Resurrecting the Doha Round: Devilish Details, Grand ......10 Bhala PUB 11/13/2009 9:37:45 AM 2009]...

10 Bhala PUB 11/13/2009 9:37:45 AM

1

Resurrecting the Doha Round: Devilish Details, Grand Themes, and China Too

RAJ BHALA

The multilateral trading system embodied in the World Trade Organization has contributed significantly to economic growth, development and employment throughout the past fifty years. We are determined, particularly in the light of the global economic slowdown, to maintain the process of reform and liberalization of trade policies . . . . and pledge to reject the use of protectionism.

International trade can play a major role in the promotion of economic development and the alleviation of poverty. We recognize the need for all our peoples to benefit from the increased opportunities and welfare gains that the multilateral trading system generates. The majority of WTO Members are developing countries. We seek to place their needs and interests at the heart of the Work Programme adopted in this Declaration. . . .

. . . .

Recognizing the challenges posed by an expanding WTO membership, we confirm our collective responsibility to ensure internal transparency and the effective participation of all Members. . . . We shall therefore at the national and multilateral levels continue to promote a better public understanding of the WTO and to communicate the benefits of a liberal, rules-based multilateral trading system.1

Rice Distinguished Professor, The University of Kansas, School of Law, Green Hall, 1535 West 15th Street, Lawrence, KS 66045-7577 U.S.A. Tel. 785-864-9224. Fax. 785-864-5054. www.law.ku.edu. Foreign Legal Consultant, Heenan Blaikie, L.L.P., Canada. J.D., Harvard (1989); M.Sc., Oxford (1986); M.Sc., London School of Economics (1985); A.B., Duke (1984); Marshall Scholar (1984–1986). Member, Council on Foreign Relations, Royal Society for Asian Affairs, and Fellowship of Catholic Scholars. Author of the monograph TRADE, DEVELOPMENT, AND

SOCIAL JUSTICE (2003), treatise MODERN GATT LAW (2005), textbook INTERNATIONAL TRADE LAW: INTERDISCIPLINARY THEORY AND PRACTICE (LexisNexis, 3d ed., 2008), and reference DICTIONARY OF

INTERNATIONAL TRADE LAW (LexisNexis 2008). Author of UNDERSTANDING ISLAMIC LAW (SHARI’A) (LexisNexis, forthcoming). The author is indebted to Mr. Beau Jackson (Wichita, Kansas), University of Kansas School of Law J.D., 2009, University of Kansas B.A., 2003, for his first-rate research assistance on this article. The author thanks Professor Ruth E. Gordon and the other School of Law faculty at Villanova University for their kind invitation to present this research at a February 2009 faculty workshop, and for their helpful comments. The author also thanks the University of Kansas Discussion Club, and the International Officers Program of the United States Command and General Staff College (CGSC) of Fort Leavenworth, Kansas, for the helpful suggestions received in presenting this research at gatherings in February and March 2009, respectively. Finally, the author is grateful to Mitch Kilby, Symposium Editor, Jared Matheson, Executive Editor, Kelly Stephenson, Editor-in-Chief, and their colleagues on the Journal, for their excellent support and assistance. All errors are the responsibility of the author.

1. World Trade Organization, Ministerial Declaration of 14 November 2001, paras. 1, 2, 10, WT/MIN(01)/DEC/1, 41 I.L.M. 746 (2002) [hereinafter Doha Development Agenda Declaration].

10 Bhala PUB 11/13/2009 9:37:45 AM

2 TEXAS INTERNATIONAL LAW JOURNAL [VOL. 45:1

SUMMARY

I. FAITH IN A DOHA ROUND RESURRECTION.........................................................4 A. Issue, Argument, and Metaphor.....................................................................4 B. Evolution Toward Resurrection?...................................................................9 C. Technical Texts and Thematic Appraisal ....................................................12

II. THE DECEMBER 2008 DRAFT AGRICULTURE MODALITIES TEXT .................13

A. Cutting Domestic Farm Subsidies ................................................................14 1. OTDS.......................................................................................................16 2. Amber Box (AMS).................................................................................23 3. De Minimis Subsidies.............................................................................28 4. Cutting Blue Box Subsidies, While Expanding the Blue Box ...........32 5. Green Box ...............................................................................................36 6. Cotton Subsidies .....................................................................................37

B. Enhancing Agricultural Market Access through Tariff Cuts.....................39 1. Tiered Tariff Reductions .......................................................................39 2. Sensitive Products and Tariff Rate Quota Expansion........................45 3. Maximum Tariff Levels (Caps).............................................................53 4. Tariff Escalation .....................................................................................55 5. Tariff Simplification ...............................................................................56 6. Tariff Quotas...........................................................................................57 7. SSGs .........................................................................................................60

C. Restricting Agricultural Market Access through Special and Differential Treatment...................................................................................61 1. Special Products......................................................................................61 2. SSMs.........................................................................................................63 3. Tropical Products and Preference Erosion..........................................68 4. Least-Developed Countries...................................................................72

D. Farm Exports .................................................................................................74 1. Export Competition ...............................................................................74 2. Export Restrictions ................................................................................76

III. THE DECEMBER 2008 DRAFT NAMA MODALITIES TEXT ..............................78

A. Enhancing Industrial Market Access through the Swiss Formula ............79 1. Product Coverage ...................................................................................79 2 Swiss Formula Coefficients, the Mark Up, and Implementation

Periods .....................................................................................................79 3. The Anti-Concentration Clause............................................................82

B. Restricting Industrial Market Access Through Flexibilities .......................83 1. Flexibilities for Developing Countries .................................................83 2. Further Flexibilities for CUs, Plus Argentina and Venezuela...........84 3. Further Flexibilities for Members Engaged in Sectoral

Negotiations ............................................................................................86 4. Further Flexibilities for Members with Low Binding Coverage .......91 5. Further Flexibilities for SVEs, and the Special Cases of Bolivia,

10 Bhala PUB 11/13/2009 9:37:45 AM

2009] RESURRECTING THE DOHA ROUND 3

Fiji, and Gabon .......................................................................................92 6. Further Flexibilities for Least-developed Countries ..........................94 7. Further Flexibilities for RAMs .............................................................95

C. Other Manufacturing Provisions .................................................................95 1. Preference Erosion and Further Flexibilities for Beneficiaries

and Non-Beneficiaries............................................................................95 2. Supplementary Modalities, Elimination of Low Duties, Non-

Tariff Barriers, Capacity-Building Measures, and Non-Agricultural Environmental Goods....................................................100

D. Export Taxes ................................................................................................100

IV. THE DECEMBER 2008 DRAFT RULES TEXT.....................................................101

A. Eleven Fights over Antidumping ...............................................................102 1. Zeroing ..................................................................................................102 2. Causation...............................................................................................103 3. Material Retardation............................................................................103 4. Definition of Domestic Industry.........................................................104 5. Definition of Subject Product .............................................................104 6. Information Requests to an Affiliated Party.....................................104 7. Public Interest Test and Lesser Duty Rule........................................104 8. Anti-Circumvention .............................................................................105 9. Sunset Reviews .....................................................................................106 10. Third-Country Dumping......................................................................106 11. Special and Differential Treatment ....................................................107

B. Four Fights over Countervailing Duties ....................................................107 1. Calculation of the Amount of a Subsidy............................................107 2. Special and Differential Treatment ....................................................107 3. Export Credits and Market Benchmarks...........................................108 4. Export Credits and Successor Undertakings.....................................108

C. Back to Square One on Fishing Subsidies.................................................108 1. Benchmarks?.........................................................................................108 2. The Judge? ............................................................................................108 3. The Prohibition?...................................................................................109 4. Exemptions and Special and Differential Treatment?.....................109 5. Enforcement?........................................................................................109

V. THEMATIC QUESTIONS IN RETROSPECT ..........................................................109

A. Does China Matter? ....................................................................................109 B. Does Managed Trade Reconcile Free Trade with Schismatic

Interests?.......................................................................................................115 C. What Happened to Fighting Poverty? .......................................................117 D. What Happened to Winning Muslim Hearts and Minds?........................122 E. Is Multilateral Trade Law Now Impenetrable? ........................................124

10 Bhala PUB 11/13/2009 9:37:45 AM


I. FAITH IN A DOHA ROUND RESURRECTION

A. Issue, Argument, and Metaphor

Technical explanation and thematic evaluation are two phrases that summarize the purpose of this article.2 What are the specific terms and conditions for liberalizing world agricultural and industrial product trade in the Doha Round? What broad patterns emerge from these terms and conditions?

This article argues that the Members of the World Trade Organization (WTO) have succumbed so completely to the pursuit of their commercial self-interest that the Doha Round has become a monstrous mash of minutiae and lost nearly all links to its original purpose—trade liberalization to spur development in a post-9/11 context in which extremism is wrongly perceived by some disaffected, marginalized peoples as an alternative to the sinful temptations of global capitalism. The Members, chiefly among them the United States, European Union (EU), Brazil, China, and India, have used legal details to advance their narrow agendas. Since ancient times, city-states and countries have negotiated out of self-interest. But this time, in this Round, the dominant Members have taken self-interest to such a level that it is proper to query whether they are the extremists. They have lost all sight of the common good, and sacrificed the broad purpose of the Doha Development Agenda (DDA), which might be characterized as an effort to prove once and for all that Francis Fukuyama, in The End of History and the Last Man, not Samuel Huntington, in The Clash of Civilizations, was right.3 What the Members have done in the Doha Round is enshrine Social Darwinism as trade policy.4

Even for a seasoned international trade professional, the proposed terms and conditions for a final Doha Round bargain are devilishly complex. But, international trade law, like other fields of international business law, is not for the faint-hearted or wooly headed. It is a field in which it is best to speak grandly only after meditating upon the details.5 After all, persuasive pontification requires careful

2. For a useful background on the Doha Round, three of the author’s prior publications are helpful:

RAJ BHALA, INTERNATIONAL TRADE LAW: INTERDISCIPLINARY THEORY AND PRACTICE chs. 3–4, (LexisNexis, 3d ed. 2008) [hereinafter BHALA, INTERNATIONAL TRADE LAW] (discussing the concepts and terms in Doha Round negotiations, and the status of those talks through the July 2007 Draft Modalities Texts issued by Ambassadors Crawford Falconer (New Zealand) and Donald Stephenson (Canada), Chairmen of the Agriculture and Non-Agricultural Market Access (NAMA) negotiations, respectively); Raj Bhala, Doha Round Schisms: Numerous, Technical, and Deep, 6 LOY. U. CHI. INT’L L. REV. (2008) (covering the Doha Round through the July 2008 collapsed Ministerial meeting); Raj Bhala, Poverty, Islam, and Doha: Unmet Challenges Facing American Trade Law, 36 INT’L L. 159 (2002) [hereinafter Bhala, Poverty, Islam, and Doha] (covering the launch of the Doha Round in November 2001); see generally William A. Lovett, Beyond Doha: Multipolar Challenges for a Globalized World, 17 TUL. J. INT’L & COMP. L. 4 (2008) (providing a stimulating account of the Doha Round set in a wide context of political economy).

3. FRANCIS FUKUYAMA, THE END OF HISTORY AND THE LAST MAN (1993); SAMUEL HUNTINGTON, THE CLASH OF CIVILIZATIONS AND THE REMAKING OF WORLD ORDER (1996).

4. See generally RICHARD HOFSTADTER, SOCIAL DARWINISM IN AMERICAN THOUGHT (1944) (explaining this ideology).

5. One example is the argument that (1) the Doha Round is increasingly irrelevant because it focuses on issues of declining importance, such as cutting tariffs (when the average worldwide duty rate is about 10%) and domestic agricultural support (when those subsidies are declining in significance) and (2) therefore the agenda of the Round should be enlarged to cover issues like collusion among oil-producing countries, the regulation of sovereign wealth funds (SWFs), and global financial supervision. Aaditya Mattoo & Arvind Subramanian, From Doha to the Next Bretton Woods—A New Multilateral Trade

10 Bhala PUB 11/13/2009 9:37:45 AM


catechesis. Thus, in trade, no reliable meta-inferences can be drawn without first coming to grips with the rigors of real-world negotiating documents. The results make the effort worthwhile because there are grand themes buried in, but extractable from, the details. Those themes—posed here as questions—are hardly less grand than war and peace. They are about wealth and poverty, Islam and globalization, statesmanship and self-interest, and accessibility and opaqueness of law.

Metaphorically speaking, the key Doha Round challenge is a resurrection. To many participants and observers, the Round is dead, and has been since at least July 2008 when a major Ministerial meeting collapsed. Less bluntly and definitively, characterizations of the Round facing a “cold snap,” or being in “hibernation,” “semi-hibernation,” or a “deep freeze,” are sometimes used.6 For its part, the United States—both the Bush and Obama administrations—have made it crystal clear that no deal is better than a bad deal reached simply for the sake of accord.7 If the Round is dead or moribund, four repercussions are certain:

(1) Poverty will not be alleviated through multilateral trade liberalization;

(2) Islamic countries will not be integrated more fully into the world trading system;

(3) China will not behave more like a statesman at the bargaining table; and

(4) The law of the WTO will not become more transparent.

These consequences are also likely if the 153 WTO Members deliberately bury the Round for good without a future resurrection.

Unfortunately, even if WTO Members complete the Doha Round, the four converse possibilities listed below are not guaranteed. If the final bargain—the resurrection—looks anything like the negotiating texts, then that resurrection is quite unlikely to:

(1) Alleviate the suffering of the poor;

Agenda, 88 FOREIGN AFF. Jan./Feb. 2009, at 15–22. The argument rests in part on the technically false premise that the Doha Round proposals contain no “meaningful guarantees” against WTO Members reversing their trade policies or “resorting to punitively high import tariffs.” See id. at 17 (arguing that such guarantees are not present). A careful reading of the July and December 2008 Draft Modalities Texts on Agriculture and NAMA and the November 2007 Draft Trade Remedy Rules Text evinces such proposals. See also sources cited supra note 2. The argument also rests on the entirely unrealistic premise that broadening, rather than narrowing, the issues for negotiation would help conclude the Round. Amidst all the rhetoric among trade negotiators in the Doha Round, one of the claims not heard is that they are unable or unwilling to reach a successful outcome on trade unless they strike deals on oil, SWFs, and global finance.

6. E.g., Charles Giles, Acrimony Dashes Doha Hopes, FIN. TIMES, Feb. 2, 2009, at 2; Daniel Pruzin, Hopes for Conclusion to Doha Round Talks Go Into Hibernation in Early 2009, 26 Int’l Trade Rep. (BNA) 107–08 (Jan. 22, 2009); Daniel Pruzin, USTR Schwab Sees Period of “Quiet” Talks on Doha Round Negotiations in Early 2009, 26 Int’l Trade Rep. (BNA) 37 (Jan. 8, 2009); Pascal Lamy, Director-General, World Trade Org., Ministers Continue to Attach Highest Priority to the Round’s Conclusion, Report to the General Council (Feb. 3–4, 2009), http://www.wto.org/english/news_e/news09_e/tnc_chair_report_03 feb 09 _e.htm.

7. E.g., Gary G. Yerkey, U.S. Says No WTO Deal Possible Until Other Countries Improve Their Offers, 26 Int’l Trade Rep. (BNA) 304 (Mar. 5, 2009); Gary G. Yerkey, Clinton Says Chances of Reviving WTO Talks Still Unclear, U.S. Will Not Accept Bad Deal, 26 Int’l Trade Rep. (BNA) 107–08 (Jan. 22, 2009) (quoting Secretary of State Hillary Clinton that the United States will not accept a “bad deal just for the sake of an agreement,” and observing this position is a long-standing one of the Bush Administration).

10 Bhala PUB 11/13/2009 9:37:45 AM


(2) Strengthen moderate Muslim countries;

(3) Wrench China out of its self-centeredness; or

(4) Transform trade law into clear, elegant prose.

That is because of the hideously hacked-up terms and conditions in the texts. What might have been accepted, at least by seasoned trade professionals, as an appropriate level of complexity required to forge consensus among diverse interests had crossed the boundary between a necessary evil and pure hell.8

Accordingly, a low-expectation, best-case scenario argument about resurrection is a technical one, and technically correct. The only reason to pray for a resurrection is it would mean most Members would bind their:

(1) Most-favored nation (MFN) tariff rates under Article II:1(b) of the General Agreement on Tariffs and Trade (GATT) at lower levels than their pre-Doha rates, and

(2) Service sector commitments under Article XVI:1 of the General Agreement on Trade in Services (GATS) on more open terms than their pre-Doha obligations, and in particular narrow the gap between their actual and bound commitments.9

That is, a resurrection would create an international legal obligation on Members not to implement trade measures more protectionist than the current measures.10

This argument—that a Doha Round deal would limit the extent to which WTO Members can boost applied rates simply by virtue of a single undertaking to cut bound rates—is poignant in the current global economic slump. As the logic goes, a Doha Round deal would avoid a rerun of the Great Depression, during which protectionist, beggar-thy-neighbor trade measures and competitive devaluations exacerbated the severity and length of the world-wide declines in output, employment, and wages.11 However, the argument has four limitations.

8. Aaditya Mattoo, the lead economist in the developmental research group of the World Bank and a

former economic counselor in the Trade in Services Division of the WTO, declares that “Doha’s promise is very limited,” and argues against resurrecting the Round because it is an “inconsequential enterprise.” Gary G. Yerkey, WTO Negotiations Need to be “Repositioned” to Address New Protectionism, Mattoo Says, 26 Int’l Trade Rep. (BNA) 270–71 (Feb. 26, 2009). Mattoo’s solution is a change in the DDA to cover what he views as more significant issues than traditional trade protectionist devices and subsidies, namely, exchange rate misalignment and climate change. Aaditya Mattoo & Arvind Subramanian, supra note 5. That solution is dubious, because if the WTO Members cannot come to a reasonably balanced bargain on territory that is familiar to them, a fortiori they will have greater difficulty doing so on a radically expanded agenda covering unfamiliar matters. See Pascal Lamy, Director-General, World Trade Org., Speech before the Japan Institute of International Affairs (Feb. 25, 2009), http://www.wto.org/english/news_e/sppl_e/sppl116_e.htm (conceding that “elements of the Washington consensus . . . have failed, such as deregulation,” though, understandably, he warns against increased protectionism).

9. See Jonathan Lynn, WTO Sector Deals May be a Step Too Far for Doha, REUTERS, Dec. 11, 2008, http://www.reuters.com/article/reutersEdge/idUSTRE4BA2WV20081211 (noting the view that “negotiators should concentrate on locking in present levels of trade liberalization”).

10. See, e.g., Dan Horovitz, The Remedy of More Trade, 15 INT’L TRADE L. & REG., Issue 2, at 35–39 (2009).

11. E.g., Tom Wyler, Mutually Assured Depression, AM. THINKER, Mar. 10, 2009, http://www.americanthinker.com/2009/03/mutually_assured_depression.html.

10 Bhala PUB 11/13/2009 9:37:45 AM


First, political rhetoric outstrips political courage. Leaders of the Group of 20 (G-20) nations12 champion a Doha Round deal on applied rates. As Professor Razeen Sally puts it, the G-20 calls for “Keynes at home and Smith abroad,” that is, fiscal stimulus at home and free trade abroad.13 However, as Professor Sally provocatively observes:

The G-20 is unlikely to be more than a chat forum given to non-binding pledges. Even in the improbable event of a Doha conclusion anytime soon, it will not contain protectionism: what is on the table is a very low common denominator and a dog’s breakfast of loopholes and exemptions.14

The “very low common denominator” and “dog’s breakfast” are the subject of much of this article. For now, the key point is the chatter.

G-20 leaders have issued a plethora of commitments to resist protectionism and complete the Doha Round on what they promise would be ambitious, balanced terms. They even toss in a preferred target date, if they can agree to one, or default to an ambiguous future period. G-20 leaders made such pledges at their November 2008 summit in Washington, D.C., and at their April 2009 summit in London.15 But, the November 2008 summit failed to kick-start the Round. Worse yet, after the summit, fourteen of the twenty countries raised trade barriers.16 Put bluntly, what G-

12. In addition to the EU, the G-20 is composed of nineteen industrialized and big. emerging market

countries, with the International Monetary Fund (IMF) and World Bank as ex-officio members. Pope Urges World Leaders to Stabilize Markets without Excluding Poor, CATHOLIC NEWS SERVICE, Mar. 31, 2009, available at http://www.catholicnews.com/data/stories/cns/0901475.htm. The G-20 was created in response to the 1997–1998 Asian financial crisis, and first met in December 1999 in Berlin. David Cutler, FACTBOX—What is the G20?, REUTERS, Mar. 30, 2009, http://www.reuters.com/articlePrint?articleId= USLU96805420090330. Accounting for 90% of world gross national product (GNP), 80% of world trade, and two-thirds of world population, the members are Argentina, Australia, Brazil, Canada, China, EU, France, Germany, India, Indonesia, Italy, Japan, Saudi Arabia, South Korea, Mexico, Russia, South Africa, Turkey, United Kingdom, and United States. Id. The G-20 is a forum for discussing global economic governance and stability, and resolving cross-border problems. Id. Additionally, President Obama recently announced that the G-7 would be folded into the G-20, further increasing its importance. Edmund L. Andrews, Global Economic Forum to Expand Permanently, N.Y. TIMES, Sept. 24, 2009, at A1.

13. Razeen Sally, The Quest for a Global Solution is Misguided, FIN. TIMES, Mar. 19, 2009, at 9. See generally RAZEEN SALLY, NEW FRONTIERS IN FREE TRADE—GLOBALIZATION’S FUTURE AND ASIA’S

RISING ROLE 13–18 (Cato Books ed., 2008) (critiquing global economic organizations and governance). 14. Razeen Sally, The Quest for a Global Solution is Misguided, supra note 13, at 9 (emphasis added). 15. See Guy Dinmore & Marco Pasqua, Trade Promise Lies at Heart of Communiqué, FIN. TIMES,

Mar. 30, 2009, at 5 (acknowledging commitments by the G-20 leaders to resist protectionism and to complete the Doha Round on ambitious, balanced terms).

16. Amy Tsui, Avoiding Protectionism Key to Reversing Economic Downturn, Former USTR Asserts, 26 Int’l Trade Rep. (BNA) 359 (Mar. 12, 2009). In March 2009, the World Bank published a study identifying forty-seven trade-restrictive measures that countries, including seventeen of the G-20 nations, had implemented since the onset of the global economic crisis in fall 2008. Prime illustrations were: • Tariff increases, which made up one-third of the trade-restrictive measures:

For example, Ecuador raised tariffs on over 600 products, and Russia boosted tariffs on used cars.

• Non-tariff barriers: For instance, Argentina imposed non-automatic import licensing requirements for auto parts, leather goods, televisions, textiles, and toys. Indonesia announced all imports of five categories of merchandise—electronics, food and beverages, garments, shoes, and toys—could be admitted only at five of its air or sea ports.

• Tightened Product or Sanitary Standards:

10 Bhala PUB 11/13/2009 9:37:45 AM


20 leaders say with aplomb, eloquence, and gravitas in a G-20 communiqué does not translate into paradigmatic shifts at the WTO bargaining table.

Second, G-20 involvement has led to a problem of forum, which has cascaded into a problem of puissance. The G-20 is not a forum for negotiating trade deals; that mandate rests with the WTO.17 The WTO Director-General was not invited to the November 2008 summit.18 When asked to join a meeting such as the April 2009 summit, he can do little more than: (1) report on the state of the Doha Round, (2) re-dedicate his good offices to the Round, and (3) offer to serve as a watchdog by shaming WTO Members through public black listing when they raise trade barriers.19 The more the G-20 grabs headlines on trade policy, the more it vaults itself into the role of the puppeteer, and the more marginal the WTO becomes, transforming the Director-General into a marionette of the G-20. A cynic might say that is precisely what some G-20 leaders would like to happen.

Third, the strength of the argument depends on critical details. In the 1990s and early years of the new millennium, amidst favorable economic conditions, many WTO Members cut their applied rates unilaterally. For example, the average world-wide applied rate on industrial products fell from 26 percent in 1986 to 8.8 percent in 2007.20 Thus, as of 2008, the average amount of “water” (the difference between bound and actual applied tariff rates) was three-fold; that is, countries could raise duties by three times before hitting their bound ceiling level.21 But, it is important to look past averages and focus on individual countries and product categories. A trebling of an applied duty from 2 to 6 percent is marginally significant. A trebling from 20 to 60 percent imposes major commercial hardships on producer-exporters. In brief, the gain from binding duty rates hinges on the Member and merchandise at issue.

Fourth, and perhaps most importantly, the argument obfuscates (and maybe even suppresses) the whole purpose of the DDA. Neither eliminating water in tariff schedules nor fighting global recession was the primary motivation for the Doha Round. Rather, WTO Members were galvanized in the immediate post-9/11

For example, China banned imports of some kinds of Belgian chocolates, British sauce, Dutch eggs, Irish pork, and Spanish dairy products. India banned imports of Chinese toys.

• Export Subsidies: The EU temporarily implemented new subsidies for exports of butter, cheese, and milk powder.

• Sector-Specific Subsidies: Several governments had subsidized their domestic auto industry, with the amount summing to $48 billion. The United States had provided direct subsidies of $17.4 billion, and Argentina, Brazil, Canada, China, France, Germany, Italy, Sweden, and the United Kingdom had given either direct or indirect subsidies to their national producers.

See Diana I. Gregg, World Bank Takes 17 Nations in G-20 to Task for Implementing Trade-Restricting Measures, 26 Int’l Trade Rep. (BNA) 406 (Mar. 26, 2009).

17. Agreement Establishing the World Trade Organization, art. 2, para. 1, Apr. 15, 1994, 33 I.L.M. 1144 (1994).

18. Richard Baldwin, Trade and the London Summit Outcome, VOX, April 4, 2009, http://www.voxeu.org/index.php?q=node/3417 (noting that the head of the WTO was not invited to the November 15, 2008 G-20 summit).

19. Indeed, the G-20 communiqué from the April 2009 summit calls on the WTO to monitor, on a quarterly basis, adherence of the G-20 countries to their pledge not to implement new protectionist barriers. See Sion Barry, G20 Six Pledge Communiqué, WALES ONLINE NEWS, Apr. 2, 2009, http://www.walesonline.co.uk/news/wales-news/2009/04/02/g20-six-pledge-communique-91466-23299550/.

20. Barriers to Entry, ECONOMIST, Dec. 20, 2008, at 121. 21. See Fare Well, Free Trade, ECONOMIST, Dec. 20, 2008, at 15.

10 Bhala PUB 11/13/2009 9:37:45 AM


environment by the nexus between liberalizing trade, alleviating poverty, fighting extremism, and continuing the march to an open international capitalist system in which all persons—including Muslims in developing economies—can compete on a reasonably level playing field.22 With each instance of trade liberalization, individuals obtain a greater stake in the global economic order, and become that much more immune to the vitriolic speech of Al Qaeda, the Taliban, and their misguided sympathizers. These individuals will appreciate that the bad guys are not only evil, but also lousy economists. Certainly, some WTO Members anticipated in November 2001 that trade liberalization would assist in fighting a future, then-unseen recession. But, to catapult that anticipation into the key argument for finishing the Round is to risk betraying the original intent for the Round.

Indubitably, following the July 2008 collapse of multilateral trade negotiations under the DDA, only truly optimistic trade souls could keep faith in the resurrection of the Doha Round.23 The DDA launched this Round in the Qatari capital in November 2001. It is the ninth iteration of multilateral trade negotiations since the birth of the modern-world trading system with the signing of the GATT on October 30, 1947.24 Coming immediately in the wake of the terrorist attacks of September 11, 2001, the launch was dramatic. In the subsequent seven years, most of the high drama in the Round took the form of incremental, evolutionary developments toward a still elusive consensus among WTO Members on agriculture and non-agricultural market access (NAMA) issues, and, to a lesser degree, on trade remedies. The discussion below chronicles and critiques this drama.

B. Evolution Toward Resurrection?

Although it is not always clear where biological evolution will lead, it is perhaps even less clear how the world of international trade law will evolve. Chronic Doha Round problems on agriculture and NAMA remained unresolved during the fall of 2008. This resulted in a list of issues needing convergence before a resurrection of the Round could be more than the object of mere hope. Yet none of the 153 WTO Members appeared to have a vision that the extraordinary was still possible. None seemed to believe the evolution of mere details would lead to salvific resurrection.

China, for example, did little more than call for realism and dampen expectations. When discussing areas of conflict like the Special Safeguard Mechanism (SSM) and sensitive products in agriculture, and sectoral negotiations and preference erosion in NAMA, Sun Zhenyu, China’s Ambassador to the WTO, stated in November 2008:

22. See William A. Lovett, Bargaining Challenges and Collective Interests: Implementing the Doha

Round, 21 AM. U. INT’L L. REV. 951, 958–59 (2002) (describing the September 11 attacks and other concerns as encouraging countries to engage in negotiations).

23. See generally PAUL BLUSTEIN, BROOKINGS INST., THE NINE-DAY MISADVENTURE OF THE MOST

FAVORED NATIONS—HOW THE WTO’S DOHA ROUND NEGOTIATIONS WENT AWRY IN JULY 2008 (Dec. 5, 2008), http://www.brookings.edu/~/media/Files/rc/articles/2008/1205_trade_blustein/1205_trade_ blustein.pdf (narrating the unraveling of the July 2008 ministerial meeting).

24. See THE WORLD TRADE ORGANIZATION: LEGAL, ECONOMIC AND POLITICAL ANALYSIS 91–92 (Patrick F. J. Macrory, et al. eds., 2005) (providing an overview of the history of GATT, the WTO, and the Doha Round).

10 Bhala PUB 11/13/2009 9:37:45 AM


One important thing for all Members is that they should be realistic, and also try to have a balanced outcome. . . . These are all very delicate issues, and eventually there must be a kind of balance. . . . Now everybody is in crisis . . . in order to get what we did not get in July [2008], we have to be more realistic on those issues. . . . If you raise the stake[s] at this stage, try to ask for more on the basis of July, that will probably not fly. . . .25

Fortunately, two unsung heroes of the Doha Round kept the faith that a resurrection could happen, and that the world might be a better place if it did: the Chair of the Agricultural Negotiations, Ambassador Crawford Falconer of New Zealand, and the Chair of the Market Access Negotiations, Ambassador Luzius Wasescha of Switzerland.

These Chairmen issued new Draft Modalities Texts on December 6, 2008 in their respective areas.26 If there is a resurrection of the Doha Round, then the terms and conditions in those texts will provide the template for it.27 That is not to say WTO Members will complete the Round based on each and every proposal in the texts. To the contrary, the texts will almost surely undergo revisions of varying degrees, depending on the topic.28 The WTO Members must either accept or reject the December 2008 Draft Texts on agriculture and NAMA. Only an acceptance of the proposals for freeing up world trade in farm and manufactured products (with necessary modifications) will lead to a resurrection.

The faith of Chairmen Falconer and Wasescha was tempered by realism. The WTO Director-General, Pascal Lamy, decided not to call a meeting of trade ministers before the end of 2008, admitting that there was no political will among key WTO Members—including, without naming them all, China, India, the United States, and EU—to make the compromises necessary to complete the Doha Round.29

25. Chinese Ambassador Calls for Realism in WTO Trade Talks, CHINA VIEW, Nov. 28, 2008,

http://news.xinhuanet.com/english/2008-11/28/content_10423758.htm; see also China, U.S. Have “Robust” Talks on Turmoil, REUTERS, Dec. 4, 2008, http://www.reuters.com/article/companyNewsAndPR/ idUSBJB00052620081205 (reporting then-U.S. Treasury secretary Paulson’s comments on the talks).

26. Committee on Agriculture, Special Session, Revised Draft Modalities for Agriculture, TN/AG/W/4/Rev.4 (Dec. 6, 2008) [hereinafter December 2008 Draft Agriculture Modalities Text]; Negotiating Group on Market Access, Fourth Revision of Draft Modalities for Non-Agricultural Market Access, TN/MA/W/103/Rev.3 (Dec. 6, 2008) [hereinafter December 2008 Draft NAMA Modalities Text]. Chairman Falconer also issued two documents covering issues on which major disputes remained, offering possible compromise solutions on Sensitive Products and SSMs. Committee on Agriculture, Special Session, Revised Draft Modalities for Agriculture Sensitive Products: Designation, TN/AG/W/5 (Dec. 6, 2008) [hereinafter Revised Draft Modalities for Agriculture Sensitive Products: Designation]; Committee on Agriculture, Special Session, Revised Draft Modalities for Agriculture Special Safeguard Mechanism, TN/AG/W/7 (Dec. 6, 2008) [hereinafter Revised Draft Modalities for Agriculture Special Safeguard Mechanism].

27. See Press Release, World Trade Organization, WTO to Move Quickly on Wider Front in 2009—Lamy (Dec. 17, 2008), http://www.wto.org/english/news_e/news08_e/tnc_dg_stat_17dec08_e.htm (emphasizing the importance to the talks’ progress of agreeing to modalities); see also Daniel Pruzin, Ministers Pledge to Refrain from Imposing New Trade Barriers, Will Push for Doha Deal, 26 Int’l Trade Rep. (BNA) 180–81 (2009) (reporting that the trade ministers of Brazil and Switzerland regard the December 2008 Texts as the basis for any Doha Round deal).

28. See Gary G. Yerkey, U.S. Cautions Lamy Against Pushing for Early Restart of WTO Trade Talks, 26 Int’l Trade Rep. (BNA) 404 (2009) (suggesting that the language of the sectoral proposals will be rewritten in order to garner increased participation).

29. See Press Release, World Trade Organization, Lamy Recommends No Ministerial Meeting by The End of This Year (Dec. 12, 2008), http://www.wto.org/english/news_e/news08_e/tnc_dg_12dec08 _e.htm; Daniel Pruzin, Lamy Says Spring G-20 Meeting Should Include Commitment to End Doha, 26 Int’l Trade Rep. (BNA) 144–45 (2009); Daniel Pruzin & Gary G. Yerkey, WTO’s Lamy Calls Off Doha

10 Bhala PUB 11/13/2009 9:37:45 AM


The Chairmen were under tremendous pressure to issue the December Texts.30 The Director-General hoped they might come up with the magic formula needed to reconcile theretofore intractable differences.31 He also hoped to secure re-appointment as Director-General in 2009 (which he did), and to some degree his success was bound to that of the Round.32

Yet, in a Member-driven organization such as the WTO, Chairmen Falconer and Wasescha could hardly impose solutions. Chairmen are neither scribes nor dictators. They occupy an uneasy position: they must act as more than facilitators, though that is their technical description,33 while having no management authority. Depending on the circumstances, their position can and does change in the area between these extremes. Deals must come from the Members.34 Thus, the Chairmen did their best to strike the right balance between capturing points of convergence among Members and suggesting possible solutions to reach consensus on outstanding disputes. If trade ministers did not reconvene for another attempt at a final deal, the reason is not due to the lack of revised negotiating documents, however modest or trivial the revisions might be. Both Chairmen prefaced their December 2008 Draft Modalities Texts with the same caution: “everything is conditional in the deepest sense.”35 In March 2009, Chairman Falconer announced his departure from his posts as Chairman and as New Zealand’s Ambassador to the WTO to return to Wellington to serve as Deputy Secretary at the Ministry of Foreign Affairs and Trade.36 His departure was an ominous portent: few, if any, officials knew more about trade and

Ministerial; Deal up to Obama Team, U.S. Official Says, 25 Int’l Trade Rep. (BNA) 1766–77 (2008); Roberta Rampton, “Many Gaps” Nix World Trade Deal Breakthrough: USTR, REUTERS, Dec. 12, 2008, http://www.reuters.com/article/politicsNews/idUSTRE4BB5BP20081212. For a comparative journalistic account of the political economy of China and India in light of the current global economic recession, see Suddenly Vulnerable, ECONOMIST, Dec. 13, 2008, at 15. For a briefing on Chinese economic reforms ushered in by Deng Xiaoping in 1978, see The Second Long March, ECONOMIST, Dec. 13, 2008, at 30–33. For a discussion of obstacles to Indian economic development, including labyrinthine politics, a creaky infrastructure, terrorist threats, and gross inequities, see An Elephant, Not a Tiger, ECONOMIST (SPECIAL REP. ON INDIA), Dec. 13, 2008, at 3.

30. See Daniel Pruzin, Ag, NAMA Chairs Give Bleak Assessment of Prospects for Doha Round Breakthrough, 25 Int’l Trade Rep. (BNA) 1567 (2008) (describing pressure from Lamy to speed-up the draft process).

31. Id. 32. With no others announcing their candidacy by the Dec. 31, 2008 deadline, Lamy became the first

uncontested selection in WTO history. Daniel Pruzin, Lamy Secures Second Term at WTO Helm After No Challengers to Leadership Emerge, 26 Int’l Trade Rep. (BNA) 38, 38 (2009). Aside from an endorsement of his performance in the post, that fact may reflect the lack of other viable candidates, a reluctance among WTO Members to engage in a contentious changing of the guard (especially amidst a difficult global economic environment), and a perception among Members that the position is a thankless one (at least in the present climate).

33. See World Trade Organization, Rules of Procedure for Sessions of the Ministerial Conference and Meetings of the General Counsel, WT/L/161 (July 25, 1996) (describing the procedural role of the chairperson).

34. THE WORLD TRADE ORGANIZATION: LEGAL, ECONOMIC AND POLITICAL ANALYSIS 67–68 (Patrick F. J. Macrory, et al. eds., 2005) (describing the member-driven decision-making process).

35. See December 2008 Draft Agriculture Modalities Text, supra note 26, preamble; December 2008 Draft NAMA Modalities Text, supra note 26, preamble.

36. See Daniel Pruzin, Chair of WTO Farm Trade Talks to Leave in April, Will Return to New Zealand, 26 Int’l Trade Rep. (BNA) 408 (2009).

10 Bhala PUB 11/13/2009 9:37:45 AM


agriculture, or labored with greater tenacity and good cheer in the Round than Chairman Falconer.37

C. Technical Texts and Thematic Appraisal

Parts II and III provide a technical explanation of the texts, focusing on the following issues:

(1) Progress

How, if at all, do the December 2008 Texts differ from their immediate July predecessors? What progress did the WTO Members make in the critical, final six months of 2008, and what key areas of disagreement remained?

(2) The Deal on the Table

What is the possible consensus reflected in December 2008? What deal is on the bargaining table for the Members to accept or reject, and thereby conclude the Doha Round one way or the other?

Complexity of the terms and conditions compel the length of Parts II and III. Again, plausible implications of the Doha Round are bluster without strong grounding in legal fact.

Following the work of his colleagues on the Draft Modalities Texts in Agriculture and NAMA, Ambassador Guillermo Valles Galmés of Uruguay, Chairman of the Negotiating Group on Rules, issued a revised Draft Consolidated Text on trade remedies, specifically, anti-dumping (AD), countervailing duties (CVDs), and fishing subsidies.38 He did so about one week after issuance of the Agriculture and NAMA Modalities Texts. Vast tracts of the December 2008 Rules Text were identical to the previous draft, which the Chairman issued in November 2007.39 The new Rules Text had only one advantage over its predecessor: it clearly identified points of disagreement among WTO Members, including the range and depth of their disagreement. Part IV summarizes these points. However, the disadvantage was unmistakable: the new text deleted proposed drafting language on those points because that language did not attract any convergence toward consensus.

Admittedly, the December 2008 Draft Rules Text was dispiriting. It did not generate strong faith in the possibility of a Doha Round resurrection. Perhaps that was for good reason. In the preceding thirteen months since the earlier version, WTO Members had given the Chairman precious little to work with in terms of a consensus on AD, CVD, or fishing subsidies.40 He had no choice but to drop proposed compromise language and replace it with an insert summarizing the ongoing fights.

37. See, e.g., BLUSTEIN, supra note 23, at 8 (describing Crawford as one of the key individuals Pascal

Lamy consulted before drawing up his compromise proposal for the G-7 ministers). 38. See Negotiating Group on Rules, New Draft Consolidated Chair Texts of the AD and SCM

Agreements, TN/RL/W/236 (Dec. 19, 2008) [hereinafter December 2008 Rules Text]. 39. Compare id., with Negotiating Group on Rules, Draft Consolidated Chair Texts of the AD and

SCM Agreements, TN/RL/W/213 (Nov. 30, 2007) [hereinafter November 2007 Rules Text]. 40. See Press Release, World Trade Organization, Chair Outlines Future Work in Rules Negotiations

(July 14, 2008), http://www.wto.org/english/news_e/news08_e/rules_14july08_e.htm (describing Galmés’s difficulty in getting consensus on anti-dumping or fishing subsidies).

10 Bhala PUB 11/13/2009 9:37:45 AM


Finally, Part V thematically evaluates the December 2008 Texts, particularly with respect to agriculture and NAMA, exploring five propositions inferred from the details of those texts:

(3) China and Statesmanship

What role, if any, did China play in shaping the negotiations that resulted in the December 2008 Texts? That is, did China behave in more of a statesman-like manner than it had with respect to preparing the July 2008 Texts and engaging in the July Ministerial meeting?

(4) Free Trade

Do the December 2008 Texts demand rigorous trade liberalization among all WTO Members and thereby move the world toward global free trade in agricultural and industrial products? Or, is the end result sure to be managed trade because the market access opportunities are so qualified with exceptions that the legal obligations on Members are too modest?

(5) Poverty

To what extent are the interests of poor countries the central focus of the December 2008 Texts? Have negotiators, particularly from the major trading powers—the United States and EU—put their own interests first?

(6) Islam

Is the integration of Muslim nations a key focus of the December 2008 Texts? Put bluntly, do the texts enhance the national security of all countries interested in peaceful commercial intercourse by encouraging and rewarding moderate Arab Muslim countries, particularly ones in the volatile Persian Gulf region?

(7) Accessibility of Law

What do the December 2008 Texts, and the possible Doha Round bargain they embody, say about multilateral trade liberalization? In particular, do the texts reflect a consistent, cogent vision of free trade, or are they so riddled with exceptions that they are little more than technical verbiage about self-interested dealings?

By no means, of course, are these propositions the only grand thematic issues to explore. Whether or not the Doha Round is resurrected, it has already left a rich legacy of topics for future reflection, many of which are not on the above list.

II. THE DECEMBER 2008 DRAFT AGRICULTURE MODALITIES TEXT

In virtually all material respects, the December 2008 Draft Agriculture Modalities Agreement proved to be the same as its July predecessor.41 The new Text covered the familiar topics—the three dimensions of the WTO Agreement on Agriculture from the Uruguay Round, all of which needed reform: domestic support, market access, and export subsidies.42 The December Text also identified the choices

41. This Synopsis is based on a paragraph-by-paragraph, line-by-line comparison of the December

2008 and July 2008 Draft Agriculture Modalities Texts, and the December 2008 Revised Draft Modalities for Sensitive Product Designation and SSMs. It also is based on World Trade Organization, An Unofficial Guide to the Revised Draft Modalities—Agriculture, (Dec. 6, 2008), available at http://www.wto.org/ english/tratop_e/agric_e/ag_modals_dec08_e.htm [hereinafter Unofficial Guide].

