The views expressed in this article are those of the authors and do not necessarily reflect the views of the ICTSD.
1We set out to review recent trends in world trade flows and international arrangements governing economic integration and their potential implications for developing countries. In chapter 2, after a short review of the impact of the 2008 economic downturn on the trade performances of emerging economies and least developed countries, we assess the extent to which governments’ responses to the crisis have resulted in a protectionist backlash.
2Chapter 3 focuses on the World Trade Organization (WTO) and recent progress in the Doha Round of trade negotiations, with a particular emphasis on the two main drivers of the talks, namely market access in industrial goods and the reduction of agriculture subsidies and tariffs. Given the prominence of the agriculture sector in low-income developing countries, the chapter provides an in-depth analysis of the draft provisions designed to address their food security, livelihood and rural development concerns. It then proceeds to assess the value of envisaged cuts in agriculture subsidies and tariff barriers in Organisation for Economic Co-operation and Development (OECD) countries and their likely impact on agricultural exports from developing countries. In doing so, it focuses on the case of Switzerland as an example of a country which, in spite of gradual efforts to remove tariff protection and trade distortion, still maintains proportionately one of the highest levels of agriculture support in the world.
3Chapter 4 deals with bilateral and regional free trade agreements (FTAs). It discusses intellectual property rights provisions going beyond the minimum level of protection provided in the WTO and their possible consequences for public policies in areas such as access to medicine and biodiversity management. The analysis concentrates on the case of FTAs between members of the European Free Trade Association (EFTA) and selected developing countries, not least because some of them contain innovative anti-biopiracy provisions, which could create relevant precedents in international negotiations on the relationship between intellectual property and biodiversity.
4Chapter 5 aims to contribute to post-Copenhagen negotiations by providing information on the most salient and pressing policy linkages between trade and climate change.
5The concluding chapter offers suggestions on how the multilateral trading system might address new policy challenges such as the proliferation of regional and bilateral agreements and possible trade measures implemented as a response to climate change.
6The context for global trade in 2009 was dominated by the world’s most severe financial and economic crisis since the 1930s. Global economic output shrank for the first time since the Second World War. Growth in the developing world as a whole remained positive but was far below the levels seen in recent years.
7Between plummeting demand and the drying up of trade finance as a result of the financial crisis, global trade volumes shrank after decades of steady growth. “Trade”, as WTO Director-General Pascal Lamy said, “has become another casualty of the global economic crisis” (Lamy 2009). World merchandise trade was set to contract by 10% in 2009, according to WTO projections. This has occurred despite a recovery from June onwards, which serves to underline the depth of the collapse. Services trade took less of a battering, but this sector accounts for a minority of commercial activity.
8Although the crisis had its origins primarily in the United States (US), developing countries have been hit especially hard. The World Bank estimates that the economic downturn will add an additional 53 million people to the ranks of those living on less than USD 1.25 a day and 64 million to those living on less than USD 2 a day (World Bank 2009b). Exports from the developing world were projected to fall by 33% in 2009, as the foreign demand that had underpinned the growth of many countries evaporates.
9Sadly, it is the less successful developing country exporters, the very countries that were largely left out of the export boom of the past three decades, that fared the worst. London’s Centre for Economic Policy Research demonstrates that although China, India and Brazil saw exports decline by between 19% and 33% in the second half of 2008, countries not belonging to the top 20 developing country exporters (for those where data are available) saw exports fall by even more (Hufbauer and Stephenson 2009). Ecuador and Zambia, for instance, saw exports drop by over 50%. In volume terms too, including for manufactures, these generally poorer countries are doing worse than the 20 most successful developing country exporters. And people in those countries are likely to be particularly vulnerable to still-high food prices and declining remittances from abroad.
10At the time of writing in October 2009 there was an increasing sense that a catastrophic collapse of the global financial system had been averted, although some experts remain wary of a “double-dip” recession. In its World Economic Outlook, released in October 2009, the International Monetary Fund (IMF) revised its growth estimates for 2010 upwards from April 2009. Rich country output should increase by 1.7% for advanced countries in 2010, according to the IMF. The figure for emerging market and developing countries was 5.5%, for a global average of 3.2%. However, the IMF warned that much of this growth was the result of government spending and emphasised risks arising from high government debt (IMF 2009).
11Switzerland has not been immune to the crisis. The Swiss Federal Department of Finance described the country’s trade performance in the first quarter of 2009 as the “worst result in ages”. Exports declined by 13.3% in real terms, imports by 4.3% though 10.6% in nominal terms (FDF 2009). Swiss imports from most developing country regions were not spared. Imports from Africa fell by 73.1% compared to the first quarter of 2008, although most of this was accounted for by oil. Imports from Brazil fell by 14.8% and those from Latin America as a whole fell by 8.7%. Indian exports to Switzerland fell by nearly 9% and Korea’s decreased by over 30%. Exports from Asia as a whole were up, but much of the increase was due to some CHF 1.8 billion worth of gold ornaments, principally from Vietnam, to be melted down and recast.
12As for the Least Developed Countries (LDCs), they have never been a significant source of imports for Switzerland. In the first quarter of 2009 imports from LDCs represented only 0.15% of Switzerland’s total imports, in keeping with their share in recent years. That said, LDC exports to Switzerland actually increased by 13.3% over the same period the year before, with Bangladeshi textiles accounting for over half of the CHF 66.7 million worth of merchandise imported. LDCs’ generally poor export performance is not due to tariff barriers since Switzerland offers duty-free and quota-free access to all LDC exports. However, LDCs have not been able to take advantage of these considerable tariff advantages to boost agricultural exports, principally due to their difficulty overcoming sanitary and phytosanitary requirements and other non-tariff barriers, according to research by Christian Häberli, a former Swiss trade official (Häberli 2008). This has prompted observers to question the real value of current preferential market access schemes provided by Switzerland.
