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Provisional Translation

A Successful Hong Kong Ministerial Conference
Can Still Save the Doha Development Agenda

-- Political Leadership Needed from All WTO Members --

September 20, 2005

Nippon Keidanren
( Japan Business Federation )

1. Background

The Doha Development Agenda is at a crisis point

The current Round of World Trade Organization (WTO) negotiations, named the Doha Development Agenda (DDA), launched in Doha in November 2001 is now at a critical turning point. The Cancún Ministerial Conference ended without agreement in September 2003, and the original deadline to conclude negotiations was pushed back from January 2005 to some time in 2006. Even though this new deadline is fast approaching, there are still no clear signs that a consensus is attainable. Unless an agreement on modalities is reached at the Hong Kong Ministerial Conference in December 2005, it may be almost impossible to conclude negotiations successfully by the 2006 deadline. If the Hong Kong Ministerial Conference ends in failure, as the one in Cancún did, and if negotiations do not result in a consensus in 2006, confidence in the WTO as the pillar of free trade systems will falter, and support for liberalization through multilateral negotiations will fade. And that is not all -- the failure of negotiations could lead to more protectionism, which in turn could create situations that threaten the sustainable growth of the world economy and political stability in the international community.

A sense of crisis is deepening throughout the international business community

Business organizations in Japan, the United States, Europe and other major countries have long shared concerns over the slow pace of negotiations. Since the spring of 2005, they have worked together, issuing joint declarations and sending joint missions to call on WTO Members and on the WTO secretariat to do everything necessary to ensure the success of the Hong Kong Ministerial Conference.

A look at how the negotiations have been conducted shows that WTO Members and the WTO secretariat do not sense the urgency of the problem. Because Members lacked the will to develop a consensus in key areas under negotiation, they simply missed the July deadline to agree on a first approximation for the Hong Kong Ministerial Conference. This is most regrettable, and business communities regard this as a very serious situation, because it will now be even more difficult to place negotiations back on track to ensure agreement in Hong Kong.

WTO Members must make political decisions to successfully conclude DDA negotiations

In order to develop a consensus and substantively promote negotiations, WTO Members must now show a strong sense of purpose and make the required political decisions, no matter how difficult. Any attempt to once again postpone the deadline for concluding negotiations is unacceptable.

Negotiations under the Doha Development Agenda (DDA) have proceeded under the single-undertaking rule -- that is to say on the understanding that agreement should be achieved comprehensively in all areas being negotiated. As such, an impasse in one area hinders the progress of negotiations in other areas.

To break this deadlock, all WTO Members must make political decisions that contribute to substantive liberalization in key areas under negotiation, and developed and emerging economies that have enjoyed the benefits of liberalization must show the leadership needed to bring negotiations to a successful conclusion.

Developed countries need to support as much as possible the capacity of developing countries to develop and participate in negotiations. Developed countries also need to look favorably on liberalizing areas of interest to developing countries. For their part, developing countries should contribute constructively to negotiations, with the understanding that liberalized trade will promote the economic development of their own countries.

As the world's second largest economy and trading nation, Japan should lead the WTO negotiations. The Japanese government must therefore waste no time developing comprehensive strategies to promote WTO negotiations, and its relevant ministries and agencies must work together to implement those strategies. The government must also be able to rapidly make the decisions needed to deal with the evolving state of negotiations.

2. Benefits of the WTO

Japan has displayed great interest and confidence in Economic Partnership Agreements (EPAs), but its appreciation of the benefits of the WTO has faded somewhat. It would therefore be useful to review the advantages provided by the WTO.

Because Japan's economy is trade-oriented, the multilateral free trade mechanisms established by the WTO have created a systemic base supporting Japan's economic development. Efforts to maintain and strengthen the WTO system are essential to Japan's trade. These efforts are needed to continue supporting liberalized and smooth-running business activities on a global scale, and to promote Japan's economic development.

The following benefits illustrate the importance of the WTO:

(1) Only the WTO can promote world-wide liberalization and the establishment of global trade rules. Under the WTO, all Member countries join together as negotiating partners, and the results of these negotiations apply equally to all Members. The results include lower tariffs, liberalized services, trade facilitation through reform of complicated and opaque trade procedures, and amendments to anti-dumping agreements.

(2) Under the WTO, dispute-settlement mechanisms apply equally and fairly to all Members, regardless of the amount of influence they wield in the international community. As a result, countries expect that agreed-upon rights and obligations will be respected. Since the WTO's establishment in 1995, more than 300 cases have been submitted to its dispute settlement body, and these have either been settled or are now under study.

(3) Under the WTO, the global liberalization of goods and services benefits both developed and developing countries. Investments flowing from developed countries to the manufacturing and service sectors in developing countries provide them with exceptional development opportunities, thereby enabling them to become new engines of growth within the global economy.

It is true that expansion of WTO membership has made it more difficult for Members to reach agreement rapidly and decisively. This is why Japan has promoted the signing of EPAs with major trading partners and regions, especially in East Asia, as a way to complement the liberalization and rule-establishment functions of the WTO. But EPAs are simply mechanisms functioning within the WTO system, and they cannot replace the WTO, the function of which is to ensure world-wide liberalization and the implementation of global rules governing trade. Some trading partners in EPA negotiations are not keen to promote measures that would liberalize trade even more than under the WTO, especially trade in services. Promoting the signing of EPAs will continue to be an important part of Japan's trade policies, but these efforts must not take away from other efforts aimed at maintaining and strengthening the WTO system.

3. Key areas of negotiation

(i) Agriculture

Agriculture is recognized as one of the major sectors in the DDA process, and Japan's business community is eager to see progress in the negotiations.