42. BHALA, INTERNATIONAL TRADE LAW, supra note 2, at 247–73; see generally December 2008

10 Bhala PUB 11/13/2009 9:37:45 AM


facing the WTO Members.43 Large swathes of it, aside from episodic formatting or stylistic improvements, were a verbatim repetition of the former document.44 If the Members agreed to the proposals, they would then implement them textually, as necessary, in part through corresponding changes made to the WTO Agreement on Agriculture.45

A. Cutting Domestic Farm Subsidies

Reducing agricultural subsidies, particularly in rich countries, was a goal of the Doha Round since its commencement in November 2001.46 To achieve this aim in any meaningful sense, negotiators focused their efforts on a five-part strategy:

(1) Tiered formula reductions (meaning steeper cuts on higher levels) to, and binding limitations on, overall trade-distorting domestic support (OTDS), which is the sum total of subsidies in the Amber Box and Blue Box, and de minimis subsidies;47

(2) Tiered formula cuts to, and binding limitations on, domestic support in the Amber Box, or Aggregate Measure of Support (AMS), which is the most trade-distorting kind of subsidy (other than an outright export subsidy) because it is either coupled with output or supports prices;

(3) Cuts to, and binding limitations on, domestic support classified as “de minimis,” that is, subsidies that fall below thresholds defined in terms of a percentage of domestic agricultural output;

(4) Cuts to, and binding limitations on, domestic support classified in the “Blue Box,” which contains subsidies tied to limits on output; and

(5) Binding limitations on Product-Specific Support, in other words, subsidies for individual products.

Throughout 2008, there were few material changes to provisions in the negotiating texts on these points.48

Draft Agriculture Modalities Text, supra note 26, §§ I–III (covering the three topics listed above). For an analysis of the Agreement on Agriculture, see Raj Bhala, World Agricultural Trade in Purgatory, 79 NOTRE DAME L. REV. 691 (2003). No rules were proposed in the Text to deal with tariff inversion, that is, higher duties on raw materials than on processed products, a problem that is the mirror image of tariff escalation.

43. See generally December 2008 Draft Agriculture Modalities Text, supra note 26. 44. Compare December 2008 Draft Agriculture Modalities Text, supra note 26, with Committee on

Agriculture, Special Session, Revised Draft Modalities for Agriculture, para. 9, TN/AG/W/4/Rev.3 (July 10, 2008) [hereinafter July 2008 Draft Agriculture Modalities Text].

45. See December 2008 Draft Agriculture Modalities Text, supra note 26, paras. 12, 18, 29, 34, 52–53, 128, 146, 170, Annex M (specifying amendments to the Agreement on Agriculture).

46. BHALA, INTERNATIONAL TRADE LAW, supra note 2, at 59. 47. Distortion is measured in relation to what occurs (in terms of prices and quantities), or would

occur, in a competitive market. In other words, distortion is measured in relation to a free or nearly free trade equilibrium.

48. In January 2009, the United States notified the WTO of its domestic agricultural support expenditures for marketing years (MYs) 2006 and 2007 (MYs do not correspond with calendar years. For example, MY 2007 carried over into mid-2008, and even further for certain crops.). Those figures are summarized as follows: • OTDS

In MY 2006, $11.34 billion, and in MY 2007, $8.52 billion. Daniel Pruzin, U.S. Reports Less Trade-Distorting Subsidies for Farms in ’06–’07, But Increase Expected, 26 Int’l Trade Rep.

10 Bhala PUB 11/13/2009 9:37:45 AM


(BNA) 146 (Jan. 29, 2009). The average for MYs 2002–2005 was $15.9 billion. Id. The OTDS limit proposed for the U.S. (discussed in Table I, infra) is $14.46 billion. Id.

• Amber Box In MY 2006, $7.74 billion, and in MY 2007, $6.26 billion. Id. The Uruguay Round bound limit on Amber Box spending for the U.S. is $19.1 billion. Id. The proposed Doha Round cut (discussed in Table II, infra) would lower this limit by 60% to $7.64 billion. Id. Interestingly, virtually all American Amber Box support went to two categories of products—dairy ($5.01 billion in MY 2007) and sugar ($1.23 billion in MY 2007). Id.

• De minimis Support In MY 2006, for Product-Specific de minimis support, $171 million, and in MY 2007, $237 million. Id. For Non-Product-Specific de minimis support, in MY 2006, $3.6 billion, and in MY 2007, $2.02 billion. Id. For both MY 2006 and 2007, U.S. de minimis support was under the 5% limit (discussed infra). Id.

• Counter-Cyclical Support In MY 2006, $1.49 billion, and in MY 2007, $893 billion. Id. The U.S. classified counter-cyclical payments in the Amber Box, yet explained they were de minimis and thus exempt from Amber Box reduction commitments. Id.

• Cotton Subsidies In MY 2006, $1.37 billion, and in MY 2007 $208 million. Id. The U.S. classified cotton subsidies in the Amber Box. Id. In MY 2006, over $1 billion of this support was not exempt from Amber Box reduction commitments. Id. But, in MY 2007, the U.S. declared its cotton subsidies were de minimis, because the $208 million figure fell below the de minimis threshold of 5% of the total value of American cotton production (which was $5.2 billion). Id.

• Non- or Minimally-Trade Distorting (Green Box) Subsidies In MY 2006, $76.04 billion, and in MY 2007, $76.16 billion. Id. at 147. U.S. spending in the Green Box jumped from $58.3 billion in MY 2002 to $71.8 billion in 2005, and thereafter has essentially reached a plateau. Child nutrition and food stamp programs account for roughly two-thirds of American Green Box subsidies. Id.

Note that the American classification of some subsidy schemes is the subject of deep skepticism in the WTO, particularly in light of the Appellate Body decision in United States—Subsidies on Upland Cotton, WT/DS267/AB/R (Mar. 3, 2005). For a treatment of this case, see Raj Bhala & David Gantz, WTO Case Review 2005, 23 ARIZ. J. INT’L & COMP. L. 107 (2006). At the March 12, 2009 meeting of the Committee on Agriculture, Australia, Brazil, and Japan questioned whether the United States could rightly classify counter-cyclical support as non-product specific, as such support effectively requires recipients to produce or eschew certain crops. News Item, World Trade Org., Committee Focuses on Monitoring Agriculture Commitments (Mar. 12, 2009), http://www.wto.org/english/news_e/news09_e/ag_com_12mar09_e.htm. These three countries also cast doubt on whether direct payments to farmers are decoupled, and thus properly classified by the United States in the Green Box, because some funding depends not on fixed and unchanging base acreages and yields, but rather requires crops not to be produced on base acres. Id. By way of partial comparison, the EU lists the following figures as per its March 2009 WTO notification: • Green Box Subsidies

37 billion for MY 2006–2007, but included in this figure are Blue Box payments based on fixed areas and yield, or fixed livestock head, which are not subject to reduction under the Uruguay Round Agreement on Agriculture. Daniel Pruzin, EU Issues New Farm Subsidy Notification; Trade-Distorting Support Remains Stable, 26 Int’l Trade Rep. (BNA) 344 (Mar. 12, 2009). For MYs 2004–2005 and 2005–2006, respectively, the figures are 24.4 and 40.3 billion. Id.

• Amber Box Subsidies For MY 2003–2004, the EU reported to the WTO in December 2006 it spent 30.9 billion in Amber Box support (far below its annual spending limit of 67 billion, bound during the Uruguay Round), and 24.78 billion in the Blue Box. Daniel Pruzin, EU to Exempt $47 Billion from WTO Agricultural Subsidy Spending Caps, 26 Int’l Trade Rep. (BNA) 308 (Mar. 5, 2009). In its March 2009 notification, the EU again stated its Amber Box support for MYs 2004–2005 and 2005–2006, respectively, were 31.2 and 28.4. Pruzin, EU Issues New Farm Subsidy Notification, supra note 48. The commodity product categories to which the EU gave the largest Amber Box payments in MY 2005–2006 were sugar ( 7 billion), butter ( 4.1 billion), apples ( 2.8 billion), and olive oil ( 2.6 billion). Id. The subsidies for these products took the

10 Bhala PUB 11/13/2009 9:37:45 AM


1. OTDS

The key issues for OTDS were: (1) computation of the base level, (2) tiered-reduction formula, (3) implementation period and staging, (4) special and differential treatment, (5) recently acceded Members (RAMs), and other commitments. For these issues, the deal on the table in December 2008 was the same deal set out in Ambassador Crawford Falconer’s December 2007 Working Paper on Overall Reduction of Trade-Distorting Domestic Support: A Tiered Formula. The stability of the provisions throughout 2008 meant either the positions of Members had converged on essential elements of a deal on OTDS, or their positions had hardened and they had not bridged any of their schisms.

In general terms, OTDS is the sum of support in the Amber Box, plus de minimis support and support in the Blue Box.49 The December 2008 Text contained the same formulaic definition of Base Level for OTDS as the December 2007 Working Paper.50 That Level is critical because reduction coefficients are applied to it under the tiered formula. That is, the Base Level is the starting point for making cuts. The higher the Level, the less ambitious the end result will be for any given percentage cut in terms of decreases in trade-distorting farm subsidies. The formula established Base Level as the sum of three figures:

form of price support. Id.

• Blue Box Subsidies 27.2 billion for MY 2004–2005, and 13.4 billion for MY 2005–2006. Id.

No optimistic inferences should be made from the above American (or EU) figures. That is, just because these figures showed a reduction in American farm subsidies did not mean the United States was ready to cut and bind its support at those lower levels. During MYs 2006–2007, commodity prices were at very high levels. Especially because of counter-cyclical subsidies, farm support expenditures fall when prices are high, and vice versa. Commodity prices collapsed in 2008, and the global economic recession deepened. For example, between March and December 2008, soybean prices fell 20%, and corn prices dropped 25%. Pruzin, U.S. Reports Less Trade-Distorting Subsidies for Farms in ’06–’07, But Increase Expected, supra note 48, at 146. Both crops are covered commodities under American farm subsidy law. Id. Thus, American farm support spending, particularly counter-cyclical prices, is destined to rise. Id. That is why the United States insists on significant headroom, that is, subsidy cuts and caps that leave bound levels above actual expenditures. To use the academic jargon, at issue is future policy space for American farm legislation. Viewed in retrospect, the failed Ministerial meeting in July 2008 may well have been a critical missed opportunity to clinch a deal on agriculture when farm product prices were high and subsidy payments low. Id.

49. See BHALA, INTERNATIONAL TRADE LAW, supra note 2, at 1451–1536 (stating that OTDS is closer to the true aggregate measure of support that AMS ought to be, but for legally-permissible exemptions from AMS; however, it is not perfectly all-inclusive). Under certain Doha Round proposals, de minimis and Blue Box subsidies would remain largely exempt from cuts. See generally id. at 89–93 (explaining that including the second variable in OTDS reflected an effort to discipline, albeit modestly, the extent to which a WTO Member could exempt Product- and Non-Product-Specific subsidies from cuts by dubbing them de minimis. Similarly, under either alternative for the third figure (but most obviously under the second one), including the third figure in the calculation of OTDS was an effort to subject at least a portion of Blue Box Payments to cuts).

50. December 2008 Draft Agriculture Modalities Text, supra note 26, paras. 1–2; Committee on Agriculture, Working Document No. 5: Overall Reduction of Trade-Distorting Domestic Support: A Tiered Formula (Dec. 21, 2007), available at http://www.wto.org/english/tratop_e/agric_e/workdoc_ 5otds_e.pdf.

10 Bhala PUB 11/13/2009 9:37:45 AM


Base Level for OTDS = Final Bound Total AMS

+ 10% of Average Total Value of Production in 1995–2000

+ the higher of 5% of either:

Average Total Value of Agricultural Production in 1995–2000,

or

Blue Box payments51

Final Bound Total AMS, is the Aggregate Measure of Support a WTO Member sets out and binds in its Schedule associated with the Agreement on Agriculture.52 This figure consists of all Amber Box Support, which are subsidies not in the Blue Box and not de minimis.53 Effectively, it is the Amber Box commitment ceiling.

The second right-hand-side figure, “10 percent of the Average Value of Production in 1995–2000,” consists of 5 percent of the Average Value of Production for Product-Specific Support that is in the Amber Box plus 5 percent of the Average Value of Production for Non-Product-Specific support that is in the Amber Box.54 These domestic subsidies are called “Product-Specific AMS” and “Non-Product-Specific AMS,” respectively.55 A certain percentage of these subsidies qualify as de minimis, and that percentage is not classified in the Amber Box as Total AMS subject to reduction commitments.56 The term for the second figure—Average Value of Production—is a generic one encompassing both Product- and Non-Product-Specific subsidies.

With respect to the second figure, developing countries receive special and differential treatment in the form of a 20 percent threshold consisting of 10 percent each on Product- and Non-Product-Specific AMS.57 That treatment means poor countries would be entitled to include a higher percentage of this support in their OTDS, thus increasing the Base Level from which they will make funding cuts. Developing countries could select either 1995–2000 or 1995–2004 as the period in which to gauge average total value of agricultural output.58 The obvious choice would be to select the period in which the Base Level would be highest, so as to yield

51. See, e.g., Unofficial Guide, supra note 41, at 5–6 (stating that the formula is sometimes simplified

to: Base Level = Bound Level of Amber Box + 15% of the Total Value of Agricultural Production, where the 15% term consists of: 5% of Non-Product-Specific de minimis support, 5% of Product-Specific de minimis support, and 5% of Blue Box support.).

52. Id. at 6. 53. Id. 54. Id. 55. Id. at 5. 56. Id. at 6–7. 57. See Unofficial Guide, supra note 41, at 5, 7. 58. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 27.

10 Bhala PUB 11/13/2009 9:37:45 AM


a higher Level and thereby reduce OTDS from a higher Base. The end result would be an elevated level of permissible OTDS expenditures.

As for the third right-hand-side figure, WTO Members would have to include the higher of two figures: 5 percent of the Average Total Value of Farm Production in 1995–2000 or existing average Blue Box Payments.59

Simply computing the Base Level OTDS would be intricate. Operationally, computation would be impossible without accurate agricultural output and subsidy data from each Member.

As for cutting Base Level OTDS, essentially the same critical figures in the tiered formula remained in place.60 Table I below summarizes these figures as set out in the December 2008 Text, along with the various sorts of special and differential treatment in that Text. The July 2008 Text identified three ranges for OTDS reductions: 75 or 85 percent by the EU in the top tier,61 66 or 73 percent by Japan and the United States in the middle tier,62 and 50 or 60 percent by the rest of the developed countries in the bottom tier.63 For each range, the December 2008 Text split the difference.64 The new Text called for reductions in OTDS of 80, 70, and 55 percent, respectively, in the three Tiers.65 WTO Members would be expected to ensure that their actual applied levels of OTDS in each component of the formula (i.e., Product- and Non-Product-Specific Amber Box and Blue Box support) did not exceed their bound OTDS levels.66

59. Unofficial Guide, supra note 41, at 5–7. 60. Compare December 2008 Draft Agriculture Modalities Text, supra note 26, para. 3, with July 2008

Draft Agriculture Modalities Text, supra note 44, para. 3. WTO Members would put their final bound OTDS figures in the appropriate part of their Schedules where developing countries not required to make a reduction commitment would list only their Base Level OTDS in their schedules. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 10. Two categories of Members would not have to list any OTDS figure in their Schedules: (1) net food importing developing countries that agreed not to sponsor Blue Box subsidy programs, and (2) the five least-developed countries—Cameroon, Congo (Brazzaville), Ghana, Nigeria, and Swaziland. Id. para. 10 & n.2.

61. July 2008 Draft Agriculture Modalities Text, supra note 44, para. 3; Unofficial Guide, supra note 41, at 5 (categorizing the EU in the top tier). The top tier consists of those with a Base OTDS of $60 billion and above. July 2008 Draft Agriculture Modalities Text, supra note 44, para. 3.

62. Id.; Unofficial Guide, supra note 41, at 5 (categorizing Japan and the United States in the middle tier). The middle tier consists of those with Base OTDS above $10 billion and below $60 billion. July 2008 Draft Agriculture Modalities Text, supra note 44, para. 3.

63. Id. The bottom tier consists of those with a Base OTDS less than $10 billion. Id. 64. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 3. 65. Id. 66. See id. para. 11 (specifying the OTDS levels for countries with Base OTDS reduction

commitments).

10 Bhala PUB 11/13/2009 9:37:45 AM


Table I:

Reduction Commitments on OTDS in the December 2008 Draft Agriculture Modalities Text67

Base Level for OTDS

(all figures in U.S.

dollars)

Top Tier Reduction

Commitments

(percentage cut

required to Base Level

OTDS)

OTDS is over $60

billion.

Second Tier Reduction

Commitments

(percentage cut


OTDS)

OTDS is over $10

billion up to $60 billion.

Third Tier Reduction

Commitments

(percentage cut


OTDS)

OTDS is $10 billion or

less.

Reduction Coefficients

for Developed

Countries

80%

The EU is in this Tier.

The Base Level for 15

EU states is estimated

at 110.3. The cut

would mean a new

annual spending cap of

22.06.

70%

The United States and

Japan are in this Tier.

The Base Level for the

United States is

estimated at $48.2

billion. The cut would

mean a new annual

spending cap of $14.46

billion.

55%

Implementation Phases

for Developed

Countries

The down payment is

that 1/3 of cut must be

made on the first day of

the implementation

period of any Doha

Round agreement.

Remaining cuts must be

in equal annual

installments over 5

years.

Same as Top Tier. The down payment is

that 25% of cut must be

made on the first day of

implementation.

Remaining cuts must be

in equal annual

installments over 5

years.

Additional Reduction

Commitments for

Developed Countries?

No. Yes. A developed

country in the Second

Tier with a high Base

Level OTDS, meaning

one equal to or above

40% of the Average

Total Value of its

agricultural production,

must make an

additional cut to its

Base Level of OTDS.

The additional cut must

No.

67. Information in the Table is gathered from the December 2008 Draft Agriculture Modalities Text,

supra note 26, paras. 4–8 and Unofficial Guide, supra note 41, at 6.

10 Bhala PUB 11/13/2009 9:37:45 AM


be 1/2 of the difference

between the Top and

Second Tier reduction

percentages (e.g., with

a difference of 80%

and 70%, then

additional cut of 5% is

required). Japan is in

this category, meaning

that it would make a

75% cut to its Base

Level OTDS.


for Developing

Countries

No cuts required for a

developing country that

has not made a bound

AMS commitment.

Otherwise, the

percentage reduction is

2/3 the commitment

that applies to

developed countries in

Top Tier.


developing country

that has not made a

bound AMS

commitment.

Otherwise, the


2/3 the commitment

that applies to


Second Tier.




AMS commitment.

Otherwise, the


2/3 the commitment that

applies to developed

countries in Third Tier.


for Developing

Countries

The first installment

must be a 20% cut.

Thereafter, actual

OTDS must be less than

80% of Base Level

OTDS.

Remaining cuts to

OTDS must be made in

equal annual

installments over 8

years.

Same as Top Tier. Same as Top Tier.


NFIDCs:

Such as Jordan,

Morocco, Tunisia, and

Venezuela

No cuts required. No cuts required. No cuts required.


for RAMs

None, if RAM has not

made a bound AMS

commitment.

Otherwise, essentially

same as for developing

countries (i.e., 2/3

commitment in relation

to developed countries,


10 Bhala PUB 11/13/2009 9:37:45 AM


other than United

States, EU, and Japan).

Implementation Phase

for RAMs

Same as for developing

countries.


countries.


countries.


for Newer RAMs:

Macedonia, Saudi

Arabia, Ukraine, and

Vietnam



for Small, Low-Income

RAMs with Transition

Economies:

Albania, Armenia,

Georgia, Kyrgyzstan,

Moldova, and Mongolia


The July and December Texts both contained a proposed down payment (that is, an immediate cut) to OTDS of 33.3 percent by the top three subsidizers, the EU, Japan, and United States, and 25 percent by all other developed countries.68 Remaining OTDS cuts were to be phased in equal annual installments over five years for developed countries.69 The provision that larger cuts would be expected of developed countries where OTDS is over 40 percent of the value of agricultural output—namely, Japan—was also left unchanged.70

As a practical matter, many poor countries lack the resources to provide significant subsidies to their farmers. From a legal perspective, the December 2008 Text, like its predecessor, assured poor countries with the means to provide agricultural subsidies that they would not automatically be subject to OTDS reduction commitments. Only developing countries with existing Amber Box reduction commitments (ones with a ceiling above the de minimis level of domestic support, and thus obligated to cut Amber Box support) would have to make cuts to OTDS.71 But even those cuts, which would be two-thirds the amount for developed countries, could be phased in over eight years.72

68. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 11; July 2008 Draft

Agriculture Modalities Text, supra note 44, para. 5. 69. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 5. 70. See id. para. 4 (defining additional reduction goals for middle-tier countries with especially high

Base OTSD levels); July 2008 Draft Agriculture Modalities Text, supra note 44, para. 4; Negotiating Group on Market Access, WTO Members’ Tariff Profiles, TN/MA/S/4/Rev.1/Corr.1 (Nov. 15, 2002) (showing Japan’s bound duties for agricultural products as 42.4).

71. See December 2008 Draft Agriculture Modalities Text, supra note 26, para. 6 (A developing country would have an Amber Box reduction commitment if its ceilings exceeded the de minimis levels. It thus would be obliged to reduce those ceilings).

72. See id. paras. 7–8 (specifying implementation procedure and quantities for countries with bound AMS levels).

10 Bhala PUB 11/13/2009 9:37:45 AM


All other developing countries would commit to staying within their base levels of support.73 Net food-importing developing countries (NFIDCs) such as Jordon, Morocco, Tunisia, and Venezuela would not have to reduce their OTDS, though they would not be permitted to go above their Base Level OTDS.74 Least-developed countries (for which sponsoring farm subsidies is financially improbable, if not impossible) would be entirely exempt from OTDS reduction commitments.75

Regarding RAMs, the same rules for developing countries would apply to them.76 But, not all RAMs would be deemed alike. RAMs that had acceded to the WTO very recently or had low incomes would be exempt from OTDS reduction commitments.77 Macedonia, Saudi Arabia, Ukraine, and Vietnam, were considered to be newer RAMs.78 The small, low-income RAMs with economies in transition were Albania, Armenia, Georgia, Kyrgyzstan, Moldova, and Mongolia.79 Mongolia was the new country on the list, not only for OTDS purposes, but also throughout the December 2008 Text.80 Mongolia acceded to the WTO on January 19, 1997.81 Its addition to the new 2008 Text suggested Mongolia had a successful campaign during the fall of 2008 for inclusion for special benefits.

On OTDS the pattern of creating special rules for special sovereign interests is unmistakable. It consists of carving out RAMs from developing countries, then carving out newly acceded and low-income transitional RAMs from existing RAMs, and finally, tossing in Mongolia to boot. To individually anointed countries, the pattern is satisfying. From a systemic perspective, the ever-finer gradations of anointment seem to be a ludicrous distortion of the collective objectives of the Doha Round, explainable only by the pursuit of self-interest.

Historically, this pattern heralded the end of the GATT-WTO special and differential treatment classification system.82 In GATT Part IV (Articles XXXVI, XXXVII, and XXXVIII, which took effect in 1966) and the 1979 Tokyo Round Enabling Clause, the general distinction appeared between developed and less-developed countries.83 In the 1986–1994 Uruguay Round texts, the cohort of less-

73. See id. para. 10 (countries not required to commit to reductions are nonetheless required to

schedule their base OTDS). 74. See id. (even countries not undertaking to reduction commitments must schedule Base OTDS);

Committee on Agriculture, WTO List of Net Food-Importing Developing Countries, G/AG/5/Rev.8 (Mar. 22, 2005) (listing the NFIDCs).

75. See December 2008 Draft Agriculture Modalities Text, supra note 26, paras. 6, 16 (countries with less than $100 million in Final Bound Total AMS are not required to undertake any reductions, in OTDS or otherwise).

76. See id. paras. 7–9 (requiring both non-exempted RAMs and developing countries to reduce by two-thirds on the same implementation schedule).

77. Id. para. 9. 78. Id. 79. Id. at 5 n.1. 80. Compare December 2008 Draft Agriculture Modalities Text, supra note 26, para. 9 (listing

countries which qualified as small, low-income RAMs), with July 2008 Draft Agriculture Modalities Text, supra note 44, para. 9 (listing small, low-income RAMs but excluding Mongolia).

81. World Trade Organization, Mongolia and the WTO, http://www.wto.org/english/thewto_e/ countries_e/mongolia_e.htm (last visited June 30, 2009).

82. See, e.g., General Council, Preparations for the 4th Session of the Ministerial Conference: Proposal for a Framework Agreement on Special and Differential Treatment, para. 7, WT/GC/W/442 (Sept. 19, 2001) [hereinafter Proposed Agreement on Special and Differential Treatment] (discussing changes in special and differential treatment after the creation of the WTO as a product of the Uruguay Rounds).

83. For a discussion of GATT Part IV and the Enabling Clause, see RAJ BHALA, MODERN GATT

LAW: A TREATISE ON THE GENERAL AGREEMENT ON TARIFFS AND TRADE chs. 37–39 (2005).

10 Bhala PUB 11/13/2009 9:37:45 AM


developed countries was bisected into developing and least-developed countries.84 Following the birth of the WTO in January 1995, and as the Doha Round evolved following its launch in November 2001, developed countries occasionally agreed to slot themselves into separate categories. Developing and least-developed countries—collectively, poor nations—demanded the right to dissect themselves into several different categories.85

On a micro level, some of the new categories had a plausible, development-oriented justification. On a macro level, the pattern was astonishingly abstruse. It belied the notion of a single, transparent, substantively meaningful, and stylistically comprehensible undertaking in pursuit of trade liberalization. Nevertheless, the pattern for OTDS—the metastasizing of special and differential treatment categories—is repeated throughout the December 2008 Agriculture and NAMA Texts.

2. Amber Box (AMS)

On AMS subsidies, there was little evolution throughout 2008. The December 2008 Text was based on a December 2007 Working Paper, and it established a tiered reduction formula similar to the methodology used to cut OTDS.86 Table II below summarizes the result and relevant attendant rules.

Under the tiered formula, the EU, which is in the highest tier of Amber Box support (over $40 billion), would have to cut these subsidies by 70 percent.87 Japan and the United States, which are in the middle tier of Amber Box support (between $15 and $40 billion), would reduce Amber Box subsidies by 60 percent.88 The rest of the developed countries, which are in the lowest tier of Amber Box support (below $15 billion), would decrease their support by 45 percent.89 All rich countries would make a down payment of an immediate, 25 percent cut.90 Larger cuts would be expected of developed countries, namely, Japan, in which the AMS is over 40 percent of the value of agricultural production.91 Implementation and staging would

84. See, e.g., Agreement on Agriculture, Apr. 15, 1994, Marrakesh Agreement Establishing the World

Trade Organization, Annex 1A, preamble, 33 I.L.M. 1125 (1994), available at http://www.wto.org/english/docs_e/legal_e/14-ag.pdf [hereinafter Uruguay Round Agreement on Agriculture] (discussing developing and least-developed countries).

85. See, e.g., Proposed Agreement on Special and Differential Treatment, supra note 82 (containing a proposal by developing countries to re-evaluate the special and differential criteria).

86. See December 2008 Draft Agriculture Modalities Text, supra note 26, para. 13 (specifying a tiering formula for Final Bound AMS); Committee on Agriculture, Working Document No. 6: Final Bound Total AMS: A Tiered Formula (Dec. 21, 2007), available at http://www.wto.org/english/tratop_e/agric_e/ workdoc _6ams_e.pdf [hereinafter Working Document No. 6].

87. See December 2008 Draft Agriculture Modalities Text, supra note 26, para. 13(a) (defining the top tier and corresponding cuts); Unofficial Guide, supra note 41, at 6 (classifying the EU in the top tier).

88. See December 2008 Draft Agriculture Modalities Text, supra note 26, para. 13(b) (defining the middle tier and corresponding cuts); Unofficial Guide, supra note 41, at 6 (classifying Japan and the United States in the middle tier).

89. See December 2008 Draft Agriculture Modalities Text, supra note 26, para. 13(c) (defining the lowest tier and corresponding cuts).

90. See id. para. 15 (providing that developed country members with Final Bound Total AMS greater than US$15 billion would make immediate 25% reductions).

91. Id. para. 14; see also Unofficial Guide, supra note 41, at 6 (identifying Japan as having AMS greater than 40% of the value of their agricultural production).

10 Bhala PUB 11/13/2009 9:37:45 AM


occur via six equal annual installments over five years, starting on the first day of that period.92

In keeping with traditional special and differential treatment policies, the obligation on poor countries would be less than that on rich countries. Only developing countries with bound AMS levels would have to reduce those levels, and any such country with a total AMS level bound at $100 million or less would be exempt from reduction commitments.93 In effect, the December 2008 Text maintained the de minimis rule from the July Text for poor countries with low levels of Amber Box support, excepting them from the obligation to cut this support. Developing countries, along with older RAMs, would have a two-thirds reduction obligation and an eight year phase-out period (nine equal annual installments commencing on the first day of implementation).94

Reflecting novel special and differential treatment cohorts, both NFIDCs and newer RAMs would have no reduction obligations.95 Small, low-income RAMs with economies in transition, namely Albania, Armenia, Georgia, Kyrgyzstan, Moldova, and Mongolia would have no such obligations either.96 Moreover, these RAMs would not have to include certain kinds of subsidies in their calculation of Total AMS.97

Table II:

Reduction Commitments on Total AMS (The Amber Box) in the December 2008 Draft Agriculture Modalities Text98

Bound Total AMS

(all figures in U.S.

dollars)

Top Tier Reduction

Commitments

(percentage cut

required to Bound

Total AMS)

Total AMS is over $40

billion.

Second Tier Reduction

Commitments

(percentage cut

required to Bound

Total AMS)

Total AMS is over $15

billion up to $40 billion.

Third Tier Reduction

Commitments

(percentage cut

required to Bound

Total AMS)

Total AMS is $15

billion or less.


for Developed

Countries

70%

The EU is in this Tier.

The Uruguay Round

bound AMS level for

the EU is 67.16 billion.

The cut would drop this

ceiling to 20.15 billion.

60%

The United States and

Japan are in this Tier.

The Uruguay Round

bound AMS level for

the United States is

$19.1 billion. The cut

would drop this ceiling

45%

92. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 15. 93. Id. paras. 6, 16. 94. Id. para. 16. 95. See id. paras. 17, 19. NFIDCs include Jordan, Morocco, Tunisia, and Venezuela, and the newer

RAMs are Macedonia, Saudi Arabia, Ukraine, and Vietnam. 96. Id. at 7 n.4, para. 19. 97. See id. (listing the specific subsidies that may be excluded by small, low-income RAMs). 98. Information in the Table is gathered from the December 2008 Draft Agriculture Modalities Text,

supra note 26, paras. 13–19 and Unofficial Guide, supra note 41, at 6.

10 Bhala PUB 11/13/2009 9:37:45 AM


to $7.64 billion.


for Developed

Countries

The down payment

would be a first

installment cut of 25%.

That must be followed

by equal annual cuts

over 5 years.

Same as Top Tier. Cuts must be made in

equal, annual

installments over 5

years.

Additional Reduction

Commitments for

Developed Countries?

No Yes

A developed country in

the Second Tier with a

high Bound Total

AMS, meaning one

equal to or above 40%

of the Average Total

Value of its

Agricultural

Production, must make

an additional cut to its

Total AMS. The

additional cut must be

the difference between

the Top and Second

Tier reduction

percentages (e.g., with a

difference of 70%

versus 60%, an


required).

Japan is in this

category.

Yes

A developed country in

the Third Tier with a

high Bound Total

AMS, meaning one

equal to or above 40%

of the Average Total

Value of its

Agricultural

Production, must make

an additional cut to its

Total AMS. The

additional cut must be

half the difference

between the Top and

Second Tier reduction

percentages (e.g., with a

difference of 70%

versus 60%, then


required).


for Developing

Countries




AMS commitment, or

has a bound level at or

below $100 million.

Otherwise, the


2/3 the commitment

that applies to


Top Tier.




AMS commitment, or


below $100 million.

Otherwise, the


2/3 the commitment

that applies to


Second Tier.




AMS commitment, or


below $100 million.

Otherwise, the


2/3 the commitment

that applies to


Third Tier.


for Developing

Countries

Cuts must be made in

equal annual

installments over 8

years.


10 Bhala PUB 11/13/2009 9:37:45 AM



for NFIDCs:

Such as Jordan,

Morocco, Tunisia, and

Venezuela



for RAMs

None if RAM has not

made a bound AMS

commitment, or has a

bound level at or below

$100 million.

Otherwise, essentially

same as for developing

countries (i.e., 2/3 the

commitment as for

developed countries,

other than United

States, EU, and Japan).


Implementation Phase

for RAMs


countries.


countries.


countries.


for Newer RAMs:

Macedonia, Saudi

Arabia, Ukraine, and

Vietnam



for Small, Low-Income

RAMs with Transition

Economies:

Albania, Armenia,


Moldova, and Mongolia

No cuts required of

Moldova, which is the

only such RAM to have

bound its Total AMS.

No cuts required of

Albania, Armenia,


and Mongolia, because

they have not bound

their Total AMS.

In addition, this group

of RAMs can exclude

from their calculation

of current Total AMS

any (1) investment

subsidy generally

available to agriculture,

(2) agricultural input

subsidy, (3) interest

subsidy to reduce

financing costs, or (4)

grant to cover debt

repayment.


10 Bhala PUB 11/13/2009 9:37:45 AM


Beyond mandatory cuts to Total AMS, the December 2008 Text, like the December 2007 Working Paper and July 2008 Text on which it was built, called for limits on Product-Specific subsidies.99 As its name connotes, a Product-Specific subsidy is direct support for a particular crop.100 The G-20 developing countries urged that such limits be fixed for individual products, not capacious sectoral categories like “cereals” or “oilseeds.”101 That way, a WTO Member would not be able to spread Product-Specific Support across multiple commodities or shift it among them within a broad designation.102 Accordingly, the December Text put restrictions on the amount of funds a WTO Member could channel to the direct support of a specific crop.103

The basic limit for all developed countries other than the United States would be that Product-Specific Support must not exceed the average of the kind of support actually provided during the 1995–2000 Uruguay Round implementation period.104 The United States, however, received special dispensation regarding the base period and calculation methodology.105

The U.S. Product-Specific Support limit would be the proportional average of its average actual Product-Specific AMS during 1995–2004 and its average actual Total AMS for 1995–2000.106 In other words, only the United States could include more years in its base period to establish the ceiling on its Product-Specific Support.107 This sui generis calculation would help the United States raise that ceiling. Its calculation would depend on the total Amber Box support it gave to specific products in 1995–2000, as shared among products according to the average share during 1995–2004.108 The United States sought to include the additional years (2001–2004) because during them it had high Product-Specific expenditures. This special American exception is yet another instance of a WTO Member—this one uniquely powerful—negotiating in naked self-interest, regardless of the broader systemic goals of the Doha Round, which include meaningful reductions to and restraints on per-product farm subsidies. For all developed countries, limits on Product-Specific Support would have to be implemented immediately, on the first day the Doha Round took effect.109

99. Id. para. 21; July 2008 Draft Agriculture Modalities Text, supra note 44, para. 21; Working

Document No. 6, supra note 86, para. 9. 100. Unofficial Guide, supra note 41, at 5 (generally defining “Product-Specific” as support for

individual products). 101. WORLD TRADE ORGANIZATION SECRETARIAT, WTO AGRICULTURE NEGOTIATIONS: THE

ISSUES, AND WHERE WE ARE NOW 53 (2004), available at http://www.wto.org/english/tratop_e/agric_e/ agnegs_bkgrnd_e.pdf.

102. See id. (explaining how limits on Product-Specific AMSs avoids shifting support between products).

103. See December 2008 Draft Agriculture Modalities Text, supra note 26, paras. 21–29 (outlining restrictions for Product-Specific AMS limits).

104. Id. para. 22. 105. See id. para. 23 (outlining Product-Specific AMS limits unique to the United States). 106. Id. 107. Compare id. para. 22 (describing the developed country Member formula for Product-Specific

Support limit as including time period from 1995–2000), with id. para. 23 (describing the U.S. formula for Product-Specific Support limit as including time periods from 1995–2004 and 1995–2000).

108. Unofficial Guide, supra note 41, at 6. 109. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 26.

10 Bhala PUB 11/13/2009 9:37:45 AM


Developing countries would also be obligated to establish limits on any Product-Specific Support they provided.110 But they would receive special and differential treatment to do so, specifically in the manner in which they could calculate the cap on their Product-Specific AMS.111 Developing countries would have a choice among three alternatives in setting their limit: (1) average actual expenditures during 1995–2000 or 1995–2004; (2) twice the Product-Specific Support limit established in the Uruguay Round and set out in Article 6:4 of the WTO Agreement on Agriculture; or (3) 20 percent of the bound Total AMS for the relevant country.112 Obviously, a developing country would be inclined to choose the alternative offering the highest ceiling on subsidies for a specific crop.

The December 2008 Text maintained the flexibility of the December 2007 Working Paper and the July Text with respect to the limits on Product-Specific Support in the Amber Box, with regard to two possible scenarios.113 First, suppose the actual Product-Specific Support of a WTO Member during the relevant base period was below the de minimis level (as Article 6:4 of the Agreement on Agriculture defines this level). In that case, the limit would be set at that level.114 This flexibility meant that the status quo ante of the Uruguay Round limit set in Article 6:4 would be ratified and become the new cap.115 The December Text clarified that in this scenario a Member would not be obliged to set its Product-Specific AMS limit at a level lower than the de minimis level in the base period.116

Second, suppose actual support provided by a WTO Member, after the relevant base period, rose above the de minimis level. Then, the limit for that Member would be the average amount of Product-Specific subsidization by the Member in the two most recent years before adoption of the Doha Round agreements.117 Here again, the status quo ante would be ratified, effectively rewarding large spenders—those who following the Uruguay Round had spent above their de minimis thresholds. They got an entitlement to offer Product-Specific Support in the future at past high levels (subject only to their overall bound OTDS and Total AMS levels).118 The key point is they would not have to worry about including Product-Specific expenditures above the de minimis threshold in Total AMS and subjecting the overage to reduction commitments. For past excessive spending, they got a “pass.”

3. De Minimis Subsidies

De minimis thresholds are important because expenditures up to these thresholds need not be included in the calculation of Total AMS.119 As the rubric

110. See id. para. 27 (describing methods for developing countries to establish Product-Specific AMS limits).

111. Id. paras. 27–28. 112. Id. 113. Id. paras. 24–25; July 2008 Draft Agriculture Modalities Text, supra note 44, paras. 24–25;

Working Document No. 6, supra note 86, paras. 12–13. 114. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 25. 115. Id. 116. Id. 117. Id. para. 24. 118. Id. 119. See Fact Sheet, World Trade Org., Domestic Support in Agriculture: The Boxes (Oct. 1, 2002),

http://www.wto.org/english/tratop_e/agric_e/agboxes_e.htm (“‘[D]e minimis’ minimal supports are allowed . . . members that had larger subsidies than the de minimis levels at the beginning of the post-Uruguay Round reform period are committed to reduce these subsidies.”).

10 Bhala PUB 11/13/2009 9:37:45 AM


connotes, de minimis support consists of subsidies in the Amber Box, but in small amounts.120 Consequently, they are not subject to the cuts required of AMS. Lowering the thresholds would mean reducing expenditures previously considered insignificant and thereby exempt from cuts. From the Uruguay Round, those thresholds were defined in terms of Product- and Non-Product-Specific Support with different limits for developed and developing countries (and none for least-developed countries).121

For developed countries, the de minimis level of Product-Specific Support was 5 percent of the total value of output of the basic agricultural product in question.122 Their de minimis level for Non-Product-Specific Support also was 5 percent, but of the total value of agricultural production of all commodities.123 The December 2007 Working Paper identified as a possible goal to reduce these 5 percent limits by at least 50 percent through five equal, annual installments (using 1995–2000 as the base period).124 The December 2008 Text followed the pattern laid out in the Working Paper, and was a nearly verbatim repetition of the relevant provisions in the July 2008 Text.125 The obligation on developed countries would be to cut the thresholds in half, to 2.5 percent of the value of domestic agricultural production (down from 5 percent), and thus reduce both the theoretical level and actual expenditure amount considered insignificant.126 Table III below summarizes the proposed rules on de minimis subsidies.

Table III:

Limitations on De Minimis Subsidies in the December 2008 Draft Agriculture Modalities Text127

Developed Countries

Product-Specific Support:

Cap of 5% of total value of production of the

basic agricultural product in question.

Limitation on de minimis support in Article 6:4(a)

of WTO Agreement on Agriculture

Non-Product-Specific Support:

Cap of 5% of the total value of all agricultural

production.

120. Id. 121. Uruguay Round Agreement on Agriculture, supra note 84. 122. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 30; Uruguay Round

Agreement on Agriculture, supra note 84, art. 6:4(a). 123. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 30. 124. Committee on Agriculture, Working Document No. 7: De Minimis, para. 1 (Dec. 21, 2007),

available at http://www.wto.org/english/tratop_e/agric_e/workdoc_7deminimis_e.pdf [hereinafter Working Document No. 7].

125. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 30; July 2008 Draft Agriculture Modalities Text, supra note 44, para. 30; Working Document No. 7, supra note 124, para. 1.

126. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 30. 127. Information in the Table is gathered from the December 2008 Draft Agriculture Modalities Text,

supra note 26, paras. 30–33.

10 Bhala PUB 11/13/2009 9:37:45 AM


50% cut on both caps


New cap of 2.5% of total value of production of

the basic agricultural product in question.

Limitation on de minimis support in December

2008 Text


New cap of 2.5% of the total value of all

agricultural production.

Implementation Period Immediate

Developing Countries


Cap of 10% of total value of production of the

basic agricultural product in question.

Limitation on de minimis support in Article 6:4(b)

of WTO Agreement on Agriculture


Cap of 10% of the total value of all agricultural

production.

Cut of 2/3 of the amount for developing countries,

i.e., 2/3 of 50%, or 33-1/3% reduction to both

caps.


New cap of 6-2/3% of total value of production of

the basic agricultural product in question.


2008 Text


New cap of 6-2/3% of the total value of all


Implementation Period 3 years

Special Categories of Developing Countries

(1) Developing countries that have not bound their

Total AMS;

(2) Developing countries that allocate almost all of

their subsidies to subsistence and resource-poor

farmers; and

(3) NFIDCs (such as Jordan, Morocco, Tunisia,

and Venezuela).

No cuts required.

Older RAMs with a bound AMS and de minimis level of 5%


2008 Text

Cut of 1/3 of the amount for developing countries,

i.e., 1/3 of 50%, or 16-2/3% reduction of the 5%

cap


Approximately 3.8% of total value of production

of the basic agricultural product in question.

10 Bhala PUB 11/13/2009 9:37:45 AM



Approximately 3.8% of the total value of all


Implementation Period 5 years

Newer RAMs

Macedonia, Saudi Arabia, Ukraine, and Vietnam No cuts required to de minimis support caps.

Small, Low-Income RAMs with Transition Economies

Albania, Armenia, Georgia, Kyrgyzstan, Moldova,

and Mongolia

No cuts required to de minimis support caps.

For developing countries, the de minimis levels were double that of developed countries—for Product-Specific Support, 10 percent of the total value of output of the basic agricultural product in question, and for Non-Product-Specific support, 10 percent of the total value of agricultural production of all commodities.128 The December 2007 Working Paper called for these 10 percent limits to be lowered by at least two-thirds of the cuts agreed upon for developed countries (using the 1995–2000 base period).129 Developing countries would have an extra three years (that is, at least eight years) to reduce their de minimis support.130 The December 2008 Text, like its predecessor of July, stuck to these figures.131

Three categories of developing countries would not have to make any reductions in de minimis support levels or spending: (1) developing countries that had not bound their Total AMS; (2) developing countries that allocated almost all of their subsidies to subsistence and resource-poor farmers; and (3) NFIDCs (e.g., Jordan, Morocco, Tunisia, and Venezuela).132 For these developing countries, the existing Uruguay Round de minimis levels would continue to apply.133 Likewise, newer RAMs—Macedonia, Saudi Arabia, Vietnam, and Ukraine—would have no obligations to cut de minimis thresholds or spending.134 Small, low-income RAMs with economies in transition—Albania, Armenia, Georgia, Kyrgyz, Moldova, and Mongolia—also would be free from any obligations with respect to de minimis cuts.135 A final category of RAMs—the older RAMs that had bound Total AMS commitments and existing de minimis levels of 5 percent for Product- and Non-Product-Specific Support—would have a modest obligation, namely, to cut their thresholds by one-third of the reduction figure for developed countries, with an extra five years in which to implement the cut.136

128. Id. paras. 30–31; Uruguay Round Agreement on Agriculture, supra note 84, art. 6:4(b). 129. Working Document No. 7, supra note 124, para. 2. 130. Id. 131. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 31; July 2008 Draft

Agriculture Modalities Text, supra note 44, para. 31. 132. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 32. 133. Id. 134. Id. para. 30. 135. Id. para. 33 & n. 6. 136. Id. para. 33.