13The economic crisis has been accompanied by widespread fears of protectionism. Governments facing heat over heavy job losses, the thinking goes, would come under tremendous pressure to erect barriers to trade. The Great Depression of the 1930s was marked by a spiral of trade protection and competitive devaluation, both of which served primarily to make people poorer still. Heads of State from the Group of 20 (G-20) leading industrialised and developing nations spoke to these concerns at their summit in Washington in November 2008, pledging to “refrain from raising new barriers to investment or to trade in goods and services” for 12 months (G-20 2008). But only a few months later the World Bank found that some 17 members of the G-20 had implemented measures that “restrict trade at the expense of other countries” (World Bank 2009c). Thus far, however, it seems that trade-restricting measures have been relatively modest in scope. A March 2009 report by the WTO Director-General’s office found “no indication of an imminent descent into high intensity protectionism involving widespread resort to trade restriction and retaliation” (WTO 2009a, 1).
14Switzerland did not figure in the report’s list of countries that took measures to either restrict or facilitate trade. Its aid to the troubled bank UBS was mentioned, alongside a description of financial sector bailouts undertaken by other governments. The Economist magazine, however, suggested that Switzerland was guilty of financial protectionism. The country’s new leverage restrictions for UBS and Crédit Suisse exclude domestic lending from calculations of capital, thus privileging it over foreign lending. This is part of a more general worldwide trend for banks to lend more at home than abroad, in response to market and political pressures (The Economist 2009).
15Despite the lack of cause for serious alarm, WTO investigations into countries’ trade policies since autumn 2008 did find evidence of increased tariffs, new non-tariff measures and use of trade remedies such as anti-dumping duties on imported goods. It warned of the risk of “an incremental build-up of restrictions that could slowly strangle international trade” and undermine worldwide attempts to boost demand and restore growth (WTO 2009a, 1). Past downturns in the 1970s and 1980s were marked by such measures, and supposedly temporary subsidies and protective measures to protect jobs and businesses in fact took years to unwind, during which they underwrote uncompetitive industries and sectoral overcapacity.
16If governments have not been scrambling to raise new barriers to trade, they have not exactly been rushing to agree to new liberalisation either. The Doha Round of trade talks at the WTO continues to languish, despite assorted governmental promises, including by the G-20, to bring them to conclusion. This is understandable. Since the collapse of Lehman Brothers in September 2008 governments, particularly that of the US, have had more pressing preoccupations: saving the financial system from a catastrophic breakdown and stimulating domestic economies mired in a deep recession.
17Within this grim context, however, the political circumstances for negotiated trade liberalisation have become somewhat more propitious. For one, the crisis has shattered impressions that global trade was flourishing without a Doha agreement, and thus there was no point making unpopular choices to secure a trade deal. Meanwhile, as President of the US, Barack Obama has stepped back from the trade-sceptic rhetoric he employed on the campaign trail, quietly dropping pledges to renegotiate the North American Free Trade Agreement (NAFTA) and pushing Congress to make the fiscal stimulus package’s “Buy American” clauses WTO-compliant. Ron Kirk, the new US trade representative, has moved to re-engage with other countries on the Doha Round and stressed that the Obama administration will be committed to open trade.
18The new distribution of power in Washington should also simplify US trade politics. Relations between the Congressional Democratic leadership and the current President are far better than under George W. Bush, increasing the chances that trade deals will secure law-makers’ approval. Nevertheless, the Obama administration would need to win support for trade legislation from some Republican members of Congress since several representatives from Obama’s own party would be unlikely to support any trade agreement.
19India, whose clash with the US over protections for developing country farmers helped doom a July 2008 mini-ministerial summit on the Doha Round, has also come out of the April-May elections better positioned to pursue economic reforms. The Congress-led ruling coalition substantially expanded its share of seats in the country’s parliament, meaning it will no longer be reliant on the fickle support of communist parties. Nevertheless, the government is also aware that its gradual approach to reform and canny welfare spending over the past five years won it votes. Dramatic shifts in policy may not be on the agenda. Finally, although the European Commission will continue under Jose Manuel Barroso’s leadership, Brazil, one of the few vocal supporters of the Doha Round, faces a political shake-up in its presidential elections in 2010.
20For the third summer in a row, a push for breakthrough WTO accords on agriculture and manufacturing trade at a mini-ministerial meeting in July 2008 ended in failure. However, the most surprising thing about the summit was not that it broke down but rather how close ministers came to reaching an agreement. By WTO Director-General Pascal Lamy’s reckoning, they made it “80-85% of the way” to “modalities” deals with formulae and figures for future subsidy and tariff ceilings during the nine days of gruelling discussions, the longest such meeting in the WTO’s history (ICTSD 2008a). Of the some 20 issues in the talks related to agriculture and non-agricultural market access (NAMA), Lamy indicated that positions had converged on 18. Differences on the ease with which developing countries should be allowed to raise tariffs beyond current legal limits to protect farmers from import surges under a “special safeguard mechanism” proved “irreconcilable”, Lamy conceded. The 20th issue, cotton, was never discussed, to the irritation of African countries especially, some of which have seen already-meagre earnings severely hit by the effects of US cotton subsidies in particular (ICTSD 2008b).