Improved market access for agricultural products through tariff reductions and other measures is one issue being negotiated, but there are other important issues as well, including the reduction of domestic subsidies and the enhancement of export support disciplines. Negotiations should proceed toward keeping the balance of interests between exporting and importing countries, and Japan should call loudly on exporting countries to agree to reduce their domestic subsidies, export credits and support measures through their exporting state trade enterprises.

Concerning market access, the Japanese government should clarify its stance of selecting important agricultural products that truly need protection, while showing flexibility regarding less important products. While keeping to this stance, it should at the same time make political decisions that promote further liberalization and should take the lead in negotiations.

As part of these efforts, Japan should steadily implement domestic policies that are aligned with the new Basic Plan for Food, Agriculture and Rural Areas, a reform that was decided by the Cabinet in March 2005, and that calls for the establishment of policy mechanisms that do not depend excessively on cross-border measures. Nippon Keidanren supports efforts to strengthen agriculture competitiveness within Japan and efforts targeting structural reform of the sector.

(ii) Non-agricultural market access (industrial products, etc.)

Nippon Keidanren is convinced of the importance to reduce high tariffs that are still being imposed not only by developing countries but also by developed countries upon some products, and supports adoption of the Swiss Formula as the most suitable way to achieve comprehensive tariff reduction. We welcome the fact that, thanks to diplomacy exerted by Japan and other developed countries, there is growing support among developing countries for the Swiss Formula. Japan and other developed countries need to take further steps to persuade developing countries currently opposed to the formula to accept it, and should also give ample, focused consideration to the special circumstances of developing countries, offering them support and facilitating their adoption of tariff reduction measures.

At the same time, further steps are needed to eliminate and/or harmonize tariffs for specific sectors and to remove non-tariff barriers to raise the effectiveness of improved market access through a formula-based overall tariff reduction.

(iii) Trade in services

It is most unfortunate that, although trade in services has always been considered an important area for DDA negotiations, progress has been much slower in this area than in other areas. Services are an effective economic tool for creating new employment, and their supply chain benefits stimulate the development of other industries. Advantages gained from the liberalization of services will spread to many other sectors, such as agriculture and manufacturing, and for this reason as well it is vital to ensure a high level of liberalization for both goods and services.

Member countries that have not yet submitted their revised offers should do so promptly, and Members that have submitted offers should continue their efforts to submit better ones. The problem with the current negotiating approach is that Member countries are expected to submit offers voluntarily, but this makes extensive and truly ambitious liberalization difficult. Therefore, consideration should be quickly given to priority-sector critical mass approaches and other supplementary approaches, while proceeding with the request and offer approach. Negotiations should be accelerated along these lines. These approaches require the full participation not only of developed countries, but also of some developing countries that are becoming major players in the world economy.

(iv) Trade facilitation

Most Members have submitted their proposals regarding GATT Articles V (Freedom of Transit), VIII (Fees and Formalities Connected with Importation and Exportation), and X (Publication and Administration of Trade Regulations). Nippon Keidanren welcomes the fact that many of these proposals are similar in content, and the fact that the foundation is now being laid for the compilation of concrete proposals to clarify and improve rules for trade facilitation under the GATT.

It would be a great step forward for WTO Members, including developing Member countries, to agree on new binding rules for trade facilitation, because such an agreement would help companies promote their global business activities smoothly. The type of facilitation rules eventually decided upon will directly affect the trade activities of private corporations, so it is natural that the business sector is very keen to see Member countries develop rules that are as specific and trade-friendly as possible.

To encourage developing countries to accept these standards, developed countries should offer support for the identification of priority issues, as called for by developing countries, and should promptly consider and act in identifying the modality of adjustment mechanisms for technical assistance provided according to the order of priority.

(v) Rules

Two important issues being tackled during DDA negotiations are: (i) the promotion of liberalized trade; and (ii) the development and strengthening of fair and transparent rules to serve as the foundation of the WTO. Reasonable and effective agreements would increase the predictability of measures adopted by other Member countries, and would help private companies predict the influence those measures would have on the private sector as they pursue global business activities. This matter is naturally of great interest to the Japanese business community.

Nippon Keidanren therefore strongly urges that more transparent and firmer rules be established through changes to the WTO Antidumping Agreement, with a view to preventing arbitrary and protectionist antidumping measures.

(vi) Development (special consideration for developing countries)

An acceptance of the need for special and differential treatment (S&D) for developing countries is essential in promoting liberalization and rules negotiations within the framework of any multilateral free trade system that includes developing countries. This issue applies to every sector of the DDA negotiations.

Japan and other developed countries should energetically contribute to measures that build the capacity of developing countries to abide by WTO rules and to participate in negotiations. Japan should also use its Official Development Assistance (ODA) for this purpose.

Developed countries need to take a forward-looking stance and positively consider the proposals of developing countries with regard to S&D for developing countries and implementation issues (providing more generous conditions to developing countries when they implement agreements). On the other hand, some developing countries currently in a stage of rapid economic development fully benefit from the benefits of WTO liberalization; they should now adopt the rules that are followed by developed countries. In this regard, discussions should begin, parallel with negotiations, on the issue of graduation criteria (to determine when S&D should terminate for a developing country that has achieved the ability to abide by WTO agreements).

4. Conclusion

Unless an agreement on modalities is reached at the Hong Kong Ministerial Conference, it will be difficult to maintain confidence in the WTO as a champion of the multilateral free trade system, and difficult to achieve further liberalization through multilateral negotiations. Nippon Keidanren strongly urges all Member countries to work together, and to make the political decisions necessary for the progress of substantive negotiations.

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