10 Bhala PUB 11/13/2009 9:37:45 AM


4. Cutting Blue Box Subsidies, While Expanding the Blue Box

The December 2008 Text followed verbatim the July Text as to Blue Box proposals, which in turn were sourced in the relevant December 2007 Working Papers.137 On this topic, too, no real evolution had occurred in a year. That was true for both the expanded definition of the Blue Box, and the disciplines on Blue Box expenditures concerning an overall cap and Product-Specific limits.138 Table IV below summarizes these proposals for this Box.

Uruguay Round negotiators (in Article 6:5 of the Agreement on Agriculture) defined the Blue Box only in terms of product-limiting support, that is, payments to farmers to set aside acreage (or livestock) from cultivation.139 In other words, the traditional understanding of the Blue Box was that it contained direct payments to farmers based on the size of the area they cultivate, or the number of livestock they raise, but in which these payments are not a reward for more output. Rather, they are production-limiting; these payments are designed to circumscribe over-production.

The December 2008 Text maintained the earlier proposal to expand this traditional definition, and include counter-cyclical payments in the Blue Box.140 Such payments are direct payments to farmers that do not require limits on production, but which are premised on historical fixed bases and yields (or for livestock, fixed head).141 The amount of these payments varies with a prescribed benchmark for a relevant world market or target price.142 The intuitive idea underlying them is to protect the income of farmers if prices fall. Thus, the larger the fall (in the “cycle”), the higher the subsidy payment (the “counter” to insulate the farmer from the “cycle”). That is, a farmer is compensated when the price of a covered commodity tumbles below a fixed reference price, and the compensation varies directly with the magnitude of the fall.

Table IV:

Expanded Definition of, and Limitations on, Blue Box Subsidies in the December 2008 Draft Agriculture Modalities Text143

Definition of Blue Box in Article 6:5 of the WTO

Agreement on Agriculture

Production set-aside payments

Expanded Definition in December 2008 Text Production set-aside payments plus counter-

137. December 2008 Draft Agriculture Modalities Text, supra note 26, paras. 35–52; July 2008 Draft

Agriculture Modalities Text, supra note 44, paras. 35–52; Committee on Agriculture, Working Document No. 8: Blue Box, paras. 1–15 (Dec. 21, 2007), available at http://www.wto.org/english/tratop_e/agric_e/ workdoc_8bluebox_e.pdf [hereinafter Working Document No. 8].

138. December 2008 Draft Agriculture Modalities Text, supra note 26, paras. 35, 38, 40–47; July 2008 Draft Agriculture Modalities Text, supra note 44, paras. 35, 38, 40–47; Working Document No. 8, supra note 137, paras. 1, 3, 5–11.

139. Uruguay Round Agreement on Agriculture, supra note 84, art. 6:5. 140. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 35. 141. Id. 142. U.S. DEP’T OF AGRIC., RELEASE NO. 0165.08, DIRECT AND COUNTER-CYCLICAL PAYMENT

SIGNUP UNDERWAY IN NEW BILL (June 25, 2008). 143. Information in the Table is gathered from the December 2008 Draft Agriculture Modalities Text,

supra note 26, paras. 38–51 and Uruguay Round Agreement on Agriculture, supra note 84, art. 6:5.

10 Bhala PUB 11/13/2009 9:37:45 AM


cyclical payments

Limitation on Blue Box Support in WTO

Agreement on Agriculture

None, and all Blue Box payments are exempt from

AMS and thereby from reduction commitments to

AMS

Developed Countries:

Overall Limitation on Blue Box Support in

December 2008 Text

2.5% of the average total value of agricultural

production during the 1995–2000 base period

Special lower threshold for countries like Norway

that put 40% or more of their trade-distorting

support in the Blue Box

Developed Countries:

Implementation Period for Overall Limitation

Immediate

Developing Countries and RAMs:

Overall Limitation on Blue Box Support in

December 2008 Text

5% of the average total value of agricultural

production during the 1995–2000 or 1995–2004

base period


Implementation Period for Overall Limitation

Immediate

Developed Countries other than the United States:

Limitation on Product-Specific Support in the Blue

Box in December 2008 Text

Average value of support provided to the product

in question, at an individual product level, during

the 1995–2000 base period

Special Rule for the United States:



110% (or 120%) of the average Product-Specific

amount associated with the maximum permissible

expenditure under the 2002 Farm Bill

Developed Countries (United States and all

others):

Implementation Period for Product-Specific Blue

Box Limitations

Immediate




Same as for developed countries (other than

United States), but flexibility for “important crops”

(ones accounting for more than (1) 25% of the

average total value of farm production and (2) 80%

of the average bound Total AMS during the base

period). A developing country or RAM can shift

these crops irreversibly into Product-Specific

Support in the Blue Box, even if the shift causes

the country or RAM to exceed its overall Blue Box

cap.

Developing Countries:

Implementation Period for Product-Specific Blue

Box Limitations

Immediate

10 Bhala PUB 11/13/2009 9:37:45 AM


The United States unabashedly championed the expanded definition.144 Recent farm legislation included counter-cyclical payments.145 The United States wanted the ability to move them from the Amber Box to the Blue Box, and thereby immunize these payments from reduction commitments to Total AMS (which includes Amber Box, but not Blue Box, spending).146 However, a WTO Member could not take advantage of both sides of the Box: it could put either set-aside payments or counter-cyclical support in the Box, but not both.147 Nonetheless, the clear proposal was to expand the Blue Box to include counter-cyclical payments, along with production-limiting support, but WTO Members would have to choose whether to utilize one, or the other, kind of Blue Box payment.

To offset this expansion, there had to be some limit on the amount of Blue Box expenditures. Otherwise, a WTO Member could engage in abusive box-shifting, essentially playing with colors by taking support programs out of the Amber Box, where they would be subject to reduction commitments, and sticking them in the Blue Box, where they would be protected from such cuts. Critically, the texts also made clear that Blue Box payments count in OTDS, and thereby subject at least to cuts under the tiered OTDS formula.148 Moreover, the December 2008 Draft Text maintained the two caps suggested in the July Text.149

First, Blue Box support would be limited to 2.5 percent of the value of agricultural production for developed countries, and 5 percent for developing countries.150 This limit meant the maximum amount of Blue Box spending a WTO Member could exclude from its calculation of Total AMS would be 2.5 percent of the average total value of its agricultural production (with 1995–2000 as the base period). In essence, no more than 2.5 percent of the value of its farm output could be put in the Blue Box and excluded from AMS reduction commitments. Any additional amount in that Box would be subject to cuts. Thus, for example, the EU cap would be about 7 billion—still a whopping amount in absolute terms.151

A further restraint would be demanded of Members (such as Norway) that put an exceptionally large percentage—namely, 40 percent or more during the 1995–2000 base period—of their trade-distorting support in the Blue Box.152 Their limit would not be 2.5 percent of the total value of their farm output. Rather, it would be a relatively lower threshold, computed by applying the same percentage reduction commitment they use for Total AMS (70, 60, or 45 percent) to their base-period Blue Box spending.153 They would have to reach this limit within two years.154

144. See Sophia Murphy, The United States WTO Agriculture Proposal of October 10, 2005, in INST.

FOR AGRIC. AND TRADE POL’Y, SAILING CLOSE TO THE WIND: NAVIGATING THE HONG KONG WTO

MINISTERIAL 9, 12 (2005), available at http://www.iatp.org/iatp/publications.cfm?accountID=451&refID= 77538 (describing the United States’s success in expanding the definition of Blue Box to include counter-cyclical programs).

145. Food, Conservation, and Energy Act of 2008 § 1104, 7 U.S.C. § 8701 (2008). 146. Murphy, supra note 144, at 12. 147. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 35. 148. Id. 149. Id. para. 4; July 2008 Draft Agriculture Modalities Text, supra note 44, para. 4. 150. December 2008 Draft Agriculture Modalities Text, supra note 26, paras. 38, 48. 151. Daniel Pruzin, EU Issues New Farm Subsidy Notification; Trade-Distorting Support Remains

Stable, 26 Int’l Trade Rep. (BNA) 345 (Mar. 12, 2009). This estimate is based on production figures for MYs 2005–2006. Id.

152. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 39; Unofficial Guide, supra note 41, at 7 (naming Norway).

153. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 39.

10 Bhala PUB 11/13/2009 9:37:45 AM


Developing countries and older RAMs would receive special and differential treatment. The limit on their overall Blue Box support would be 5 percent of the average total value of agricultural production (using either 1995–2000 or 1995–2004 as the base period).155 If a developing country or RAM elected to transfer subsidies into the Blue Box from a component of AMS (e.g., the Amber Box), then it could select as its base period the most recent 5-year period for which data are available.156

Second, there would be limits on Blue Box spending set on a product-by-product basis. That is, the December 2008 Text maintained the same restrictions on Product-Specific Blue Box spending as set out in the July Text.157 Here, as with Total AMS, the United States received preferred treatment. For all Members other than the United States, including developing countries and RAMs, the text mandated a Product-Specific limit equal to the average value of support to the product in question during 1995–2000.158 In other words, past should be prologue, so that there would be no back-sliding. Whatever had been spent in the Blue Box on a particular crop during the Uruguay Round implementation period should be the future cap. But, the same past period limiting the rest of the world would not constrain the United States.

The United States successfully turned its domestic legislative position into a sui generis international legal obligation. The United States could set its Product-Specific Blue Box limit at 110 percent (or, possibly, 120 percent, depending on the outcome of negotiations) of the average Product-Specific amount for the crop in question.159 That is, the United States would have headroom of 10 (or possibly 20) percent above the average amount it had spent under its previous farm legislation, the 2002 Farm Bill.160 Specifically, the United States could compute its Product-Specific amount for a crop as a proportionate average of (1) the maximum permissible expenditures allowed in its 2002 Farm Bill and (2) 2.5 percent of the average total value of its farm production.161 Put simply, if a bit simplistically, the limits the United States established for itself in a high spending period, 2002–2007, under the 2002 Farm Bill, would be its international legal constraints.

To create flexibility, any WTO Member could exceed its Product-Specific Blue Box spending limit.162 If it did so, then it would have to reduce irreversibly its Product Specific AMS cap on a one-for-one basis. That is, for every dollar a Member spent in the Blue Box on a crop that exceeded its Product-Specific Blue Box cap, the Member would have to reduce its Product-Specific AMS limit.163 The penalty for excess would be more stringent if the crop were cotton. Then, the ratio would be

154. Id. 155. Id. para. 48. 156. Id. 157. Id. paras. 40, 47; July 2008 Draft Agriculture Modalities Text, supra note 44, paras. 40, 47.

Suppose a WTO Member had not made payments specifically to a particular crop, and its Blue Box programs consisted only of set aside payments, during the entirety of the 1995–2000 base period. Then, that Member would use as its Product-Specific limit in the Blue Box the average level of support during a consecutive three years within that period. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 41.

158. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 40. 159. Id. para. 42. 160. Unofficial Guide, supra note 41, at 7. 161. December 2008 Draft Agriculture Modalities Text, supra note 26, paras. 42, 47. 162. Id. paras. 43–46. 163. Id. para. 43.

10 Bhala PUB 11/13/2009 9:37:45 AM


two-to-one, that is, for every $1 of excess Blue Box support to cotton, the Product-Specific AMS on cotton would have to fall by $2.164 In effect, a Member could shift spending on specific commodities from the Amber to Blue Box, and exceed Product-Specific Blue Box caps, but not without lowering Amber Box caps. Certainly, the overall Blue Box limit would have to be respected.165

On Product-Specific Blue Box limits, developing countries would get special and differential treatment for important crops.166 “Important crops” would be defined as ones accounting for more than (1) 25 percent of the average total value of farm production and (2) 80 percent of the average bound Total AMS during the base period.167 For such crops, a developing country could irreversibly shift Product-Specific Support into the Blue Box, even if the shift caused it to exceed its overall Blue Box cap.168 Presumably, the shift would occur from the Amber Box, and result in immunizing the subsidy from cuts to Total AMS.

5. Green Box

On disciplining Green Box (that is, non- or minimally-trade distorting) support, there were no new insights in the December 2008 Text. The text contained the familiar idea about amending the WTO Agreement on Agriculture to tighten criteria for developed countries.169 To qualify for the Green Box, the criteria should ensure that income support payments are de-coupled and based on a fixed and unchanging base period of production.170 They should be sufficiently nuanced to consider structural adjustment and regional assistance programs (for example, government intervention to fight rural poverty or hunger), and food stockpiling purchases at above-market prices by developing countries from farmers with low incomes or few resources.171 As always, Green Box programs would remain exempt from reduction commitments.172 That is because they are not (or are only minimally) trade distorting, as per Article 6:1 and Annex 2 of the WTO Agreement on Agriculture.173

164. Id. 165. Id. para. 46. 166. Id. paras. 49–50. For a developing country with no Product-Specific entitlement to a Blue Box

limit for a particular product, and no support in the Amber Box for that product, the December 2008 Text, like its predecessor in July, offered the following rule: such Members could schedule a Blue Box limit for an individual agricultural product, but only if the total support for that product does not exceed 30% of the overall Blue Box limit (and a single product limit of 10%). Id. para. 50; July 2008 Draft Agriculture Modalities Text, supra note 44, para. 50. For least-developed countries and NFIDCs, the limit on all Product-Specific Blue Box support would be 75% of the overall Blue Box limit (and 25% for any single product). December 2008 Draft Agriculture Modalities Text, supra note 26, para. 50.

167. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 49. 168. Id. 169. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 53; July 2008 Draft

Agriculture Modalities Text, supra note 44, para. 53. 170. December 2008 Draft Agriculture Modalities Text, supra note 26, at 40, Annex B. 171. Id. at 39, Annex B. 172. Id. 173. Uruguay Round Agreement on Agriculture, supra note 84, art. 6:1, Annex 2. Therefore, the

pledges by President Barack Obama to cut American farm subsidies in the fiscal year (FY) 2010 budget (which started Oct. 1, 2010) would not help jump-start the Doha Round agriculture talks. That is true even if Congress were to implement all of them. Those cuts would be to direct payments to farmers, which are categorized in the Green Box insofar as they are decoupled from output or prices. Specifically, the FY 2010 proposals are: • Phase out over three years direct payments to any farmer with annual sales revenue of more

than $500,000. (Under the 2008 Farm Bill, there are two income caps: subsidies are barred to

10 Bhala PUB 11/13/2009 9:37:45 AM


The lack of new insights meant rules on monitoring and surveillance of actual or purported Green Box programs, which would be essential to prevent abuse, were still undefined. For example, to calculate decoupled income support, what fixed base period should be used? What assurances should be required of developed countries that they transfer only non-distorting subsidies into the Green Box? Similarly, what assurances should be obtained from them that their Green Box programs are budget neutral (to prevent an overall increase in farm subsidies)? These questions continued to be of particular interest to developing countries such as Argentina and India, concerned about abusive box-shifting by developed countries.174

6. Cotton Subsidies

The December 2008 Text tracked the identical language on domestic support for cotton as contained in the July Text.175 (For the most part, the provisions in the July Text were essentially unchanged from the February 2008 Text.) The formula WTO Members would be obliged to use to reduce their cotton subsidies would be:176

Rc = Rg + (100 – Rg) x 100

3 x Rg

where:

Rc = Reduction percentage specifically applicable to cotton

farmers who earn more than (1) $500,000 in adjusted gross income (AGI), or (2) $750,000 in farm-related income. Food, Conservation, and Energy Act of 2008 § 1001D(b)(1)(A)–(B), 7 U.S.C. § 8701 (2008)). As of 2009, about one-third of all American farmers obtain a direct payment from the U.S. government, regardless of whether they produce any output. The proposed change would save the U.S. government $85 million in FY 2010, $480 million in FY 2011, and a total of $9.765 billion in FYs 2010–2019.

• Restrict commodity program payments to $250,000 per farmer per year. • Eliminate the obligation of the federal government to pay for the storage costs of cotton that is

under loan to the Department of Agriculture. Cotton is the only crop for which the U.S. government subsidizes storage costs, and these payments have a negative effect on the amount of cotton available on the market. This change would save the U.S. government $570 million over ten years.

• Reduce subsidies for crop insurance premiums. • Decrease funding for the Market Access Program (MAP) of the Department of Agriculture by

20% a year, and shifting the priority of MAP. Under MAP, American brands of farm products are promoted overseas. Funding would be cut for that kind of promotion, and emphasis would be placed on marketing generic American products in foreign countries.

Gary G. Yerkey, President’s Proposed Cut in Farm Subsidies Seen Sending “Positive Signal” to WTO Talks, 26 Int’l Trade Rep. (BNA) 306–07 (Mar. 5, 2009) [hereinafter Yerkey, Farm Subsidies]. In fact, these proposals are at best inconsequential with respect to prodding the Doha Round toward a conclusion. See Roberta Rampton, Obama Farm Subsidy Cut Won’t Revive Doha: Experts, REUTERS, Jan. 5, 2009, http://www.reuters.com/articlePrint?articleId=USTRE51O6ES20090225 (“President Barack Obama’s pledge to cut subsidies to big U.S. farm businesses falls short of the cuts needed to revive moribund world trade talks, proponents of an expanded global trade agreement said on Wednesday.”). Precisely the opposite moves—shifting subsidies out of the Amber and Blue Boxes, and into the Green Box, as the EU has done in its 2003 and 2008 reforms to the Common Agricultural Policy (CAP)—would increase the flexibility of the United States in the negotiations, and thereby boost the prospects for the Round.

174. David Haskel, Argentina, India Call for Green Box “Budget Neutrality” Assurances, Int’l Trade Rep. (BNA) 922 (June 19, 2008).

175. December 2008 Draft Agriculture Modalities Text, supra note 26, paras. 54–55; July 2008 Draft Agriculture Modalities Text, supra note 44, paras. 54–55.


10 Bhala PUB 11/13/2009 9:37:45 AM


Rg = Reduction percentage generally applicable to AMS

1995–2000 = Base period during which to measure cotton subsidies,

and from which to cut

The difference in the figures for Rc and Rg is the mathematical expression of the legal and policy desire to impose a deeper cut on cotton subsidies than on support for other agricultural products.177

As an illustration, suppose the Amber Box reduction percentage, Rg, for the United States is 60 percent. Using this formula, the percentage cut the United States would have to apply to its cotton subsidies would be 82.2 percent:

82.2 = 60 + (100 – 60) x 100

3 x 60

To be sure, the exact value for Rc had yet to be agreed, and the values for Rg to be finalized.

The key point, in terms of potential poverty alleviation, was that Rc was not 100. To the chagrin of the Cotton Four countries (Benin, Burkina Faso, Chad, and Mali, which are heavily dependent on the crop for export revenues) as well as to larger developing countries that produce significant cotton, such as India, it was a dead certainty Rc would not be 100. The United States simply would not agree to eradicate its cotton subsidies, notwithstanding the entreaties of poor countries, or studies from non-governmental organizations (NGOs) like Oxfam.178

Here was a linkage the United States knew: American cotton subsidies suppress or depress world market cotton prices. The Unites States ignored this, despite it being laid out not only by NGOs,179 but also by Cotton Four representatives at WTO meetings, including the September 2003 Cancún Ministerial Conference.180 That price effect drives marginal farmers in poor countries off the land, into city slums where they take up positions like lorry-driving.181 If and when some of them

177. Id. para. 55 (acknowledging that the limit for cotton is one-third of that generally applicable to

other products). 178. E.g., OXFAM INT’L, BRIEFING PAPER NO. 99, PRICING FARMERS OUT OF COTTON: THE COSTS

OF WORLD BANK REFORMS IN MALI (2007), available at http://www.oxfam.org/sites/www.oxfam.org/files/pfooc.pdf.

179. Cf. Raj Bhala, Poverty, Islam, and Doha, supra note 2, at 188 (making a connection between the profitability of the textile and apparel industries in Muslim societies with American national security); Elinor L. Heinisch, West Africa Versus the United States on Cotton Subsidies: How, Why and What Next?, 44 J. MOD. AFR. STUD. 251, 257 (2006).

180. E.g., Blaise Compaore, President of Burkina Faso, Address to the Trade Negotiations Committee of the World Trade Organization on the Cotton Submission by West and Central African Countries (June 10, 2003) (transcript available at http://www.wto.org/english/news_e/news03_e/tnc_10 june03_e.htm) (emphasizing the negative social impact of cotton subsidies in Cotton Four countries, and noting the depressing effect of subsidies on world prices). For the submission, see Joint Proposal by Benin, Burkina Faso, Chad and Mali, Poverty Reduction: Sectoral Initiative in Favour of Cotton, WT/MIN(03)/W/2 (Aug. 15, 2003), available at http://docsonline.wto.org/DDFDocuments/t/WT/Min03/ W2.doc (proposing the elimination of cotton subsidies “[i]n connection with the search for lasting solutions to the damage they are suffering as a result of the agricultural subsidies accorded by certain cotton-producing developed countries”).

181. See OXFAM INT’L, BRIEFING PAPER NO. 69, FINDING THE MORAL FIBER: WHY REFORM IS

URGENTLY NEEDED FOR A FAIR COTTON TRADE 2 (2004), available at http://www.oxfam.org/sites/www.oxfam.org/files/fiber.pdf (“The impact of US cotton subsidies is not simply on balance of payments or debt service. They cause poverty, and West African farmers are particularly vulnerable.”); SCOTT DRIMIE, INT’L FOOD POLICY RESEARCH INST., BRIEF 9, MIGRATION,

10 Bhala PUB 11/13/2009 9:37:45 AM


engage in risky sexual behavior, they catch and spread the HIV/AIDS virus in West African cities.182 Many of those erstwhile farmers happen to be as-yet moderate Muslims, not Al Qaeda members.183 That fact makes the nexus between cotton subsidies, poverty reduction, vulnerability to extremist messages, and national security all the more poignant.

The December 2008 Text contained the same limit as its predecessor on Blue Box cotton subsidies.184 Such subsidies, for example counter-cyclical payments to cotton farmers, would be restricted to one-third of the limit established by applying the above formula.185 That is, one-third of the amount resulting from application of Rc would be the cap on Blue Box support for cotton. As for the period in which to implement reductions to cotton subsidies, it would be one-third as long as the usual implementation period.186 Developing countries (that had Amber and Blue Box commitments) would have an obligation to reduce cotton subsidies equal to two-thirds of that for developed countries, and would get a longer (albeit unspecified) time for implementing the cuts.187

B. Enhancing Agricultural Market Access through Tariff Cuts

1. Tiered Tariff Reductions

In all substantive respects on market access, the December 2008 Text was an exact reincarnation of its July 2008 predecessor.188 That predecessor, in turn, was grounded on a January 2008 Working Paper.189 Thus, as with most other areas of agricultural negotiations, little changed in 2008. Table V below summarizes the key proposals in the Texts designed to boost the opportunities for agricultural exporters around the globe.

The basic strategy was to reduce farm tariffs according to a tiered formula.190 That was the same approach used to cut OTDS and Total AMS. Cuts would be made to bound ad valorem tariffs, and any non-ad valorem duty would be converted

AIDS, AND URBAN FOOD SECURITY IN SOUTHERN AND EASTERN AFRICA 2 (2007–2008), available at http://programs.ifpri.org/renewal/pdf/RFbrief09.pdf (noting the general principle that poverty contributes to rural-urban migration).

182. See DRIMIE, supra note 181, at 2 (noting a connection between migration to cities and the spread of HIV).

183. See, e.g., CIA World Factbook: Burkina Faso, https://www.cia.gov/library/publications/the-world-factbook/geos/uv.html (last visited Oct. 21, 2009) (noting that 50% of Burkina Faso’s population practices Islam).

184. Compare December 2008 Draft Agriculture Modalities Text, supra note 26, para. 55 (stating that the Blue Box limit shall be one-third the Product-Specific limit), with July 2008 Draft Agriculture Modalities Text, supra note 44, para. 55 (stating the same).

185. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 55. 186. Id. para. 56. 187. Id. paras. 57–58. 188. Compare December 2008 Draft Agriculture Modalities Text, supra note 26, paras. 59–70

(explaining the tiered formula for tariff reductions), with July 2008 Draft Agriculture Modalities Text, supra note 44, paras. 59–70 (explaining the tiered formula for tariff reductions).

189. Committee on Agriculture, Working Document No. 9: Tiered Formula for Tariff Reductions (Jan. 4, 2008).


10 Bhala PUB 11/13/2009 9:37:45 AM


to its ad valorem equivalent (AVE) rate using the May 2005 Paris Methodology.191 For developed countries, implementation would occur in six equal annual installments over five years, the first installment being due on the date of entry into force of any Doha Round agreements.192 For developing countries, the implementation would be eleven equal annual installments across a decade.193 Thus, poor countries would have twice as long as rich ones to phase in reductions to their farm tariffs, or put differently, to protect their farmers from foreign competition.

Table V:

Tiered Reductions to Agricultural Tariffs in the December 2008 Draft Agriculture Modalities Text194

Category of WTO

Member

Tariff Band, Reduction

Commitments, and

Implementation

Developed

Countries

Developing

Countries, SVEs,

Countries entitled

to SVE-like Treatment,

Venezuela, and

Suriname

Older RAMs, Newer

RAMs, and Small Low-

Income RAMs with

Economies in

Transition

Tier 1

Highest Band of

Existing Bound

Agricultural Tariffs

Over 75%

Over 130%

Same as developing country

band

Cut to Bound


70% 2/3 of the cut required

of developed countries,

i.e., a 46-2/3% cut

SVEs may moderate

cuts by a further 10

No cuts required of newer

RAMs, i.e., Macedonia,

Saudi Arabia, Tonga,

Ukraine, and Vietnam.

No cuts required of small,

191. Id. paras. 59–60; Committee on Agriculture, Special Session, Draft Possible Modalities on

Agriculture, Annex A, TN/AG/W/3 (July 12, 2006), available at http://docsonline.wto.org/DDFDocuments/t/tn/ag/W3.doc (setting out the Paris Methodology). This Methodology was agreed to in May 2005 at a meeting in Paris by the WTO Members to compute AVEs. Id. Annex A, n.5. It uses average prices of a commodity (the specific duty on which is being transformed into an AVE) during 1991–2001 as a basis for conversion. Id. Annex A, para. 11. The computation also is affected by recent prices, or import values, of a commodity. The dramatic rise in commodity prices in 2008 caused agriculture importing and exporting countries to shift their positions on tariff simplification. For much of the Doha Round, agricultural importers such as the EU, Switzerland, and Japan sought to limit the number of tariff lines subject to conversion. See Daniel Pruzin, Ag, NAMA Chairs Give Bleak Assessment of Prospects for DOHA Round Breakthrough, Int’l Trade Rep. (BNA) 1569 (Nov. 6, 2008) (explaining the problematic effects of applying the tariff simplification methodology). They hoped to maintain roughly 60% of their specific duties, that is, they did not want to convert more than 40% of their specific duties into AVEs. Id. Conversely, agricultural exporters, like Australia, Argentina, and Uruguay demanded the importing countries convert a high percentage—such as 90%—of their tariff lines. Id. With the spike in world commodity prices, the WTO Members reversed their roles. That was because the Paris Methodology would yield far higher AVEs than before the spike. Thus, importing countries became eager to convert 90% or so of their tariff lines, while exporting countries wanted them to limit conversions to a small number of lines. Id.

192. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 61. 193. Id. para. 63. 194. Information in the Table is gathered from the December 2008 Draft Agriculture Modalities Text,


10 Bhala PUB 11/13/2009 9:37:45 AM


percentage points, i.e.,

a 36-2/3% cut.

Some countries, such as

Bolivia, Congo, Côte

d’Ivoire, and Nigeria,

could use the SVE

flexibility.

Suriname would bind

its tariffs, on a line-by-

line basis, at the

average figure of

countries in its region

after they cut their

tariffs using the tiered

formula used by

developing countries.

low-income RAMs with

economies in transition, i.e.,

Albania, Armenia, Georgia,

Kyrgyzstan, Moldova, and

Mongolia.

All other RAMs may

moderate the cuts they

would otherwise have to

make under the tiered

formula used by developing

countries by up to 8

percentage points, and may

exempt from cuts any

bound duty equal to or

below 10%.

Tier 2

Upper Middle Tier, i.e.,

Middle Band of

Existing Bound


50% to 75%

(above 50%, but

less than or equal to

75%)

80% to 130%

(above 80%, but less

than or equal to 130%)


band

Cut to Bound


64% 2/3 of the cut required


i.e., a 42-2/3% cut.

SVEs may moderate

cuts by a further 10%,

i.e., a 36-2/3% cut.

Same special rules as above

Tier 3

Lower Middle Tier, i.e.,

Lower Middle Band of

Existing Bound


20% to 50%

(above 20%, but


50%)

30% to 80%

(above 30%, but less



band

Cut to Bound


57%

2/3 of the cut required


i.e., a 38% cut.

SVEs may moderate

cuts by a further 10, i.e.,

a 28% cut.


Tier 4

Lowest Band of

Existing Bound


Zero to 20%

(above zero, but


20%)

Zero to 30%

(above zero, but less



band

10 Bhala PUB 11/13/2009 9:37:45 AM


Cut to Bound


50%

2/3 of the cut required


i.e., a 33-1/3% cut.

SVEs may moderate

cuts by a further 10%,

i.e., a 23-2/3% cut.


Other

Minimum Overall

Average Cut on Bound

Tariffs

54% None None

Maximum Overall

Average Cut on Bound

Tariffs

None 36%

(including reductions to

tariffs on sensitive

products). For

Venezuela, maximum

overall average cut

would be 30%.

None

Implementation Period Equal annual

installments over 5

years

Equal annual

installments over 5

years

Not applicable to Newer

RAMs or Small, Low-

Income RAMs with

Economies in Transition

(because they have no tariff

reduction commitments).

For all other RAMs, an

additional 2 years beyond

the implementation period

for developing countries.

To avoid overlap with

accession commitments on

any farm product,

implementation of Doha

Round tariff cuts would

begin 1 year after the end of

the implementation of their

accession commitment on

that product.

As for the tiers into which to categorize developed country tariffs, there would be four of them: 0–20 percent, 20–50 percent, 50–75 percent, and above 75 percent.195 Cuts would be made to existing bound tariff rates, with each rate slotted into the appropriate tier.196 The higher the pre-reduction rate, the higher the tier into which it would be slotted. In turn, steeper cuts would apply to tariffs in the higher tiers. The reductions would be 50, 57, 64, and 70 percent, respectively, in the four tiers, with the result that cuts would be non-linear and lead to some degree of rough harmonization

195. Id. para. 61. 196. Id.

10 Bhala PUB 11/13/2009 9:37:45 AM


across WTO Members.197 The December 2008 Text altered slightly the last figure. The July Text specified a range of 66–73 percent, and the new text embodied the midpoint.198

Flexibilities abounded in the December 2008 Text. First, the obligation to cut agricultural tariffs incumbent on developing countries would be two-thirds as onerous as on developed countries.199 That would be true across all tiers of tariffs.200 The tiers themselves would be defined more generously than for developed countries, specifically, tariff tiers for developing countries would be wider in range and ascend to a higher level. Instead of a minimum average cut on final bound tariffs of 54 percent—which would be the rule for developed countries201—there would be a maximum overall average cut, inclusive of Sensitive Products, required of developing countries.202 That maximum (that is, a maximum average of all reductions in farm tariffs) for developing countries would be 36 percent. Put simply, rich countries would have to cut their farm tariffs by at least 54 percent, but could cut more. Poor countries would have to do no more than cut their tariffs by 36 percent, but could cut less.

In itself, this simple distinction between exhorting developed countries to do more, and limiting the onus on developing countries, was in keeping with the broad development-oriented purpose of the Doha Round. But, the delineation did not stop there. The December 2008 Text introduced five further distinctions among developing countries, the first of which was between Venezuela and all others.203 Venezuela would have a ceiling maximum overall average cut of 30 percent,204 that is, it would have to hit a less ambitious target than that expected of other developing countries.

Second, small, vulnerable economies (SVEs)—about forty-five WTO Members—would be entitled to temper cuts to their farm tariffs by a further 10 percentage points.205 That is, in comparison with developing countries, SVEs could moderate their tariff cuts by 10 ad valorem percentage points. Some countries, while

197. Id. 198. Compare December 2008 Draft Agriculture Modalities Text, supra note 26, para. 61 (stipulating

the reduction to be applied in six equal annual installments over five years for developed countries with a final bound tariff greater than 75%), with July 2008 Draft Agriculture Modalities Text, supra note 44, para. 61 (stipulating the reduction to be applied in six equal annual installments over five years for developed countries with a final bound tariff greater than 75%).

199. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 63. 200. Id. 201. Id. para. 62. 202. Id. paras. 62, 64. If a developed country, after cutting all farm tariffs including on Sensitive

Products, and accounting for tariff escalation and tropical products, had an overall average cut of less than 54%, then it would be obligated to make an “additional effort . . . proportionately across all bands to reach that target [54%].” Id. para. 62. Conversely, if an SVE designated goods as “Special Products” (discussed below), then its maximum average cut would fall to 24%. See id. paras. 65, 157, Annex I (defining “small, vulnerable, economies” and the special rules for them).

203. See December 2008 Draft Agriculture Modalities Text, supra note 26, para. 64 & n.10 (giving the example of Venezuela). SVEs are WTO Members that, between 1999 and 2004, accounted for a tiny average share of global trade, specifically, no more than (1) 0.16% of total trade, (2) 0.1% of industrial product trade, and (3) 0.4% of world agricultural trade. See id. para. 157. The higher figure on farm trade reflects the reality that most SVEs specialize in commodities, not manufactured items. See also, id. para. 159 (noting SVE provisions are scattered about the December 2008 Text).

204. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 64 & n.10. 205. Id. para. 65.

10 Bhala PUB 11/13/2009 9:37:45 AM


not technically SVEs, could avail themselves of SVE-type treatment.206 Those countries would include Bolivia, Congo, Côte d’Ivoire, and Nigeria. Consequently, over half of developing countries would be eligible for smaller cuts than normally required for such countries.

Third, Suriname would be singled out for special treatment,207 which was an innovation in the December 2008 Text, albeit one that adduced the spreading of preferences. Instead of applying any tiered-tariff reduction formula, Suriname would re-bind its agricultural tariffs at the average bound level of other designated countries in its region, after they had applied the relevant tiered tariff cuts.208 Those countries would be the CARICOM (Caribbean Community) states—Antigua and Barbuda, Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, and Trinidad and Tobago.209 These neighboring countries would apply the SVE formula.210 Suriname would bind its tariffs, on a line-by-line basis, at the average figure in its neighborhood.

Fourth, older RAMs would be entitled to moderate the cuts to agricultural tariffs they otherwise would be obliged to make under the tiered-formula. They would be treated like developing countries, but they could deviate from the cuts incumbent on those countries by up to 8 percentage points.211 In other words, in each tariff tier, the cut for developing countries would be two-thirds of that for developed countries, and the cuts for older RAMs would be two-thirds of that for developed countries minus an additional 8 ad valorem percentage points. Older RAMs also could exempt from a tariff cut any existing bound tariff at or below 10 percent.212 RAMs would have an extra two years, beyond the implementation period for developing countries, to phase in farm tariff cuts.213 In the event that their Doha Round market access commitment overlapped with their accession commitment on a particular farm product, they would commence the Doha Round cut one year after they had finished implementing their accession commitment.214 Therefore, no RAM would be making two simultaneous sets of cuts under an accession commitment and under the Doha Round tiered formula.

Fifth, for newer RAMs, no reductions to agricultural tariffs would be required.215 That also would be true for small, low-income RAMs with economies in transition.216 The December 2008 Text identified the newer RAMs as Macedonia, Saudi Arabia, Tonga, Ukraine, and Vietnam.217 The small, transitional RAMs were Albania, Armenia, Georgia, Kyrgyzstan, Moldova, and Mongolia (the last one being added by the December Text).218

206. See id. para. & 65 n.11 (explaining that SVE group treatment could be appropriate for some non-

SVE group members). For SVE criteria and a list of countries satisfying these requirements, see id. para. 151, and Annex I.

207. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 65 & n.11. 208. Id. 209. Id. 210. Id. 211. Id. paras. 66, 70. 212. Id. 213. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 69. 214. Id. para. 68. 215. Id. para. 67. 216. Id. 217. Id. 218. Id. para. 67 & n.12.

10 Bhala PUB 11/13/2009 9:37:45 AM


2. Sensitive Products and Tariff Rate Quota Expansion

Every WTO Member has certain sectors they are not willing to open to free trade. The goods from these sectors are called “Sensitive Products,” and they are Sensitive for a combination of economic, political, social, and cultural reasons. The validity of the different reasons varies with different Members and goods. The WTO does not, and cannot, dictate what the criteria must be for a Member to designate a good as a Sensitive Product. But, it also cannot allow every Member to make an unlimited number of designations. Were that to occur, the trade-liberalizing effects of subsidy and tariff-cutting obligations would be more than offset by protecting Sensitive Products from those obligations.

Thus, multilateral farm-trade negotiations during much of the Doha Round focused on rules concerning Sensitive Products and corollary provisions on enhanced market access for Sensitive Products through expanded tariff rate quotas (TRQs). The December 2008 Text was substantially similar to the July 2008 Text, which drew largely on the May 2008 Text.219 Hence, not much had changed on the topic in nearly eight months. Table VI below summarizes the proposed rules.

Sensitive Product designations were the starting point. Any developed country would have the right to designate up to 4 percent of its total agricultural tariff lines as Sensitive.220 That was a modest change from the range of 4 to 6 percent in the July Text.221 Developing countries would receive special and differential treatment (explained below).

Table VI:

Treatment of Sensitive Products in December 2008 Draft Agriculture Modalities Text222

Sensitive Product Rule

Category of WTO

Member

Percentage of Total

Agricultural Tariff

Lines that can be

Designated as Sensitive

Deviation from the

Full Tariff

Reduction Under

the Tiered

Formula

(Partial tariff cut is

applied to bound

MFN rate imposed

on above-quota

Required Expansion of In-

Quota Volume Threshold

on TRQ

(Access Opportunity)

219. December 2008 Draft Agriculture Modalities Text, supra note 26, paras. 71–83; July 2008 Draft

Agriculture Modalities Text, supra note 44, paras. 71–80; Committee on Agriculture, Special Session, Revised Draft Modalities for Agriculture, paras. 71–78, TN/AG/W/4/Rev.2 (May 19, 2008).

220. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 71. A “tariff line” is a product as it is defined in lists of tariff rates. The product can be sub-divided, and the extent of sub-divisions is reflected in the Harmonized System (HS) of product classification. See RAJ BHALA, DICTIONARY OF INTERNATIONAL TRADE LAW 452–53 (LexisNexis 2008); Unofficial Guide, supra note 41, at 2.

221. July 2008 Draft Agriculture Modalities Text, supra note 44, para. 71. 222. Information in the Table is gathered from the December 2008 Draft Agriculture Modalities Text,


10 Bhala PUB 11/13/2009 9:37:45 AM


imports of the

Sensitive Product)

Developed Countries

(Including RAMs and

SVEs, if applicable)

4%

Tariff cut may

deviate from the

full reduction by:

1/3, 1/2, or 2/3.

The greater the deviation

from the full cut, the

greater the access

opportunity required:

1/3 deviation (imposition of

2/3 of the full cut) requires

a 3% access opportunity.


1/2 the full cut) requires a

3.5% access opportunity.


1/3 of the full cut) requires

a 4% access opportunity.

Developed Countries

with more than 30% of

their tariff lines in the

top tier

(Final Bound MFN Rate

of over 75%)

6% Same as above Same as above, but access

opportunities for each

deviation must be increased

by an additional 0.5% of

domestic consumption.


(Including RAMs and


1/3 more than


that is, 5.33%

Same as above Obligation to expand

access opportunity is 2/3

the obligation for

developed countries

(above). Domestic

consumption used to

estimate in-quota TRQ

threshold excludes

consumption by subsistence

farmers of their own

produce. Alternative

complex options whereby

less-than-formula tariff cuts

are made with no

corresponding access

opportunity required.


with more than 30% of

their tariff lines in the

top tier

(Final Bound MFN Rate

of over 130%)

(Including RAMs and


1/3 more than


that is, 7.33%

Same as above Same as above for

developing countries

10 Bhala PUB 11/13/2009 9:37:45 AM


With remarkable candor, the December Text hastened to add explicitly that Canada and Japan did not agree to the 4 percent limitation.223 Canada demanded a limit of 6 percent, and Japan 8 percent.224 Canada was concerned about its supply management system, which meant it had an array of dairy and poultry products it sought to designate as Sensitive that would exceed the 4 percent limit.225 Obviously, Japan had made a similar calculation with respect to its sensitivities, such as cereals, grain, and rice.226 Evidently, neither Canada nor Japan were satisfied with a dispensation designed to placate them.227 WTO Members with high farm tariffs, that is, countries with more than 30 percent of their tariffs in the top tier of 75 percent ad valorem or more, could designate an additional 2 percentage points of their farm tariff lines as sensitive, such that the net effect would be 6 percent (or so it appeared from the December Text).228 However, they would have to expand TRQs by an additional 0.5 percent of domestic consumption beyond the required access opportunity amounts.229

The next step concerned tariff cuts to Sensitive Products. These products would be subject to the tiered reduction formula, like any other agricultural good.230 However, they would be shielded from the full force of the cuts under that formula. All Members would be entitled to deviate from the formula for Sensitive Products by one-third, one-half, or two-thirds:231

(1) The smallest deviation from the formula, one-third, would mean imposing a tariff reduction that is two-thirds as severe as called for by the formula. (Hence, the access opportunity, discussed below, is the least onerous—3 percent.)

(2) The medium deviation from the formula, one-half, would mean imposing a tariff reduction that is one-half as severe as called for by the formula. (Hence, the access opportunity, discussed below, is moderate—3.5 percent.)

223. Id. 224. Revised Draft Modalities for Agriculture Sensitive Products: Designation, supra note 26, para. 4. 225. See Minister Ritz Takes Strong Stand on WTO Agriculture Negotiations, MARKET WIRE, Dec. 7,

2008, http://www.reuters.com/article/pressRelease/idUS85756+07-Dec-2008+MW20081207?sp=true (describing Canada’s concerns about its supply management system).

226. Toshio Aritake, WTO Chief Lamy Urges Japan’s Officials to Contribute to Doha Rounds’ Completion, 26 Int’l Trade Rep. (BNA) 282 (Feb. 26, 2009).

227. December 2008 Draft Agriculture Modalities Text, supra note 26, paras. 71, 75. The 2% flexibility also applied to another category of developed countries: if they were disproportionately constrained in making Sensitive designations (specifically, with respect to the number of tariff lines they could select, because they were scheduling them at the 6-digit level of Harmonized System (HS) classification), then they could increase their entitlement by 2%. Id.

228. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 71. 229. Id. para. 75. Chairman Falconer proposed yet more flexibility for Canada—and presumably

Japan—to consider in his Revised Draft Modalities for Agriculture Sensitive Products: Designation. Essentially, it was an option for Canada to designate more than 4% of its tariff lines as Sensitive if it expanded its TRQs by more than 4% of domestic consumption. Revised Draft Modalities for Agriculture Sensitive Products: Designation, supra note 26, para. 6. Specifically, each Sensitive line above the 4% threshold would require a TRQ increase of 5.5% of domestic consumption, and all of the Sensitive lines under the 4% limit would require an additional 0.5% increase, to 4.5%. Id. The other option would be a TRQ expansion of 5% on all lines Canada designated Sensitive. However, the Chairman conceded that the option would not be acceptable to Japan. Id. paras. 6–7.

230. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 73. 231. Id.

10 Bhala PUB 11/13/2009 9:37:45 AM


(3) The largest deviation from the formula, two-thirds, would mean imposing a tariff reduction that is only one-third as severe as called for by the formula. (Hence, the access opportunity, discussed below, is the most onerous—4 percent.)

In contrast to the July Text, the December Text made clear each WTO Member would be free to choose the degree of deviation, but it would have to apply that degree to all of its Sensitive Products (or, at least to all such products within a broad category).232 It could not, for example, derogate by one-third for some Sensitive Products and two-thirds for others.

To compensate exporters of products designated Sensitive by importing countries, the importing countries—having availed themselves of the entitlement to derogate from the fully agreed-upon cuts—would have to yield something. That “something” proved to be a monstrously complicating factor in Doha Round negotiations.233 Essentially, WTO Members agreed the compensation would take the form of a required minimum imported quantity of the Sensitive Product, defined in terms of an in-quota TRQ volume threshold, technically called an “access opportunity.”234 Access opportunity is defined in these terms because imports under a TRQ are typically duty-free or face only a low duty if they fall within the in-quota threshold.235 Raising that threshold would mean a larger volume of merchandise would enter the importing country with little or no duty. Above-quota (i.e., over- or out-of-quota) imports would continue to face a high rate of duty. However, the normally-applicable tiered tariff cuts, as modified by partial shielding through a Sensitive Product designation, would apply to the out-of-quota rate.236

The essence of the trade-off in the December 2008 Text would be a lower cut to the bound MFN tariff on a Sensitive Product than otherwise required under the Doha Round tiered reduction formula.237 That partially-reduced tariff would affect the over-quota levy on Sensitive Product imports.238 But, there would be an appropriate increase in the in-quota threshold. Imports under this raised threshold would get zero or low-duty treatment, which of course is part and parcel of a TRQ.239 In sum, two movements would occur with respect to a Sensitive Product:

(1) The in-quota threshold would be raised (but the low or zero-duty treatment would remain unchanged).

(2) The tariff cuts would be applied to the out-of-quota bound MFN rate, albeit with less than full force.

The movements would be coordinated; in fact they would be directly related to one another. Greater access opportunity (by virtue of the in-quota threshold increases) would be the requisite compensation for greater tariff cut derogation (with

232. Id. 233. Ernesto Zedillo, Dir., Yale Ctr. for the Study of Globalization, The WTO’s Biggest Problem at

10: Surviving the Doha Round, Address at WTO at 10: Governance, Dispute Settlement and Developing Countries, at 5–6 (Apr. 7, 2006) (transcript available at http://www.ycsg.yale.edu/center/forms/doha.pdf).

234. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 74. 235. Foreign Affairs and International Trade Canada, Tariff Rate Quotas: Agricultural Products,

http://www.dfait-maeci.gc.ca/controls-controles/prod/agri/tarif.aspx?lang=eng (last visited July 5, 2009). 236. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 76; see also Unofficial

Guide, supra note 41, at 9. 237. Unofficial Guide, supra note 41, at 9–10. 238. Id. at 11–12. 239. Id. at 12.

10 Bhala PUB 11/13/2009 9:37:45 AM


respect to the duty applicable to out-of-quota shipments).240 Therein lies the trade-off.

Thus, the ostensibly simple compensatory arrangement was a proportionate-percentage TRQ expansion. There would be a direct relationship between deviation from agreed-upon tariff reductions and in-quota TRQ volume expansion for Sensitive Products: the greater the deviation, the greater the expansion. Specifically, in exchange for shielding 4 percent of its tariff lines from full tariff cuts, a developed country that:241

(1) Selected the maximum deviation of two-thirds would have to expand the in-quota volume threshold for Sensitive Product imports by 4 percent of domestic consumption.

(2) Selected the minimum deviation of one-third would have to expand the in-quota volume threshold for Sensitive Product imports by 3 percent of domestic consumption.

(3) Selected the middle degree of deviation of one-half would have to expand the in-quota volume threshold for Sensitive Product imports by 3.5 percent of domestic consumption.

In short, TRQ expansion would be akin to a sliding scale. Members would pick the point on the scale on which they wished to sit based on the extent to which they protected Sensitive Products from the full force of Doha Round cuts to farm tariffs. A Member against fully cutting tariffs on a Sensitive Product would have a great onus to expand the quota threshold on that Product. Conversely, a Member more willing to fully reduce tariffs on a Sensitive Product would have less of an obligation to expand the corresponding quota threshold. The TRQ expansions would apply on an MFN basis and would be phased in essentially over a three-year period.242

What if a WTO Member designated a good as Sensitive, but did not have a TRQ established for it? Typically, Sensitive Products are protected by TRQs, but would a Member be barred from designating a new good as sensitive, and creating a TRQ for it? Like its predecessor, the December 2008 Text left that question unanswered but laid out two options: (1) no tariff line could be designated as Sensitive unless it already was subject to a TRQ before the Doha Round commenced in November 2001, or (2) any product could be designated as such, regardless of its pre-Doha Round status.243

240. Id. at 12–13. 241. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 74. 242. Id. para. 82. The precise details of the phase in would be as follows. The first installment of a

TRQ expansion would occur on the first day of implementation of any Doha Round agreement. Id. It would have to be an expansion at least equal to one quarter of total domestic consumption. Id. The subsequent three-quarters of that total would be added to the in-quota TRQ threshold in three steps at the end of each subsequent twelve-month period. Id. In the event normal imports are comparatively large, a developed country could provide a reduced access opportunity. Specifically, if the existing bound TRQ volume already represents 10% or more of domestic consumption, then the access opportunity obligations would be reduced by 0.5% for each deviation. Id. para. 77. If that volume is more than 30% of domestic consumption, then the obligation to expand TRQ volumes would be lowered by 1% for each deviation. Id.

243. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 83; July 2008 Draft Agriculture Modalities Text, supra note 44, para. 80.

10 Bhala PUB 11/13/2009 9:37:45 AM


The two alternatives, of course, were radically different. The first would incline Members toward free trade by drastically restricting farm goods they could designate as “Sensitive.” The second would create much more policy space for protection. Unsurprisingly, the options reflected sharp battle lines between the United States and other major powers, which favored the first option, and China, India, and other developing countries, which favored the second option.244 Brazil, as a major exporting power, sided with the first group on this issue.245 Brazil argued that the TRQ provisions should not permit WTO Members to establish new TRQs on farm products that they had not protected during the Uruguay Round.246 This opportunity could be a “black box in which any product could get in, with serious consequences for our interests in the markets of the rich nations.”247 For example, Brazil was particularly concerned that developed countries might create TRQs for ethanol, of which it is the world’s largest exporter.248

The December 2008 Text contained nearly the same special and differential treatment rule for developing countries as set out in the July Text. They could designate up to 5.33 percent of their lines as sensitive, which is one-third more tariff lines than developed countries.249 A developing country that had more than 30 percent of its products in the top tier of the tariff-cutting formula—that is, above 130 percent—could designate an extra 2 percentage points of its tariff lines as sensitive, for a total entitlement of roughly 7.33 percent.250 The deviations that developing countries could take from the tiered tariff cuts would be the same as for developed countries. That is, developing countries could apply a cut that is one-third, one-half, or two-thirds as severe as otherwise would be required under the formula.251

Expansion of in-quota TRQ volumes for developing countries would be two-thirds as great as developed countries.252 (Numerically, the expansion figures for developing countries would be 2.67, 2.33, and 2 percent, respectively, for the maximum, moderate, and minimum deviation choices on the sliding scale.) The end result would mean foreign farm products would hit the quota ceiling more quickly and exhaust the duty-free or low-duty allotment faster in a developing rather than in a developed country (assuming all other factors are equal). Domestic consumption data on which that expansion would be based would exclude consumption by subsistence farmers of their own produce.253 And, longer phase-in periods would apply to developing countries.254

244. Under Attack; World Trade, ECONOMIST, July 8, 2006 (discussing dissention between major powers, who want to limit the number of products designated as Sensitive or “Special” products, and developing countries, who want to allow for greater exemption of products).

245. David Haskel & Ed Taylor, NAMA Final Draft Text Still Inadequate After Changes, Argentina Tells MERCOSUR, 25 Int’l Trade Rep. (BNA) 1047 (July 17, 2008) [hereinafter NAMA Final Draft Text Still Inadequate] (quoting Brazilian Foreign Minister Celsio Amorim).

246. Id. 247. Id. 248. Id. 249. December 2008 Draft Agriculture Modalities Text, supra note 26, paras. 71–72, 78. 250. Id. paras. 71–72. 251. Id. para. 73. 252. Id. paras. 72, 78. 253. Id. paras. 72, 78. 254. Id. The December 2008 Text endeavored to clarify an alternative preferential rule for

developing countries. The alternative consisted of three complicated options on Sensitive Products. Instead of following the scheme of taking on obligations two-thirds as onerous as for developed countries, a developing country could forgo TRQ expansion and simply impose a less severe tariff cut on Sensitive Products than otherwise would be required of them under the tiered formula, with an extended period for

10 Bhala PUB 11/13/2009 9:37:45 AM


A critical but highly technical question concerned the extent to which WTO Members could disaggregate product categories in making their Sensitive Product designations. For example, could a Member identify cheese as Sensitive, or must it be more precise and designate sub-categories like cheddar cheese, or perhaps hard cheese? Likewise, should it be allowed to designate wheat, or must it pick durum wheat?

On the one hand, the more detailed the designation, the more focused the protection to the Sensitive Product, and the less the risk other products will be shielded in part from full tariff reductions. On the other hand, the more detailed the designation, the more difficult it is to get domestic consumption data. These data are essential to gauge the new or expanded TRQs. All WTO Members are supposed to maintain data at the 6-digit level under the Harmonized System (HS) of tariff classification maintained by the World Customs Organization (WCO).255 That is, HS codes are harmonized among all WTO Members at the 4- and 6-digit level, but not the 8- or 10-digit level. More precise Sensitive Product designations would require data at the 8-digit level (e.g., cheddar or hard cheese, or durum wheat), which many countries—even as large as Brazil—do not have.256 A proxy must be found when data on domestic consumption in a product sub-category are unavailable. One controversial proxy is to estimate domestic consumption using trade figures, specifically, import data.257 A related problem is that products in close sub-categories may be substituted. Cheddar and hard cheese may compete with one another.

Thus, the bottom-line question is how domestic consumption should be estimated when Sensitive Products are designated with great precision. The December 2008 Text, like its predecessor in July, addressed this question through Annex C, accompanied by Attachment A and Attachment Ai.258 Even to the most seasoned international trade professionals, these documents contained monstrous complexities of TRQ expansion calculations. These nearly unfathomable details represented a so-called “Consensus Approach,” worked out in April 2008, and left largely unchanged thereafter.259

Attachment A concerns Sensitive Product categories.260 This Attachment identifies the agricultural product categories WTO Members intend to designate as implementing the cuts. Id. para. 79. The three options concerned the degree of deviation from full tariff reductions under the tiered formula and the implementation period to make the cuts. Briefly put, under the alternative three options, developing countries could specify a good as Sensitive without granting it any TRQ access, so long as they imposed the full tariff cut on that good over an implementation period three years longer than normal or made one-quarter of the normal tariff cut, but in a period two years shorter than normal. Id. para. 78.

255. World Customs Organization, International Convention on the Harmonized System art. 17(a), Jan. 1, 1988, available at http://www.wcoomd.org/home_wco_topics_hsoverviewboxes_tools_and_ instruments_hsconvention.htm.

256. See Unofficial Guide, supra note 41, at 12–13 (explaining that data are usually unavailable for narrowly defined products like cheddar, and discussing the methodology from the December Text for calculating consumption at the 8-digit level).

257. Id. at 14. 258. December 2008 Draft Agriculture Modalities Text, supra note 26, Annex C, Attachments A, &

Ai. 259. This is reflected by the fact that the Feburary 2008 Text does not contain Attachments A and Ai

whereas the May Text does. Committee on Agriculture, Special Session, Revised Draft Modalities for Agriculture, TN/AG/W/4/Rev.1 (Feb. 8, 2008); Committee on Agriculture, Special Session, Revised Draft Modalities for Agriculture, TN/AG/W/4/Rev.2 (May 19, 2008).

260. December 2008 Draft Agriculture Modalities Text, supra note 26, Annex C, Attachment A.

10 Bhala PUB 11/13/2009 9:37:45 AM


Sensitive. Attachment Ai, titled “Partial Designation Modalities for Sensitive Products,” deals with that topic.261 Unhelpfully, however, Attachment Ai was scarcely more comprehensible in the December 2008 Text than in the July Text.

As before, both Attachments presumed domestic consumption would be the yardstick to determine the extent to which quota sizes for Sensitive Products would need to be expanded.262 Generally, for a good declared Sensitive at the detailed HS 8-digit level, the expansion would depend on estimated consumption of the broader HS 6-digit level category in which that Sensitive Product is classified.263 The thrust of Attachments A and Ai was to explain how domestic consumption would be calculated for Sensitive Products, particularly in light of the fact that consumption would have to be estimated using a proxy, namely, trade figures.264

Attachment A laid out, at the 6-digit level, the product categories that could be designated as Sensitive.265 Two other Attachments (B and D) explained precisely how to calculate domestic consumption for each Sensitive Product category.266 Every product category that a WTO Member could designate as Sensitive would have some “Core” and “Non-Core” Products. Core Sensitive Products would be raw or basic farm goods.267 Non-Core Products would consist of (1) farm products that have a low amount of processing, and (2) farm products that are highly processed.268 For instance, the broad product category of wheat has twenty-eight products at the HS 6-digit level, including two basic grains that are Core, some products that have undergone modest processing, like wheat flour, and still other products that are highly processed, such as bread and pasta.269

Reading Attachments A and Ai shows how trade negotiations devolve from high-minded, well-intentioned free trade aspirations to stunningly abstruse, product-by-product protectionism. The Attachments speak of a “two step partial designation methodology.”270 Yet, nowhere do they clearly indicate “Step 1” or “Step 2.” They continue with special rules for TRQ expansion for dairy products271 that are all but impenetrable, except perhaps to their drafter and Canada, the WTO Member especially eager to protect its supply management system from the full-force of any Doha Round tariff cuts.272 That said, the basic goal of the two Steps, respectively, would be to calculate domestic consumption for each broad category (e.g., wheat), and then estimate consumption of products at a detailed sub-category level (e.g., wheat flour).

Accordingly, in Step 1, consumption would be estimated at the HS 6-digit level.273 That is, for each detailed Sensitive Product type, consumption would be a

261. Id. Annex C, Attachment Ai. 262. Id. Annex C, Attachments A, Ai. 263. Id. Annex C, Attachment A. 264. Id. Annex C, Attachments A, Ai. 265. Id. Annex C, Attachment A. 266. December 2008 Draft Agriculture Modalities Text, supra note 26, Annex C, Attachments B, D. 267. Id. Annex C, Attachment A. 268. Id. 269. Unofficial Guide, supra note 41, at 12. 270. December 2008 Draft Agriculture Modalities Text, supra note 26, Annex C, Attachments A, Ai. 271. Id. Annex C, Attachment Ai. 272. See Minister Ritz Takes Strong Stand on WTO Agriculture Negotiations, MARKET WIRE, Dec. 7,

2008, http://www.reuters.com/article/pressRelease/idUS85756+07-Dec-2008+MW20081207?sp=true (describing Canada’s concerns about its supply management system).

273. December 2008 Draft Agriculture Modalities Text, supra note 26, Attachment Ai, § C(i).

10 Bhala PUB 11/13/2009 9:37:45 AM


percentage of consumption in the relevant broad product category.274 The percentage would depend on the share of trade of the detailed product in the broad category.275 That percentage would be adjusted to give a greater weight to Core Products (e.g., 67 percent) than to Non-Core Products (e.g., 23 percent).276 This adjustment would ensure Core Products, which are more heavily traded than Non-Core Products, would account for at least 90 percent of each HS 6-digit category.277 In Step 2, consumption would be estimated at the HS 8-digit level. The percentage of consumption at the 6-digit level would be adjusted at the 8-digit level using the import data of the WTO Member in question.278

The end result would be a percentage figure for domestic consumption of a detailed Sensitive Product. In other words, for every detailed product sub-category (8-digit level), consumption would be some percentage of consumption of the broad product category in which the detailed product appears (6-digit level). The percentage would depend on the share of the sub-product in the broad product category. That percentage would be adjusted to ensure Core Products account for 90 percent or more of the consumption in the broad category. That is because they are the most heavily traded kind of agricultural good.

In turn, the estimate of domestic consumption of a Sensitive Product sub-category would be used to set the expansion of the in-quota threshold of a TRQ for that Product. That is, this estimate would establish the quota size—the access opportunity—whenever a WTO Member designates a sub-category as Sensitive.279

However, to make matters yet more complicated, special variations on these two Steps would apply to certain Sensitive Products, particularly dairy, fruit, and vegetables.280 Moreover, special rules—set out in Annex C and Attachment Ai to the December 2008 Text—deal with the possibility that estimates of domestic consumption might result in an in-quota TRQ threshold that is too small.281 These rules establish a minimum quota size, or floor, in the event the trade data used as a proxy for domestic consumption consists of unusually low figures.282

3. Maximum Tariff Levels (Caps)

Like the July 2008 Text, the December 2008 Text dealt with an issue related to Sensitive Products and TRQ expansion, namely, the maximum bound MFN tariff level a WTO Member could maintain on a Sensitive Product.283 Ought there to be a tariff cap on high-tariff developed countries (specifically, on rates charged on above-quota shipments of the Product)? The answer on which Members—except for

274. Unofficial Guide, supra note 41, at 13. 275. Id. 276. Id. 277. Id.; December 2008 Draft Agriculture Modalities Text, supra note 26, Attachment Ai, § C(ii). 278. Unofficial Guide, supra note 41, at 13. 279. Id. 280. December 2008 Draft Agriculture Modalities Text, supra note 26, Attachment Ai, §§ D–E. 281. Unofficial Guide, supra note 41, at 13. 282. December 2008 Draft Agriculture Modalities Text, supra note 26, Attachment Ai, § F. 283. See id. para. 76 (allowing such “tariff lines in excess of 100 per cent ad valorem . . . only if the

tariff lines concerned are confined to those designated as, and are within the numerical limits of, that Member’s overall sensitive product entitlement”); July 2008 Draft Agriculture Modalities Text, supra note 44, para. 76 (providing the same).

10 Bhala PUB 11/13/2009 9:37:45 AM


countries with high farm tariffs, like Japan and Switzerland284—had settled was “yes.” They also agreed that a high-tariff country should make a so-called “extra payment.”285

Suppose after applying all of its Doha Round tariff cut obligations to agriculture products under the tiered tariff formula, including any deviations for Sensitive Products, a developed country still sought to keep some of its Sensitive Product tariff lines bound at ad valorem rates of over 100 percent. To be sure, the number of such lines would not exceed 4 percent—the total number of lines that a developed country could designate as Sensitive.286 And, the 100 percent-plus duty would be the over-quota rate for a TRQ on a Sensitive Product.287 The developed country would have to apply to all of its Sensitive Products an additional TRQ expansion of 0.5 percent of domestic consumption.288 That one-half percent would be the extra payment in exchange for getting to keep such high duty rates.289

The extra payment reflected the aspirations of poor countries. They argued no developed country should have an agricultural duty rate above 100 percent.290 However, if they could not push through a lower cap, then at least they could urge an extra payment. The trade-off, in other words, was that a developed country could maintain an above-quota duty rate in excess of 100 percent on a good it designated as Sensitive if it applied to that good a TRQ expansion of 0.5 percent greater than the expansion requirement for Sensitive Products with duty rates below 100 percent. Put simply, a rich country could exceed a 100 percent tariff rate, albeit with a super-generous increase in quota volume. Precisely whether that generosity would matter when the above-quota rate was stuck above 100 percent was uncertain.

As for a duty rate over 100 percent on a non-Sensitive Product, the general rule proposed was that such instances would be limited to no more than 1 percent of tariff lines beyond the usual entitlement for Sensitive items.291 That is, if a developed country were entitled to designate up to 4 percent of lines as “Sensitive,” then it could not have duty rates in excess of 100 percent on more than 5 percent of its non-Sensitive lines. The December 2008 Text eliminated the range of 1–2 percent set out in the July Text.292 WTO Members affected—namely, Iceland, Japan, Norway, and Switzerland293—would have to pay compensation to the rest of the Membership for the privilege of maintaining a tariff rate above 100 percent on a non-Sensitive Product.294 That compensation would consist of:

284. Daniel Pruzin, Week of WTO “Crunch” Ag Talks Ends with No Decision on Next Step, 25 Int’l

Trade Rep. (BNA) 1707 (2008) [hereinafter Pruzin, WTO Crunch]. 285. See December 2008 Draft Agriculture Modalities Text, supra note 26, para. 76 (requiring a

“higher expansion of 0.5 per cent of domestic consumption for those tariff lines” in order to maintain high tariff rates).

286. Id. para. 71. 287. See Unofficial Guide, supra note 41, at 12 (“The out-of-quota tariff is the normal rate

determined by the reduction formula.”). 288. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 76. 289. See id. (specifying that a developed country Member could keep such high rates only if

requirements such as the extra payment were met). 290. See Pruzin, WTO Crunch, supra note 284 (discussing the demands of farm exporting countries

for a 100% cap). 291. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 76. 292. Id. para. 76; July 2008 Draft Agriculture Modalities Text, supra note 44, para. 76. 293. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 76 & n.15. 294. Id. para. 76.

10 Bhala PUB 11/13/2009 9:37:45 AM


(1) Expansion of the TRQs on all their Sensitive Products by an additional 0.5 percent of domestic consumption,295 or

(2) Acceleration of tariff reductions by two years faster than the normal implementation,296 or

(3) Addition of 10 percentage points to the tariff cuts it is obliged to make.297 The December Text boosted this figure from 5, which the July Text contained.298

Briefly put, the December 2008 retained and modestly strengthened incentives to eradicate tariffs above 100 percent.

What about developing countries—would they have a tariff cap? The December 2008 Text contained the same answer as its predecessor: developing countries would have a cap of 150 percent, which was one-third more than the developed country limit.299 Presumably, they would also make an extra payment, albeit a less onerous one than required of developed countries.

4. Tariff Escalation

On how to reduce tariff escalation, the December 2008 Text was a verbatim repetition of the July Text. The July Text was premised on the February and May 2008 Texts, and the January 2008 Working Paper on tariff escalation.300 Not much had occurred in negotiations during 2008. Like its predecessor, the December 2008 Text included both a provisional list of products (in Annex D) vulnerable to tariff escalation301 and special provisions for commodity-dependent producing countries in the event the adverse effects of tariff escalation were not mitigated by the agreed-upon tiered tariff cutting formula.302

Tariff escalation occurs if a processed product has imposed on it a duty rate that is significantly above the unprocessed product.303 “Significance” is defined as an

295. Id. 296. Id. 297. Id. 298. July 2008 Draft Agriculture Modalities Text, supra note 44, para. 76. 299. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 76 & n.14; July 2008 Draft

Agriculture Modalities Text, supra note 44, para. 76 & n.12. 300. Compare July 2008 Draft Agriculture Modalities Text, supra note 44, paras. 81–87, with

Committee on Agriculture, Working Document No. 11: Tariff Escalation (Jan. 4, 2008), available at http://www.wto.org/english/tratop_e/agric_e/workdoc_11tariffesc_e.pdf.

301. December 2008 Draft Agriculture Modalities Text, supra note 26, Annex D. 302. Id. paras. 91–102; July 2008 Draft Agriculture Modalities Text, supra note 44, paras. 88–99. In

brief, these provisions covered: (1) the methodology to help commodity-producing countries deal with tariff escalation on items of interest to them, including appropriate tariff escalation reductions, (2) elimination of non-tariff measures affecting trade in commodities, (3) joint action under GATT Article XXXVIII (which concerns such action) by WTO Members to help these producing countries, including the adoption of inter-governmental commodity agreements, (4) the relationship of GATT Article XX(h) (which exempts those arrangements from normal GATT obligations) to arrangements by commodity-dependent producing countries, and (5) technical assistance to improve world markets for commodities and the adoption and implementation of inter-governmental commodity agreements. December 2008 Draft Agriculture Modalities Text, supra note 26, paras. 91–102.

303. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 87 (requiring escalation when the absolute difference between tariffs applied to a primary and processed product reaches a certain level).

10 Bhala PUB 11/13/2009 9:37:45 AM


escalation of more than 5 percentage points, that is, the tariff rate on a processed product is more than 5 ad valorem percentage points than on the primary product related to it.304 The effect of tariff escalation is to protect processing operations, typically in rich countries, at the expense of providers of raw materials and intermediate goods, which usually are in poor countries. In other words, tariff escalation discourages the establishment of vertically-integrated industries in poor countries and leaves them dependent on rich countries for finished products.

The December 2008 Text contained a reasonably straightforward strategy to combat tariff escalation. It would apply to all developed countries, and—on a voluntary basis—any developing country that happened to have escalated tariffs.305 In addition, the strategy would not apply to any Sensitive Products.306

Rather than imposing the tariff reduction to the final bound MFN rate in the band in which a processed product (benefitting from tariff escalation) belongs, it would be subject to the cut of the next highest tier from the tier it is in.307 Thus, suppose an escalated product attracts a 60 percent tariff. It is in the second-highest tier (tariffs between 50–75 percent), and the tariff is cut by 64 percent. However, as an escalated product, it is re-classified—bumped up—into the highest tier (tariffs over 75 percent). The consequent tariff cut is 70 percent. What if the escalated product is already in the highest tier? Then, the tariff cut would be an additional 6 percentage points, that is, a cut of 76 percent to the tariff.308

Interestingly, the above strategy would not apply in full if doing so would reduce the tariff of the processed product to below the tariff of the primary product.309 Consequently, the strategy would mitigate tariff escalation but not create tariff inversion (the occurrence of a higher tariff on the primary than on the processed good). If tariff inversion were to occur by applying the strategy, then the cut would be moderated so as to produce tariff equivalence (the same duty rate on the primary and processed good).310

5. Tariff Simplification

Tariff simplification provisions in the December 2008 Text were nearly identical to the contents of the July Text. Both texts laid out the obvious prohibition against binding a tariff in a form that is more complex than the current form.311 The new Text, however, created two stark options for WTO Members to consider.

First, WTO Members could agree that all bound MFN tariffs must be expressed as simple, ad valorem tariffs.312 Second, the Members could decide that simplification should apply to at least 90 percent of the bound rates in the schedules of a developed country.313 For the residual unconverted tariff lines, a developed country would have

304. Id. 305. See id. para. 90 (applying the modality to developed countries as well as developing countries

“declaring themselves to be in the position to do so.”). 306. Id. para. 89. 307. Id. para. 86. 308. Id. 309. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 88. 310. Id. 311. Compare id. para. 103, with July 2008 Draft Agriculture Modalities Text, supra note 44, para. 100. 312. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 104. 313. Id.

10 Bhala PUB 11/13/2009 9:37:45 AM


a year after the implementation of any Doha Round agreement to decide how to achieve simplification and reach 100 percent coverage.314 The EU managed to retain special dispensation. The EU would need to have only 85 percent of its tariff lines expressed as ad valorem rates within five years of implementation, and could keep 5 percent of its lines as compound tariffs.315

Under either alternative, WTO Members would use the May 2005 Paris Methodology to convert non-ad valorem tariffs into their ad valorem equivalents (AVEs).316 An implementation period had yet to be set, but presumably would be upon, or within a year or so after, the entry into force of any Doha Round agreements. Also under both options, any developing country simplifying its tariff schedule would have an additional two years to complete the process.317 No tariff simplification obligations would be imposed on least-developed countries.318 Critically, under either option all simplified bound tariffs must not increase the level of protection over their original complex form.319

6. Tariff Quotas

TRQs are used in more contexts than just the protection of Sensitive Products. Yet, in all contexts, TRQs provide protection that can be greater than a simple ad valorem tariff. An ad valorem tariff, unless it is set at a prohibitively high level, does not block imports. A TRQ can have that effect if the in-quota threshold is low, the above-quota duty is high, and the administration of the scheme is not transparent. Accordingly, the reduction of duties associated with TRQ and the improvement of TRQ administration were topics addressed in the December 2008 Text.320

The relevant provisions in the December Text were nearly identical to their counterparts in the July Text, with modest substantive and stylistic changes.321 The provisions applied to all TRQs, whether or not they protected a Sensitive Product.322 The new text set out eight basic rules.

First, all developed countries must slash their bound in-quota MFN tariffs by 50 percent, or to a rate of 10 percent.323 Consequently, 10 percent would be the ceiling in-quota tariff on any TRQ. That would be true for all TRQs, whether or not they protected a Sensitive Product.324 The July Text had listed a range of 50–70 percent, and a rate of 0–15 percent.325 Thus, the December Text chose the low end of the range, and a high end for the rate—both less ambitious choices from the perspective

314. Id. 315. Id. para. 104 & n.17. This basically consists of a hybrid of an ad valorem tariff and a specific

duty, which is a levy on a per unit basis. 316. See id. para. 104 (referring to the Paris Methodology, set out in Committee on Agriculture,

Special Session, Draft Possible Modalities on Agriculture, Annex A, TN/AG/W/3 (July 12, 2006)). 317. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 107. 318. Id. 319. Id. para. 108. 320. Id. paras. 115–25. 321. Id. paras. 109–25; July 2008 Draft Agriculture Modalities Text, supra note 44, paras. 105–17. 322. December 2008 Draft Agriculture Modalities Text, supra note 26, paras. 109–25. 323. Id. para. 109. 324. Id. 325. July 2008 Draft Agriculture Modalities Text, supra note 44, para. 105.

10 Bhala PUB 11/13/2009 9:37:45 AM


of free trade. The bindings would be in ad valorem form.326 The new text provided greater provision than its predecessor on implementation of the cuts: reductions to in-quota tariffs on all TRQs would be phased in on the same schedule as expansions of in-quota volume thresholds for TRQs on Sensitive Products.327 The maximum in-quota tariff on the first day of implementation would have to be 17.5 percent.328 Notably, reductions of in-quota tariffs would not count for the purposes of calculating average farm tariff cuts under the tiered tariff reduction formula.329

Second, for all developed countries, low in-quota rates would have to be eliminated.330 Specifically, if the in-quota MFN rate already was bound at or below 5 percent, then a developed country would have to reduce it to zero.331 The developed country would have to do so by the end of the first year of implementation.332

Third, Switzerland, a developed country, would get special and differential treatment in two respects. It would not be obligated to reduce to 10 percent the bound in-quota tariffs on two lines of bread cereals.333 It also would not be obligated to cut to zero its in-quota tariff for two specific tariff lines covering wine.334 However, to compensate bread and wine cereal exporters, Switzerland would have to provide new market access opportunities equal to 1 percent of domestic consumption.335 The sui generis rules for Switzerland were in the December but not the July Text,336 implying the country had engaged in effective lobbying during the fall of 2008 on behalf of the interested domestic industries.

Fourth, developing countries would get special and differential treatment. They would have to reduce their bound in-quota MFN tariffs by 15 percent, which essentially represented an obligation one-third as onerous as on developed countries.337 However, developing countries would not have to reduce their tariffs to a set rate, even if that would produce a lower duty rate, nor would they have to cut to zero rates that already were at or below 5 percent.338 There would be no cap on the level of their in-quota rates.339 Similarly, as an innovation in the December 2008 Text, if a tariff line protected by a TRQ is a Special Product (discussed below) designated by a developing country for no tariff cut, then the country would not have to cut its in-quota rate at all.340

Fifth, SVEs would get even more generous special and differential treatment than developing countries. As above, they would be treated like developing countries, but they would be obliged to reduce their bound in-quota MFN tariffs by

326. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 114. 327. Id. para. 109. 328. Id. 329. Id. para. 25 & n.18. 330. Id. para. 109. 331. Id. 332. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 109. 333. Id. 334. Id. 335. Id. 336. See July 2008 Draft Agriculture Modalities Text, supra note 44, para. 105 (bound in-quota tariff

section does not contain the provisions for Switzerland included in the December Text). 337. Id. 338. Id. 339. Id. 340. Compare December 2008 Draft Agriculture Modalities Text, supra note 26, para. 111, with July

2008 Draft Agriculture Modalities Text, supra note 44, para. 105.

10 Bhala PUB 11/13/2009 9:37:45 AM


just 7.5 percent.341 There would be no cap on the level of their in-quota rates.342 Similarly, as an innovation in the December 2008 Text, SVEs would not have to reduce the in-quota tariff on any Special Product, regardless of whether they had slated that Product for a zero tariff cut.343 Venezuela would be treated as an SVE for these purposes.344

Sixth, RAMs would also receive enhanced special and differential treatment. Older RAMs would be entitled to reduce their in-quota bound MFN tariffs by one-third of the percentage of the cut required of developing countries, and they would not need to reduce any in-quota rate at or below 15 percent.345 The July Text had set that threshold at 10 percent.346 Hence, the December Text moved in favor of the RAMs and away from trade liberalization. Newer RAMs—Macedonia, Saudi Arabia, Tonga, Ukraine, and Vietnam—would have no reduction obligations.347 For this purpose, it appears Venezuela may be treated as a newer RAM.348 Likewise, small, low income RAMs with economies in transition—Albania, Armenia, Georgia, Kyrgyzstan, Moldova, and Mongolia—would have no such obligations.349

Seventh, as an innovation of the December Text, developed and developing WTO Members should consider eliminating a TRQ if it is not operational.350 “Non-operational” means the bound MFN in-quota rate equals or exceeds the above-quota rate.351 A Member that agreed to eradicate non-operational TRQs would be rewarded by a less onerous obligation to cut tariffs on its remaining operational TRQs. Specifically, it would be permitted to cut the in-quota rates by 50 percent, or to a threshold of 8 percent, which is 2 percentage points less than the normal 10 percent.352

Finally, the December Text contained the identical proposed rules on TRQ administration set out in the July Text.353 They explained that this administration would be deemed an instance of import licensing under the WTO Agreement on Import Licensing Procedures.354 They also laid out requirements for publication of information about TRQs, processing applications for licensing to import under a TRQ, TRQ fill rates, and ways to improve market access if the volume of imports is persistently less than the quota (i.e., the TRQ under-fill problem, where there is less than full utilization of the in-quota threshold).355

341. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 111. 342. Id. 343. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 112; July 2008 Draft

Agriculture Modalities Text, supra note 44, para. 105 (containing no such provision for SVEs). 344. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 111 & n.20. 345. Id. 346. July 2008 Draft Agriculture Modalities Text, supra note 44, para. 105. 347. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 113. 348. Id. para. 113 & n.20. 349. Id. para. 113 & n.21. 350. Id. para. 110. 351. Id. 352. Id. 353. Compare December 2008 Draft Agriculture Modalities Text, supra note 26, paras. 115–25, with

July 2008 Draft Agriculture Modalities Text, supra note 44, paras. 106–16. In both Drafts, Annex E contained details about a proposed TRQ underfill mechanism.

354. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 115. 355. Id. paras. 115–25.

10 Bhala PUB 11/13/2009 9:37:45 AM


7. SSGs

The general safeguard remedy against fair foreign trade, first established in GATT Article XIX and refined in the WTO Agreement on Safeguards, has a long history and plenty of underlying justifications.356 Newer, and perhaps more obviously protectionist, are special safeguards (SSGs) targeted at specific kinds of products. Article 5 of the WTO Agreement on Agriculture introduced this remedy for farm products.357 However, not all WTO Members were able or were in a position to take advantage of it, and the disadvantaged Members—largely poor countries which had little legal capacity when the Agriculture Agreement was negotiated during the Uruguay Round—clamored for its removal.358

Specifically, the December 2008 Text dealt with the problem many developing countries face. Namely, in the Uruguay Round they gave up their right to use the SSG remedy under Article 5 of the WTO Agreement on Agriculture.359 That is because the remedy applies only to products that have been tariffied; in other words, farm goods that before the Uruguay Round had been protected by non-tariff barriers (e.g., discretionary import licensing, import bans, quotas, or variable duties), but subsequently by tariffs (because of conversion from non-tariff barriers to duty rates).360 On several products, many developing countries elected to establish a ceiling binding on their levels of non-tariff barrier protection, but not to convert that protection to a tariff.361 For such products, the SSG was technically inapplicable.362

Accordingly, for both rich and poor countries, the December 2008 Text modified the SSG proposals that the July Text had set out. In the earlier text, the choices were that developed countries would (1) have to cease using the SSG, or (2) reduce the number of products to which they could apply this remedy to 1.5 percent of tariff lines.363 The new text combined the options.364 Developed countries would have to reduce the number of lines eligible for an SSG to 1 percent of their tariff lines as soon as any Doha Round accords entered into force.365 Critically, the SSG remedy would sunset in seven years, at the end of which developed countries would have to eliminate all SSG designations.366 Further, no SSG could lead to a remedial duty in excess of the pre-Doha Round bound tariff level.367

The December Text also changed the provisions from the July Text on developing country entitlement and usage of SSGs. Any developing country could

356. See BHALA, INTERNATIONAL TRADE LAW, supra note 2, at 1185–88 (presenting common

arguments, such as the abilities of safeguards to (1) allow domestic firms a grace period to adjust to liberalized international competition, (2) permit orderly contraction of less efficient domestic firms, and (3) provide domestic political cover for trade agreements).

357. Uruguay Round Agreement on Agriculture, supra note 84, art. 5.1. 358. World Trade Organization, An Unofficial Guide to Agricultural Safeguards, at 1 (Aug. 5, 2008),

available at http://www.wto.org/english/tratop_E/agric_e/ssm_explained_4aug08_e.pdf [hereinafter Unofficial Guide to Agricultural Safeguards].

359. Unofficial Guide, supra note 41, at 15. 360. Uruguay Round Agreement on Agriculture, supra note 84, art. 5.1. 361. Unofficial Guide to Agricultural Safeguards, supra note 358, at 3 (“Many developing countries

chose not to ‘tariffy.’ They preferred to set ‘ceiling bindings.’”). 362. Id. 363. July 2008 Draft Agriculture Modalities Text, supra note 44, para. 117. 364. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 126. 365. Id. para. 127. 366. Id. para. 126. 367. Id.

10 Bhala PUB 11/13/2009 9:37:45 AM


use an SSG, but the product lines to which they might apply an SSG could not exceed 2.5 percent of their total tariff lines.368 The July Text set a coverage threshold of 3 percent.369 Obviously, the higher the threshold, the greater the risk to agricultural exporters that the farm products they ship might get whacked with an SSG. Thus, the slight reduction was a step in the direction of free trade. If a developing country has already designated more than that threshold, then it would have to reduce the coverage to 2.5 percent of tariff lines as soon as any Doha Round accords took effect.370 For SVEs, that coverage threshold would be higher—5 percent of tariff lines could be subject to an SSG with an implementation period of twelve years.371

C. Restricting Agricultural Market Access through Special and Differential Treatment

1. Special Products

The invention of fine distinctions, such as between “Special” and Sensitive merchandise, is one reason why the world of international trade law is sometimes a strange one. The designation of an agricultural good as a “Special Product” is another form of special and differential treatment for poor countries but is also another restriction on market access. For much of the Doha Round, developing countries, led by China and India, insisted on the right to identify some of the farm goods they produce as “Special,” and thereby exempt them—partially or entirely—from any tariff cut under the tiered-tariff formula.372 This right would be in addition to the right of all WTO Members to designate “Sensitive Products,” but would not be conferred on developed countries.373

The December 2008 Text largely replicated the proposed rules on Special Products contained in the July Text. Thus, the new text dealt with four key issues:

(1) What criteria should govern the designation of a good as Special?

(2) How many goods could receive the Special Product designation?

(3) How many Special Products could be exempt from any tariff cut as so-called “Super Special Products”?

(4) What should the average tariff cut on Special Products be?

The proposed rules endeavored to balance a free trade outcome–in which Special Product designations would be tightly restricted, none would be shielded entirely from tariff cuts, and average cuts would be steep–with a protectionist result in which developing countries would have plenty of policy space.

368. Id. para. 127. 369. July 2008 Draft Agriculture Modalities Text, supra note 44, para. 118. 370. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 127. 371. Id. 372. See RANDY SCHNEPF & CHARLES E. HANRAHAN, CONG. RESEARCH SERV., NO. RS22927,

WTO DOHA ROUND: IMPLICATIONS FOR U.S. AGRICULTURE 6 (2009) (“India and China proposed a modality for the SSM that would allow developing countries to impose tariffs 15% above bound rates if imports surged 10% above average trade levels. . . . USTR estimated that a 10% trigger would have enabled China to invoke the SSM in eight of the last ten years for soybeans, and India to restrict trade in six of the last nine years for palm oil.”).


10 Bhala PUB 11/13/2009 9:37:45 AM


On the first issue, the December 2008 Text reaffirmed the right of developing countries to self-designate a good as “Special.”374 These countries would have to apply three criteria: “food security, livelihood security and rural development.”375 In other words, the designation could not be for the purpose of protecting a politically favored domestic farm sector, but rather had to advance some fundamental purpose. Annex F to the Text contained specific indicators under each of these three criteria.376

On the second issue, the December 2008 Text altered the key figure from what the July Text stated. The July Text said the entitlement for Special Product designations would be 10 to 18 percent of all agricultural tariff lines.377 The December Text set the entitlement at 12 percent.378 Without a doubt, that number was too low for China, India, the Philippines and other members of the Group of 33 (G-33) developing countries.379 They continued to press for the right to designate at least 20 percent of their farm tariff lines as Special.380

On the third issue, the December 2008 Text embodied the same two-tier system for Special Products, but again altered the key figures. Super Special Products would be entitled to immunity from tariff cuts, but no more than 5 percent of agricultural tariff lines could fall into this tier.381 The July Text specified 6 percent.382 Hence, the new text was a small step toward trade liberalization.

As to the fourth issue, the December Text called for an overall average tariff cut on Special Products of 11 percent.383 The July Text identified a range of 10–14 percent, but the new text chose the more trade-liberalizing end of that range.384 However, on the 11 percent target, and indeed on the limitation of Special Product designations to 12 percent of agricultural tariff lines and Super Special Products to 5 percent of the lines, many poor countries objected.385 The December Text, with remarkable candor, noted that many countries disagreed with these figures, and a

374. Id. Annex F; July 2008 Draft Agriculture Modalities Text, supra note 44, Annex F. 375. Id. para. 129. 376. Id. para. 129, Annex F. 377. July 2008 Draft Agriculture Modalities Text, supra note 44, para. 120. 378. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 129. 379. The G-33 actually has 43 WTO Members in it: Antigua and Barbuda, Barbados, Belize, Benin,

Botswana, China, Congo, Côte d’Ivoire, Cuba, Dominican Republic, El Salvador, Grenada, Guyana, Haiti, Honduras, India, Indonesia, Jamaica, Kenya, Korea, Mauritius, Madagascar, Mongolia, Mozambique, Nicaragua, Nigeria, Pakistan, Panama, Peru, Philippines, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Senegal, Sri Lanka, Suriname, Tanzania, Trinidad and Tobago, Turkey, Uganda, Venezuela, Zambia, and Zimbabwe. Press Statement, The Permanent Mission of the Republic of the Philippines to the World Trade Organization, G-33 Ministerial Press Statement (June 29, 2006), http://www.philippineswto.org/Alli/G-33_Ministerial_Press_Statement.htm.