21Since then negotiations among trade diplomats have moved slowly, while the unlikelihood of an agreement forced Pascal Lamy to abandon plans to bring ministers back to Geneva in December 2008 for yet another try at a deal on “modalities”, i.e. the formulae and figures for reductions and exceptions that will determine countries’ future tariff and subsidy levels. While some members envisaged the possibility of an “early harvest” (if it can be called early after over seven years of negotiations), under which agreements would be reached and implemented on individual issues potentially including trade facilitation, duty-free and quota-free access for LDC exports, cotton subsidy and tariff cuts, and banana trade, nothing concrete has emerged yet from this process.
22In the NAMA negotiations the principal division is over so-called sectoral liberalisation initiatives, i.e. proposals to eliminate or deeply cut tariffs across entire industrial sectors ranging from bicycles, motor vehicles and auto parts to chemical products, electronics, forestry products, sports equipment and toys. To compensate for what they see as weak levels of overall tariff reduction for developing countries, industrialised nations like the US, Canada and Japan want to be sure that major markets like China, Brazil and India will participate in some sectoral liberalisation initiatives.
23But the negotiating mandate explicitly states that participation in such initiatives is “non-mandatory”, a point on which the targeted developing countries have been adamant. The governments of the fast-growing markets are willing to commit to no more than a discussion of how a sectoral approach might work in terms of product coverage, exceptions and future tariff levels for developed and developing countries. Proponents of sectoral initiatives are eager to secure the participation of larger developing countries, especially China, for two reasons. First, countries that together account for a high proportion of total world trade would need to sign on for the extra tariff cuts to kick in. Second, even if a sectoral initiative managed to get off the ground without China, Chinese exporters would benefit from low tariffs elsewhere without being comparably exposed to international competition.
24The draft negotiating text, released in December 2008 by the chair of the negotiating committee, recognises the conflicting objectives. But US manufacturers were unimpressed with the committee’s proposal to simply have countries commit to negotiate the terms of how a particular initiative would operate, with participation remaining optional. The sharpness of the disagreement obscures how much differences have narrowed on what were previously thought to be the central aspects of the negotiations: the “coefficients” linked to the formula that will determine the future tariff levels of most major economies and the figures governing the extent of “flexibilities” for developing nations to shield some products from full duty cuts.
- 1 When fed through the so-called Swiss reduction formula, all of a country’s tariffs are slashed to (...)
- 2 Developing countries opting for a coefficient of 20 would be allowed to subject 14% of tariff line (...)
25As per the terms of a compromise suggested by Pascal Lamy during the July mini-ministerial meeting, the text provides for the industrialised country coefficient to be eight.1 For the 30-odd developing countries that would have to apply the tariff reduction formula there is a three-option “sliding scale”, i.e. the higher the coefficient they choose, the less freedom they have to shelter products from tariff reduction.2
26In the negotiations Switzerland has pushed for relatively deep tariff cuts and is a co-sponsor of sectoral initiatives on chemical sector products, forest products, gems and jewellery, health care products, industrial machinery and sports equipment. Switzerland’s tariffs on manufactured goods are generally quite low and thus do not stand to be heavily affected. However, a WTO secretariat review of Swiss trade policy found that most favoured nation (MFN) tariffs on textiles and clothing products remain relatively high, averaging 12.8% on cordage and 9.1% on made-up textile goods. Used clothing faced an applied tariff of 45% (WTO 2008a). These would be cut to below 8% by a Doha Round deal along the terms outlined above, i.e. a 9.1% tariff would be cut to 4.25% by a coefficient of eight.
27According to the text that was released by the chair of the WTO agriculture negotiations on 6 December 2008 (WTO 2008b), the US would cut its agriculture trade-distorting subsidies by 70%, to roughly USD 14.4 billion, while the European Union (EU) would make cuts of 80%, to around EUR 22 billion. However, along with other WTO members, both would be allowed to maintain and even increase billions of dollars of “green box” subsidies if such payments cause not more than minimal trade distortions. In the area of cotton subsidies reduction, a long-standing issue of importance for West African countries, delegates remain in the dark about possible US concessions. In the absence of counter-proposals, the text still reflects the cuts put forward by the “cotton 4” African producers (Benin, Burkina Faso, Chad and Mali). Some trade sources have suggested, however, that recent Democratic victories in the US congressional and presidential elections may leave the US more room to manoeuvre on this issue.
28As shown in table 1, in terms of tariff cuts developed countries’ highest tariffs would be reduced by up to 70%, although the numerous opt-out clauses envisaged in the text such as for “sensitive products” might result in only limited cuts and quota expansion for products of key importance to developing country exporters such as beef, dairy and sugar. Developing countries would make cuts of up to 46.7% on tariffs higher than 130%.
Table 1: Tariff cut formula
Source: WTO (2008b).
- 3 Up to 5% of tariff lines may be exempted from cuts, but the overall average cut shall, in any case (...)
- 4 Additional flexibilities were also granted to small and vulnerable economies and Net Food-Importin (...)
