. In the interests of food safety we believe that the EU, like other WTO members, has the right to establish the level of protection that it deems appropriate. The precautionary principle covers cases where scientific evidence is insufficient, inconclusive or uncertain and preliminary scientific evaluation indicates that there are reasonable grounds for concern about potentially dangerous effects on the environment, human, animal or plant health. In order to avoid trade abuses the EU believes that there is a clear need for clarification of the use of the precautionary principle.

Q. Does the CAP not harm poorer countries, for example via the ‚dumping‘ of subsidised food products on third country markets?

A. Descriptions of the ‚harm‘ done by the CAP to third countries tend to exaggerate, when they are not totally incorrect. The EU has reacted when there have been negative impacts resulting from its exports, as was the case of beef to West Africa in the 1980s, when the EU stopped granting export subsidies. However, experience shows that the simple withdrawal from the EU does not automatically help developing countries, given that the market space created by such withdrawal is frequently taken over by products from other developed countries which are equally competitive.

In addition, the CAP reforms of the last decade have greatly minimized the risk of harming developing countries: the proportion of the CAP budget spent on refunds is down from 30% of the EU farm budget in 1993 to less than 9% in 2002. And the EU is ready to do more. Following the June 2003 reform package, the EU will be in a position to further reduce export subsidies. In the WTO talks, the EU has offered to completely eliminate its refunds for certain products important to developing countries, if other forms of export subsidisation (export credits, abuse of food aid, state trading enterprises) are equally disciplined.

Q. Do the EU’s existing trade concessions and proposed new ones have a real benefit for developing countries? Do they receive a quantifiable benefit?

A. The Uruguay Round (URAA) did provide important new opportunities for developing countries – they accounted for almost half (US $ 47bn) of the nearly US $ 100bn growth in agricultural trade between 1993 and 1998. Their exports increased by 72 % in that period, from US $ 120bn to US $ 167bn. The EU has been an important source of this growth. Following the URAA, agricultural imports from developing countries have had annual growth rates of 5 % (1996-2001), compared to a previous 3 % (1990-1995).

Q. Can we still talk about ‚Fortress Europe‘?

A. This is far from being the case. The EU is the world’s largest importer of agricultural products. In 2000 the EU imported agricultural products totalling EUR 58.6 billion (60 % of these imports originated in developing countries). The EU imports more farm products from developing countries than the US, Canada, Australia and Japan put together.

Q. Tariff escalation is a big problem for developing countries what does the EU do to help?

A. Tariff escalation in agricultural processed products (ie. higher tariffs for processed products than for the sum of tariffs on their raw materials) encourages developing countries to export raw commodities without adding value. It is therefore very difficult to exploit the dynamics of industrialisation and development that accompany processing of agricultural commodities. The EU is not a great user of tariff escalation. In comparison, Japan and Canada are. For the poorest countries, tariff escalation in the EU market is not a problem since, given the Everything But Arms initiative, those countries face no tariffs on any of their agricultural exports, whether processed or not.

Q. Why do EU cotton subsidies not harm developing countries?

A. Although the EU does subsidise its cotton production, the quantities which benefit from subsidies are limited.

In fact, subsidised EU production represents only 2% of world production. Moreover, the EU is the largest importer of cotton in the world, and a large share of those imports come from the West and Central African countries, and pay zero duty. Exports of cotton from the EU are minimal, and receive no export subsidies. Against this background it is difficult to sustain that EU cotton subsidies harm developing countries.