380. See Circulation at the Request of Indonesia, G-33 Proposal on the Modalities for the Designation and Treatment of any Agricultural Product as a Special Product (SP) by Any Developing Country Member, para. 3.1, JOB(05)/304 (Nov. 22, 2005) (proposing that developing country Members have the right to designate at least 20% of agricultural tariff lines as Special Products); General Council, Minutes of Meeting, para. 27, WT/GC/M/116 (Dec. 2, 2008) (reaffirming the G-33’s “call for significant movement and flexibility by other Members on all outstanding issues, including on SPs”).

381. See December 2008 Draft Agriculture Modalities Text, supra note 26, para. 129 (“Up to 5 per cent of lines may have no cut”).

382. July 2008 Draft Agriculture Modalities Text, supra note 44, para. 120. 383. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 129. 384. July 2008 Draft Agriculture Modalities Text, supra note 44, para. 120. 385. Cf. Imbalances Widen in the WTO Agriculture, NAMA Texts, WORLD TRADE REV., Mar. 2008,

available at http://www.worldtradereview.com/news.asp?pType=N&iType=A&iID=177&siD=25&nID= 39578 (demonstrating that the small countries were already upset with a range of 10–14).

10 Bhala PUB 11/13/2009 9:37:45 AM


resolution suitable to them would depend on outcomes of other agricultural trade issues.386

Finally, the December Text essentially retained the same special and differential treatment for RAMs and SVEs that the July Text had set out. RAMs would have the ability to identify up to 13 percent of their agricultural tariff lines as Special Products, while the July Text had specified one-tenth more than developing countries.387 The new Text also said RAMs would be obliged to reach an overall average tariff cut on Special Products of 10 percent.388 SVEs would have the option of following the same rules on Special Products developing countries, along with moderated reductions under the tiered-tariff formula cuts.389 Alternatively, they could eschew application of the tiered tariff formula to Special Products, and reach an overall average tariff cut of 24 percent on as many tariff lines as they sought to designate as Special.390

2. SSMs

Disputes over the Special Safeguard Mechanism (SSM) were the proximate cause of the collapse of the July 2008 Ministerial meeting at the WTO.391 Negotiations on the issue during fall 2008 produced no breakthrough. Thus, on SSM, the December 2008 Text was a verbatim repetition of the July 2008 Text, that is, the same proposed rules that led to the Ministerial failure reappeared.392

About one hundred developing countries, led by China and India, continued to demand an SSM remedy they could use with reasonable ease to protect the livelihood of subsistence farmers,393 with upwards of 700 million of them in China, and 600 million in India. China and India were concerned not only with surges of agricultural products from developed (and even some developing) countries, but also with surges of farm goods subsidized by the United States and EU.394 Developed countries, led by the United States, rejected that position as an opportunity to scupper all market access gains won through other rules.395 They also saw the SSM as a device to impede normal trade growth by mischaracterizing such growth as a

386. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 129. 387. Id. para. 131; July 2008 Draft Agriculture Modalities Text, supra note 44, para. 122. 388. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 131. 389. Id. para. 130. 390. Id. 391. Unofficial Guide to Agricultural Safeguards, supra note 358, at 1. 392. December 2008 Draft Agriculture Modalities Text, supra note 26, paras. 132–46; July 2008 Draft

Agriculture Modalities Text, supra note 44, paras. 123–37. 393. Press Release, Dep’t of Commerce of India, Statement by Kamal Nath on the Outcome of the

WTO Mini-Ministerial Meet at Geneva (July 31, 2008), http://commerce.nic.in/PressRelease/pressrelease_detail.asp?id=2291.

394. Arun S, Differences in Revised WTO Texts will Lead to Doha Round Failure, FIN. EXPRESS, Dec. 8, 2008, http://www.financialexpress.com/news/Differences-in-revised-WTO-texts-will-lead-to-Doha-Round-failure/395483/ (last visited Oct. 4, 2009).

395. See Paul Blustein, The Nine-Day Misadventure of the Most Favored Nations: How the WTO's Doha Round Negotiations Went Awry in July 2008, BROOKINGS INST., Dec. 5, 2008, at 7–8, http://www.brookings.edu/articles/2008/1205_trade_blustein.aspx.

10 Bhala PUB 11/13/2009 9:37:45 AM


surge.396 Helpfully, Chairman Falconer issued a 3-page document that suggested elements of convergence.397

First, the SSM would be a remedy available only to developing countries.398 That remedy would be a tariff calculated on the basis of the post-Doha bound MFN rate (even if the applied rate was below the bound rate).399 Thus, there was a kind of symmetry proposed: just as Sensitive Product designations would be available to all WTO Members, but Special Product designations only to developing countries, the SSG would be available to all WTO Members, but the SSM only to developing countries. The July 2008 Text removed an important limitation from the May 2008 Text concerning the scope of SSMs by developing countries.400 However, unlike an SSG, an SSM (1) would be invoked on the basis of either a price or volume trigger, and (2) could be used on any product—there would be no a priori product limitations.401 So as to avoid multiple layers of remedial trade measures, a developing country could not invoke an SSM if it had, on the same product: an SSG, or a general safeguard under GATT Article XIX, or the Agreement on Safeguards, in place.402 Similarly, the same product could not simultaneously be subject to a price- and volume-based SSM.403 In brief, “one remedy at a time” would be the rule.

Would SVEs be included in the grouping of developing countries? The December 2008 Text did not resolve this question. Following the pattern of a metastasizing of special and differential treatment into ever-finer gradations of Members, in February 2009, the G-33 developing countries called for extra flexibility for SVEs.404 Because of their status, surely it ought to be easier for SVEs to invoke an SSM, and with greater protective effect, than for a normal developing country.405 Thus, the G-33 proposal called for lower price and volume triggers, and perhaps also a stronger remedy, under the SSM.406 This proposal seemed likely to meet with resistance from the United States or other developed countries.

Second, the May 2008 Text restricted the use of an SSM to no more than between three and eight products in any twelve-month period, while the July Text said the SSM could be invoked on all tariff lines.407 Manifestly, that statement vastly expanded the scope of the remedy, though the twelve-month limit remained in the new text (and the same 6-month limit also remained for seasonal products).408 No

396. Id. at 10. 397. Revised Draft Modalities for Agriculture Special Safeguard Mechanism, supra note 26. 398. Unofficial Guide, supra note 41, at 15–16. 399. See id. at 16 (“while the issue here is the case where the tariff goes above pre-Doha Round

bindings, the increase—the ‘remedy’—is based on the ‘current’ or post-Doha bound rate.”). 400. See July 2008 Draft Agriculture Modalities Text, supra note 44, para. 123 (omitting a May

provision that SSMs “shall not be invoked for more than (3)–(8) products in any given twelve-month period.”); Committee on Agriculture, Special Session, Revised Draft Modalities for Agriculture, para. 121, TN/AG/W/4/Rev.2 (May 19, 2008).

401. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 132. 402. Id. 403. Id. 404. See The G-33 Group of Countries Calls for Extra Flexibility for Small, Vulnerable Economies at

the WTO, TRADE PERSPS. (Fratini Vergano, Brussels), Feb. 27, 2009, http://www.fratinivergano.eu/TradePerspectives/Iissue4_27_02_09.html.

405. Id. 406. G-33 Proposal on the Treatment of SSM Provided to the SVES, at 2, TN/AG/GEN/29 (Feb. 10,

2009). 407. See supra note 400 and accompanying text. 408. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 140.

10 Bhala PUB 11/13/2009 9:37:45 AM


developing country could apply an SSM consecutively to the same imported farm good for more than two periods.409

As for the volume-based trigger, the essential idea would be that the greater the import volume surge over a defined threshold, the more severe the protective remedy allowed. However, a surge must be distinguished from a normal increase in trade volume. Consequently, the December 2008 Text set three tiers of trigger surges and correlative remedies. Table VII below summarizes them.410

Table VII:

Volume-Based Trigger for SSM Remedy in the December 2008 Draft Agriculture Modalities Text411

Tier Import Volume:

Actual Imports in Any Year

Measured Against Base Imports

(rolling average of imports in

preceding 3 year period)

SSM Remedy:

Maximum Permissible

Additional Duty

(on top of Applied Rate)

Lowest Actual import volume exceeds

110 percent, but not 115 percent,

of Base Imports

25 percent of the current bound

MFN tariff, or 25 percentage

points, whichever is higher

Middle Actual import volume exceeds

115 percent, but not 135 percent,

of Base Imports




Highest Actual import volume exceeds

135 percent of Base Imports




The import volume triggers supposedly synthesized calls by the G-33, which proposed allowing an SSM when imports are as little as 5 percent over the average of the preceding three years, and MERCOSUR, which sought to limit the remedy to a maximum additional duty of between 20 and 30 percent.412

409. Id. 410. Id. para. 133. In checking whether a volume trigger was met, a developing country could count

imports under an obligatory TRQ increase, unless the volume increase under that TRQ was attributable solely to a scheduled access opportunity for a Sensitive Product. Id. para. 134. But, no SSM remedy could be imposed on imports within that increase. In other words, an importing country could not take away the enhanced market access from a scheduled TRQ expansion by slapping an SSM on the farm products imported under the higher in-quota threshold. Id.

411. Information in the Table is gathered from the December 2008 Draft Agriculture Modalities Text, supra note 26, para. 133.

412. G-33 Proposal on the Treatment of SSM Provided to the SVEs, para. 5, TN/AG/GEN/29 (Feb. 10, 2009) (officially proposing a 10% trigger, though their negotiating aspiration was 5%).

10 Bhala PUB 11/13/2009 9:37:45 AM


As Table VII indicates, import volume would be calculated from data in the relevant preceding 3-year period.413 The average during that period would be the Base Level, against which to measure current imports during any year.414 If current imports exceeded the Base Level trigger, then the prescribed remedy could be applied.415 A de minimis exception would exist: if a volume trigger is satisfied, but the absolute level of imports is “manifestly negligible” in relation to domestic production and consumption, then a developing country would not be permitted to take action.416 There was no numerical definition of “manifestly negligible,” hence the exception remains ambiguous.

The price-trigger SSM would be fairly straightforward. There would have to be a 15 percent drop in the actual import price of a shipment of the farm product in question before a developing country could apply an SSM.417 That import price would be judged against a benchmark, the trigger price, defined as the monthly average c.i.f. (cost, insurance, and freight) import price during the most recent three-year period.418 The comparison would be based, and any price-trigger SSM applied, on a shipment-by-shipment basis.419 As for the remedy associated with a price-based SSM, it would be an additional duty not to exceed 85 percent of the difference between the import price of the relevant shipment and the trigger price.420

All price data would be converted (if necessary) into the domestic currency of the importing developing country. For example, if that currency had depreciated by 10 percent or more during the previous year relative to the international currency or currencies against which it is normally measured, the actual import price would be computed and converted using an average exchange rate of the currency vis-à-vis the international currency or currencies.421 This proviso would help ensure a large depreciation, which would exacerbate the gap between actual and target prices, would not be the cause for applying an SSM. Moreover, a developing country would not normally be allowed to apply a price-triggered SSM if the volume of imports in question in the current year was “manifestly declining,” or was at a “manifestly negligible level incapable of undermining the domestic price level.”422

The volume-based SSM remedy would be constrained in duration. No volume-triggered SSM could be maintained for longer than twelve months.423 For a seasonal agricultural product, the maximum period would be the longer of either (1) six months or (2) the period of seasonality.424 No farm product could be subject to a volume-based trigger for more than two consecutive periods. If a developing country used the remedy for two consecutive periods, then it would be obliged to respect a mandatory holiday—not resorting to the remedy again on the same product until

413. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 133. 414. Id. 415. Id. 416. Id. para. 133(d). 417. Id. para. 135. 418. Id. 419. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 136. 420. Id. An SSM remedy, whether price- or volume-based, would not apply to shipments of the

product in question that had been both contracted for and en route before the effective date of the remedy. Id. para. 139. In other words, the SSM would not apply retrospectively.

421. Id. para. 135. 422. Id. para. 137. 423. Id. para. 140. 424. Id.

10 Bhala PUB 11/13/2009 9:37:45 AM


another two periods had elapsed.425 Oddly, this limitation did not expressly apply to the price-based SSM remedy.

Could an SSM remedy lead to a tariff imposed on the farm product in question in excess of the bound MFN tariff rate as set before the Doha Round? This question was one of the most controversial topics debated among WTO Members in 2008, pitting China and India on one side against the United States on the other.426 The general answer would be “no,” said the December 2008 Text, like its predecessor. That is, no SSM remedy, either volume- or price-based, could lead to a duty rate that exceeded the pre-Doha bound tariff level.427 The rate a developing country had before the Round would be the upper boundary of the SSM remedy.

However, there would be three exceptions:

(1) Least-developed countries could breach their pre-Doha Round rate, but not by more than 40 ad valorem percentage points, or 40 percent of their bound rate, whichever proved higher.428

(2) On up to 10–15 percent of their tariff lines, SVEs, along with Bolivia, Congo, Côte d’Ivoire, and Nigeria (and possibly other WTO Members), could exceed their pre-Doha bound rates by up to 20 ad valorem percentage points, or 20 percent of their bound rate, whichever is higher.429

(3) Some developing countries, other than SVEs, would be able to apply a maximum SSM remedy above the pre-Doha Round level on between 2–6 percent of their tariff lines.430 They could not exceed the higher of 15 ad valorem percentage points above that level, or 15 percent of the bound rate.431

The general constraint would ensure that a post-Doha Round MFN tariff binding, plus an SSM remedy, would not leave affected exporting countries worse off than they had been before the Doha Round. But, the special and differential treatment afforded to least-developed countries, SVEs, and certain developing countries meant exporters of targeted farm goods indeed could be worse off than before.

Chairman Falconer’s Revised Draft SSM Modalities document tried to bridge the gap between the likes of China and India, on one side, and the United States, on the other. This document offered rules, some as alternatives, and some as complements, to the December 2008 Text provisions on SSM.432

(1) A so-called “double” volume-based SSM trigger could lead to a remedy above the bound rate. First, if the import surge exceeded 120 percent but was less than 140 percent of the base import level (calculated as an average of imports in the three preceding years), then the maximum additional duty

425. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 140. 426. Eisuke Suzuki, The Collapse of the Doha Round and the Future of the World Economy—I, BUS.

RECORDER, Aug. 13, 2008, available at http://www.brecorder.com/index.php?id=790141&currPageNo =1&query=&search=&term=&supDate=.

427. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 142. 428. Id. para. 143. 429. Id. para. 144. 430. Id. para. 145. 431. Id. 432. See generally id. paras. 3–5(b).

10 Bhala PUB 11/13/2009 9:37:45 AM


could not exceed the higher of one-third of the bound tariff, or 8 percentage points.433 Second, if the surge were greater than 140 percent of the bound level, then the SSM remedy could lead to an additional duty not in excess of the higher of one-half the bound rate, or 12 percentage points.434 The greater the surge, the greater the permissible remedial duty in excess of the pre-Doha bound rate.

(2) Absent exceptional circumstances (namely, an imminently foreseeable price decline based on reliable price data), a volume-based SSM could not be invoked unless domestic prices of the protected product were falling (and then only subject to review, if requested, by a standing panel of experts).435

(3) The volume-based SSM could be applied for a maximum of four to eight months, and could not be re-applied until a further equivalent number of months had elapsed.436 There would be an overall cap on applying the volume-based SSM—it could not be used against more than 2.5 percent of tariff lines in any twelve month period.437

(4) On seasonable perishable products, an SSM could be paused such that it could apply for a few months in one 12-month period, and then a few months in the next 12-month period.438 But, it could not spill over into a third 12-month period.439 The months in which the remedy would be applied would be the peak periods in which domestic producers in the importing country faced the greatest amount of competition from abroad.

(5) Least-developed countries and SVEs would have greater flexibility than regular developing countries on the aforementioned points, as determined by subsequent negotiations.440

Whether any of these suggestions would bridge the gap was unclear. Two points, however, were obvious. First, the integrity of the Uruguay Round tariff bindings would be seriously compromised by exceptions to the general constraint and the double-volume based trigger. Second, the entire area of SSMs was littered with numerous technical hoops which a developing country would have to jump through before invoking the remedy. The first point entailed a clear deviation from free trade principles. The second point manifested a deviation from clarity itself.

3. Tropical Products and Preference Erosion

The problem of preference erosion with respect to agricultural products is conceptually no different from that of industrial products. The basic issue is the decline in the margin of preference—the difference between MFN duty rates and the preferential duty rate (which typically is zero)—as MFN rates decline through the implementation of successive multilateral trade round cuts. Preference-granting countries, almost exclusively rich nations such as the United States and EU, are

433. Revised Draft Modalities for Agriculture Special Safeguard Mechanism, supra note 26, para. 3. 434. Id. 435. Id. 436. Id. 437. Id. 438. Id. para. 4. 439. Revised Draft Modalities for Agriculture Special Safeguard Mechanism, supra note 26, para 4. 440. Id. paras. 5(a)–(b).

10 Bhala PUB 11/13/2009 9:37:45 AM


obliged to implement the cuts.441 Preference-beneficiary countries invariably are a select group of poor countries that are selected by the grantors according to criteria they set. The beneficiaries argue for delayed implementation of those cuts because they fear export competition from like or substitutable products originating in third-party countries, both rich and poor, in the markets of the preference grantors. Why not, urge the beneficiaries, phase in agricultural tariff cuts, especially on tropical products, which are of keen export interest to them, over an extended period of time? Because, reply third-party countries, every extra day of implementation beyond the normal period is a day their products do not benefit from agreed-upon tariff cuts.

In brief, the debate about preference erosion pits some poor countries against others in a zero-sum game. One side seeks to string out the maximum margin of preference for as long as possible. The other side wants a playing field leveled by MFN rates as quickly as possible. The game often involves tropical products because they are the archetypical merchandise eligible for a preference, given that grantors tend to be former colonial powers, and beneficiaries (and, ironically, several third-party countries) are their poor, former colonies.

The December 2008 Text was the verbatim equivalent of the July 2008 Text on tropical products and preference erosion.442 As on other farm issues, the identical nature of the Texts did not intimate consensus. The first problem was agreeing to the list of products that would count as “tropical” and therefore be subject to tariff cuts that would (depending on the steepness of the reduction) erode a preference. Negotiations focused on a list of forty-two products.443 This problem appeared to be resolved via an agreement deferring to the African, Caribbean, and Pacific (ACP) interest to preserve preferential access to the EU market on bananas, pineapples, rum, and sugar by excluding these products from the list.444

A second—but unresolved—problem was a difficulty that had plagued the world trading system since before the creation of the WTO. The EU battled several Latin American countries over bananas.445 Following losses in eleven GATT and WTO cases, the EU promised to implement a single-tariff (tariff-only) regime by January 2006, and grant at least the same level of market access to third-party country exporters as to its preferred ACP trading partners.446 Indeed, without such a

441. See December 2008 Draft Agriculture Modalities Text, supra note 26, para. 148 (providing two potential provisions with cuts to be applied by developed countries).

442. Compare id. paras. 147–50, Annexes G–H, with July 2008 Draft Agriculture Modalities Text, supra note 44, paras. 138–41, Annexes G–H. Annex G to the July 2008 Text expanded the list of tropical products to include a wide array of fruit and vegetable items, coffee and tea, cigarettes and cigars, and rum. July 2008 Draft Agriculture Modalities Text, supra note 44, Annex G. It may be observed that the inclusion for any trade liberalization benefits of tobacco and tobacco-related products, as tropical products, is ludicrous in light of their well-known health risks.

443. Progress on EU–Latin American Banana Deal Made Before Collapse of Doha Round Talks, 25 Int’l Trade Rep. (BNA) 1160 (Aug. 7, 2008).

444. Id. With respect to preference erosion, pineapples appear not to have been a source of great controversy between ACP and Latin American exporters of the fruit, because the latter group enjoys preferential access to the EU market through the EU Generalized System of Preferences (GSP). Id.

445. Id. 446. See Raj Bhala, The Bananas War, 31 MCGEORGE L. REV. 839, 878–79 (2000); Alan Beattie,

Expectations Low as Doha Talks Begin—EU Regime in Dispute, FIN. TIMES, July 22, 2008, at 8; Daniel Pruzin, WTO’s Lamy Delivers Compromise Text Aimed at Resolving Banana Dispute, 25 Int’l Trade Rep. (BNA) 1048 (July 17, 2008) [hereinafter Pruzin, Lamy Delivers Compromise Text] (quoting an unnamed Latin American official).

10 Bhala PUB 11/13/2009 9:37:45 AM


promise, third-party country producers (located mainly in Latin America) had threatened in November 2001 to block the launch of the Doha Round.447

Initially, the EU set the tariff at 230 per metric ton.448 Latin American countries successfully challenged that rate in two WTO arbitration proceedings, as the 230 level failed to maintain equivalent market access for their banana exports to the EU.449 The EU responded by dropping the tariff to 176 per ton, but also set up an annual duty-free quota of 775,000 metric tons for ACP exporters.450 Ecuador (the world’s largest banana exporter) and the United States (headquarters of two major banana distributors, Chiquita and Dole) prevailed against the EU in WTO proceedings, obtaining rulings that the EU quota was illegal because it unfairly discriminated among WTO Members.451 To avoid further adjudicatory proceedings, WTO Director-General Pascal Lamy agreed to mediate a solution. His report suggested a compromise whereby the EU would make an immediate down payment to Latin American exporters by way of a large cut to its 176 per ton tariff, and make further cuts across a defined transition period.452 Specifically, the final tariff would be

114, which the EU would reach over an eight-year period starting on January 1, 2009, with an immediate cut on that date of 28.453

The Lamy compromise pleased no one even though a single tariff-only regime of 176 per ton was the deal struck years earlier to end the Bananas War.454 The ACP countries feared for their historical preferences. If a banana tariff cut through the Lamy compromise were to be too steep, then their access to the EU market would be jeopardized. Likewise, if bananas were not designated as Sensitive and subject to the July 2008 Text proposal of an 85 percent tariff reduction, the new tariff would be 26.4 per ton—effectively eroding the ACP margin of preference.455

The ACP position was influential in the EU. It accorded with the commercial interests of the two major banana producers in the EU, France, and Spain, which have considerable operations in the ACP.456 The EU insisted that if it were to cut its banana tariff via the compromise, then the compromise must unambiguously permit it to exclude bananas (along with melons, rum, and sugar) from the list of tropical

447. Pruzin, Lamy Delivers Compromise Text, supra note 446. 448. Id. 449. Id. 450. Id. 451. Id. Those rulings also included a WTO Appellate Body compliance report, issued Nov. 26, 2008,

which upheld two Panel decisions that the EU had failed to comply with previous adjudicatory rulings, as its banana import regime continued to discriminate in favor of ACP bananas and against Latin and other non-ACP supplying countries. Appellate Body Report, European Communities—Regime for the Importation, Sale and Distribution of Bananas: Second Recourse to Article 21.5 of the DSU by Ecuador, WT/DS27/AB/RW2/ECU (Nov. 26, 2008), available at http://docsonline.wto.org/DDFDocuments/t/ WT/DS/27ABRWUSA.doc; Daniel Pruzin, Latin Countries Slam EU Inaction on Banana Tariffs, Push 2008 Side Deal, 26 Int’l Trade Rep. (BNA) 155 (Jan. 29, 2009).

452. Pruzin, Lamy Delivers Compromise Text, supra note 446. 453. Pruzin, Latin Countries Slam EU Inaction on Banana Tariffs, Push 2008 Side Deal, supra note

451. 454. See Raj Bhala, The Bananas War, supra note 446, at 954–70 (discussing the four most important

lessons to be taken away from the Bananas War); Jeremy Smith, EU, Latin America Look to WTO Talks for Banana Deal, REUTERS, Dec. 5, 2008, available at http://www.reuters.com/article/ reutersEdge/idUSTRE4B427320081205?sp=true (noting that the 176 euro EU tariff was a WTO agreement struck in the 1990’s).

455. Pruzin, Lamy Delivers Compromise Text, supra note 446, at 1048–49. 456. Id.

10 Bhala PUB 11/13/2009 9:37:45 AM


products slated for Doha Round tariff reductions.457 The EU should be allowed to declare bananas as a Sensitive Product, so that it does not have two legal obligations to slash banana tariffs. Further, the EU was adamant that any deal on bananas would have to be contingent on an overall Doha Round agreement in agriculture.458

The EU position, shaped by the ACP, was the diametric opposite of the Latin American stance. For Latin banana exporting countries, resolving the Bananas War was a separate matter.459 There should be no deal in the Round without its settlement. Latin American countries attacked the Lamy compromise as “very much biased” in favor of the EU, which they said already had agreed in negotiations to an immediate 20 percent cut in the 176 figure.460 The implementation period was also a battlefront, with the EU arguing for a transition period of fifteen years, and the Latin American exporting countries demanding four or five years.461 The Bananas War heated up, and Ecuador—the largest banana exporter in the world—said that without a settlement it found agreeable, it would not join a consensus to conclude the Doha Round agriculture modalities.462

A third problem concerning tropical products and preference erosion was to agreeing how to balance the basic tension between preference beneficiary countries and third-party countries. The rules proposed in the December Text, as in its predecessor, suggested that to achieve the fullest possible liberalization of trade in tropical products, all WTO Members would cut their bound MFN duty rates on these products according to the tiered-tariff formula.463 In addition, they would apply the following modality, which consisted of two options.

First, if the scheduled tariff on a tropical product is equal to or below 25 percent ad valorem, then that tariff must be cut to zero.464 If the tariff is greater than 25 percent, then it must be cut by 85 percent.465 All developed countries would have four years to phase in the cuts (through four equal, annual installments), and they could not treat any tropical good as a “Sensitive Product”.466 Second and alternatively, if the scheduled tariff on a tropical product is below 10 percent ad valorem, then that tariff must be cut to zero.467 If a tropical product tariff is equal to or above 10 percent, then it must be cut by 70 percent.468A steeper cut would apply if the tariff exceeded 75 percent.469 All developed countries would phase in the tariff cuts in a prescribed implementation period.470

457. Id. at 1048. 458. Id. at 1048–49. 459. Id. 460. Id. (quoting an unnamed Latin American official). 461. Pruzin, Lamy Delivers Compromise Text, supra note 446, at 1049. 462. UPDATE 1—Ecuador Threatens Doha Deal Over Banana Dispute, REUTERS, Nov. 26, 2008,

available at http://www.reuters.com/article/companyNewsAndPR/idUSN2636452920081126. 463. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 147; July 2008 Draft

Agriculture Modalities Text, supra note 44, para. 138. 464. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 148. 465. Id. 466. Id. 467. Id. 468. Id. paras. 61(d), 148. 469. See id. (specifying that tariffs in the top band according to para. 61, that is, above 75%, would be

reduced by an additional two ad valorem points). 470. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 148.

10 Bhala PUB 11/13/2009 9:37:45 AM


To deal with preference erosion, the December 2008 Text and its predecessor created a reverse age-discrimination rule. No tariff cuts would be imposed by any preference-granting country on a product that has been the subject of a preference (listed in Annex H to the texts) for ten years.471 After a decade, tariff cuts would be implemented across five years through equal annual installments.472 The longer a poor country had relied on a preference, the slower the phase out of that preference—a presumptively fair result that would minimize adjustment costs from the long-standing detrimental reliance.

As an alternative, preference-grantors could impose tariff cuts on a preferential product in equal annual installments in a period two years longer than the implementation period for developing countries under the tiered formula, that is, over twelve years.473 But, these cuts would apply only to a preferred product if its pre-Doha bound MFN rate exceeded 10 percent, the value of trade from the beneficiary was above a threshold (U.S. $50,000 or 3 percent exports from that beneficiary to the grantor country), and there is an unconstrained, long-standing preference in the market of the grantor country.474

4. Least-Developed Countries

As the poorest of the poor countries, least-developed countries always knew they could count on the most favorable derogations from any Doha Round obligation. What they did not know, nor had much practical control over, was how generous those derogations might be. They had secured, at the December 2005 Hong Kong Ministerial Conference, a Decision on Measures in Favor of Least-Developed Countries.475 The December 2008 Text, like its July predecessor, essentially incorporated the text of this Decision, with minor adjustments.476

With these developments, the extent of generosity started to become clear. Least-developed countries would not have to undertake reductions in bound MFN tariff rates on agricultural products.477 But, most of the other provisions for least-developed countries were exhortative in nature. For instance, WTO Members reaffirmed their commitment to integrate these countries into the world trading system,478 and to ensure preferential rules of origin would be simple and transparent.479

The key substantive commitment from developed countries, and from developing countries in a position to make the commitment, concerned duty free, quota free (DFQF) treatment for exports originating in least-developed countries.480 The obvious generous rule would be to provide immediate, lasting DFQF treatment

471. Id. para. 149; July 2008 Draft Agriculture Modalities Text, supra note 44, para. 140. 472. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 149. 473. Id. 474. Id. 475. World Trade Organization, Ministerial Declaration of 18 December 2005, Annex F,

WT/MIN(05)/DEC (2005), available at http://docsonline.wto.org/DDFDocuments/t/WT/MIN05/DEC.doc [hereinafter Hong Kong Ministerial Declaration].

476. Id. Annex F; December 2008 Draft Agriculture Modalities Text, supra note 26, paras. 152(a)–(c); July 2008 Draft Agriculture Modalities Text, supra note 44, paras. 143(a)–(f).

477. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 151. 478. Id. para. 152. 479. Id. para. 152(c). 480. Id. paras. 153, 156.

10 Bhala PUB 11/13/2009 9:37:45 AM


on 100 percent of these exports immediately upon the entry into force of any Doha Round accords. That, however, would be too much to ask of some rich countries.

Thus, the rule proposed was DFQF on at least 97 percent of least-developing country exports, by a date yet to be agreed upon.481 SVEs, by contrast, were unable to secure any numerical target. Developed countries, and developing ones in a position to do so, agreed only to provide “enhanced improvements in market access” for products of export interest to SVEs.482 Unsurprisingly, rich countries hunted for the 3 percent exemption for farm sectors they aimed to protect.483

Cotton was one such sector. The United States had poured billions of dollars into cotton subsidies, as had been widely reported throughout the Doha Round.484 Protecting these subsidies was important, all the more so after Brazil successfully attacked them in WTO litigation.485 Less widely known was the Chinese stance in favor of protecting its cotton sector.486

Many of China’s cotton farmers are Muslim, and not ethnically Han.487 They reside in the far western province of Xinjiang. About the last outcome from the Doha Round the Chinese Communist Party (CCP) wanted was to enrage the Uyghur Muslim population. What the CCP calls the “Xinjiang Uyghur Autonomous Region” might become a movement for “Uyghurstan” or “East Turkistan,” redolent of a “Free Tibet” campaign, threatening not only the monopoly of the CCP on political power, but the integrity of China itself. The tragic ethnic violence in Urumqi, the capital of Xinjiang, graphically illustrates the problem. The July 2009 unrest left over 150 dead, 800 injured, and provoked a predictable iron-fisted response from the CCP that restored order, but not real peace, by addressing only the symptoms of the violence.488 Thus, for the ruling elite in Beijing, retaining China’s 40 percent tariff on imported cotton was critical.

The United States took the position that it would not cut its cotton subsidies unless China cut its cotton tariff so as to increase market access for American

481. Id. para. 152(a). 482. Id. para. 158. 483. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 149. 484. See, e.g., Bradley S. Klapper, Doha Deal Falters as WTO Fails to Set Meeting Date, SEATTLE

TIMES, Dec. 8, 2008, available at http://seattletimes.nwsource.com/html/businesstechnology/ 2008482430_apeuwtotradetalks.html?syndication=rss (“[T]he U.S. was on the defensive over the hundreds of millions of dollars in cotton subsidies it hands out each year.”).

485. See Appellate Body Report, United States—Subsidies on Upland Cotton, § VIII, WT/DS267/AB/R (Mar. 3, 2005), available at http://docsonline.wto.org/imrd/directdoc.asp?DDF Documents/t/WT/DS/267ABR.doc. For a detailed commentary on this case, see Raj Bhala & David Gantz, WTO Case Review 2005, 23 ARIZ. J. INT’L & COMP. L. 107, 278–87 (2006).

486. See Amy Tsui, NCTO Calls for Tough Action from Obama on China as Textile Export Subsidies Rise, 25 Int’l Trade Rep. (BNA) 1719 (Dec. 4, 2008) [hereinafter Tsui, NCTO Calls for Tough Action from Obama] (discussing China’s continual subsidization of the cotton sector).

487. William Foreman, Ethnic Riots in Western China Subdued With Curfews, ASSOCIATED PRESS, July 7, 2009 (observing that “[t]rade, wheat farming and sheep herding has given way to plantation farms of cotton and sugar beets and natural resource extraction” in Xinjiang Province).

488. See Kathrin Hille, Ethnic Violence in China Leaves at Least 150 Dead and 800 Injured, FIN. TIMES, July 7, 2009, at 1; Richard McGregor & Kathrin Hille, Beijing Places Blame on Outsiders, FIN. TIMES, July 7, 2009, at 3; Beijing is Unwise to Play with Fire—China Must Address, Not Suppress, Its Ethnic Tensions, FIN. TIMES, July 7, 2009, at 8.

10 Bhala PUB 11/13/2009 9:37:45 AM


farmers.489 It took this position notwithstanding the fact that between 2004 and 2008, cotton was the second largest American farm export to China, totaling $7.8 billion.490 From the American perspective, the potential to ship yet more cotton to China’s textile and apparel (T&A) mills was enormous, and the unscrupulous behavior of the Chinese government—manifest in a new non-tariff barrier against cotton, namely, a registration system for imports—was of serious concern.

But, to the CCP, given its fear of unrest in Xinjiang, the Americans had taken a position that had to be resisted. Textually, the result was obvious—a fudge. The December 2008 Text, like its predecessor, stated that developed and developing countries alike must give DFQF treatment to cotton exports from least-developed countries, but only if they “declar[ed] themselves to be in a position to do so.”491 Practically, the losers from the Sino-American gridlock on generosity to foreign cotton farmers became clear—least-developed countries. In particular, the Muslim farmers of the Cotton Four seemed forgotten, if not doomed.

D. Farm Exports

1. Export Competition

Support for agricultural product exports is the most pernicious form of farm subsidies, in the sense of distorting global trade patterns.492 The intrinsic purpose of a farm export subsidy is to boost exports from the subsidy-granting country to the detriment of competitive products from third countries. Thus, a high-profile goal in the Doha Round of almost all WTO Members—with the notable exception of some EU states, like France, which traditionally used export subsidies—was to eradicate this kind of support as quickly as possible.493

The December 2008 Text contained the same pledge as its predecessor, namely, that developed countries would eliminate agricultural export subsidies by the end of 2013.494 This obligation would include eliminating subsidies disguised as non-

489. See Klapper, supra note 484 (“The United States and China were at odds over an American

demand for massive tariff cuts in the global chemicals sector, while the U.S. was on the defensive over the hundreds of millions of dollars in cotton subsidies it hands out each year.”).

490. Amy Tsui, China’s Imported Cotton System Violates WTO Commitments, Senators Tell Vilsack, 26 Int’l Trade Rep. (BNA) 323 (Mar. 5, 2009).

491. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 155; July 2008 Draft Agriculture Modalities Text, supra note 44, para. 143.

492. See Yeong-Her Yeh, Export Subsidies vs. Production Subsidies, 14 ATLANTIC ECON. J. 71, 71 (July 1986) (arguing that from a welfare standpoint, “a production subsidy is always better than an export subsidy, whether the country concerned is small or not”).

493. See Daniel Pruzin, EU Reports Continued Decline in Spending on Export Subsidies for Agricultural Goods, 25 Int’l Trade Rep. (BNA) 1716 (Dec. 4, 2008) (discussing EU export subsidies and discussions surrounding export subsidies at the Hong Kong ministerial). The EU spent over 3 billion annually, for the 2002–2003 marketing year (MY), on agricultural export subsidies, far in excess of the U.S. or any WTO Member. Id. However, the general expenditure trend has been down, with the EU notifying the WTO of agricultural export subsidies of 1.46 billion for MY 2006–2007. Id. The largest crop receiving an EU export subsidy is sugar. Id. Dairy products (butter, cheese, milk, and skim milk powder), grains, poultry, wheat and wheat flour are other major recipients. Id.

494. December 2008 Draft Agriculture Modalities Text, supra note 26, paras. 160, 162; July 2008 Draft Agriculture Modalities Text, supra note 44, paras. 150, 152. The new text made modest alterations to quantity commitment levels. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 162(b); July 2008 Draft Agriculture Modalities Text, supra note 44, para. 152(b).

10 Bhala PUB 11/13/2009 9:37:45 AM


emergency food aid or veiled by credit programs.495 It also would include eradicating cotton export subsidies by the end of the first year of the implementation period of any Doha Round agreement.496

This pledge was not new. WTO Members had agreed to it in the December 2005 Hong Kong Ministerial Conference.497 Likewise, they also agreed in that Ministerial Conference to a rule against back-end loading.498 They would cut half of the export subsidies by 2010 in equal annual installments, and get to zero by the end of 2013.499 For their part, developing countries agreed to eliminate their farm export subsidies in equal annual installments by the end of 2016.500 The December Text added that during the phase out period, no new export subsidy programs (either with respect to new markets or products) could be created.501

What about export credits, export credit guarantees, and insurance programs? The EU had long claimed that these programs, utilized intensively by the United States, were a hidden export subsidy.502 The United States had long responded that they were not export subsidies but also had agreed to eliminate any trade-distorting element in them.503 The key rules would be as follows:504

(1) There would be disciplines on export credits. For instance, the repayment period would be limited to 180 days, or between 360 and 540 days for least-developed countries and NFIDCs.505 Obviously, the longer the repayment period, the more a credit looks like a subsidy. Programs would have to be self-financing, in the sense of not making losses over a period and recovering costs according to a commercially viable standard over a rolling four-year period.506 Manifestly, a loss-making credit scheme is presumptively a subsidy. There also would be disciplines on export credit guarantees or insurance programs.

(2) International food aid could be subject to loose disciplines. Essentially, for such aid to qualify for a Safe Box (and thereby be immune from a WTO

495. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 167, Annex L. 496. Id. paras. 168–69. 497. Hong Kong Ministerial Declaration, supra note 475, para. 11. 498. Id. Annex A, para. 21 (explaining that there was general agreement on front-loading and

disagreement only regarding its extent and timing). 499. December 2008 Draft Agriculture Modalities Text, supra note 26, para.162(a). 500. Id. para. 163. Developing countries would be permitted to continue to subsidize marketing costs

(including international transport and freight) and internal transport and freight charges, associated with farm products, as allowed under Article 9:4 of the WTO Agreement on Agriculture, until the end of 2021. Id. para. 164. This dispensation also was not new, having been set out in the December 2005 Hong Kong Ministerial Conference. Hong Kong Ministerial Declaration, supra note 475, para. 6.

501. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 162(b). 502. See Directorate General for Trade, European Commission, United States Barriers to Trade and

Investment Report for 2007, § 5.8 (Apr. 2008), available at http://trade.ec.europa.eu/doclib/html/144160.htm (addressing concerns by the EU that direct and indirect government support to U.S. farmers performs, in effect, as export subsidies).

503. Submission from the United States, Proposal for Comprehensive Long-Term Agricultural Trade Reform Submission from the United States, at 3–4, G/AG/NG/W/15 (June 23, 2000), available at http://docsonline.wto.org/DDFDocuments/t/G/AG/NGW15.doc. (treating export subsidies and export credit programs separately, and proposing a substantial reduction of “trade-distorting domestic support”)

504. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 165, Annexes J–L; July 2008 Draft Agriculture Modalities Text, supra note 44, para. 155, Annexes J–L.

505. December 2008 Draft Agriculture Modalities Text, supra note 26, Annex J, paras. 4(a), 5. 506. Id. Annex J, para. 3(b).

10 Bhala PUB 11/13/2009 9:37:45 AM


lawsuit), an international organization (such as the United Nations, World Food Program, or Red Cross) would have to declare an emergency.507 Such a declaration would alleviate doubts as to whether the food was aid or an offloading of surplus production. Non-emergency food aid would be subject to a needs assessment conducted by an appropriate United Nations agency to ensure this aid does not displace commercial trade.508

However, it remained unclear how monetization of food assistance (i.e., selling donated products to raise funds for aid) might be disciplined. Whether monopoly power associated with agricultural exporting state trading enterprises (STEs) would be prohibited, or simply restricted in some way, was also left ambiguous.509

Finally, the December 2008 Text included the same conflict of law, or pre-emption, rule from its predecessor in July concerning food crises.510 The rule ensured commitments made to NFIDCs during the Uruguay and Doha Rounds would be undiminished by any other provision in the text.511 Indubitably, this provision reflected the global economic context in which it was drafted in the summer 2008, namely, one of sharp food price increases threatening tens of millions of people, especially in poor countries.

2. Export Restrictions

As for restrictions on exports, especially food, the December 2008 Text was nearly identical to the July Text, which in turn had not changed much following issuance of the February 2008 Text.512 Accordingly, the December Text proposed strengthening Article 12 of the WTO Agreement on Agriculture, the only provision in the GATT–WTO regime containing direct disciplines on measures to limit farm product exports513 (GATT Articles XI:2(a) and XX(i)-(j) condone such limits, under certain circumstances).

In particular, Article 12 of the Agriculture Agreement, which is inapplicable to developing and least-developed countries, contains two loose requirements: a WTO Member (1) should give due consideration to the effects on NFIDCs of any prohibitions or restrictions it might impose on its food exports, as well as (2) provide notice of the nature and duration of any constraints as far in advance as practicable to the WTO Committee on Agriculture.514 The December 2008 Text contained five further disciplines:

507. Id. Annex L, para. 6. 508. Id. paras. 11(a)–(c). 509. Id., Annex K, para. 3(a). STEs are defined in GATT Article XVII. General Agreement on

Tariffs and Trade, art. XVII, Oct. 30, 1947, 61 Stat. A-11, 55 U.N.T.S. 194. 510. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 161; July 2008 Draft

Agriculture Modalities Text, supra note 44, para. 151. 511. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 160. 512. Id., paras. 171–80; July 2008 Draft Agriculture Modalities Text, supra note 44, paras. 161–67;

Committee on Agriculture, Special Session, Revised Draft Modalities for Agriculture, paras. 163–69, TN/AG/W/4/Rev.1 (Feb. 8, 2008), available at http://docsonline.wto.org/DDFDocuments/t/tn/ag/W4R1.doc.

513. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 171. For journalistic accounts, see, e.g., Daniel Pruzin, French Trade Minister Sees No Action in Doha Round on Food Export Restrictions, 25 Int’l Trade Rep. (BNA) 637–38 (May 1, 2008); Daniel Pruzin, WTO Members in Ag Talks Fail to Tackle Growing Problem of Food Export Restrictions, 25 Int’l Trade Rep. (BNA) 479–80 (Apr. 3, 2008) [hereinafter Pruzin, WTO Members].