29However, they would be allowed to select a limited number of tariff lines as special products (SPs) on the basis of food security, livelihood security and rural development criteria and apply gentler tariff cuts on those products.3 This concept, introduced by a coalition of developing countries called the Group of 33 (G-33), comes from the recognition that opening markets to competition from cheap and often highly subsidised foreign agriculture imports may affect the livelihood of small and resource-poor farmers, particularly in countries where agriculture still accounts for a large share of gross domestic product (GDP) and employment. The chairperson of the agriculture negotiations, Ambassador Crawford Falconer, proposed draft modalities, according to which developing countries will be entitled to self-designate 12% of their agricultural tariff lines as SPs, guided by an illustrative list of indicators of food security, livelihood security and rural development. For recently acceded members, including China and Vietnam, the maximum entitlement is 13%.4 These numbers reflect a compromise between the G-33 position, which asked that 20% of agricultural tariff lines be subject to the SP exemption, and the US position, which proposed to limit SPs to five tariff lines.
30From a development perspective, the SP concept raises two important questions: (i) how to define products that play an important role from a sustainable livelihood perspective? (ii) what would be an appropriate number of tariff lines? A series of studies undertaken by the International Centre for Trade and Sustainable Development (ICTSD) in nearly 20 countries has provided some empirical evidence on both questions. These studies used a set of food security, livelihood security and rural development indicators similar to those provided in Falconer’s text. They also took into account a series of trade variables including existing levels of tariff protection and import vulnerability (ICTSD and FAO 2007).
31Overall the studies identified more than 40 different product categories susceptible to being categorised as SPs. While several of them were specific to one or two countries, figure 1 shows 19 were common to at least 25% of the studies.
- 5 Given the confidential nature of the studies, countries are represented by letters. The countries (...)
32Chicken was the most commonly identified product and was recommended as a potential SP by 94% of the studies, followed by rice, dairy products, bovine meat, sugar, maize, pork, potatoes, vegetable oils and wheat. Not surprisingly, these are often products that receive the highest amounts of subsidies in OECD countries. With respect to the number of agricultural tariff lines represented by SPs, the findings of the studies vary considerably, from 3% to 20%, reflecting large disparities among developing countries related to the size of the economy or the level of agricultural diversification. Figure 2 shows SP as a percentage of tariff lines for countries where data were available at the Harmonised System (HS) six digit level.5 Overall out of the 12 countries studied, four exceed the 12% limit envisaged in Falconer’s text.
Figure 1: Special Products Most Frequently Identified in ICTSD Studies
Source: ICTSD and FAO (2007).
Figure 2: Special Product Tariff Lines as a Percentage of Total Agriculture Tariff Lines
Source: ICTSD and FAO 2007.
33Since the introduction of the new Agriculture Act in 1999 legislative changes and funding for Swiss agriculture have been granted by parliament for four-year periods. For the 2008-11 period Swiss agricultural policy (AP) 2011 aims to continue the shift from price support to de-coupled payment, with a further reduction of 50% in market price support. The savings thus made will be used for direct payments, or non-trade-distorting subsidies in WTO parlance. All remaining export subsidies for agricultural commodities are to be eliminated by 2010. Between 2008 and 2011 total expenditure on agriculture will amount to CHF 13,499 million (OFDA 2006). This is more than the total amount of official development assistance (ODA) disbursed by Switzerland between 2003 and 2008.
34As shown in figure 3, in spite of Switzerland’s gradual efforts to remove protection and trade distortion, the country’s level of agriculture support remains proportionately one of the highest in the world. The Producer Support Estimate, as calculated by OECD, suggests that support to producers still amounted on average to around 50% of farm income in Switzerland (OECD 2007). This figure represents the cost to taxpayers (who pay for the AP budget) and to consumers (who pay more for their food). As illustrated in figure 3, while the share of producers’ income coming from such support has declined, from 73% in 1990 to roughly 50% in 2007, this remains 2.1 times higher than the average level of support in OECD countries. In this respect several developing countries have argued that the high amount of support provided in Switzerland has contributed to the overproduction of cheap, subsidised exports in the North, depressing world markets and ultimately undermining developing countries’ productive capacities and investment in agriculture.
Figure 3: Producer support estimated by country (in %)
Source: OECD (2007).
* EU-12 for 1990-94, including ex-GDR; EU-15 for 1995-2003; EU-25 for 2004-06; then EU-27.
** Austria, Finland and Sweden are included in the OECD total for all years and in the EU from 1995. The Czech Republic, Hungary, Poland and the Slovak Republic are included in the OECD total for all years and in the EU from 2004. The OECD total does not include the six non-OECD EU member States.
- 6 See Switzerland’s notifications to the WTO in document series G/AG/N/CHE/.
35One of the main deliverables of the Doha Round may possibly be the total elimination of export subsidies as the most trade-distorting kind of agriculture payments. Figure 4 shows the evolution of Switzerland’s export subsidies by product as notified in the WTO since 1997 and reflects significant cuts in the dairy sector where subsidies went down from nearly CHF 300 million in 1997 to less than CHF 13 million in 2007.6 As far as food aid is concerned, it is provided solely in response to humanitarian needs and on full-grant terms. Overall it appears the total elimination of export subsidies will not require any major effort from Switzerland, not least because AP 2011 already envisaged the elimination of such subsidies by 2010.
Figure 4: Swiss export subsidies (in CHF millions)
Source: WTO Notifications.
- 7 See Switzerland’s notifications to the WTO in document series G/AG/N/CHE/.
36With roughly CHF 6 billion a year of support notified to the WTO,7 Switzerland provides significant levels of domestic support and, in spite of conforming to Uruguay Round requirements, this amount has remained fairly constant over the last ten years, as shown in figure 5. Support to farmers includes green and amber box subsidies. Green box subsidies refer to non- or minimally trade-distorting subsidies. They are mainly provided through direct payments that are de-coupled from production. They amount to roughly CHF 3.6 billion a year. Amber box payments are linked to production and are expressed as aggregate measurement of support (AMS) in WTO parlance. In the case of Switzerland they essentially refer to market price support. Overall nearly 40% of total support remains linked to production, which is slightly lower than EU support but considerably higher than support in the US or Japan.
Figure 5: Swiss total AMS amber box and green box subsidies (in CHF millions)
Source: WTO Notifications.
- 8 See Switzerland’s notifications to the WTO in document series G/AG/N/CHE/.
37The top five products receiving amber box support include bovine and swine meat, milk and dairy products, poultry and wheat. As highlighted above, these products often play a critical role in terms of livelihoods and food security in developing countries. As shown in figure 6, while the removal of milk price control and the gradual elimination of the milk quota system have contributed to improving the economic efficiency of the sector, support to bovine meat increased substantially between 1998 and 2006.8
- 9 OTDS is defined as the sum of AMS + de minimis (i.e. 10% of the average value of agriculture produ (...)
38The latest text issued by the chair of the WTO agricultural negotiations indicates a 55% cut in overall trade-distorting support (OTDS)9 and a 52% cut in AMS. These cuts will be implemented from the Uruguay Round base level as opposed to current applied levels. Switzerland has not notified the WTO of any blue box subsidies or de minimis measure. Thus, the total of its trade-distorting support adheres to the form of amber box subsidies.
Figure 6: Swiss top five subsidised products (in CHF millions)
39Current levels of AMS stand at around CHF 2.3 billion, far below the maximum of CHF 4.2 billion allowed under current WTO rules. This means a 52% cut in AMS will only imply limited effective reduction in applied levels of amber box measures, as illustrated in figure 7. When one considers OTDS, the limit envisaged under the current text is still higher than applied levels and would in theory allow Switzerland to increase its OTDS compared to current levels. For these reasons, proposed disciplines under current agriculture drafts will not result in significant cuts in trade-distorting domestic support in Switzerland and therefore are unlikely to effectively benefit developing country exporters. If one takes into account the reduction in price support already envisaged in AP 2011, Switzerland could even accept much deeper cuts in domestic support without having to operate an effective reduction in its applied levels.
40Finally, a reduction in the more trade-distorting types of supports will likely be accompanied by increases in direct payments, or green box subsidies in WTO parlance. While such payments are much preferable from a developing country perspective in the sense that they do not encourage overproduction, most experts tend to agree that such payments still generate distortions, for example by discouraging farmers from getting out of the business of production.
Figure 7: Swiss trade-distorting support (in CHF millions): implications of the Doha Round
Source: Author’s calculation based on WTO Notifications.
- 10 Under WTO commitments, Switzerland has in fact 28 tariff quota commitments. But three tariff quota (...)
41Agriculture has traditionally remained the most tariff-protected sector in Switzerland. Tariffs are particularly high in the dairy sub-sector and on products such as poultry, beef, pork, onions, sugar, potatoes and grape juice, reaching over 1,000% on certain meat products. To further complicate matters, 77.3% of bound agricultural tariffs are “specific tariffs” expressed in non ad valorem terms (WTO, ITC, and UNCTAD 2008). This means they are not defined as a percentage of import prices but, for example, as a specific amount per tonne. This makes comparison with other tariff rates impossible unless specific tariffs are converted into ad valorem equivalent (AVE). Finally, Switzerland applies tariff quotas on 26 product categories, including beef, pork, dairy products, eggs, vegetables, fruits and some cereals, covering a total of 287 tariff lines (WTO 2008a).10
42Under Falconer’s new text on draft modalities, developed countries will have to reduce their tariffs by up to 70%, as described in table 1, with a minimum average cut of 54%. However, WTO members will have the right to designate 4%, and in some cases such as Switzerland, even 6% of their tariff lines as sensitive products. These products will be eligible for gentler tariff reductions in exchange for quota expansion of up to 4.5% of domestic consumption. If, after application of the tariff reduction formula, a member still has some tariffs in excess of 100% outside its sensitive products, these would have to be reduced according to this cap, except for Iceland, Japan, Norway and Switzerland, which might be allowed to maintain tariffs above 100% for 1% of tariff lines in exchange for further quota expansion in sensitive products. This means Switzerland will be able to apply less than full tariff reduction to up to 7% of its tariff lines (6% sensitive products plus 1% special entitlement for tariffs higher than 100%). If it decides to apply these flexibilities to its highest tariff lines, it would be allowed to shield all tariffs higher than 275% from the full reduction formula.
43In practice most developing countries benefit from preferential market access conditions through the Generalised System of Preferences (GSP), allowing them to pay lower tariffs than those consolidated at the WTO. As mentioned above, LDCs even benefit from a duty-free/quota-free scheme similar to that of the EU, which allows them to export agricultural goods into Switzerland at zero tariffs. This preferential margin is likely to be eroded by multilateral liberalisation efforts. At the same time non-LDCs might benefit from lower MFN rates, particularly on goods where tariff peaks prevent them from accessing the highly protected Swiss market.
- 11 The last column in table 2 shows only the developing countries where exports of the product analys (...)