514. Uruguay Round Agreement on Agriculture, supra note 84, Annex 1A.

10 Bhala PUB 11/13/2009 9:37:45 AM


(1) Existing food export restrictions must be eliminated by the first year of implementation of any Doha Round deal.515

(2) The duration of any new limits must be capped at twelve months (or eighteen months, if affected importing Members agreed).516

(3) The exporting Member implementing the restrictions must give notice of the reason for them.517

(4) Notice of export restrictions is required within ninety days of their entry into force.518

(5) Annual updates must be provided by the exporting Member about its export constraints to the Committee on Agriculture, which is in charge of monitoring compliance with all disciplines.519

The December 2008 Text added a sixth discipline about consultation that was not explicit in its predecessor.520

The sixth discipline had an interesting history. As commodity prices rose in 2007–2008, proposals to help NFIDCs, such as rice importers like Bangladesh, Indonesia, and the Philippines, were floated in WTO circles.521 But, exporting WTO Members like Argentina, Brazil, China, Egypt, India, Indonesia, Thailand, and Vietnam, as well as non-Members like Kazakhstan and Russia, resisted any constraint on their sovereign freedom to manage domestic food problems.522 All of these exporting countries had, in early and mid-2008, imposed export tariffs, outright export bans, or other export restrictions on basic staples and foodstuffs such as barley, edible oils, rice, soybeans, and wheat.523 They took these measures to promote their own food security.524 Consequently, the exporting Members fervently opposed an April 2008 joint proposal by Japan and Switzerland—each of which is a net food importer—to strengthen Article 12 of the Agriculture Agreement.525 That proposal was to require advance notice to the WTO Committee on Agriculture of any impending export restriction (especially as to the duration and reasons for the measure), and consultations in the event of a dispute.526 The proposal also called for establishment of a standing committee of experts, to be used if consultations failed, which would render a binding judgment as to whether the disputed restriction is

515. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 178. 516. Id. para. 179. 517. Id. para. 173. 518. Id. para. 172. 519. Id. paras. 176–77. 520. See id. paras. 174–75; July 2008 Draft Agriculture Modalities Text, supra note 44, paras. 161–67. 521. E.g., Pruzin, WTO Members, supra note 513, at 479–80 (discussing a proposal by Falconer that

would limit the duration of export restrictions in response to the food crisis). 522. E.g., id. (explaining protectionist government responses to rising costs of agricultural

commodities); Daniel Pruzin, Developing Countries Cool to Ag Proposal by Japanese, Swiss on Export Restrictions, 25 Int’l Trade Rep. (BNA) 673–74 (May 8, 2008) [hereinafter Pruzin, Developing Countries] (Countries listed “have imposed restrictions on exports . . . in response to a spike in commodity prices”).

523. Pruzin, Developing Countries, supra note 522. 524. See, e.g., id.; Daniel Pruzin, French Trade Minister Sees No Action in Doha Round on Food

Export Restrictions, 25 Int’l Trade Rep. (BNA) 637–38 (May 1, 2008). 525. See Pruzin, Developing Countries, supra note 522 (discussing the “cool reception” the proposal

received from developing countries). 526. Id.

10 Bhala PUB 11/13/2009 9:37:45 AM


necessary.527 Its implementation would be prohibited pending the outcome of the case.528

The sixth discipline in the December 2008 Text was a compromise of sorts. An exporting Member that intends to institute an export restriction or prohibition would have to consult with any other Member that has a “substantial interest” as an importer of the product in question.529 This requirement of a priori consultation effectively offset the fact that under the fourth discipline, formal notice need not be given in advance of implementing an export constraint.530 The exporting Member would be obliged to provide (upon request by the importing Member) necessary economic information about the expected constraint.531 However, the new Text did not define “substantial interest,” so it remained unclear precisely which countries might invoke the consultative mechanism. Equally unclear was what would happen in the event of a disagreement—other than, perhaps, formal WTO adjudication.

Notwithstanding all six disciplines, as a practical matter of political economy, no government—except one of pirates and bandits—would sell domestic food production to the highest bidder overseas when its citizens were desperately short of food. The six disciplines all amount to procedural checks to give warning and modest comfort to third country food importers. None of the restrictions were substantive benchmarks to gauge whether the restrictions would enhance the global distribution of a foodstuff during a crisis to ensure that goods reached in a timely fashion the people in greatest need. Perhaps the real consolation for food-importing countries would be the fact that none of the disciplines applied to least-developed countries or NFIDCs.532 Assuming they had an exportable surplus, they could impose export prohibitions or restrictions as they saw fit.

III. THE DECEMBER 2008 DRAFT NAMA MODALITIES TEXT

The December 2008 Draft NAMA Modalities Text covered well-trodden issues. Large swathes of the text were nearly identical to its July predecessor.533 The new text, running 126 pages, covered familiar topics and spotlighted the choices facing the Members.534 There were few remarkable changes, meaning WTO Members had not narrowed, much less healed, existing schisms on certain matters. Indeed, several innovations in the December 2008 Text (e.g., on Swiss Formula Coefficients, flexibilities, and the anti-concentration clause) came directly from the Friday Night Proposal put forth by the Director-General in the July 2008 Ministerial meeting—the meeting that had broken up in disagreement.535

527. Id. 528. Id. at 674. 529. December 2008 Draft Agriculture Modalities Text, supra note 26, para. 174. 530. Id. para. 172. 531. Id. para. 174. 532. Id. para. 180. 533. Compare December 2008 Draft NAMA Modalities Text, supra note 26, with Negotiating Group

on Market Access, Draft Modalities for Non-Agricultural Market Access Third Revision, TN/MA/W/103/Rev.2 (July, 10, 2008) [hereinafter July 2008 Draft NAMA Modalities Text].

534. This Synopsis is based on a paragraph-by-paragraph, line-by-line comparison of the December 2008 and July 2008 Draft NAMA Modalities Texts. It also is based on World Trade Organization, The December 2008 NAMA Modalities Text Made Simple, http://www.wto.org/english/tratop_e/markacc_e/ guide_dec08_e.htm (last visited Oct. 6, 2009) [hereinafter December 2008 NAMA Made Simple].

535. December 2008 Draft NAMA Modalities Text, supra note 26, paras. 5, 7–8; July 2008 Draft NAMA Modalities Text, supra note 533, paras. 5, 7–8; International Centre for Trade and Sustainable

10 Bhala PUB 11/13/2009 9:37:45 AM


A. Enhancing Industrial Market Access through the Swiss Formula

1. Product Coverage

As with the July 2008 Draft NAMA Modalities Text, the subsequent text proclaimed that product coverage must be comprehensive, and no a priori exclusions would be allowed.536 That proclamation was technically correct. But, it lacked any real meaning.

Back in November 2001 when they signed the DDA, the WTO Members had not excluded for tariff cuts on any non-agricultural products from consideration.537 Yet, ever since then, they had labored mightily to make sure their favored sectors—their sensitivities—were taken off the bargaining table, or at least shielded partially from full trade liberalization commitments. Put succinctly, to say there are no a priori exclusions is not to mean there are no post hoc exceptions. After seven years of negotiations over intricate minutiae, in retrospect it might well have been easier if, at the Doha Ministerial Conference, each Member had been permitted to designate ten products on which it would not negotiate.

2 Swiss Formula Coefficients, the Mark Up, and Implementation Periods

The Swiss Formula remained the methodology for industrial product tariff cuts.538 This formula yields non-linear cuts, meaning that for any given coefficient, the deepest percentage reductions are imposed on the highest bound tariffs.539 Critically, the lower the absolute value of the coefficient, the greater the percentage cut in the pre-Doha rate.540 The coefficient in the formula also sets the maximum bound rate, that is, the highest tariff peak.541 Generally, the result from applying the formula to bound rates would be some reduction in tariff dispersion across countries, and a mopping up of a significant amount of the water in tariff schedules. But, the formula would not soak up all the water, and problems of tariff escalation would remain.542

Development, Members Give Mixed Reactions to Lamy Compromise, Take “A Good Step Forward” on Services, 6 BRIDGES DAILY UPDATE, July 26, 2008, available at http://ictsd.net/downloads/2008/07/daily-update-issue-7-template.pdf.

536. December 2008 Draft NAMA Modalities Text, supra note 26, paras. 1–3, 6(a); July 2008 Draft NAMA Modalities Text, supra note 533, paras. 1–3, 6(a).

537. Doha Development Agenda Declaration, supra note 1, para. 16. 538. December 2008 Draft NAMA Modalities Text, supra note 26, paras. 5–6. 539. See RAJ BHALA, DICTIONARY OF INTERNATIONAL TRADE LAW 445–48 (2008) (providing an

empirical example of this nonlinearity under the “Swiss Formula Coefficient” entry). 540. See id. (stating that there is an inverse relationship between the value of the coefficient and the

significance of the tariff reduction). 541. See id. at 447 (stating that the formula coefficient determines the maximum ad valorem tariff

rate permitted for a country). 542. The December 2008 Text left untouched the reality that tariff reductions would be from bound

rates, which would mean no real cuts for some WTO Members. Chile continued to be one of many examples. Chile’s overall applied MFN rate was 6%, so a cut (implied by both the December and July Texts) from 25 to 12% would give other Members no substantive market access gains. Defrosting Doha, ECONOMIST, July 17, 2008, available at http://www.economist.com/businessfinance/display Story.cfm?story_id=11745498. Likewise, the new text did not eradicate the problem of tariff escalation. The EU and coffee provided an illustration. If it is unroasted and not decaffeinated, then coffee enters the

10 Bhala PUB 11/13/2009 9:37:45 AM


Cuts would be made to bound MFN rates of duty.543 Any duties not expressed as an ad valorem tariff would have to be converted to their AVEs on the basis of the May 2005 Paris Methodology.544 For any unbound tariff line, a constant, non-linear markup would be applied to establish a base rate of duty from which to commence tariff cuts. The July 2008 Text called for a markup rate of 25 percentage points to applied MFN rates as a base level (as of November 14, 2001, when the Doha Round was launched).545 The December Text did the same.546

With one exception, the Swiss Formula remained the same in the December 2008 Text as its predecessor. The new text simply split the difference on the coefficient developing countries could elect. That is, the formula and its coefficients in the new Text were:547

t1 = {a or (x or y or z)} x t0

{a or (x or y or z)} + t0

Where:

t1 = final bound rate of duty

t0 = base rate of duty

a = Coefficient of 8 for developed countries, instead of 7–9 as

in the July 2008 Text.

x = Coefficient of 20 for certain developing countries, instead

of 19–21 as in the July 2008 Text.

y = Coefficient of 22 for other developing countries, instead of

21–23 as in the July 2008 Text.

z = Coefficient of 25 for still other developing countries,

instead of 23–26 as in the July 2008 Text.

Like its July predecessor, the December Text applied the same coefficient to all developed countries, but defined three developing country categories, to which coefficient x, y, or z would apply.548 The text permitted developing countries to self-designate their category and thereby choose the category-specific rules on flexibilities (discussed below) that would apply to them.549

EU duty-free. But, roasted and caffeinated coffee triggers an EU levy of 7.5% levy. Id. Like its predecessor, the December Text would cut that duty in half—a notable decline, but still some tariff escalation in a sector of importance to many poor countries. Id.

543. December 2008 NAMA Made Simple, supra note 534; see also December 2008 Draft NAMA Modalities Text, supra note 26, para. 5 (proving a formula for rate cuts).

544. Id. paras. 6(d)–(e); Committee on Agriculture, Special Session, Draft Possible Modalities on Agriculture, Annex A 28–33, TN/AG/W/3 (July 12, 2006) (setting out the Paris Methodology).

545. July 2008 Draft NAMA Modalities Text, supra note 533, paras. 6(b)–(c). 546. December 2008 Draft NAMA Modalities Text, supra note 26, paras. 6(b)–(c). 547. Id. paras. 5, 7(a)–(c); July 2008 Draft NAMA Modalities Text, supra note 533, paras. 5, 7(a)–(c). 548. December 2008 Draft NAMA Modalities Text, supra note 26, para. 5; July 2008 Draft NAMA

Modalities Text, supra note 533, para. 5. 549. See December 2008 Draft NAMA Modalities Text, supra note 26, para. 7 (permitting developing

countries to select one of three coefficients).

10 Bhala PUB 11/13/2009 9:37:45 AM


Only about forty WTO Members (representing nearly 90 percent of world trade) would apply the Swiss Formula. All developed countries would use it.550 For developed countries, the result of using the Swiss Formula with a coefficient of 8 would be a peak tariff of just below 8 percent, and bound tariffs at an average of far below 3 percent.551 For developing countries obligated to apply the Swiss Formula, the average bound duty rate would fall to 11–12 percent, with the majority of the tariff lines having a bound duty rate of less than 12–14 percent, and only a small number of lines with rates about 15 percent.552

Of the remaining 113 Members not required to implement the Swiss Formula, no tariff reductions would be expected of the thirty-two least-developed countries.553 Many developing countries would not apply the Swiss Formula (at all, or in part, depending on the country), because they fall into a privileged category entitled to some kind of special and differential treatment. These categories include:

(1) Very recently acceded, or newer, RAMs. There were eleven of them—Albania, Armenia, Cape Verde, Saudi Arabia, Kyrgyzstan, Macedonia, Moldova, Mongolia, Tonga, Vietnam, and Ukraine.554

(2) Regular, or older, RAMs. There were seven of them—China, Croatia, Ecuador, Georgia, Jordan, Panama, and Taiwan (Chinese Taipei).555

(3) Other older RAMs. There was one of them—Oman.556

(4) SVEs. There were thirty-one such Members, including Bolivia, Fiji, and Gabon.557

(5) Developing countries with low levels of binding coverage. There were thirteen of them—Cameroon, Congo, Côte d’Ivoire, Cuba, Ghana, Kenya, Macau, China, Mauritius, Nigeria, Sri Lanka, Suriname, and Zimbabwe.558

(6) Customs Union (CU) countries in the Southern African Customs Union (SACU). There were five of them—Botswana, Lesotho, Namibia, South Africa, and Swaziland.559

(7) CU countries in MERCOSUR. There were four of them—Argentina, Brazil, Paraguay, and Uruguay.560

550. See December 2008 NAMA Made Simple, supra note 534 (“Tariff reductions for industrial

products would be made using a ‘simple Swiss’ formula with separate coefficients for developed or for developing country members . . . the coefficient for developed members will be the same applicable to all of them.”).

551. Id. 552. Id. 553. See December 2008 Draft NAMA Modalities Text, supra note 26, para. 14. 554. Id. para. 20. 555. See id. para. 20 & n.8 (listing those not in para. 20). 556. Id. at 9 n.8, para. 7(g). 557. See id. para. 13 (naming Bolivia, Fiji, and Gabon, as well as others with less than 0.1% of non-

agricultural world trade); Negotiating Group on Market Access, Shares of WTO Members in Non-Agricultural Trade, 1999–2004, tbl. 3, TN/MA/S/18 (Dec. 8, 2005), available at http://docsonline.wto.org/DDFDocuments/t/tn/ma/S18.doc (providing each Member’s percentage of non-agricultural trade from 1999–2001).

558. Id. para. 8 & n.5. 559. December 2008 Draft NAMA Modalities Text, supra note 26, para. 7(e). 560. Id. para. 7(f).

10 Bhala PUB 11/13/2009 9:37:45 AM


(8) Other special countries. There were two of them—Argentina and Venezuela.561

(9) Least-developed countries.562

Implementation periods would differ as between developed and developing countries.

In particular, developed countries would have five years from January 1 of the year after the entry into force of the Doha Round.563 Developing countries would have ten years from that date.564 Thus, if the effective date happened to be January 2, both groups of countries would get an additional 364 days. That is, the earlier in the year the effective date, the greater the amount of time to phase in cuts. Certainly, by deferring tariff cuts by one extra year, from the perspective of trade liberalization, the December 2008 Text was less ambitious than it might have been.

3. The Anti-Concentration Clause

The December 2008 Draft Text contained an anti-concentration clause, a provision the EU had long championed.565 This clause barred exclusion from Swiss Formula cuts of an entire sector, that is, an entire HS Chapter.566 To ensure use of the formula in every HS Chapter, each WTO Member would be required to apply full formula reductions to a minimum of either 20 percent of total tariff lines under any HS product heading (e.g., automobiles, textiles and clothing, and chemicals), or 9 percent of the total value of imports in each HS Chapter.567

The new text was somewhat of a departure from its predecessor. The July Text contained an anti-concentration clause bearing two sharp rules.568 Developing countries would be forbidden from excluding an entire HS Chapter from tariff reductions.569 In each HS Chapter, these countries would have to apply full formula tariff cuts to a certain minimum percentage of national tariff lines, or a certain minimum percentage of the value of imports (of the developing country in question).570 Yet, given strenuous opposition from India to the clause,571 the July 2008 Text failed to state what the minimum figures would be.572 Whether India had warmed to the figures in the December 2008 Text during the intervening six months was unclear.

561. See id. paras. 7(h)–(i) (naming both countries in incomplete provisions). 562. Id. para. 14. 563. Id. para. 6(f). 564. Id. paras. 6(f), 8(d). 565. Daniel Pruzin, Lack of Progress on Industrial Tariffs Sector; Hopes Fade for Convening of WTO

Ministerial, 25 Int’l Trade Rep. (BNA) 1740 (2008) [hereinafter Pruzin, Lack of Progress]. 566. Id. 567. Id. 568. July 2008 Draft NAMA Modalities Text, supra note 533, para. 7(d). 569. Id. 570. Id. 571. Press Release, Dep’t of Commerce of India, Statement by Kamal Nath on the Outcome of the

WTO Mini-Ministerial Meet at Geneva (July 31, 2008), http://commerce.nic.in/PressRelease/ pressrelease_detail.asp?id=2291 (last visited Oct. 25, 2009).

572. July 2008 Draft NAMA Modalities Text, supra note 533, para. 7(d).

10 Bhala PUB 11/13/2009 9:37:45 AM


B. Restricting Industrial Market Access Through Flexibilities

1. Flexibilities for Developing Countries

Not all developing countries would apply the same Swiss Formula Coefficient. They would have policy space to choose the right balance between the depth of industrial tariff cuts, and flexibility to deviate from the full force of such cuts and thereby protect sensitive manufacturing sectors.573 The higher the value of the coefficient, the less severe the depth of the cuts. Conversely, the lower the value, the greater the cuts. The coefficient and the strength of the cuts are inversely related. Logically, if a developing country chooses a low coefficient, such as 20, then it should be rewarded with greater flexibility. In contrast, choosing the highest permissible coefficient—25—should have the consequence of no flexibility.

That scheme was called for by both the December 2008 Draft Text and its predecessor.574 The new text made minor adjustments to the precise flexibility figures, namely, choosing the mid-points of ranges laid out in the July 2008 Text.575 Accordingly, the December Text established the following three flexibilities, any one of which developing countries could select:

(1) If a developing country selects 25, then it would have no flexibility. There are no industrial product tariff lines it can shield, partially or wholly, from the full agreed-upon tariff reductions.576

(2) If a developing country opts for 20, then it has maximum flexibility. It could choose between one of two flexibility options. First, it could shield 14 percent of its industrial product tariff lines from the full force of the agreed-upon Swiss Formula cuts, subjecting these lines to half of the agreed cuts.577 However, the value of industrial trade represented by these shielded lines must not exceed 16 percent of the total value of industrial product imports into the developing country in question.578 Second, as an alternative flexibility, the developing country could keep 6.5 percent of its industrial product tariff lines unbound, or exclude them entirely from any tariff cuts, as long as the value of trade represented by these lines does not exceed 7.5 percent of the total value of industrial product imports.579

(3) If a developing country chooses the middle coefficient, 22, then it has a medium degree of flexibility. It has two options. First, it could decide to immunize 10 percent of its industrial product tariff lines from the full cuts.580 But, these shielded lines must not exceed 10 percent of the total value of its

573. See supra notes 547–548 and accompanying text; December 2008 Draft NAMA Modalities Text,

supra note 26, paras. 7(a)–(c) (providing multiple coefficients, differing in depth and flexibility). 574. December 2008 Draft NAMA Modalities Text, supra note 26, paras. 7(a)–(c); July 2008 Draft

NAMA Modalities Text, supra note 533, paras. 7(a)–(c). 575. December 2008 Draft NAMA Modalities Text, supra note 26, para. 7(a); July 2008 Draft NAMA

Modalities Text, supra note 533, para. 7(a). 576. Id. para. 7(c). 577. Id. para. 7(a)(i). 578. Id. 579. Id. para. 7(a)(ii). 580. Id. para. 7(b)(i).

10 Bhala PUB 11/13/2009 9:37:45 AM


industrial product imports.581 Second, as an alternative flexibility, the developing country could keep 5 percent of its industrial product tariff lines unbound, or exclude 5 percent of its lines from any Swiss Formula cuts, provided these lines do not amount to more than 5 percent of the total value of its industrial product imports.582

Obviously, the limitations on the value of trade associated with the flexibilities under the coefficients of 20 and 22 are designed to ensure a developing country does not abuse the flexibilities, shielding so many industrial product tariff lines as to scupper the Swiss Formula cuts. Overall, the scheme is a sliding scale, with progressively more flexibility to protect sensitive industrial products in exchange for concomitantly deeper cuts to bound MFN duties overall in the manufacturing sector. Developed countries, of course, could not avail themselves of this flexibility—they all would be obliged to use the coefficient of 8, without any derogation.583

2. Further Flexibilities for CUs, Plus Argentina and Venezuela

The December 2008 Text contained all the details of sui generis flexibilities for certain poor countries and customs unions and even added more of them. First, all countries in the SACU—Botswana, Lesotho, Namibia, and Swaziland, as well as South Africa—would have recourse to a common list of flexibilities in their tariff schedules.584 The new text eliminated an additional provision from the July 2008 text that would have permitted the SACU countries to add percentage points to the percent of non-agricultural tariff lines they could shield from the full force of formula cuts.585 The July Text slated SACU countries for coefficient y of 21–23, under which a normal developing country could apply less than formula cuts to up to 10 percent of industrial tariff lines (as long as those lines did not exceed 10 percent of the total value of that country’s non-agricultural imports).586 With the additional flexibility, SACU countries would have been able to apply less than formula cuts to between 11 and 16 percent of their industrial tariff lines.587

Presumably, the SACU countries believed their common list of flexibilities, if they scheduled the industrial tariff lines on that list broadly and skillfully, would more than offset the deletion of this additional provision. Under the December 2008 Text, that list would give SACU the ability to exempt an additional 3 percent of industrial tariff lines, beyond the 16 percent from the July Text, from Swiss Formula reductions.588 SACU intended to use the additional flexibility to shield labor-intensive T&A industries.589 In exchange, however, the United States and EU insisted that SACU implement tariff reductions on those lines in three years, and join in participating in at least two sectoral negotiations.590

581. December 2008 Draft NAMA Modalities Text, supra note 26, para. 7(b)–(i). 582. Id. para. 7(b)(ii). 583. Id. at 5. 584. Id. para. 7(e). 585. Id. para. 7(e); July 2008 Draft NAMA Modalities Text, supra note 533, para. 7(e). 586. Id. para. 7(e). 587. Id. 588. Daniel Pruzin, U.S. Insists on Developing Country Participation on Sectoral for Chemicals, 25

Int’l Trade Rep. (BNA) 1744 (Dec. 11, 2008) [hereinafter Pruzin, Participation on Sectoral for Chemicals]. 589. Id. 590. Id.

10 Bhala PUB 11/13/2009 9:37:45 AM


Second, like the July 2008 Text, the December 2008 Text singled out MERCOSUR countries by name for favoritism.591 Argentina, Brazil, Paraguay, and Uruguay would have a common list of flexibilities in their tariff schedules.592 To determine the value of trade limitation (i.e., the restriction on the percentage of industrial tariff lines they could shield from the full force of cuts under the Swiss Formula) each country would not have to use the total value of its non-agricultural imports. Rather, the total value of Brazil’s industrial imports would set the limit for all MERCOSUR countries.593

Significantly, following issuance of the July 2008 Text, Argentina had adamantly rejected this approach.594 It argued that because of the common external tariff (CET) associated with MERCOSUR, the individual countries in MERCOSUR would be forced to divide up among themselves the total number of tariff lines they are allowed to protect;595 of course, that would be a reality for any CU. One country within MERCOSUR, but not another, might consider a line to be sensitive. Thus, the total number of lines the countries could shield would have to be large enough to accommodate the varying individual country interests. From Argentina’s perspective, the July—and, by inference, December—2008 Text was wanting in this regard.

Third, the December 2008 Text identified two Latin American countries—Argentina and Venezuela—for special treatment.596 In so doing, it departed from the July Text, which had not singled out those countries explicitly.597 This departure continued the trend of entertaining the possibility of further special treatment.

As for Argentina, the December 2008 Text did not identify the benefits it might get beyond the MERCOSUR provisions. That would be a matter for further negotiation. Argentina would have accepted a Swiss Formula Coefficient of 35 while insisting on the right to designate 16 percent of its industrial tariff lines as subject to half the agreed cuts (with no limitation on the volume of trade covered by these lines).598 Alternatively, if its Coefficient were above 25 and below 35, then it would require not only the 16 percent dispensation, but also the right to exempt 8 percent of its tariff lines from any tariff cut.599 Argentina’s demands were stunningly greater than the most generous flexibilities afforded by the Text to developing countries.600 Argentina justified its demands by the fact that its trade deficit in industrial goods had skyrocketed from $86 million in 2002 to $22 billion in 2007.601 Trade liberalization in manufacturing, Argentina said, would cause social unrest.602 As for

591. December 2008 Draft NAMA Modalities Text, supra note 26, para. 7(f); July 2008 Draft NAMA

Modalities Text, supra note 533, para. 7(f). 592. December 2008 Draft NAMA Modalities Text, supra note 26, para. 7(f). 593. Id. 594. NAMA Final Draft Text Still Inadequate, supra note 245. 595. Id. 596. December 2008 Draft NAMA Modalities Text, supra note 26, paras. 7(h)–(i). 597. July 2008 Draft NAMA Modalities Text, supra note 533, para. 7. 598. See Daniel Pruzin, Argentina Pushes Special Treatment for Sensitive Sectors in NAMA Talks, 25

Int’l Trade Rep. (BNA)1708 (Dec. 4, 2008). 599. Id. 600. See id. (“Developing countries choosing a coefficient between 21 and 23 could shield 10 percent

of their industrial tariff lines.”). 601. Id. (noting that the value of industrial imports grew by 38% per annum over that period). 602. Id.

10 Bhala PUB 11/13/2009 9:37:45 AM


Venezuela, the July 2008 Text had explained it would be treated as an SVE.603 The December 2008 Text backed away from such specificity and simply left the matter up to consultations.604

3. Further Flexibilities for Members Engaged in Sectoral Negotiations

The idea of sectoral agreements is to eliminate duties over a phase-out period on all specified tariff lines in a designated economic sector, effectively creating a duty-free zone in that sector.605 Developing countries would have the same trade liberalizing obligation, but they would get an extended period in which to drop their tariffs in the sector to zero, along with the possible right to maintain low duty rates on some tariff lines in the sector.606

The word “guarantee” captures the crux of the issue on sectoral negotiations. Before some WTO Members are willing to agree to NAMA modalities, they need to be able to predict the participation and outcome of sectoral negotiations.607 Other Members are willing to enter into good faith talks on liberalizing trade in certain sectors,608 but they refuse to prematurely declare they will join one or more sectoral agreements.609 Thus, the membership of the two camps remained unchanged between the issuance of the July and December 2008 Texts.610

The United States, Canada, and the EU demanded something closer to a guarantee.611 For them, it was critical to eliminate tariff and non-tariff barriers to

603. See July 2008 Draft NAMA Modalities Text, supra note 533, paras. 7(g), 13 (showing Venezuela

was one of a small group of countries selected to receive additional percentage points). Before issuance of the July 2008 Text, Venezuela had succeeded in arguing that it deserved unique treatment because of its highly concentrated pattern of imports and its particular development needs. Thus, the July Text slated Venezuela for Coefficient x, 19–21, and said it would give a certain (but as yet unspecified) number of additional percentage points to compute the value of trade limitation. See id. In other words, a normal developing country applying Coefficient x would apply less than formula cuts on up to 12–14% of non-agricultural tariff lines as long as those lines did not exceed 12–19% of the total value of its non-agricultural imports. Id. Venezuela would have had a trade limitation higher than 12–19% of its non-farm trade. The United States argued against this special dispensation for Venezuela, contending that there were twenty other developing countries that met the SVE criteria better than Venezuela. Daniel Pruzin, U.S. Firm on NAMA Sectoral Commitments, As Chair Issues Warning on Unresolved Items, 25 Int’l Trade Rep. (BNA) 1013 (July 10, 2008).

604. See December 2008 Draft NAMA Modalities Text, supra note 26, para. 111 (providing that Venezuela may apply for, rather than automatically receive, the 7.5% reduction of in-quota tariffs for SVEs).

605. Daniel Pruzin, Doha Chairs Issue Final Revised Draft Texts on NAMA and Agriculture with Few Changes, 25 Int’l Trade Rep. (BNA) 1044 (July 17, 2008).

606. Id. 607. Daniel Pruzin, NAMA Sectorals Take Center Stage On First Day of Intensified Doha Talks, 25

Int’l Trade Rep. (BNA) 1671 (Nov. 27, 2008) [hereinafter Pruzin, NAMA Sectorals Take Center Stage]. 608. Daniel Pruzin, Proponents to Try New NAMA Approach Aimed at Winning Support for

Sectorals, 26 Int’l Trade Rep. (BNA) 236 (Feb. 19, 2009) [hereinafter Pruzin, Proponents to Try New NAMA Approach].

609. Pruzin, NAMA Sectorals Take Center Stage, supra note 607. 610. See id. at 1671–72 (detailing how before the December Text, the United States, EU, and Canada

favored mandatory participation of developing countries in sectoral agreements); see also Daniel Pruzin, NAMA Chair Outlines ‘Gradual’ Approach For Restarting Doha Industrial Tariff Talks, 26 Int’l Trade Rep. (BNA) 181 (Feb. 5, 2009) [hereinafter Pruzin, NAMA Chair Outlines ‘Gradual’ Approach] (detailing how developing countries such as China continue to advocate a voluntary model of sectoral agreements while developed countries, such as the United States, seek a more definite commitment).

611. Pruzin, NAMA Sectorals Take Center Stage, supra note 607.

10 Bhala PUB 11/13/2009 9:37:45 AM


trade in specific manufacturing sectors in which they had an export interest.612 This elimination would offset (at least partly) the lack of trade liberalization that would result from flexibilities accorded to developing countries under the Swiss Formula and from extra-special treatment to RAMs, SVEs, least-developed countries, and the CU countries in SACU and MERCOSUR. Accordingly, the United States specifically insisted that China, India, and Brazil participate in at least two of the fourteen contemplated sectoral agreements (listed below).613 Of China and the other Group of Seven (G-7) countries, the United States demanded that one of the two sectorals be the chemicals agreement and that they give a high priority to electronics and chemical machinery.614

China, India, Brazil, and other developing countries refused to give a guarantee.615 They continued to counter with four arguments. First, why should G-7 countries be saddled with sectoral obligations, but not major developing countries, such as Indonesia, Mexico, and Korea?616 There was no principled basis to differentiate between developing countries within and outside the G-7.

Second, there was no obvious coincidence of interests in some sectors. For example, the EU sought an accord for duty-free treatment on textiles, clothing, and footwear.617 However, that would mean opening to free trade a broad swath of domestic industries that the United States had long sought to protect from Chinese T&A firms, resulting in a further erosion in the U.S.’s global competitive position.618 The National Council of Textile Organizations (NCTO), an American lobbying group, alleged that the Chinese firms were receiving increased export subsidies.619 As another illustration, Brazil pointed out that in some sectors—such as automobiles, chemicals, electronics, and machinery—the tariff lines for which the United States sought duty reductions were the same lines Brazil sought to protect.620 Brazil accused the United States of greed adduced by its excessive demands that emerging countries open entire industrial sectors to foreign competition,621 an ironic stab given that the American pressure for market access was no more or less greed-driven than Brazilian insistence on protection. The United States shot back that both the August 2004 Framework Agreement and December 2005 Hong Kong Ministerial Conference Declaration contained language emphasizing that sectoral negotiations

612. See, e.g., Pruzin, Participation on Sectoral for Chemicals, supra note 588, at 1743 (showing the

U.S. preoccupation with sectorals in chemicals, the production of which accounts for over 11% of the global total); FACTBOX: Sectoral deals at the WTO Trade Talks, REUTERS, Dec. 11, 2008, http://uk.reuters.com/article/idUKL863602220080728 [hereinafter FACTBOX] (detailing the sectoral negotiations proposed by the United States, Canada, and the EU, as well as other countries).

613. See Pruzin, Lack of Progress, supra note 565, at 1739–41. 614. See Pruzin, Participation on Sectoral for Chemicals, supra note 588. For WTO purposes, the G-7

consists of Australia, Brazil, China, India, Japan, EU, and United States. 615. See Frances Williams, WTO Fails to Set Outline Deal Date, FIN. TIMES, Dec. 9, 2008, at 2. 616. Pruzin, Participation on Sectoral for Chemicals, supra note 588. 617. See Jonathan Lynn, WTO Sector Deals May Be a Step Too Far for Doha, REUTERS, Dec. 11,

2008, http://www.reuters.com/articlePrint?articleId=USTRE4BA2WV20081211 (noting the EU’s proposal for a sectoral agreement on textiles).

618. Id. (stating that the EU proposal for a sector deal on textiles was “unlikely to get Washington’s support”).

619. Tsui, NCTO Calls for Tough Action from Obama, supra note 486. 620. NAMA Final Draft Text Still Inadequate, supra note 245. 621. Alan Beattie & Frances Williams, WTO Chief Drops Plans to Press Ministers for Outline Doha

Deal, FIN. TIMES, Dec. 13, 2008, at 3.

10 Bhala PUB 11/13/2009 9:37:45 AM


would be a key element of any Doha Round deal, yet Brazil, China, India, and other Members had utterly failed to take these talks seriously.622

Third, participation in sectoral negotiations never was intended to be mandatory. The DDA negotiating mandate makes clear that involvement in sectoral negotiations is voluntary.623 Indeed, so too do the August 2004 Framework Agreement and December 2005 Ministerial Declaration.624 China worried that the term “critical mass” was a code for forcing it to participate in sectoral talks, because of China’s significance as an importer (as well as exporter).625 China worried that proposals to define “critical mass” as a required percentage of world trade coverage by a sectoral agreement were thinly veiled efforts to compel Chinese participation in the negotiations.

Fourth, even one sectoral agreement could have dramatic effects on developing countries. Concerned about its own domestic sector, China rejected what has been characterized as massive tariff cuts on chemical products.626 Mexico provided another example. If Mexico accepted a zero-for-zero proposal in the chemical sector, thereby providing duty-free treatment to all chemical products if other WTO Members did so, then overall tariff cuts by Mexico would fall by an additional third.627 Still other examples were afforded by beneficiaries of preferential trade agreements covering T&A. A sectoral agreement on this merchandise would erode their margin of preference, possibly to zero if the accord ushered in duty-free treatment in the sector.

The thrust of the December 2008 Text on possible sectoral agreements was the same as that of the July 2008 Text, but the wording was different in an effort to please WTO Members on both sides of the schism.628 Like its predecessor, the December 2008 Text affirmed that participation in sectoral negotiations was voluntary.629 It hastened to add that for some Members (namely, the United States, Canada, and EU), sectoral initiatives that achieve a “critical mass of participation” help to achieve an overall balanced outcome in NAMA.630 The December Text also made changes that were more than cosmetic. The new Text, unlike its predecessor, assembled a six-point compromise:631

(1) Participation in sectoral negotiations would be voluntary.

(2) WTO Members would commit to join in sectoral negotiations on a self-identifying basis at the time they agreed to the Swiss Formula Coefficients.

622. WTO’s Lamy Calls Off Doha Ministerial, supra note 29, at 1767. 623. See Doha Development Agenda Declaration, supra note 1, para. 48 (providing that negotiations

are generally “open” to certain parties). 624. Hong Kong Ministerial Declaration, supra note 475, para. 16; Decision Adopted by the General

Council on August 1, 2004, Doha Work Programme, Annex B, para. 9, WT/L/579 (2004), available at http://www.wto.org/english/tratop_e/dda_e/ddadraft_31jul04_e.pdf.

625. Pruzin, NAMA Sectorals Take Center Stage, supra note 607, at 1671–72. 626. Klapper, supra note 484. 627. Daniel Pruzin, U.S. Firm on NAMA Sectoral Commitments, As Chair Issues Warning on

Unresolved Items, 25 Int’l Trade Rep. (BNA) 1013 (July 10, 2008). 628. Compare December 2008 Draft NAMA Modalities Text, supra note 26, paras. 9–12, with July

2008 Draft NAMA Modalities Text, supra note 533, paras. 9–12. 629. Compare December 2008 Draft NAMA Modalities Text, supra note 26, para. 9, with July 2008

Draft NAMA Modalities Text, supra note 533, para. 9. 630. December 2008 Draft NAMA Modalities Text, supra note 26, para. 9. 631. Compare December 2008 Draft NAMA Modalities Text, supra note 26, paras. 9, 12(a), with July

2008 Draft NAMA Modalities Text, supra note 533, paras. 9, 12(a).

10 Bhala PUB 11/13/2009 9:37:45 AM


Within forty-five days of that agreement, the participating Members would name the specific sectoral negotiations in which they would participate.

(3) Members would participate in sectoral negotiations with a view to making these initiatives viable.

(4) Results of sectoral negotiations should not be prejudged, and participation by any particular Member in a sectoral initiative should not determine whether that Member ultimately decides to join a final deal. At the same time, a critical mass of participation would help balance the overall outcome of NAMA negotiations.

(5) Results of the negotiations would form part of a single undertaking.

(6) There would be no credit for participation, that is, no compensation in the form of a larger Swiss Formula Coefficient for developing countries.632

The December Text laid out a revised schedule for conducting these negotiations.633 Of course, the compromise failed to placate either the United States or China and was a key reason why the WTO Director-General opted not to call a meeting among trade ministers before year-end 2008.634

The new Text explicitly discussed the possibility, in more focused terms than its predecessor, of special and differential treatment for developing countries on zero-for-x tariff cuts.635 For developing countries, a zero-for-x approach would mean more generous treatment: (1) under the tariff-cutting strategy in a particular sector than for developed countries, (2) as to implementation periods (i.e., giving them more time than developed countries to cut tariffs in a sector), and (3) as to partial product coverage (i.e., permitting them to exempt from tariff cuts certain goods).636

The December 2008 Text reproduced the same Annex contained in the July Text.637 Annex six was a forty-seven-page summary of sectoral proposals and the draft modalities for liberalizing tariffs in fourteen sectors.638 Table VIII lists these sectors, the WTO Member proponent, and what that proponent sought in terms of a “critical mass” as defined by a percentage of world trade.

632. See Daniel Pruzin, Chair Admits Deadlock on Three Key Issues in NAMA Negotiations, 25 Int’l Trade Rep. (BNA) 1704 (Dec. 4, 2008) [hereinafter Pruzin, Chair Admits Deadlock] (discussing Mexico’s proposal on credits).

633. Compare December 2008 Draft NAMA Modalities Text, supra note 26, para. 12. 634. WTO’s Lamy Calls Off Doha Ministerial, supra note 29, at 1766 (citing differences between

China, India, and the U.S. over sectorals for industrial tariffs and SSMs for developing countries as primary reasons for calling off the ministerial).

635. Compare December 2008 Draft NAMA Modalities Text, supra note 26, para. 11, with July 2008 Draft NAMA Modalities Text, supra note 533, paras. 9–12.

636. See December 2008 Draft NAMA Modalities Text, supra note 26, para. 11. Also, the EU and the United States would list (in Annexes 2 and 3, respectively) products they would exclude from sectoral initiatives (that is, those to which they would not apply trade liberalizing commitments for their import markets). These products were the subject of non-reciprocal preferences, and essentially would be treated under the provisions covering such preferences. Id.

637. December 2008 Draft NAMA Modalities Text, supra note 26, Annex 6, at 74; July 2008 Draft NAMA Modalities Text, supra note 533, Annex 6, at 65.

638. December 2008 Draft NAMA Modalities Text, supra note 26, Annex 6.

10 Bhala PUB 11/13/2009 9:37:45 AM


Table VIII:

Sectoral Negotiations Proposed in December 2008 Draft NAMA Text639

Industrial Sector WTO Member Proposing

Sectoral Negotiation with a View

to Global Duty-Free Treatment

in that Sector

Critical Mass

(minimum percentage of global

trade in the sector that would be

covered by the sectoral

agreement)

Automotive and related parts Japan 99% in cars

98% in car parts

Bicycles and related parts Taiwan 90%

Chemicals United States Not defined

Electronics and electrical

products

Japan Not defined

Enhanced health care,

pharmaceutical and medical

devices

United States Not defined

Fish and fish products Norway 90%

Forestry products, possibly

including paper and pulp

products

Canada 90%

Gems and jewelry Thailand 90% of trade among WTO

Members

Hand tools Taiwan 90%

Industrial machinery Canada Not defined

Raw materials United Arab Emirates (UAE) 90%

Sports equipment Taiwan 90%

Textiles, clothing, and footwear EU Not defined

Toys Hong Kong 90%

The proponents are among, or seek to be among, the leading producer-exporters in the sector for which they seek trade liberalization, at the very least they hope to maintain decline in their position vis-à-vis major emerging countries like China and India. For example, accounting for over 11 percent of world chemical output, the United States is the largest chemical producer in the world.640 In 2007, chemicals earned the United States more export revenues ($153.8 billion) than any other sector, topping agricultural goods ($89.9 billion) and aerospace merchandise ($74.2 billion).641 Thus, in all sectors, its preferred result would be duty-free treatment, or as close to that as possible.

639. The data in Table VIII was extracted from FACTBOX, supra note 612. 640. See Pruzin, Participation on Sectoral for Chemicals, supra note 588, at 1744. 641. Id.

10 Bhala PUB 11/13/2009 9:37:45 AM


Engaging in negotiations to reach an agreement for duty-free (or low-duty) treatment under any of the fourteen sectoral initiatives would remain voluntary.642 Notably absent from the December 2008 Text were two points mooted earlier (including the Friday Night Proposal). First, there was no requirement that every developed and developing country commit to participating in at least two initiatives aimed at duty-free treatment in a particular sector.643 Second, there was no provision that any developing country agreeing to a final deal on duty-free treatment in a particular sector would be rewarded with permission to increase its otherwise applicable Swiss Formula Coefficient.644 The actual increase would be decided later but would be commensurate with the level of participation by a developing country in the sectoral negotiations.645 Presumably, the more negotiations in which it engaged, the greater a developing country could boost its Coefficient.

Unsurprisingly, the December 2008 Text failed to heal the schism over sectoral negotiations. In February 2009, Canada mooted a proposal to abandon the horizontal methodology for these talks, whereby the same formula—getting zero or near-zero duty treatment in all fourteen sectors, going well beyond the Swiss Formula cuts on industrial product tariffs—would be used in every sector.646 Canada, backed by the EU, Hong Kong, Korea, Norway, Oman, Singapore, Switzerland, Taiwan, Thailand, United Arab Emirates (UAE), and United States, called for a vertical approach.647 Under this approach each sectoral deal would be negotiated as a sui generis arrangement.648 The end result might be different levels of participation among WTO Members and different levels of ambition in terms of trade liberalization in each sector. Canada hoped the vertical strategy would placate the resistance of China and India to a one-size-fits-all approach to the fourteen sectors.649 While it might achieve that goal, it would do so only at the expense of two broader Doha Round aims—trade liberalization and simplicity. Free trade in certain sectors would be compromised, and specialty sectoral deals would be legally complex.

4. Further Flexibilities for Members with Low Binding Coverage

The December and July 2008 Texts closely resembled each other on special and differential treatment for developing countries with tariff schedules containing a sizeable percentage of unbound tariff lines.650 Sizeable meant 35 percent, that is, less than 35 percent of the non-agricultural tariff lines of the country have a bound MFN duty rate.651 These countries would be exempt entirely from the Swiss Formula and could use a simplified method to cut their duty rates, namely, a two-tiered formula.652

642. Id. at 1743. 643. December 2008 Draft NAMA Modalities Text, supra note 26, paras. 9–12. 644. Id. 645. See Pruzin, Proponents to Try New NAMA Approach, supra note 608 (implying that the new

vertical approach will correspond with level of participation). 646. Id. 647. Id. 648. Id. 649. Id. 650. Compare December 2008 Draft NAMA Modalities Text, supra note 26, para. 8(a), with July 2008

Draft NAMA Modalities Text, supra note 533, para. 8(a). 651. December 2008 Draft NAMA Modalities Text, supra note 26, para. 8(a). 652. Id.

10 Bhala PUB 11/13/2009 9:37:45 AM


The thrust of the formula was to increase the percentage of bound tariff lines and then achieve a basic cut in tariffs.

Tier one obligated developing countries with a binding coverage of non-agricultural tariff lines below 15 percent to bind 75 percent of their non-agricultural tariff lines.653 The July Text listed a range of 70 to 90 percent of those lines to be bound.654 Tier two covered any developing country with a binding coverage at or above 15 percent.655 These countries would have to bind 80 percent of their non-agricultural tariff lines under the December Text, whereas the July Text identified a range of 75 to 90 percent.656 On both tiers, the December Text picked a specific figure, but one that was at or near the least ambitious of the possibilities laid out in the July Text. Binding more tariff lines and cutting the resultant duty rates is a more pro-free trade outcome than the opposite.

As for the tariff cuts to the new bound rates, the key number was 30 percent. A developing country with low binding coverage would have to bind its MFN tariffs at an average level that would not exceed 30 percent.657 The December 2008 Text backed away from a more ambitious outcome. The July Text identified 28.5 percent as the figure.658 Initial bindings would take effect on January 1st of the year following the implementation of any Doha Round agreements.659 Duties would have to be bound on an ad valorem basis, and any unbound non-ad valorem tariffs would have to be converted using the May 2005 Paris Methodology.660 The initial bound rates of unbound levels would be up to each developing country to decide.661 After that, developing countries would have eleven years to cut their initial bindings to reach the 30 percent average target.662 They could make the cuts in equal annual installments, commencing on January 1st of the second year after the entry into force of Doha Round accords.663

5. Further Flexibilities for SVEs, and the Special Cases of Bolivia, Fiji, and Gabon

Flexibilities for SVEs (on top of those for RAMs, SACU and MERCOSUR members, identified countries, and least-developed countries) continued to bedevil WTO negotiators. Too much flexibility could undermine free trade. Too little flexibility might impose too severe an adjustment cost on certain countries. A balanced outcome required painstaking negotiations with each country that clamored for extra special and differential treatment. In particular, SVEs were defined as any WTO Member, other than a developed country, with a share of less than 0.1 percent of world industrial trade for the reference period 1999–2001 (or other period for the best available data).664 Precisely because of their small size and unique vulnerability

653. Id. para. 8(a)(i). 654. July 2008 Draft NAMA Modalities Text, supra note 533, para. 8(a)(i). 655. December 2008 Draft NAMA Modalities Text, supra note 26, para. 8(a)(ii). 656. Id.; July 2008 Draft NAMA Modalities Text, supra note 533, para. 8(a)(ii). 657. December 2008 Draft NAMA Modalities Text, supra note 26, para. 8(a). 658. July 2008 Draft NAMA Modalities Text, supra note 533, para. 8(a)(i). 659. December 2008 Draft NAMA Modalities Text, supra note 26, para. 8(b). 660. Id. para. 8(e). 661. Id. para. 8(c). 662. Id. para. 8(d). 663. Id. 664. Id. para. 13.

10 Bhala PUB 11/13/2009 9:37:45 AM


to adjustment problems associated with trade liberalization, they would be exempt from Swiss Formula tariff cuts.665 Instead, this category of Members would get a custom-tailored methodology for reducing their barriers to trade in manufactured items.

Concerning this special and differential treatment for SVEs, the December 2008 Text made precious few changes to its predecessor. The December Text continued with nearly the same overall average bound tariff level on non-agricultural products that SVEs would have to reach across four bands of tariffs. For the top tier of tariffs, namely, at or above 50 percent, the July Text said SVEs would be obliged to bind duties at an average of between 28 and 32 percent, and the December Text split the difference at 30 percent.666 For the upper middle tier of tariffs, namely, duty rates at or above 30 percent, but below 50 percent, the July 2008 Text indicated SVEs would have to cut the overall average rate to between 24 and 28 percent.667 The December Text chose 27 percent as the target.668 In both the July and December Texts, for the lower middle tier of duties at or above 20 percent, but below 30 percent, SVEs would have to cut duty rates to an average of 18 percent.669 Also in both texts, for bottom-tier tariffs, duties below 20 percent, SVEs would have to apply a minimum, line-by-line reduction (on 95 percent of all lines in the lowest tier) of 5 percent.670

The December 2008 Text, like its predecessor, singled out three countries—Bolivia, Fiji, and Gabon—from among the SVEs for sui generis treatment.671 Bolivia would be encouraged, but not required, to follow the tariff-cutting modalities for SVEs.672 That meant Bolivia would be free not to cut tariffs on industrial imports at all. Fiji would be deemed to fall into the top tariff tier, and thus be obliged to cut its tariffs to an average of 30 percent.673 In other words, notwithstanding the fact Fiji actually would be in a lower tier, and thus have to cut its tariffs to a level such as 27 percent (the second tier) or 18 percent (the lower-middle tier), Fiji could keep the highest overall average permitted to SVEs. Gabon was given leave to engage in tariff schedule modifications under GATT Article XXVIII so as to hit an overall average of 20 percent.674 That figure was higher than the 18 percent in the July 2008 Text,675 meaning Gabon successfully pushed up the ceiling on its average level of protection.

The initial bound rates from which to apply the tiered tariff reduction methodology would be existing bindings or, for unbound tariff lines, a level

665. Daniel Pruzin, Doha Chairs Issue Final Revised Draft Texts on NAMA and Agriculture with Few

Changes, 25 Int’l Trade Rep. (BNA) 1044 (July 17, 2008). 666. December 2008 Draft NAMA Modalities Text, supra note 26, para. 13(a)(i); July 2008 Draft

NAMA Modalities Text, supra note 533, para. 13(a)(i). 667. July 2008 Draft NAMA Modalities Text, supra note 533, para. 13(a)(ii). 668. December 2008 Draft NAMA Modalities Text, supra note 26, para. 13(a)(ii). 669. December 2008 Draft NAMA Modalities Text, supra note 26, para. 13(a)(iii); July 2008 Draft

NAMA Modalities Text, supra note 533, para. 13(a)(iii). 670. December 2008 Draft NAMA Modalities Text, supra note 26, para. 13(a)(iv); July 2008 Draft

NAMA Modalities Text, supra note 533, para. 13(a)(iv). 671. December 2008 Draft NAMA Modalities Text, supra note 26, para. 13(a); July 2008 Draft NAMA

Modalities Text, supra note 533, para. 13(a). 672. December 2008 Draft NAMA Modalities Text, supra note 26, para. 13(a). 673. Id. 674. Id. 675. July 2008 Draft NAMA Modalities Text, supra note 533, para. 13(a).

10 Bhala PUB 11/13/2009 9:37:45 AM


established by the SVE in question.676 The December and July Texts specified that SVEs would have to bind all of their tariff lines by January 1 of the year following the entry into force of any Doha Round accords.677 Here, again, Fiji received an additional flexibility. It could retain up to 10 percent of its non-agricultural tariff lines as unbound.678 Finally, the two Texts contained the same implementation period: eleven years starting with January 1 on the year after entry into force of the accords.679 However, RAMs that also qualified as SVEs would get a grace period for reductions to tariffs on product lines that were the subject of an accession commitment they were still implementing.680 That period would be three years following the date on which they fully implemented their accession commitment.681 In all instances, SVEs would have to bind tariffs on an ad valorem basis and convert non-ad valorem duties to their AVEs using the methodology outlined in January 2007 by the Negotiating Group on Market Access.682

6. Further Flexibilities for Least-developed Countries

Least-developed countries were not obligated to implement any tariff reductions—that much was clear in both the December and July 2008 Texts.683 These countries pressed for clear assurances that 97 percent of products originating in their territories would receive duty free, quota free (DFQF) treatment.684 They continued to argue that clarity on this issue would help mitigate the problem of preference erosion for them. The loss of preferences would not matter, because their products would be within the 97 percent of goods that qualified for unrestricted market access.

The December 2008 Text did little to provide this assurance. True, it tightened language in the relevant provisions concerning DFQF treatment on 97 percent of merchandise originating in least-developed countries.685 Whether the truly important sectors—like T&A and footwear—would fall within this 97 percent was uncertain, despite new language committing developed countries to provide “meaningfully enhanced market access for all” of the poorest of the poor.686 Like its predecessor,

676. December 2008 Draft NAMA Modalities Text, supra note 26, para. 13(c). 677. December 2008 Draft NAMA Modalities Text, supra note 26, para. 13(b); July 2008 Draft NAMA

Modalities Text, supra note 533, para. 13(b). 678. December 2008 Draft NAMA Modalities Text, supra note 26, para. 13(b). 679. December 2008 Draft NAMA Modalities Text, supra note 26, para. 13(d); July 2008 Draft NAMA

Modalities Text, supra note 533, para. 13(d). 680. December 2008 Draft NAMA Modalities Text, supra note 26, para. 13(e). 681. Id. 682. Id. para. 13(f); Negotiating Group on Market Access, Draft Guidelines for the Conversion of

Non-Ad Valorem Duties of Non-Agricultural Products Into Ad Valorem Equivalents, TN/MA/20 (Jan. 16, 2007).

683. December 2008 Draft NAMA Modalities Text, supra note 26, para. 14; July 2008 Draft NAMA Modalities Text, supra note 533, para. 14.

684. E.g., Dinesh Bhattarai, Ambassador Permanent Representative of Nepal to the WTO, Statement at the Informal TNC Meeting (July 22, 2008) (transcript available at www.wto.org/english/tratop_e/dda_e/meet08_stat_npl_21jul_e.doc) (“The Hong Kong commitment to provide DFQF market access to 97% products originating from LDCs in the developed markets needs to be fully implemented at the earliest. Any deviation and delay in its implementation . . . will seriously undermine the confidence in the multilateral trading system.”); see also December 2008 Draft NAMA Modalities Text, supra note 26, para. 16 (providing the 97% requirement).

685. Compare December 2008 Draft NAMA Modalities Text, supra note 26, paras. 15, with July 2008 Draft NAMA Modalities Text, supra note 533, paras. 15.

686. December 2008 Draft NAMA Modalities Text, supra note 26, para. 15(b).

10 Bhala PUB 11/13/2009 9:37:45 AM


the December 2008 Text set out procedural details to implement any commitments to least-developed countries.687

7. Further Flexibilities for RAMs

The December 2008 Text closely resembled the July 2008 Text with respect to RAMs, except the new Text included more special provisions for RAMs. First, under both texts, newer RAMs would not have to make any tariff cuts beyond their accession commitments.688 To the list of newer RAMs the December 2008 Text added Cape Verde, which acceded to the WTO on July 23, 2008.689

Second, the December Text changed the period during which older RAMs would be obliged to implement Swiss Formula reductions to industrial product tariffs. The July Text identified a three or four year period, while the December Text settled upon three years—a modest concession in favor of faster liberalization.690 In other words, older RAMs would have three years beyond the standard implementation period of ten years for developing countries.691 Yet, “faster” is a contextual adjective. It appeared China still would have up to fourteen years to complete its industrial product tariff reductions.692

Third, Oman, an older RAM, would not be obliged to cut any bound tariff below five percent.693 The special preference for Oman was an innovation of the December 2008 Text.694 It provided further evidence that the Round had devolved into a feeding frenzy of sovereign special interests.

C. Other Manufacturing Provisions

1. Preference Erosion and Further Flexibilities for Beneficiaries and Non-Beneficiaries

Throughout the second half of 2008, many poor countries that had long relied on non-reciprocal preferences debated proposals designed to offset the anticipated

687. December 2008 Draft NAMA Modalities Text, supra note 26, paras. 16–17; July 2008 Draft

NAMA Modalities Text, supra note 533, paras. 16–17. 688. See December 2008 Draft NAMA Modalities Text, supra note 26, para. 20; July 2008 Draft

NAMA Modalities Text, supra note 533, para. 20 (both texts listing Albania, Armenia, Former Yugoslav Republic of Macedonia, Kyrgyzstan, Moldova, Saudi Arabia, Tonga, Viet Nam and Ukraine).

689. December 2008 Draft NAMA Modalities Text, supra note 26, para. 20. Mongolia, which acceded in January 1997, was also added to the list in the December Text. Id.


691. December 2008 Draft NAMA Modalities Text, supra note 26, paras. 6(f), 19; July 2008 Draft NAMA Modalities Text, supra note 533, paras. 6(f), 19.

692. See WTO Issues New Farm, Industry Texts for Doha Round, ECON. TIMES, July 11, 2008 (discussing negotiating texts circulated in July 2008), available at http://economictimes.indiatimes.com/ articleshow/3220454.cms?flstry=1 (last visited Aug. 8, 2009).

693. December 2008 Draft NAMA Modalities Text, supra note 26, para. 7(g). 694. Compare id. with July 2008 Draft NAMA Modalities Text, supra note 533, para. 7.

10 Bhala PUB 11/13/2009 9:37:45 AM


erosion of those preferences.695 The basic problem remained the same as it had since the Doha Round commenced in November 2001. Preference schemes for eligible articles originating in beneficiary countries would not be scrapped, but the value of the preferences would erode as WTO Members phase in industrial product tariff cuts under the Swiss Formula.696 Thus, exporters from poor countries that had enjoyed duty-free access to the markets of preference-granting developed countries would face stiffer challenges from exporters in other countries that had not benefitted from the preferences.

Thus, in head-to-head competition on like or substitutable merchandise exported to a rich, preference-granting country between a poor country that is a preference beneficiary and a third poor country that is not a beneficiary, the playing field in the market of the rich country would be increasingly leveled. This is because of the difference in market access to the preference-granting developed country market between (1) duty-free treatment for eligible merchandise from a preference beneficiary and (2) the MFN rate for a like or substitute product from a third country would be smaller as a result of Doha Round cuts to the MFN rate.697

The key question for poor countries was time. How fast should preference-granting developed countries implement Doha Round tariff reductions? Should the preference-granting developed countries apply reductions under the Swiss Formula to exports from poor countries over an “X” year period in equal annual installments rather than immediately? Put differently, what should “X” be, so that developing or least-developed countries enjoying preferences have time to adjust to the erosion in the value of those preferences?

The varying answers spotlighted a schism within the Third World. The quicker the cuts were implemented, the faster the erosion of the margin of preference. Fast erosion could prove a shock to preference beneficiary countries and their export industries. (Some of those industries had been lulled into complacency by the preferences and could well use a shock.) However, fast erosion would help developing countries that had not received a preference in the same export sectors. Thus, while the preference beneficiaries lobbied for a long phase-in period (a high “X” value), their non-beneficiary brethren sought rapid staging of reductions (a low “X” value).

A zero-sum game was afoot. Developing countries that had not traditionally enjoyed preferences (or at least not many preferences), such as Pakistan and Sri Lanka, were dubbed to be Members who were “disproportionately affected.”698 How that label should be defined was both critical and unclear. The preference provisions of the July 2008 Draft Text cover Pakistan and Sri Lanka, while the December 2008 Draft Text includes those two countries plus the others listed in Annex 4.699 By December 2008, Vietnam sought to be included on the list as well.700 Ought there to

695. See generally TRADE PREFERENCES EROSION: MEASUREMENT AND POLICY RESPONSE (Bernard Hoekman et al. eds., 2009) (assessing implications of preference erosion and potential policy responses).


697. December 2008 Draft NAMA Modalities Text, supra note 26, para. 28. 698. Id. para. 30, Annex 4. 699. Id. (listing Bangladesh, Cambodia, and Nepal in addition to Pakistan and Sri Lanka); July 2008

Draft NAMA Modalities Text, supra note 533, para. 30. 700. Pruzin, Chair Admits Deadlock, supra note 632 (“[f]our other countries that do not benefit from

tariff preferences—Bangladesh, Cambodia, Nepal, and now Vietnam—want similar special treatment.”).

10 Bhala PUB 11/13/2009 9:37:45 AM


be some quantitative benchmark to define “disproportionate effect”? Or, could third countries simply lay claim to be similarly affected? If exports from a third country of a product like, or directly competitive with, the preferred product register an acute increase, should that jump disqualify the third country from being “disproportionately affected”?

These definitional problems aside, Pakistan and Sri Lanka pointed out that they export products in the same tariff lines to countries that grant preferences (e.g., to the United States or EU) to other poor countries (e.g., Lesotho or Mauritius).701 But they lose out to the other poor countries by not getting the preference on those products. Those products were T&A items, such as brassieres, shirts, sweaters, and trousers.702 Pakistan and Sri Lanka were eager to see preference-granting developed countries apply any Doha Round tariff cuts to these products as soon as possible.

Accordingly, Pakistan and Sri Lanka sought a five-year grace period during which preference-granting developed countries would phase in tariff reductions.703 That period was shorter than the time developed countries would take to implement tariff cuts on the same products from preference-beneficiary countries. The July 2008 Draft Text called for a six-year staging for Pakistani and Sri Lankan merchandise identified in Annex 4 and a nine-year staging for preference beneficiaries on products subject to a preference.704 Yet six years was not fast enough for Pakistan and Sri Lanka.

Under their hoped-for outcome during the five-year period, Pakistani and Sri Lankan exports would enjoy progressively lower MFN duties in preference-granting developed countries, closing the gap with the duty-free treatment enjoyed by preference beneficiaries.705 After the five-year period, developed countries would apply the final, reduced post-Doha Round MFN rate to Pakistani and Sri Lankan exports, thereby narrowing the gap to the smallest agreed-upon amount vis-à-vis duty-free preferential treatment. In years six to nine, exports from preference beneficiaries would still get a margin of preference, but one that diminished yearly as the gap shrank between duty-free treatment (the preference) and the MFN rate as cut by the Swiss Formula. After full implementation of Doha Round tariff cuts by preference-granting developed countries, that is, after nine years, the playing field in developed country markets would be as level as possible assuming the continued existence of preferences.

701. See id. (noting that Pakistan and Sri Lanka do not benefit from tariff preferences, and that they

could be disproportionately affected by special preferences); see also December 2008 Draft NAMA Modalities Text, supra note 26, Annexes 2–4 (listing tariff lines between disproportionately affected countries and both the United States and EC, as well as those tariff lines of the United States and EC subject to reductions under the preferences provision); Negotiating Group on Market Access, Communication from Mauritius on Behalf of the ACP Group, at 3–7, JOB(05)/301 (Nov. 18, 2005) (listing products vulnerable to preference erosion for all ACP countries, which include Mauritius and Lesotho, in the U.S. and EU markets).

702. See December 2008 Draft NAMA Modalities Text, supra note 26, Annex 4 (listing relevant tariff lines).

703. E.g., Permanent Mission of Pakistan to the World Trade Organization, Pakistan and NAMA, para. B.3, www.wto-pakistan.org/documents/nama/PakistanandNAMA.pdf (preferring an implementation period between two and three years, but willing to accept anything under five years).

704. See July 2008 Draft NAMA Modalities Text, supra note 533, paras. 28, 30. 705. See Permanent Mission of Pakistan to the World Trade Organization, supra note 703, para. B.3

(highlighting the importance of the reduction being “done in equal yearly stages”).

10 Bhala PUB 11/13/2009 9:37:45 AM


The proposal backed by the likes of Pakistan and Sri Lanka to benefit non-preference beneficiaries was called “back loading.” To effect back loading, a waiver from the basic MFN obligation of GATT Article I:1 for the grace period would be awarded to the preference-granting developed countries.706 They would need it. During the special period for Pakistan, Sri Lanka, and their cohorts, the developed countries would effectively impose duty rates on like products that differ from those they apply to preference beneficiary countries. In effect, at least during the five-year period, the preference granting developed countries would have three tariff regimes:

(1) the generally applicable MFN rate, which would be subject to normally staged Swiss Formula cuts;

(2) the duty-free or low-preferential rate for goods from beneficiaries; and

(3) the special rate for Pakistan, Sri Lanka, and other non-preference beneficiary poor countries, which would be the MFN rate subject to accelerated Swiss Formula reductions.

This prospect smacked of old-fashioned colonialist divide and rule policies, dressed up in neo-colonialist complexity with a veneer of rhetoric from rich countries that they are trying to help, but cannot please, all poor countries.

In terms of textual changes to help forge a consensus, the December 2008 Text was a disappointment. Except for two references to the Annex related to the provisions on non-reciprocal preferences (Annex 4), the new text was a verbatim repetition of its predecessor.707 The same deal, already on the table for six months, remained on the table. In particular, the implementation periods to reduce bound MFN tariffs on product lines that are the subject of non-reciprocal preferences, and thereby of vital export interest to developing countries, would be nine years.708 This period would be tacked onto a two-year grace period starting with the conclusion of the Doha Round, that is, cuts would begin on January 1 in the second year following the entry into force of any Doha Round agreements.709 Thus, from the perspective of free trade, the proposal was less ambitious. Under the new text, the United States and EU would have eleven years (the two-year grace period plus nine years of implementation) to phase in tariff cuts on industrial products that are subject to preferences.710

As in the past, the major trading powers identified the relevant tariff lines on which they would cut duties across a dilated period.711 The EU listed fifty-seven affected tariff lines (up from twenty-three lines under an earlier text), embracing not

706. The back loading plan is reflected in the July and December NAMA Draft Modalities Texts.

See December 2008 Draft NAMA Modalities Text, supra note 26, para. 30; July 2008 Draft NAMA Modalities Text, supra note 533, para. 30 (both providing a waiver of Article I of the GATT for the six-year implementation period).

707. Compare December 2008 Draft NAMA Modalities Text, supra note 26, paras. 28–30, with July 2008 Draft NAMA Modalities Text, supra note 533, paras. 28–30.


709. December 2008 Draft NAMA Modalities Text, supra note 26, para. 28. 710. Id. Of course, the two-year grace period would be an outer limit, based on the assumption that

the entry into force occurred on January 2 of a particular year. For example, if the entry into force were on January 2, 2010, then developed countries would begin to apply the Swiss Formula to reduce tariffs on products that are the subject of non-reciprocal preferences on January 1, 2012.

711. See December 2008 Draft NAMA Modalities Text, supra note 26, para. 30, Annexes 2–3; July 2008 Draft NAMA Modalities Text, supra note 533, para. 30, Annexes 2–3 (listing tariff lines the United States and EC would cut).

10 Bhala PUB 11/13/2009 9:37:45 AM


only T&A goods, but also fisheries and steel products.712 ACP countries are the beneficiaries of the EU preferences on these items.713 For the United States, there were twenty-nine affected tariff lines (up from sixteen lines identified in association with an earlier draft NAMA modalities text), all of which were T&A products given special treatment under the African Growth and Opportunity Act (AGOA), or an FTA such as the Dominican Republic—Central American Free Trade Agreement (CAFTA–DR).714

The goal of a lengthy phased tariff reduction was to assist beneficiaries of preferences,715 but what about the detrimental impact on industrial goods exporters in non-beneficiary poor countries? Bangladesh, Cambodia, and Nepal voiced their concerns, along with Pakistan and Sri Lanka.716 For them, and presumably other “disproportionately affected members,” developed countries would implement their Swiss Formula tariff cuts in six years, through six equal annual rate reductions.717 The developed countries would commence these reductions on January 1 of the year after the entry into force of any Doha Round agreement.718 Given the two-year grace period, that meant a difference in reduction of eleven versus seven years.719

Notably, a host of larger developing countries, such as China, India, and Argentina, continued to castigate proposals on non-reciprocal preferences.720 The preference grantors were disingenuous in claiming they were trying for a kind, gentle transition period for the beneficiaries. What was really going on, averred China and India, was protracted protectionism for sensitive rust belt industries in America and Europe.721 The longer the margin of preference held in place, the longer the nearly moribund enterprises in those industries would be safe from competition from young, dynamic firms in non-preference beneficiaries, like China and India. China again demanded—and again was rebuffed—adequate compensation through larger, quicker market access on other tariff lines in which it had an export interest.722

712. See December 2008 Draft NAMA Modalities Text, supra note 26, Annex 2 (listing 57 tariff lines);

Daniel Pruzin, Allgeier Hits Out at Chinese Demand for Tariff Compensation at NAMA Talks, 25 Int’l Trade Rep. (BNA) 1094 (July 24, 2008) [hereinafter Pruzin, Chinese Demand for Tariff Compensation] (providing numbers for an earlier draft).

713. Pruzin, Chinese Demand for Tariff Compensation, supra note 712. 714. Id.; Pruzin, Chair Admits Deadlock, supra note 632. 715. December 2008 Draft NAMA Modalities Text, supra note 26, para. 28 (“[I]n order to provide

these Members with additional time for adjustment, the reduction . . . shall be implemented in 9 equal rate reductions . . . .”).

716. See Pruzin, Chair Admits Deadlock, supra note 632 (“Special treatment is given to Pakistan and Sri Lanka . . . . However, four other countries that do not benefit from tariff preferences—Bangladesh, Cambodia, Nepal, and now Vietnam—want similar special treatment.”).

717. December 2008 Draft NAMA Modalities Text, supra note 26, para. 30. 718. Id. 719. Here, the one-year period would be an outer limit, based on the assumption that the entry into

force occurred on January 2 of a particular year. For example, if the entry into force were on January 2, 2010, then developed countries would begin on January 1, 2011 to apply the Swiss Formula to reduce tariffs on products that are the subject of non-reciprocal preferences. This year, plus the six-year phase in period, sums to seven years, and is four years faster than the eleven-year implementation period relevant to exports from preference beneficiary countries.

720. See Pruzin, Chinese Demand for Tariff Compensation, supra note 712 (protesting that “the proposal gives the United States and the EU more time to shield their most sensitive sectors from agreed NAMA cuts”).

721. Id. 722. Id.

10 Bhala PUB 11/13/2009 9:37:45 AM


2. Supplementary Modalities, Elimination of Low Duties, Non-Tariff Barriers, Capacity-Building Measures, and Non-Agricultural Environmental Goods

On an array of matters that had not been the focus of contention in the latter half of 2008, the December 2008 Text resembled the July Text in all material respects. The request-and-offer approach remained a methodological option to WTO Members, as a supplement to the Swiss Formula, to slash industrial tariffs.723 The Members were asked to consider eliminating low duties724 because they are essentially nuisance tariffs, costing at least as much to administer as they provide in revenue.725 To enhance market access, the Members also were encouraged to attack non-tariff barriers (NTBs), particularly those on products of export interest to developing countries.726 Both horizontal and vertical strategies were urged. Under the horizontal approach, Members would consider Ministerial Decisions that would facilitate solutions to NTBs and deal with trade in re-manufactured goods, thus cutting across all industrial product categories.727 Under the vertical approach, Members would consider proposals cutting NTBs in specific sectors: namely, (1) chemical products and substances, (2) electronics, (3) electrical safety and electromagnetic compatibility (EMC) of electronic goods, (4) textiles, clothing, footwear, and travel goods, and (5) automotive products.728

The developed Members also re-committed themselves to enhancing trade-capacity-building measures in least-developed countries, and in countries in the early stages of development.729 Finally, all Members agreed that the WTO Committee on Trade and Environment in Special Session (CTESS) should work toward an understanding on the reduction, if not outright elimination, of tariffs and NTBs on non-agricultural environmental goods.730

D. Export Taxes

One of the NAMA topics pitting the EU and United States against China and many other developing countries, led by Argentina, is export taxes. While the American Constitution bars such levies,731 many relatively poorer countries apply them, including China and Argentina, as well as India and Ukraine.732 Non-WTO Members also impose these measures, principally Russia, which has export taxes on approximately 450 products, many of which are primary inputs to make steel.733

723. December 2008 Draft NAMA Modalities Text, supra note 26, para. 21; July 2008 Draft NAMA

Modalities Text, supra note 533, para. 21. 724. December 2008 Draft NAMA Modalities Text, supra note 26, para. 22. 725. Lionel Fontagné, Jean-Louis Guérin & Sébastien Jean, Market Access Liberalisation in the Doha

Round: Scenarios and Assessment, 28 WORLD ECON. 1073, 1074 (2005) (“[C]ommon sense suggests that such duties are not worth the efforts spent to recover them.”).

726. December 2008 Draft NAMA Modalities Text, supra note 26, para. 23. 727. Id. para. 24. 728. Id. 729. Id. para. 27. 730. Id. para. 31. 731. U.S. CONST. art. I, § 9, cl. 5. 732. Daniel Pruzin, EU in New Turnaround on NAMA Issue of Export Taxes, Insists Proposal Still in

Play, 26 Int’l Trade Rep. (BNA) 308 (March 5, 2009) [hereinafter Pruzin, EU in New Turnaround]. 733. Id.

10 Bhala PUB 11/13/2009 9:37:45 AM


Developed countries such as the United States complain that taxing exports unfairly constricts the global supply of important raw materials and inputs.734 That constriction drives up the prices of these raw materials and inputs and thus ultimately the cost of finished manufactured products made in their countries. As an example, the September 2008 export price of coking coal from China, which is an input in steel, was $680–$730 per metric ton.735 But because of a 40 percent export tax on coke, the Chinese domestic price of this input was just $395 per metric ton.736 Conversely, Argentina and the developing countries insist export taxes are not covered by the DDA mandate.737 Moreover, they aver that such taxes are necessary to assure their industries of a steady, low-cost source of raw materials and inputs.738 Of course, that low-cost, such as the difference in the Chinese export and domestic coke prices, is precisely what the EU and United States say is an unfair competitive advantage for Chinese producers of finished goods like steel.739

Until 2006, the EU position in the Doha Round was that export taxes should be banned.740 In that year, it softened its approach, saying WTO Members should agree to maximum permissible export tax rates.741 Since then, and particularly with the global economic crisis, the EU observed that the number and range of export tax measures has proliferated among supplier countries of key raw materials and inputs.742 On some taxed items there was even a global shortage, yet a surfeit in the domestic taxing country.743 The EU suggested in July 2008 that it might drop its proposal if consensus was reached on NAMA modalities—a condition that was not fulfilled.744 Thus, the EU was thoroughly displeased by the deletion in the December 2008 NAMA Text of its modified proposal. Predictably, China, India, Argentina, and other Members stayed on the side of the line they had drawn, insisting the EU drop its proposal.745

IV. THE DECEMBER 2008 DRAFT RULES TEXT

Formally entitled the “New Draft Consolidated Chair Texts of the AD and SCM Agreements,” this 94-page document included a so-called “Road Map for Discussion” to help reach agreement on fishing subsidies.746 Chairman Valles conceded up front there was essentially nothing novel in his “new” draft.747 On all three topics—AD, CVD, and fishing subsidies—the disagreement among WTO

734. Id. 735. Id. 736. Id. 737. Id. 738. Pruzin, EU in New Turnaround, supra note 732. 739. Id. 740. Id. 741. Id. 742. Id. 743. Id. 744. Pruzin, EU in New Turnaround, supra note 732. 745. Id. 746. December 2008 Rules Text, supra note 38, at 1. The previous iteration was issued in November

2007. November 2007 Rules Text, supra note 39. 747. See December 2008 Rules Text, supra note 38, at 1. (“As I stated very clearly in July, and the

situation has not changed since that time, it should not be expected that my new texts will offer any magic solutions in the many areas where Members' positions differ dramatically.”).

10 Bhala PUB 11/13/2009 9:37:45 AM


Members was serious, with no obvious prospect of convergence, and easily sufficient to scupper a successful outcome to the Doha Round.

As to fishing subsidies, the Chairman essentially had been forced by WTO Members to abandon the proposals he tabled in November 2007 and return to the proverbial “drawing board.”748 With respect to AD and CVD remedies, the December 2008 and November 2007 Draft Texts were nearly identical, except for the unmistakable emphasis in the new text on points of disagreement in lieu of proposed language to facilitate accord.749 The Chair inserted these points in bold and put them in square brackets at the relevant spots in the WTO Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 (Antidumping, or AD, Agreement) and Agreement on Subsidies and Countervailing Measures (SCM Agreement).750 Because these insertions replaced draft AD and CVD provisions, the sense of reverse momentum, that the later text was less advanced than its predecessor, was ineluctable. Moreover, depending on the perspective of the Member, the reversal was especially troubling.

A. Eleven Fights over Antidumping

With respect to AD, the December 2008 Draft Rules Text highlighted eleven key areas of dispute. They were as follows:751

1. Zeroing

The Chairman best summarized the impasse: “Delegations remain profoundly divided on this issue. Positions range from insistence on a total prohibition of zeroing irrespective of the comparison methodology used and with respect to all proceedings to a demand that zeroing be specifically authorized in all contexts.”752

Put succinctly, the rest of the world—and that included Brazil, Chile, Colombia, Costa Rica, Hong Kong, Japan, Mexico, Norway, Singapore, South Korea, Switzerland, Taiwan, Thailand, and Turkey, that banded together in a group totaling over a dozen WTO Members called “Friends of Antidumping Negotiations” (FANs), as well as China—insisted on a zeroing ban.753 The assertion was that the amount of

748. Compare Id. at 85 (providing only a roadmap for discussion), with November 2007 Rules Text, supra note 39, at 87 (proposing rules for WTO Members to work with).

749. Compare December 2008 Rules Text, supra note 38, at 3–29, 37–71, with November 2007 Rules Text, supra note 39, at 3–34, 41–74. Note the replacement of proposed language from the November 2007 Text with bold, bracketed language indicating disagreement in the December 2008 Text.

750. December 2008 Rules Text, supra note 38, at 3–29, 37–71; November 2007 Rules Text, supra note 39, at 3–34, 41–74.

751. These areas are set out in bold and brackets in the December 2008 Draft Rules Text. December 2008 Rules Text, supra note 38, at 3–29. For a treatment of AD law, see BHALA, INTERNATIONAL TRADE

LAW, supra note 2, chs. 27–32, 35–36. 752. December 2008 Rules Text, supra note 38, at 6, art. 2.4.2. 753. See Daniel Pruzin, China Urges Ban on Zeroing in Dumping Investigations as Part of WTO Rules

Talks, 23 Int’l Trade Rep. (BNA) 695 (May 4, 2006) [hereinafter Pruzin, China Urges Ban on Zeroing] (providing that China called for a WTO ban on zeroing as one of its priorities in WTO negotiations on antidumping rules); Daniel Pruzin, WTO Members React to Revised Rules Text; U.S. Insists on Including Zeroing Provisions, 26 Int’l Trade Rep. (BNA) 203–04 (Feb. 12, 2009) [hereinafter Pruzin, WTO Members React] (noting that the “Friends of Antidumping Negotiations” group, which includes Brazil, Chile, Colombia, Costa Rica, Hong Kong, Japan, Mexico, Norway, Singapore, South Korea, Switzerland, Taiwan, Thailand, and Turkey, welcomed the revised Doha Round negotiating text issued by the chairman

10 Bhala PUB 11/13/2009 9:37:45 AM


dumping (positive dumping margins) should be reduced (offset) by non-dumped sales (negative dumping margins).754 Without that ban, the deck would remain stacked against respondent producer-exporters, as dumping margins would be inflated artificially.

The FANs spoke from experience, as the United States frequently used zeroing when calculating dumping margins against their exporters.755 The FANs were successful in causing a major change in the Draft Text from November 2007. The earlier text embodied the American position, permitting Simple Zeroing in original investigations, and both Simple and Model Zeroing in Administrative and Sunset Reviews.756 Nonetheless, the United States adamantly stuck to its position that there would be no successful conclusion to the Doha Round unless Members agreed to legislatively overrule the string of what it regarded as erroneous Appellate Body precedents against zeroing.757 Only that solution, said the United States, would allow it and other WTO Members to impose an AD duty on the full amount of dumping—a right they have under Article 9:3 of the AD Agreement.

2. Causation

Members could not agree on how to handle three practical causation questions that arise in virtually every AD case.758 First, should it be mandatory to separate and distinguish the allegedly injurious effects of dumped imports and other factors, so as to avoid attribution of those effects to dumped imports when, in fact, other factors might be the cause? Second, to what extent is a quantitative, as distinct from a qualitative, analysis of non-attribution necessary? Third, to what degree should the allegedly injurious effects of dumped imports be weighed against those effects from other factors?

3. Material Retardation

Dumping is not actionable unless it causes or threatens to cause injury, or unless it materially retards the establishment of a domestic industry.759 How tightly should the term “material retardation” be defined? Some Members argued that an industry might still be in the process of being established, even if there is a small amount of in December 2008). For a general definition of zeroing, see id. (“Zeroing refers to the practice in which an investigating authority makes multiple comparisons of the export price and home market price of an allegedly dumped good, and then aggregates the results of those comparisons to calculate a dumping margin . . . . However, when aggregating the prices, the authority ignores results where ‘negative’ dumping occurs.”).

754. See Pruzin, WTO Members React, supra note 753 (noting that zeroing involves the practice of ignoring “negative” dumping in making calculations).

755. See Pruzin, China Urges Ban on Zeroing, supra note 753 (observing that zeroing is a “methodology used by the United States”).

756. Pruzin, WTO Members React, supra note 753, at 203. For the distinction between Simple and Model Zeroing, see BHALA, INTERNATIONAL TRADE LAW, supra note 2, at 1023–30.

757. Pruzin, WTO Members React, supra note 753, at 203. For a tabular summary of those rulings, see RAJ BHALA, DICTIONARY OF INTERNATIONAL TRADE LAW 530–34 (2008). See also WTO Appellate Body Report, United States—Final Anti-dumping Measures on Stainless Steel from Mexico, para. 66, WT/DS344/AB/R (Apr. 30, 2008) (exemplifying a ruling by the Appellate Body against zeroing).

758. December 2008 Rules Text, supra note 38, at 7, para. 3.5. 759. Id. at 6 n.10.

10 Bhala PUB 11/13/2009 9:37:45 AM


domestic production.760 Other Members said any such production means the industry is established, and thus the injury analysis must focus on actual injury or threat thereof.761

4. Definition of Domestic Industry

What criteria should be used to exclude (1) producers that are related to exporters or importers and (2) producers that also are importers, from the definition of a domestic industry? That definition is essential in delineating the class of petitioners potentially entitled to AD relief, as well as in determining at the outset whether the petitioners have standing to bring an AD case. Some Members demanded precise, numerical criteria.762 Others insisted on a loose, case-by-case analysis that would both protect their sovereignty and be less expensive and time-consuming to administer than such criteria.763

5. Definition of Subject Product

Should a provision be added concerning the product under consideration—the subject merchandise or the good subject to an AD investigation—to clarify how that product is defined? Some Members argued it would focus the scope of an investigation where others feared it might implicate related products in a vertical and horizontal sense, and thereby bring, for example, parts of a product into an investigation.764 Members also disputed the extent to which criteria such as physical and market characteristics should be used in defining the subject merchandise.765

6. Information Requests to an Affiliated Party

Members could not agree on how to treat an interested party in an AD investigation that has been asked for information. Some Members thought such a party should not be deemed non-cooperative if it fails to provide data about an affiliate that it does not control.766 Other Members thought a deemed exemption would encourage non-cooperation based on an excessively narrow view of “control.”767

7. Public Interest Test and Lesser Duty Rule

The November 2007 Text included a public interest test requiring each WTO Member to have a procedure whereby no AD remedy could be imposed without taking due account of the views of interested domestic parties.768 They include

760. Id. at 8, para. 3.8. 761. Id. 762. Id. at 8–9, para. 4.1. 763. Id.; Rossella Brevetti, New Revised Draft Doha Texts Released on Dumping, Subsidies for

Further Talks, 26 Int’l Trade Rep. (BNA) 27 (Jan. 1, 2009). 764. December 2008 Rules Text, supra note 38, at 11, para. 5.6. 765. Id. 766. Id. at 15, para. 6.8. 767. Id. 768. November 2007 Rules Text, supra note 39, at 19–20, para. 9.1.

10 Bhala PUB 11/13/2009 9:37:45 AM


industrial and retail users of the subject merchandise and domestic like product, and suppliers of inputs to the domestic industry.769 This proposal, along with inclusion of the lesser duty rule, whereby a Member need only impose an AD duty up to the level necessary to rectify dumping, which may be less than the full amount of the dumping margin, was backed by the EU.770 The United States stood in opposition, on the ground that these changes would infringe on the sovereignty of a WTO Member to impose and collect AD duties in the manner it deems suitable.771

In the December 2008 Text, the Chairman aptly summarized the large gap in positions over these topics:

Participants are sharply divided on the desirability of a procedure to take account of the representations of domestic interested parties when deciding whether to impose a duty. Some consider that such a procedure would impinge on Members’ sovereignty and would be costly and time-consuming, while others support inclusion of such a procedure. Issues related to any such procedure include the extent to which any such procedures should apply in the context of Article 11 [administrative and sunset] reviews, whether the ADA’s [AD Agreement] requirement for a judicial review mechanism should apply to decisions pursuant to any such procedure, and the extent to which WTO dispute settlement should apply. On lesser duty, many delegations strongly support inclusion of a mandatory lesser duty rule. Other delegations oppose the inclusion of such a rule, with one delegation noting that it was not practically possible to calculate an injury margin. Among those supporting a mandatory lesser duty rule, there are varying views about the appropriate degree of specificity for any new rules and the extent to which those rules should prescribe or prioritize particular approaches to determining the appropriate level of duty.772

These topics pitted not only the United States against the EU and many other Members, but also divided constituencies within many Members. Predictably, consumer groups championed a public interest test and lesser duty rule, and producer groups steadfastly opposed them.

8. Anti-Circumvention

Should an express set of rules to deal with circumvention of an existing AD order be added? Circumvention occurs when a foreign producer-exporter that is the target of an AD order seeks to evade the order by shipping (1) subject merchandise in parts or unfinished forms, (2) a slightly modified version of the merchandise, or (3) components to a third country, assembling them in the third country, and then

769. Id. at 20 n.37. 770. See European Commission, Anti-Dumping (Feb. 23, 2006), http://ec.europa.eu/trade/issues/

respectrules/anti_dumping/pr230206_qa_en.htm (last visited July 1, 2009) (conveying the European Union’s acceptance of the lesser duty rule).

771. See Pruzin, WTO Members React, supra note 753, at 204 (conveying U.S. opposition to the lesser duty rule).

772. December 2008 Rules Text, supra note 38, at 18–19, para. 9.1.

10 Bhala PUB 11/13/2009 9:37:45 AM


sending them to the importing country that maintains the order.773 If such rules should be added, what numerical thresholds should be used to find dumping, injury, and causation? Should anti-circumvention measures be country- or company-specific?