44Assessing the impact of possible tariff cuts on developing country exports is clearly beyond the scope of the present paper. Table 2 provides, however, examples of tariff peaks applied to products of actual and potential export interest to developing countries. For each product it shows existing bound tariff rates at the WTO expressed in AVE and the average preferential rates paid by developed and developing countries on those products. The last two columns respectively show the top developing country exporters to Switzerland, as well as countries that may not be currently exporting to Switzerland but have a high concentration of the analysed products in their agricultural exports and therefore have an interest in finding new market access opportunities.11 This is the case for Botswana and Uruguay, for example, where exports in boneless bovine cuts (HS codes 20130 and 20230) represent between 20% and 30% of their agricultural exports (Ibañez, Rebizo, and Tejeda 2008).
45While competitive agricultural exporters such as Argentina, Brazil, Thailand and even South Africa appear as current and potential exporters in many of the products, it is interesting to note that less advanced developing countries like Namibia, Swaziland, Bolivia, Peru and Guatemala also have an interest in exporting more to Switzerland.
46From a development policy perspective, therefore, the numerous caveats, exceptions and flexibilities envisaged in the Falconer text for developed countries might have the potential to significantly dilute opportunities for new market access to developing country exporters resulting from a Doha deal. Combined with the limited gains that these countries can expect from reduction in domestic support, this explains why many developing members have been reluctant to reduce their own agricultural tariffs, let alone accept ambitious cuts in industrial tariffs as envisaged in the NAMA negotiations.
47Despite the financial crisis, Switzerland has continued to move forward in its pursuit of bilateral FTAs, many of them with developing countries. In the absence of progress at the multilateral level, FTAs are often seen as a faster and more flexible way to secure preferential market access in the South.
48Together with Iceland, Norway and Liechtenstein, its partners in EFTA, Switzerland is currently negotiating trade agreements with Algeria, the Gulf Cooperation Council (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates) and India. Similar talks with Thailand started but are currently on hold. Agreements have already entered into force with Chile, Egypt, Korea, Israel, Tunisia, Morocco and the Southern African Customs Union (SACU). EFTA has also explored negotiations with Albania, Indonesia and Malaysia. Negotiations with Peru have been concluded, but the text is currently undergoing legal review before it can be formally signed, paving the way for ratification. A similar agreement with Colombia was signed in late 2008. Despite calls from more than 30 Swiss non-governmental organisations to withhold ratification, citing human rights violations in Colombia (Alliance Sud, Déclaration de Berne, and Groupe de Travail Suisse-Colombie 2009), the Swiss parliament approved it in May 2009, followed by the senate in September.
49Alliance Sud, an umbrella group of Swiss development advocacy organisations, has been highly critical of EFTA FTAs with developing countries, arguing that they are of dubious economic value and could harm people in developing countries by raising drug costs and flooding their markets with low-cost imports with which local businesses would be unable to compete. It has also complained that the FTAs go well beyond WTO demands on issues such as tariff liberalisation and protection for intellectual property and foreign investment and could weaken developing country solidarity in WTO negotiations (Alliance Sud and Déclaration de Berne 2008).
50In general EFTA’s trade agreements cover a wide range of subjects, not all of which come under the purview of existing WTO rules. Since most EFTA countries have heavily protected farm sectors, agriculture usually receives special treatment, with each EFTA member negotiating farm trade concessions separately. On industrial goods, the agreements largely phase out tariffs, albeit with a longer adjustment period for developing countries. They also cover trade in services (going beyond commitments locked in for all trading partners at the WTO), public procurement (either modelled on or going beyond the WTO’s plurilateral agreement on government procurement), protections for foreign investors (often including the right of establishment) and competition rules.
- 12 This section is based on research and analysis by David Vivas-Eugui, ICTSD.
51Intellectual property provisions in EFTA FTAs have evolved from a model that basically follows the content and structure of NAFTA and the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) to a model that contains very detailed provisions providing for higher intellectual property protection standards than the minimum requirement of the TRIPS Agreement, e.g. EFTA agreements with Chile, Egypt, Morocco, Korea and Colombia. These are often referred to as FTAs containing TRIPS-plus obligations. More recently issues that fall outside the scope of TRIPS, such as genetic resources and the promotion of research, technology and innovation, are starting to arise, for example in the EFTA-Colombia agreement.
52EFTA agreements establish a baseline through a series of general provisions and the subscription and incorporation of several multilateral intellectual property agreements. They reaffirm obligations under the Paris, Bern and Rome Conventions and require parties to adhere to several World Intellectual Property Organization (WIPO) treaties, including the Nice and Budapest agreements and that with the International Union for the Protection of New Varieties of Plants. Subscription to the Patent Cooperation Treaty and the Patent Law Treaty has also become an obligation in recent models. Finally, the WIPO Internet treaties of 1996 have also been incorporated in recent FTAs, e.g. with Chile and Egypt. With the exception of the first three agreements, these treaties are not directly covered by the TRIPS Agreement and therefore imply internal modification of patent, trademark, copyright legislation and administrative procedures.
- 13 In the case of the agreement with Canada no intellectual property provisions were included, which (...)
53Specific obligations are usually found in a special annex, with the exception of the FTAs with Canada and SACU.13 The annexes tend to cover a wide variety of intellectual property provisions which, by nature, go beyond the minimum standards provided in the TRIPS Agreement (TRIPS-plus). This is particularly the case in areas such as patents, undisclosed information, copyrights, designs, geographical indications and enforcement.
54With respect to undisclosed test data, the FTAs follow the basic TRIPS obligations but, instead of reaffirming the protection against unfair competition, a period of exclusivity of five years for pharmaceutical products and ten years for agrochemicals from the day of marketing approval is required. Test data protection has been heavily criticised as one of the TRIPS-plus provisions that most affects access to medicines because such measures generate delays in the entry of generic, and thereby cheaper, products. In order to balance these features, EFTA FTAs incorporate a reference to the right of the parties to take measures to protect public health in light of relevant WTO Declarations, Decisions and Amendments. This allows some level of coherence with recent developments in the WTO on the TRIPS and public health front.
55In the case of geographical indications the scope of protection has recently been expanded to include both goods and services, whereas the TRIPS Agreement only covers goods. This reflects the interest of the Swiss government in expanding the use of geographical indications to certain services as a brand of quality. In the case of the Swiss financial services, for example, this extension is applied both as a means of protection against unfair competition and as an enforcement measure.
56Finally, enforcement provisions have been emphasised in recent FTAs. They include stronger corrective measures, inspection rights and border measures. This strengthening of enforcement measures follows previous trends in US and EU FTAs, thus limiting application to counterfeiting and piracy.
57The recent FTA between EFTA and Colombia contains several relevant new issues that were not covered in any previous EFTA FTA. The most relevant is probably the section dealing with “measures related to biodiversity”. This section constitutes without doubt a landmark towards generating coherence and balance between intellectual property agreements and the Convention on Biological Diversity (CBD). It recognises the importance of existing obligations under the CBD, basic principles such as sovereign rights over genetic resources, as well as access and benefit-sharing rights as reflected in national and international law. It also recognises the contributions of indigenous peoples and their knowledge to economic and social development. More specifically, the parties to the agreement shall require, according to their national law, that patent applications contain a declaration of the origin or source of genetic resources to which the inventor has had access. Mentions of civil and administrative enforcement measures are also incorporated.
- 14 A more detailed analysis can be found in Vivas 2009.
58Overall this shows that it is possible to generate synergies between intellectual property provisions and CBD objectives and principles without affecting the rights of patent holders. For the first time it includes precise measures backed by enforcement provisions in an FTA. Beyond the unclear economic value of such provisions, the precedent they create could be used as a reference in other bilateral and multilateral negotiations addressing biodiversity and intellectual property issues.14
59The global effort to address climate change requires a fundamental transformation of our economies and the ways in which we use energy. Internalising the cost of carbon will have deep-seated effects on what we produce, how we produce it and on what we trade. In the aftermath of the Conference of the parties to the United Nations Framework Convention on Climate Change (UNFCCC) in Copenhagen in December 2009 trade and trade-related issues have emerged as a key element of the trade-offs required by climate change considerations. This chapter provides information on the most salient and pressing policy linkages between trade and climate change.
60Switzerland does not address climate change with a unique policy, but rather with a combination of economic instruments, regulation, public investments and voluntary approaches in sectors such as agriculture, energy and transportation. Under the Kyoto Protocol, Switzerland has committed to reduce its “greenhouse gas” (GHG) emissions by 8% by the end of 2012 from 1990 emission levels. The main spearheads of its strategy are the Federal Law on the reduction of CO2 emissions and the Federal Energy Law.
61Agriculture is a major source of GHGs, currently contributing to 10-12% of global anthropogenic GHG emissions (excluding deforestation). While the Swiss AP 2011 does not aim to address climate change as such, it indirectly contributes to this objective through the shift it promotes from intensive agriculture to integrated or organic farming and limited chemical treatment of plants. It also gives priority to exports manufactured using sustainable methods and in particular organic certification and good agricultural practices.
62Action to address climate change in industrialised countries is leading to a range of standards and certification schemes. These schemes seek to measure and account for the carbon content of goods that are produced and traded internationally. Many of the emerging standards and certification schemes are private sector and consumer-driven initiatives, making it challenging for public policy to fully address their trade and development implications. In 2008 Switzerland initiated its first carbon labelling scheme for products sold in the retail chain Migros.
63The role of voluntary carbon labelling schemes is likely to grow in the future, providing consumers with the option of decreasing their personal carbon footprint. A major concern in this area, however, has been the focus on air transport, which only accounts for a negligible share of GHG emissions when compared with those generated by agricultural products, often providing misleading information to consumers. In this respect the debate on food miles needs to be expanded not just to include road and sea transport but also to look at the total carbon emissions of products throughout the supply chain, using life-cycle analysis, and to evaluate how to reduce emissions at each stage of the chain to achieve low carbon ratings.
64From a sustainable development perspective, carbon schemes would also need to balance the need for accurate and useful data with equity concerns and the need to be simple, transparent, and involve sufficiently low transaction costs to include small producers. While labelling schemes provide opportunities to access niche markets, many producers are concerned that such standards may become a vehicle for green protectionism. In Switzerland, for example, the Bio Suisse label excludes organic air-freighted products. This provision directly affects fruit and vegetable producers in East Africa that would otherwise qualify as organic producers.
65Trade is an important channel for the diffusion of climate mitigation technologies and goods. Lowering trade barriers might, in theory, make them more affordable to consumers and bring down climate mitigation costs overall. Lowering tariffs on climate mitigation goods can also contribute to UNFCCC technology transfer mandates by facilitating access to these goods. The WTO’s Doha Ministerial Declaration calls for a reduction of tariffs and non-tariff barriers on “environmental goods and services”. However, there is no universally accepted definition of these. Complexities also exist with regard to their classification for customs purposes, making selective liberalisation of climate-friendly goods challenging.
66Many developing countries want to safeguard sensitive industries and domestic capacity, which may discourage them from pursuing full liberalisation in climate mitigation goods. Overall the liberalisation of those goods would likely bring benefits mainly to developed countries and a few middle-income developing countries, such as China, Singapore, Hong Kong, Mexico and India, but may not lead to significant environmental benefits in the LDCs that lack purchasing power. As part of the Friends of Environmental Goods group at the WTO, Switzerland supports the establishment of a list of environmental goods for which tariffs would be removed. Jointly with Canada, the EU, Japan, Korea, New Zealand, Norway, Chinese Taipei and the US, it has submitted a list of 153 environmental goods with categories such as renewable energy products, solid waste management and heat and energy management products. A recent ICTSD study has shown, however, that by and large the proposed products do not really match developing countries’ environmental concerns. Furthermore, it appears that tariff reduction might only play a marginal role in enhancing trade in the list of 153 goods, with other factors such as environmental regulations, feed-in tariffs and the general level of industrialisation playing a much greater role as drivers of trade in this area (Jha 2008).
67The UNFCCC and the Kyoto Protocol require parties to promote and cooperate in the development and diffusion of technology, including transfer of technologies that control, reduce or prevent GHG emissions. As recognised in the Bali “road map”, enhanced action on technology development and transfer will be necessary to enable the full, effective and sustained implementation of the UNFCCC beyond 2012.
68Intellectual property rules, particularly those established in the WTO context, have been at the heart of the UNFCCC debate on transfer of technology. Some developing countries are concerned that strict intellectual property rules might prevent the effective transfer of climate-friendly technologies. Initial research found that the impact of patents on access to solar, wind and biofuel technologies in developing countries would not be significant, largely because the level of concentration in those industries is still limited, in contrast with the pharmaceutical industry where patents play a much greater role (Barton 2007). More research is needed, however, to fully understand the role of intellectual property rights, particularly on licensing practices which are likely to play a more important role than patents in the diffusion of climate-friendly technologies.
69Countries set to take on mandatory climate mitigation obligations worry that doing so may affect the international competitiveness of their energy-intensive and carbon-intensive industries. Concerns centre on the economic and social implications of the real or perceived costs of relocating industries to countries without such obligations. In addition, such relocation may lead to higher overall carbon emissions from the same volume of production of goods in countries with less efficient processes.
70In response to such concerns, politicians have been considering legislation instituting carbon-related “competitiveness provisions” in the form of mandatory carbon offsetting allowances on imports or border tax adjustments. Draft legislation in the US contains provisions for carbon barriers targeting emerging economies among non-Annex I countries that are currently not obliged to make emissions reductions. In Europe border measures were left out of draft climate and energy legislation (at least at the time of writing in October); however, they are very much part of the debate. The European parliament has been calling for border measures against climate “free riders”. French President Nicolas Sarkozy has expressed support for the idea of tariffs on imports from countries that do not place a cap on carbon emissions. Carbon-related border measures are controversial; their legality under the WTO has also been questioned. Recent studies have pointed to the potential ineffectiveness of unilateral trade measures to encourage action on climate change (Houser, Bradley, and Childs 2008).
- 15 Today most developing country governments could dramatically raise manufacturing tariffs, and indu (...)
71It is difficult to argue that the tariff and subsidy concessions arising out of a Doha Round deal would help the world economy recover from the crisis. The currently proposed cuts to maximum allowable subsidy and tariff levels have, to a great extent, already been superseded by reality; domestic reforms mean that “applied” rates are already near or below the future caps under discussion. Of course a WTO trade deal would provide an example of multilateral economic cooperation at a time when such cooperation is badly needed for a future global climate agreement. Locking in autonomous liberalisation reforms would also be a useful bulwark against backsliding,15 but it does not excite businesses or developing countries looking for new export opportunities.
72More generally the Doha agenda reflects concerns from the world of the late 1990s, not from the world of today in which regional and bilateral FTAs continue to mushroom, in which high, not low, food prices are the worry and in which key trade policy concerns involve overcoming the current economic recession and addressing competitiveness concerns related to attempts to curb GHG emissions. If the system is not able to address today’s trade concerns, it runs the risk of becoming irrelevant. Worse still, if these issues cannot find a home at the multilateral level, they will be addressed through bilateral or unilateral measures, as illustrated by the debate surrounding border tax adjustment in the US.
73In these circumstances there might be a case for rethinking the negotiating agenda of the WTO. The system can probably not afford to wait for the next round of trade negotiations to start discussing possible ways to respond to pressing trade concerns emerging from the climate change debate, the food crisis or the proliferation of FTAs. For most WTO members, however, reopening the negotiating mandate set in Doha is a “non-starter” as this would most probably kill the Doha Round of negotiations.
74A possible third way would consist in establishing a parallel track, at the WTO, where emerging issues could be addressed, both at the political and technical level, outside of the Doha Round and initially in a non-negotiating setting. The recent establishment of a WTO task force and monitoring system to deal with the trade dimension of financial crisis provides an interesting precedent in this respect, as a creative way through which new issues can be addressed outside of the ongoing negotiating mandate. In the same line the holding of a largely overdue formal ministerial conference to reflect on the future of the multilateral trading system and discuss a common vision for the WTO beyond ongoing negotiations could provide a useful venue to address the new challenges confronting the global economy.