Members disagreed on all these questions.774 One group, including the United States and EU, argued special multilateral rules are needed, especially to harmonize the existing array of national-level rules.775 They were dismayed at the deletion from the November 2007 Text of a specific provision that would have allowed a WTO Member to extend the scope of an AD order if that Member discovered an exporter covered by the order sought to circumvent it.776 Another group, including China, felt victimized by American and European anti-circumvention measures, and opposed any inclusion of anti-circumvention rules in the Draft Text.777 This group said the only appropriate response to alleged circumvention is to launch a new AD investigation.778

9. Sunset Reviews

The Members disputed the appropriate criteria for initiating and conducting a sunset review, that is, a review of an AD order five years after its imposition.779 Members also disagreed sharply on what ought to happen after a sunset review. Some Members argued an AD remedy must terminate automatically after five years, with no possibility of extension.780 Others, such as the United States, rejected automatic termination, and were pleased by the deletion of a proposal in the November 2007 Text that would have capped the duration of any AD remedy at ten years.781

10. Third-Country Dumping

Third-country dumping occurs when dumping in an importing country causes injury to a domestic industry in a third country. Should the rules allowing for investigation and prosecution of a dumping claim on behalf of a third country be scrapped? Or, should they be revised to make them operational, that is, more user-friendly, and thereby more practical than as set out in the AD Agreement? Again, Members were split.782

773. November 2007 Rules Text, supra note 39, at 22. 774. December 2008 Rules Text, supra note 38, at 21, para. 9.5.3; Pruzin, WTO Members React, supra

note 753, at 203. 775. See Pruzin, WTO Members React, supra note 753, at 204 (noting the strong support of the United

States and EU for anti-circumvention measures, and an argument from anti-circumvention supporters that “rules . . . are necessary to achieve some degree of harmonization among the procedures used by different Members”).

776. Id. 777. Id. 778. Id. 779. December 2008 Rules Text, supra note 38, at 23, para. 11.3. 780. Id. 781. See Pruzin, WTO Members React, supra note 753, at 203 (conveying U.S. opposition to the

automatic termination of measures after a given period of time). 782. December 2008 Rules Text, supra note 38, at 26–27, para. 14.4.

10 Bhala PUB 11/13/2009 9:37:45 AM


11. Special and Differential Treatment

There was no consensus among Members as to the nature of any preferential treatment to be accorded developing and least-developed countries under the AD Agreement.783 To close observers of the Doha Round, none of the above-mentioned controversies were a surprise. The fact that the Rules Text could highlight them, but not even suggest draft language to resolve them, underscored their severity.

B. Four Fights over Countervailing Duties

As for CVDs, the new Rules Text emphasized four critical areas of unresolved controversy:784

1. Calculation of the Amount of a Subsidy

Should a new provision be added covering government financing of loss-making institutions? The provision would deal with official loans or loan guarantees provided to institutions that incur long-term operating losses as well as funding to state-owned enterprises (SOEs) that are not credit- or equity-worthy.785 Some Members argued the addition was needed to discipline trade-distorting financing schemes that had proliferated in the fall of 2008 with the onset of a global economic recession.786 Other Members fiercely opposed any change because it would discriminate against SOEs.787

2. Special and Differential Treatment

The SCM Agreement entitled developing countries to phase out export subsidies over a longer period of time than developed countries, and allowed them to keep these subsidies with respect to a particular product until they had reached export competitiveness in that product market (defined as 3.25 percent of world trade in two consecutive years).788 Members argued over two questions. First, should the definition of a product that could receive an export subsidy be refined? Second, should a developing country be free to restore a subsidy if it loses export competitiveness in a product market after having reached competitiveness, and if so, under what criteria and for how long?789

783. Id. at 27, art. 15. 784. For a treatment of CVD law, see BHALA, INTERNATIONAL TRADE LAW, supra note 2, chs. 33–

36. 785. December 2008 Rules Text, supra note 38, at 54, para. 14.1(c). 786. Id.; see also Press Release, General Assembly, Global Financial Crisis Must Generate Stronger

Regulation to Contain Speculation, Instability, President of Trade and Development Board Tells Second Committee, U.N. Doc. GA/EF/3228 (Nov. 5, 2008), available at http://www.un.org/News/Press/docs/2008/ gaef3228.doc.htm (documenting the observation of representatives from many countries that the crisis had encouraged trade-distorting policies).

787. December 2008 Rules Text, supra note 38, at 54, para. 14.1(c). 788. Id. at 67, paras. 27.4, 27.6. 789. Id. at 67, para. 27.6.

10 Bhala PUB 11/13/2009 9:37:45 AM


3. Export Credits and Market Benchmarks

Should export credits continue to be measured in terms of the cost incurred by the subsidizing government to provide these credits? Or, should they be gauged by the benefit they confer on a recipient? Some Members, especially developing countries, said the existing cost-to-government methodology was both inconsistent with the general definition of a “subsidy” in Article I of the SCM Agreement and disadvantageous to developing countries.790 Other Members argued that using the second, benefit-to-recipient approach would boost costs for developing country borrowers and reduce predictability for government agencies that grant export credits.791

4. Export Credits and Successor Undertakings

Should any changes that might be made in the Export Credit Arrangement of the Organization of Economic Cooperation and Development (OECD) automatically be given effect in the SCM Agreement? Some Members thought so, essentially for the sake of efficiency.792 Others demanded the right to veto, in the WTO context, any changes made by the OECD.793 As if the aforementioned battles on AD and CVD were not enough in number or intensity, fishing subsidies were the topic of yet more fierce conflict.

C. Back to Square One on Fishing Subsidies

On fishing subsidies, the December 2008 Draft Rules Text was more disheartening than on AD and CVD. WTO Members leaped backwards from where they appeared to be in November 2007. The only points on which Members agreed were incontrovertible facts: a global crisis of overcapacity and overfishing existed, and this crisis had adverse economic and environmental effects.794 But, they could not agree on a common strategy to deal with the crisis. Their five key areas of dispute were:

1. Benchmarks?

Establishing metrics to gauge the existence of overcapacity or overfishing objectively and precisely.795

2. The Judge?

Deciding whether individual Members should be permitted to self-judge overcapacity and overfishing, or whether some other party, group, or institution should make those judgments.796

790. Id. at 73, Annex I, paras. j–k. 791. Id. 792. Id. at 74, Annex I, para. k. 793. December 2008 Rules Text, supra note 38, at 74, Annex I, para. k. 794. Id. at 85, para. 2. 795. Id. at 85, para. 6.

10 Bhala PUB 11/13/2009 9:37:45 AM


3. The Prohibition?

Delineating the scope of the fishing subsidy prohibition, or put conversely, agreeing on whether certain fishing subsidies should be allowed.797

4. Exemptions and Special and Differential Treatment?

Identifying specific types of fishing subsidy programs that might be exempt from the prohibition. Possible types included a subsidy program that: (1) contributes only minimally to overcapacity or overfishing, (2) the effects of which could be controlled adequately by a fisheries management scheme, (3) focuses on small operations, which would not contribute to overcapacity or overfishing, or (4) is important to the economic development of a poor country.798

5. Enforcement?

Agreeing on methods to monitor and survey any exempt fishing subsidy programs such that the integrity of the prohibition is not undermined, and thus help prevent overcapacity and overfishing.799

Thus, Chairman Valles simply put to the Members in his “Road Map” a long list of questions concerning fundamental issues they had to address.800 They were all back to square one. These issues were under the negotiating mandate the Members undertook in the December 2005 Hong Kong Ministerial Conference, three years before the Draft Text.801

V. THEMATIC QUESTIONS IN RETROSPECT

A. Does China Matter?

It has been said that “China is really a civilization masquerading as a nation-state.”802 International trade negotiators ought never to forget the long-term

796. Id. 797. See Id. at 85, para. 5 (listing possible considerations for the group in case a Member decides not

to prohibit a specific subsidy). 798. Id. 799. December 2008 Rules Text, supra note 38, at 36, para. 7. 800. See Id. at 86–87, paras. 10–11 (concerning the prohibition of fishing subsidies); Id. at 87–88,

paras. 12–13 (concerning general exemptions from the prohibition); Id. at 88–89 paras. 14–15 (concerning special and differential treatment); Id. at 89–90 para. 16 (concerning general disciplines on, and actionability of, fishing subsidies); Id. at 90–91, paras. 17–20 (concerning fisheries management); Id. at 91–92, paras. 21–22 (concerning transparency); Id. at 92, para. 23 (concerning dispute settlement); Id. at 93, paras. 24–25 (concerning implementation); Id. at 93–94, paras. 26–27 (concerning transition rules).

801. See Hong Kong Ministerial Declaration, supra note 475, Annex D, para. 9 (calling on all participants to strengthen prohibitions against subsidies that contribute to overcapacity, refine the nature and extent of fisheries disciplines, and create appropriate special and differential treatment disciplines).

802. See Daniel R. Fung, The Rise of China: Political and Economic Implications, Lecture at the Wilson Center—Dean Rusk Center Annual Lecture Series (Nov. 6, 2006), in 6 DEAN RUSK CTR. OCCASIONAL PAPERS 39, 49 (2008) [hereinafter Fung, The Rise of China] (discussing the views of famed Sinologist Professor Lucian Pye).

10 Bhala PUB 11/13/2009 9:37:45 AM


prospects for China, which may not be as rosy and glamorous as enthusiastic Sinophiles think. They should not forget that the sixty-year monopoly on political power held by the Chinese Communist Party (CCP) cannot persist in perpetuity. But, trade negotiators must deal with the reality of China as it is, as a nation-state. They must, and typically do, perceive the world of trade negotiations through the lens of realism, or real politik. Nation-states come to the bargaining table to advance their self-interest, as they define it. Regardless of the precepts of Adam Smith and David Ricardo, if nation-states do not believe unconditional, unilateral trade liberalization will help them, then they will behave like mercantilists.

Perhaps that is why little attention has been given to evaluating China’s performance in the Doha Round of multilateral trade negotiations. If most nation-states, most of the time, follow this pattern of behavior, then why single out China from among all the nation-states that are WTO Members for scrutiny in terms of its behavior in the Round? Does China really matter any more than Kenya, for example?

One answer emerges from realism itself. China boasts that it is a major force in the international arena and has become a “responsible stakeholder” in the global community.803 No longer the insular, isolated Maoist Middle Kingdom, China is now a modern, vibrant nation symbolized by its “Coming Out Party,” the opening ceremony of the Olympic Games in August 2008. China puts itself in the highest echelon of nations, with the United States and EU, and at least one notch above Brazil and India. After all, at least before global recession struck, the OECD forecasted China to be the largest exporter and the fourth largest economy in the world by 2010.804

China does more than demand the rest of the world accept its nationalistic self-promotion. China goes so far as to lecture western leaders about their global economic responsibilities. China castigates them for “inappropriate macroeconomic policies” and an “unsustainable model of development characterized by prolonged low savings and high consumption,” and attacks their financial institutions for their “blind pursuit of profit” and “lack of self-discipline.”805

Concomitantly, China insists on its version of reality, no matter what the controversy; for instance, whether China is manipulating its currency to gain an unfair competitive trade advantage.806 It admonishes dark protectionist forces not to

803. See Foreign Ministry: China to “Actively” Join Doha Round, XINHUA (ENGLISH), Dec. 4, 2008,

available at http://english.sina.com/china/2008/1204/202606.html (quoting Chinese Foreign Ministry spokesman Liu Jianchao in declaring that “China will continue to play a constructive and active role as a responsible country, and work with all sides to promote the negotiations to achieve a comprehensive and balanced result on the basis of existing achievements”). Moreover, China’s Ambassador to the United States, Zhou Wenzhong, stated publicly that his country’s process of reform, and policies of openness, will intensify amidst the global economic recession, because of interdependence. Amy Tsui, Chinese Ambassador Says China Committed to Openness in Face of Economic Slowdown, 26 Int’l Trade Rep. (BNA) 100 (Jan. 22, 2009). China cannot sustain its growth if it closes itself to the world, nor can the world re-ignite its growth without China. Id.

804. Richard McGregror & Raphael Minder, China to Lead Exports by 2010, Says OECD, FIN. TIMES, Sept. 17, 2005.

805. Andrew Edgecliffe-Johnson et al., Wen and Putin Criticise Western Leaders at Davos, FIN. TIMES, Jan. 29, 2009, at 1 (quoting Chinese Premier Wen Jiabao at the January 2009 World Economic Forum in Davos, Switzerland).

806. For a legal and policy analysis of this topic, see Raj Bhala, Virtues, the Chinese Yuan, and the American Trade Empire, 38 HONG KONG L.J. 183 (2008) [hereinafter Bhala, Virtues]. For a commentary, see James Bacchus, What a Trade War with China Would Look Like, FORBES.COM, Feb. 2, 2009,

10 Bhala PUB 11/13/2009 9:37:45 AM


launch a trade war, often tossing in a reminder that it holds a vast amount of American treasury securities.807 Never mind sobering facts such as:808

(1) China’s population will peak in 2030 at 1.5 billion, and then decline rapidly, causing a demographic burden unprecedented in human history, namely, an inverse pyramid in which one worker must support his or her own family, plus (at least) retired parents and four retired grandparents.809

(2) China has no pension or health care system.810

(3) About 65–70 percent of the Chinese still live in rural areas, and 10 million migrate to cities—legally and illegally—every year, suggesting it still is in the midst of a transition from a labor surplus to modern industrial economy, as theorized by the Fei-Ranis model of economic development.811

(4) China needs to achieve an 8 percent growth rate to produce enough new jobs to maintain order.812 With twenty million internal migrant workers having lost their jobs as of January 2009 because of the economic crisis, there is concern about social instability.813

(5) The Chinese domestic consumption market is just 10 percent of that of the United States.814

(6) China accounts for only 5–6 percent of global imports, which is just one-third the amount of the United States.815

(7) China contributes only 5–6 percent of world income and output, far less than the roughly one-quarter provided by the United States.816

If, at China’s behest, such facts are to be put to one side, then it is only logical to use more rigorous metrics for assessing Chinese performance in international trade negotiations than are used for Kenya. If China wants an elevated status in global trade that matches its rhetoric, then it must assume greater responsibility for the conduct and outcome of the negotiations.

http://www.forbes.com/2009/01/31/trade-wto-china-opinions-contributors_0202_james_bacchus.html. For journalistic accounts, see Geoff Dyer, China Hits Back Over Renminbi Comments, FIN. TIMES, Jan. 24, 2009, at 1; Kathleen E. McLaughlin & Amy Tsui, China’s Central Bank Slaps Back at Geithner’s Remarks on Currency, 26 Int’l Trade Rep. (BNA) 157–58 (Jan. 29, 2009).

807. McLaughlin & Tsui, supra note 806, at 157. 808. See generally Fung, The Rise of China, supra note 802 (discussing the various problems that

China will have to deal with in the future). 809. Id. at 44. 810. Id. 811. Id. at 46; see also Raj Bhala, China’s WTO Entry in Labor Surplus and Marxist Terms, in CHINA

AND THE WORLD TRADE SYSTEM: ENTERING THE NEW MILLENNIUM 115, 115–16 (Deborah Cass et al. eds., 2003) (arguing that China has yet to reach the transition point from labor surplus to modern industrial economy).

812. Michael Wines, China's Leader Says He Is ‘Worried’ Over U.S. Treasuries, N.Y. TIMES, Mar. 14, 2009, available at http://www.nytimes.com/2009/03/14/business/worldbusiness/14china.html.

813. Kathleen E. McLaughlin, China’s Exports Down Dramatically Due to Financial Crisis; Government Warns of Unrest, 26 Int’l Trade Rep. (BNA) 254 (Feb. 19, 2009).

814. Fung, The Rise of China, supra note 802, at 44. 815. Id. 816. Id.; World Bank, Gross Domestic Product 2008, at 1, 4, http://siteresources.worldbank.org/

DATASTATISTICS/ Resources/GDP.pdf (last visited Oct. 29, 2009) (specifying a U.S. GDP of approximately $14 trillion out of a world GDP of $60.5 trillion).

10 Bhala PUB 11/13/2009 9:37:45 AM


After all, the United States and EU receive their fair share (maybe more) of criticism for taking their self-interests too seriously in the Doha Round and most other international negotiations.817 Indisputably, they are global players, and they are faulted for not acting as such. For China, the question ought to be commensurate with China’s self-proclamations: “Are you behaving in the Round like the global player you claim to be?”

Global players think globally. Translated into metrics, global players:

(1) Offer comprehensive solutions to complex trade problems;

(2) Appreciate the linkages among trade problems; and

(3) Express flexibility to adapt their internal economic structures.

By no means are these three metrics exhaustive. Moreover, they are preliminary, tentative, and in need of greater elaboration and precision—a task for another project. For present purposes, however, they offer a starting point for discussing whether China is thinking globally when it sits down at the WTO negotiating table.

What emerges from the record of Doha Round negotiations, or at least from the critical Draft Agriculture and NAMA Modalities Texts of December 2008, and their July predecessors, is a bottom-line answer: “no.” One prominent Financial Times journalist widens the context for this answer to include moral questions:

The price of admission to the club of great powers is set as a foreign policy that looks beyond narrow definitions of national interest to the broader goal of global security. Great powers are expected to provide public goods. . . .

Foreign policy, in this centuries-old [Westphalian] construct, was blind to values. But the idea of inviolable sovereignty has been left behind by interdependence and by acceptance that some human rights transcend those of governments. . . .

China does not want to challenge the existing [Westphalian] system, but it hesitates to accept the responsibility that comes with being a global player.818

At least, then, it may be urged that China has yet to act in the Doha Round like the global player it claims to be.

First, China has offered no comprehensive plans to deal with complex trade problems. In the four key areas of Doha Round discussions—agriculture, NAMA, services, and rules (trade remedies)—China has not put forth any comprehensive plan to bring the Round to a successful conclusion. It has, at best, episodically

817. See, e.g., Bhala, Virtues, supra note 806, at 250–51 (“[T]he bill sponsors intone China is the unfair

actor. . . . The Senators seemed blissfully unaware of the hypocrisy of their position: the remedy they proposed . . . is itself a highly interventionist tactic.”); Raj Bhala, The Limits of American Generosity, 29 FORDHAM INT’L L.J. 299 (2006) (discussing the need for developed countries to have a trade paradigm that includes interests beyond acting in self-interest).

818. Philip Stephens, India Faces a Choice: Is It a Big Power or Great Power?, FIN. TIMES, Mar. 20, 2009, at 9 (emphasis added). The focus of the commentary is criticism of India for “unflinching defense of its narrow interest,” as manifest, for example, in being “one of the principal obstacles to the conclusion of the Doha Round.” Id. The latter point is highly suspect, as much of the present article indicates.

10 Bhala PUB 11/13/2009 9:37:45 AM


participated in plans to address specific issues drafted by a grouping with which it seeks to ally itself, such as the RAMs.

Second, China shows neither an appreciation of, nor much curiosity about, the ways these four areas are connected in countries other than China itself. It seems satisfied in a nearly mercantilist way with its position as a surplus nation. It shows little interest in whether and for how long structural global imbalances—namely, its massive current account surplus and the huge American current account deficit—are sustainable, or for devising mechanisms for correcting the asymmetries (such as an updated version of GATT) that impose the least adjustment costs not only on China, but also its trading partners.819

Third, China has demonstrated a grudging willingness to adapt its domestic economy to advance the common good. In particular, it continues to rely on exports, not on internal consumption (i.e., domestic demand), for the bulk of its growth in Gross National Product (GNP).820 It has done little to alleviate the concerns of average Chinese households that prevent them from boosting consumption expenditures, namely, affordable or free education and health care.821

These three criteria suggest China is not behaving in a markedly different manner after seven years of WTO Membership than it did about four years before its accession. Consider what a Senior Fellow at the Council on Foreign Relations (CFR) observed of China in August 1997:

If Beijing acts as the spokesman for third-world interests in Geneva, the WTO could be transformed from a functional body dealing with the practical commercial concerns of the world’s largest trading economies into a talking shop focused on the political interests of small, developing economies.

In other international bodies China has proved to be a follower and not a leader. But followers can be foot-draggers. And if Beijing becomes a foot-dragger in the WTO, it could impede U.S. and European Union efforts further to liberalize service trade and develop international trade norms on worker rights, the environment and competition policy.822

China’s before-and-after accession follower-ship contrasts with that of the United States and EU.

The United States and EU, for all their faults, have put forward comprehensive plans on agriculture, NAMA, services, and rules, or at least taken a lead role in

819. See Martin Wolf, Global Imbalances Threaten the Survival of Liberal Trade, FIN. TIMES, Dec. 3,

2008, at 13 (“Surplus countries must willingly accommodate necessary adjustments by deficit countries. If they decide to sit on the sidelines . . . they must prepare for dire results.”).

820. See Daniel Dombey, Paulson Calls on Beijing to Bolster Value of Renminbi, FIN. TIMES, Dec. 3, 2008, at 2 (quoting Paulson suggesting that China “rely[] more on domestic demand and less on exports to drive growth”); Shifting Away from Export-Led Growth, FIN. TIMES, Nov. 17, 2008, at 12.

821. Marry Hennock, Why China is Too Scared to Spend: Boosting Consumption is Key to Economic Recovery. But That Will Take Fixing a Disastrous Health System, NEWSWEEK, Dec. 22, 2008, available at http://www.newsweek.com/id/174524/page/1 (noting that Chinese consumers do no spend for fear of getting sick, and that only one percent of Chinese stimulus funds were for health care, education, or culture).

822. Bruce Stokes, The Chinese Challenge, FIN. TIMES, Aug. 29, 1997, at 12 (emphasis added).

10 Bhala PUB 11/13/2009 9:37:45 AM


shaping such plans.823 Both powers have shown a deep understanding of the relationship between trade liberalization in agriculture and NAMA, as well as the importance of maintaining the tradition of adopting agreements as a single-undertaking. Both powers, albeit reluctantly, comprehend that their comparative advantages in certain agricultural and industrial sectors have eroded, or are lost, to parts of the developing world. They must reinvigorate their trade adjustment assistance (TAA) regimes to cope internally with a changed external reality.

Like most arguments in international trade law, the “devil is in the details.” China acceded to the WTO on December 11, 2001, just days after the November 2001 Ministerial Conference launching the DDA.824 Naturally, it needed time to develop the legal and technical capacity to come to grips with the DDA. It would be quite unfair to expect China to have produced a brilliant, all-encompassing Doha Round package within the first few years of its accession. Consider, however, its recent performance in the Round. What have been the major developments in the Round, and what role has China played in these developments?

To any careful observer of the Doha Round, even this question, constricted as it is to a recent time period, is worth book-length treatment. To confine the inquiry further, consider the two topics of greatest global prominence: agriculture and NAMA. What developments have occurred on these topics in the latter half of 2008, and what role has China played in shaping them? In addressing this question, the threads that make up a pattern become fairly clear.

Put simply, China has yet to behave like a statesman in the WTO. Instead, China has publicly labeled itself a developing country in need of, and indeed entitled to, all the special and differential treatment that other poor countries get, or can seize under a final Doha Round deal. In fact, by identifying with the RAMs, China has done little else than demand extra-special and differential treatment. Its negotiating posture has been one of reactive self-interest. When a proposal is put forward, China concentrates on what that proposal means for itself, as a self-styled developing country RAM. That focus is understandable for any WTO Member, including the United States and EU. But, when it is an obsession, it belies any legitimate claim to statesmanship.

Of course, Chinese trade policy is not an immovable object under siege from irresistible foreign forces. Reality can change, if the political will exists to do so. China can lead other countries to use the WTO as a forum to advance the common good. Rather than expressing delight when the common good is advanced as a by-product, an externality, of their own self-interest, China can see advancement of the common good as its prime directive. Indeed, it might be argued China—simply because of its size and aspirations—has a responsibility to the international community to look at Doha Round negotiations in this way.

823. These plans are discussed and analyzed in BHALA, INTERNATIONAL TRADE LAW, supra note 2,

at 78 (October 2005 U.S. proposal on Agriculture and EU counter-proposal); Id. at 98–100 (2005 U.S. proposal for “Swiss Formula” cuts to industrial product tariffs, and EU efforts to secure generous cuts from “better-off developing countries”); Id. at 102 (“At negotiations in Paris in September 2005, the U.S., EU, Brazil, and India formed a ‘Core Group’ of WTO Members to advance services negotiations.”); Id. at 65 (May 2007 U.S. proposal to eliminate fisheries subsidies).

824. World Trade Organization, Protocols of Accession for New Members Since 1995, Including Commitments in Goods and Services, http://www.wto.org/english/thewto_e/acc_e/completeacc_e.htm#chn (last visited Oct. 9, 2009).

10 Bhala PUB 11/13/2009 9:37:45 AM


In sum, opportunities for China to exhibit great statesmanship in the Doha Round remain. Inevitably, new chances will emerge. For now, it may be said that China does not have a trade policy at all. It has a national security policy, the essence of which is maintaining the position of the CCP. That position is secure—ostensibly, at least—as long as the CCP delivers impressive economic performance for average citizens, and continues to lift millions out of poverty. Trade, and particularly export-oriented growth, is a subset in the CCP calculus. Accordingly, the challenge for China is to rise above what it has been, and become what it says it is—a global player. For that ascension to occur, China must peacefully address an even more basic internal political question: for how much longer is the CCP going to insist on authoritarian monopoly rule, and view every issue—from the “3Ts” of Taiwan, Tiananmen, and Tibet to Doha Round negotiations—through the prism of domestic power?825

B. Does Managed Trade Reconcile Free Trade with Schismatic Interests?

Manifestly apparent from the December 2008 Draft Agriculture Modalities Text is that WTO Members were not engaged primarily in an exercise of agricultural trade liberalization, and hardly in free trade of farm products.826 Rather, they were engaged entirely in managing world agricultural trade. Special and differential treatment abounded for three categories of RAMs (older, newer, and ones with low incomes and transitional economies), approximately forty-five SVEs, and a mishmash of other countries that managed to successfully plead their case for affirmative action.827 As a consequence, over one-third of the WTO Membership would be legally entitled to deviate from agreed upon farm trade liberalization obligations.

Even those obligations, if fully implemented, would not add up to free trade. Every trade liberalizing step would be qualified by an exception cutting back on its force, whether it be an extended implementation period, a limitation on tariff line coverage, susceptibility to a trade remedy, or some other technical provision. The result was a nearly farcical document, though Chairman Falconer was not to blame for the farce. Rather, the Members, and perhaps also the Director-General himself, Pascal Lamy, were to blame. They were the “system” that wrote the rules to advance (or inhibit) free trade.

To be sure, the argument that no one size can or ought to fit all Members is compelling, most obviously for least-developed countries. But, the December 2008 Text confirmed a subtle, but insidious, shift in presumption: from one size designed for all, but with truly exceptional cases allowing for special tailoring, with the shift to custom tailoring allowable for each Member, except ones lacking the legal capacity and acumen to prove they deserve it.

Similarly, on virtually all NAMA topics, the December 2008 Draft Modalities Text was a verbatim replica, or nearly so, of its predecessor.828 Viewed in the most favorable light, the new Text provided modest alterations, indicating only an inching

825. For a stirring and eloquent call for non-violent reform, see China’s Charter 08, 56 N.Y. REV. OF

BOOKS, Jan. 15, 2008, available at www.nybooks.com/articles/22210. 826. See supra Part II. 827. See, e.g., supra tbl. I, Part II(B). 828. See supra Part III.

10 Bhala PUB 11/13/2009 9:37:45 AM


toward consensus among WTO Members. On three key topics—sectoral negotiations, preference erosion, and country-specific flexibilities—there were genuine, but certainly controversial, innovations.829

Viewed in a more critical light, the December 2008 Text only exacerbated the reality that NAMA negotiations had descended into a semi-chaotic mercantilist race among Members to secure the maximum degree of self-interest for their exporters, and the minimum degree of competition for their domestic producers. Pursuing freer global trade was a distant second to placating potent constituencies at home.

Like its predecessor, the new text contained the following disclaimer: “These modalities do not create a new category or sub-category of WTO Members, nor do they create a precedent for future negotiations.”830

That disclaimer was hard to believe. Once granted flexibility, or further flexibility, it was nearly inconceivable a beneficiary country or group would not treat the grant as an entitlement. Surely the same domestic interests that pushed for the flexibility in the Doha Round would demand its maintenance long after the Round. Long gone were the days in which it was accepted that the focus of special and differential treatment should be on two straightforward categories of countries: least-developed countries, the poorest of the poor, and an admittedly eclectic bunch of self-identified developing countries. The new Text, in all likelihood, would be a precedent for future negotiations, and maybe even for new schisms yet to be created by special interests. In that sense, the December 2008 Text was little better than the July Text.

In sum, the December 2008 Texts on both farm and industrial product trade had no over-arching free trade vision. Instead, the texts were chock-full with delicately crafted legalese to reconcile the rigors of free trade with the self-interested behavior of WTO Members. In many instances, the American contention was correct: claims for extra-special and differential treatment, in the form of further flexibilities beyond the normal developing country entitlement, were disconnected from reality and had no credible rationale.831 Not surprisingly, then, neither China nor any other major player—not even the United States—adhered to the vision of free trade. Instead, they contributed to a schismatic climate, forcing no other result than managed trade.

For pessimists, perhaps that result is as good as it gets in the contemporary WTO. Why not, goes the logic, abandon the single undertaking approach, and refocus legal capacity on second-best solutions, namely, plurilateral agreements among a coalition of the willing within the WTO, and ambitious free trade agreements (FTAs) among interested countries?832 One rebuttal is that to give up on the single undertaking is to surrender in the fight for multilateralism. That would be dangerous. It might turn present schisms into irreversible divisions, and vault technical differences into clashes of irreconcilable policies. Put in the language of

829. See id. 830. December 2008 Draft NAMA Modalities Text, supra note 26, para. 4. 831. See WTO’s Lamy Calls Off Doha Ministerial, supra note 29, at 1767 (quoting Deputy U.S. Trade

Representative Peter Allgeier on the unresolved issue of “exceptional requests in NAMA for special treatment that are disconnected with any credible justification”).

832. This argument was made to President-Elect Barack Obama by a panel of former American government officials. Gary G. Yerkey, High-Powered Panel Tells Obama New Round of WTO Trade Talks May Not be Good Idea, 25 Int’l Trade Rep. (BNA) 1768 (Dec. 18, 2008). In the popular press, it was put forth by Clive Crook of the Financial Times. Clive Crook, Obama Has to Lead the Way on Trade, FIN. TIMES, Dec. 22, 2008, at 9.

10 Bhala PUB 11/13/2009 9:37:45 AM


theology, to give up on the single undertaking approach would be to abandon the principle that all people represented by their trade negotiators at the WTO are part of the same human family that must continually search for and promote the common good.

Another rebuttal is that to give up on the single undertaking approach would be to presume China, as well as the United States, are incapable of behavior modification. “Vision cannot be expected of them” would be the implicit assumption. “They will always act like spoiled children at the trade bargaining table.” Indeed, more generally, it can be asserted that countries always negotiate out of self-interest, and further that it is naïve to expect them to subordinate, even occasionally, their selfishness to a collective goal. Yet, that is not the vision that launched the Doha Round, nor the premise on which the GATT–WTO system was founded. For China, the past need not be prologue. How many times in its grand history has it made dramatic changes for the better? Conversely, for the United States, the past can be prologue. After all, America was the champion of multilateral trade liberalization through GATT following the Second World War.833

Neglectful or ignorant of history, the pessimistic approach also contends that no multilateral trade round should proceed a political election cycle in a major country like the United States. Otherwise, proposals in a round would be held hostage to electoral politics. The recent past manifestly shows the error of that contention. The Uruguay Round (1986–1993) spanned the administrations of George H.W. Bush, Bill Clinton, and George W. Bush. The Tokyo Round (1974–1979) covered the administrations of Gerald R. Ford and Jimmy Carter. During those Rounds, many European governments rose and fell. In essence, election cycles were not the problem. Rather, the question was adherence to the historic national consensus in favor of trade liberalization, and why that consensus had cracked.

C. What Happened to Fighting Poverty?

If the Doha Round is not about true free trade, or aggressive trade liberalization, then is it about the middle “D” in the acronym DDA? Is the Round about development, specifically about fighting poverty in the Third World? The question became all the more acute during the Round. As trade negotiators fiddled with and quibbled over mind-numbing details, the number of chronically hungry people in the world rose from 848 million in 2003–2005 to nearly one billion in 2008.834 The United Nations Millennium Development Goal (MDG) of halving world hunger between 1990 and 2015 was further off than ever before.835

833. See, e.g., Jon E. Huenemann, Trading Directions, 12 TRADE & FORFAITING REV., Dec. 23, 2008,

available at http://www.tfreview.com/xq/asp/txtSearch.trading+directions/exactphrase.1/sid.4D543A60-159B-4121-9576-1279A7F0BCFD/articleid.7210DB31-8B51-4D3E-9AF2-5A67FCEFB653/qx/display.htm (“[w]ithdrawal from the [Doha Round] negotiations by the U.S. is unthinkable, given its leading role behind multilateralism since World War II.”). For accounts of GATT history and the role of the United States in it, see RAJ BHALA, MODERN GATT LAW: A TREATISE ON THE GENERAL AGREEMENT ON

TARIFFS AND TRADE xi–xv (2005) and DOUGLAS A. IRWIN, PETROS C. MAVROIDIS & ALAN O. SYKES, THE GENESIS OF THE GATT ch. 1 (2008).

834. Javier Blas, Almost 1 Billion People Now Going Hungry, FIN. TIMES, Dec. 10, 2008, at 6, available at http://www.ft.com/cms/s/0/46da7c9c-c65c-11dd-a741-000077b07658.html?nclick_check=1.

835. United Nations Millennium Development Goals, http://www.un.org/millenniumgoals/ poverty.shtml (last visited Oct. 10, 2009).

10 Bhala PUB 11/13/2009 9:37:45 AM


“No” is the response to the above question. Why not—as the United States urges in the first trade agenda report of the Obama Administration (the 2009 Trade Policy Agenda and 2008 Annual Report)—demand a correction of the “imbalance” in the Doha Round negotiations between (1) a known, calculable value of America’s concessions, and (2) a value of new market access opportunities from other countries for America’s farmers, ranchers, industrial producers, and service providers, which is unclear because of special flexibilities?836 Why not—as the American business lobby insists—demand a balance among agriculture, NAMA, and services opportunities and greater ambition in all three areas, plus strong trade remedy rules, rather than allow other WTO Members to focus on the agricultural sector?837 Why not reject any attempt to reap an early harvest of separate agreements on particular issues, rather than wait for a comprehensive single undertaking?838

The obvious answer to this line of reasoning is that the Doha Round never was intended to produce a perfectly balanced outcome. The middle “D” meant that there would be a preferential option for the poor. As the Third World began to take the middle “D” seriously, claims came from the First World that it was a mistake to use that middle “D.” Doing so was a teaser, falsely raising expectations among poor countries. “Why give hope to the poor?” was the cold, sarcastic rhetorical question hard-headed trade realists whispered to each other. Thus, Argentina remarked that the December 2008 NAMA Text “was a developed country agenda,” because the focus is on market access issues in which rich countries are interested.839

Once bargaining began in the Doha Round, especially after the U.S. October 2005 Portman Proposal,840 the major powers settled into a familiar theme: protecting their interests. No satisfactory response has emerged to answer the view long-held by Kamal Nath, India’s Minister of Commerce and Industry, that lives are at stake for poor countries, whereas for America and other rich countries, the only issue is commerce.841 Thus, for example, in the December 2008 Draft Agriculture Text, the United States received much of what it had continuously sought in the Doha Round, including:

(1) Base periods, which would apply only to the United States, to calculate Product-Specific Support in the Amber and Blue Boxes;842

(2) Relatively deeper cuts that would apply to EU and Japanese OTDS, and significant reduction commitments that would apply to Total AMS domestic support in the EU and Japan;843

836. U.S. TRADE REPRESENTATIVE, 2009 TRADE POLICY AGENDA AND 2008 ANNUAL REPORT 3

(2009), available at http://www.ustr.gov/sites/default/files/uploads/reports/2009/asset_upload_file86_ 15410.pdf; see also Doug Palmer, U.S. Warns “Imbalance” in Doha Talks Needs Fixing, REUTERS, Mar. 2, 2009, available at http://www.reuters.com/article/politicsNews/idUSTRE5215RU20090302; Gary G. Yerkey, U.S. Says No WTO Deal Possible Until Other Countries Improve Their Offers, 26 Int’l Trade Rep. (BNA) 304 (Mar. 5, 2009).

837. See Gary G. Yerkey, U.S. Business, Farm Groups Urge Obama to Reassess Approach to WTO Trade Talks, 26 Int’l Trade Rep. (BNA) 308–09 (Mar. 5, 2009) (discussing calls for reciprocity from developing countries in the area of non-agricultural trade for U.S. concessions in agriculture).

838. Gary G. Yerkey, USTR Nominee Rejects “Early Harvest” of Agreements in WTO Trade Negotiations, 26 Int’l Trade Rep. (BNA) 372–73 (Mar. 19, 2009).

839. Pruzin, NAMA Chair Outlines ‘Gradual’ Approach, supra note 610, at 181–82. 840. This Proposal (and others issued at the time in response to it) is analyzed in BHALA,

INTERNATIONAL TRADE LAW, supra note 2, ch. 4. 841. Charles Giles, Acrimony Dashes Doha Hopes, FIN. TIMES, Feb. 2, 2009, at 2 (quoting Minister

Nath). 842. See supra notes 105–106 (Amber Box), 161 (Blue Box) and accompanying text.

10 Bhala PUB 11/13/2009 9:37:45 AM


(3) A broader definition of the “Blue Box” to include counter-cyclical payments;844 and

(4) Incorporation by reference into Product-Specific Blue Box caps of spending limits in the 2002 Farm Bill.845

To be sure, this text was more than a mere transcription of the American negotiating position. The text did not bestow upon the United States all it had sought. For example, the United States had opposed any Product-Specific limits in the Blue Box. Nonetheless, poor countries could hardly be pleased.

The middle “D” provisions explicitly written for the United States ought to have proved embarrassing. These provisions were not justified to the benefit of all rich countries, which might have made them slightly more defensible. These provisions were just for the richest one. They raised the question why American farmers should receive better treatment than their counterparts in Australia, Canada, the EU, or New Zealand, to which the United States provided no answer—other than that it was unwilling to make a compromise on the Doha Round deal without these concessions.846

Even more embarrassing ought to have been the intransigent American position on cotton. The effects of cotton subsidies, and their possible removal, on poor countries have been well known since at least May 2006, when the World Bank published a study on the subject:

[The] World Bank study noted that nearly half the global cotton production occurred in the United States and China. In 2002, the African and Central Asian countries that relied heavily on cotton exports had an average per capita income of less than 80 US cents per day. Meanwhile, exports from these countries competed with heavily subsidized US exports in the international market.

The study found that if cotton subsidies and import tariffs are eliminated, global prices would rise by an average of 12.9%. In addition, production would decrease by one quarter in the US and by one half in the EU. As a result, the global share of exports from developing countries would increase from 52% to 72%. As to farmers’ incomes, removal of cotton market distortions would lead to a one sixth decline in US farmers’ income and by more than one half in the EU. For sub-Saharan farmers, incomes would increase by 30%.847

843. See supra notes 61–62 (OTDS), 87–88 (Amber Box) and accompanying text. 844. See supra notes 144–149 and accompanying text. 845. See supra notes 159–161 and accompanying text. 846. Following the failure to call a Ministerial meeting at year-end 2008, the Financial Times

commented on the U.S. rule in the collapse. The Broken Promise of Doha, FIN. TIMES, Dec. 17, 2008, at 8 (“The reasons for the stalemate in the Doha talks were much the same as they have been for years. The U.S. is demanding more access for its farmers and manufacturers than the big emerging markets are willing to give—and displaying its own lack of will in confronting domestic constituencies by reducing those farmers’ subsidies in return.”).

847. Robert W. Njoroge, Global Fiscal Crisis: A Moment for the Doha Round?, III INTERNATIONAL TRADE COMMITTEE NEWSLETTER No. 1, at 9–10 (4th quarter 2008, issued by the ABA Section of International Law). For the study itself, see Kym Anderson & Ernesto Valenzuela, The World Trade

10 Bhala PUB 11/13/2009 9:37:45 AM


Knowing full well China had limited room to maneuver given its concerns about the Uyghurs in Xinjiang, only one result could come of the United States linking its position to China’s moves: selling short the concerns of the neediest in Sub-Saharan Africa.

Alongside cotton, the SSM was possibly the most critical Doha Round issue for poor countries, at least in the agricultural negotiations. Disagreement over this issue was the proximate cause of the collapse of the July 2008 ministerial meeting.848 During that meeting, the first five days of negotiations (July 21–25) in a meeting originally planned to end on the sixth day (July 26) amounted to nothing. India was singled out for blame by the United States and EU for insisting rich countries make real cuts to their farm subsidies yet tolerate protection by poor countries of their infant industries, with one trade official saying that Kamal Nath, the Indian Minister of Commerce and Industry, “just sat there and said ‘No’ for 12 straight hours.”849

From the perspective of Minister Nath, there is good reason to say no. Since 1980, this sixty-two year-old celebrity Indian politician has represented Chhindwara in the Lok Sabha (India’s Lower House of Parliament).850 Chhindwara is a poor, rural district of 1.8 million people in the state of Madhya Pradesh, which has a population of 60 million people.851 The farmers in his district are lucky to have a half hectare plot, hence commercial farming on a developed country scale is difficult to imagine. Soybean planters in Chhindwara have been directly harmed by subsidized American soybeans. Like it or not, Minister Nath knows subsistence farming in a way few developed country trade negotiators can appreciate.

In this context, the concern of poor countries was still more important, however understandable the American concern was that poor countries would abuse an SSM if its volume triggers were too low, and thwart access to their markets of American farm products through higher-than-pre-Doha Round tariffs. What the Americans see as a trade issue China and India see as a food security issue. No less an authority than the United Nations Special Rapporteur on the Right to Food, Olivier De Schutter argues that WTO agricultural accords wrongly “treated food like other commodities instead of respecting the human right to food.”852 International trade has failed to feed the hungry and to help poor countries feed themselves.853

Of the nearly one billion people who are hungry in the world, half of them are small-scale farmers in these countries.854 Of this half—nearly 500 million people—80 percent are directly engaged in food production.855 The other 20 percent are landless laborers, pastoralists, or fisherman.856 The SSM remedy is essential, argues the Organization’s Doha Cotton Initiative: A Tale of Two Issues (World Bank, Policy Research Working Paper No. 3918, May 2006).

848. Unofficial Guide to Agricultural Safeguards, supra note 358, at 1. 849. John W. Miller, Indian Minister Frustrates West at Trade Talks, WALL ST. J., July 25, 2008, at A6. 850. See Alan Beattie, India’s Local Hero Evokes Mixed Emotions on World Trade Circuit, FIN.

TIMES, Dec. 3, 2008, at 4 (explaining that Nath is viewed as a threat to the success of the Doha Round because he fervently represents the interests of his constituency which is concerned with bringing industry to Chhindwara).

851. Id. 852. Jonathan Lynn, U.N. Expert Says Trade Will Not Feed Hungry, REUTERS, Dec. 17, 2008,

available at http://www.reuters.com/article/latestCrisis/idUSLH737725. 853. See id. (describing the negative effects of international trade on the availability and quality of

food in developing countries). 854. Id. 855. Id. 856. Id.

10 Bhala PUB 11/13/2009 9:37:45 AM


Special Rapporteur, “to insulate fragile domestic farm markets [in poor countries] from volatile global prices and import surges.”857 To be sure, food that is traded internationally accounts for an average of just 15 percent of total world food output.858 That statistic might suggest developing and least-developed countries need more trade, not less, in food. But, from their perspective of food security, they need enhanced capacity to produce food and not suffer the vicissitudes of the global marketplace—namely, price volatility, import surges, and susceptibility to food that is subsidized and dumped by rich nations.

The long and bloody history of revolutions, both in Asia and the western world, provides the capstone argument for China, India, and other developing countries. Rural poverty has catalyzed social and political upheaval, even whole revolutions. Cases in point are China in the 19th and early 20th centuries859 and France in the late 18th century.860 Compounding fears of history repeating itself are dislocations in the export-oriented manufacturing sectors of China and India.861 Even before the onset of severe recessionary conditions in late 2008, China alone had 87,000 public order disturbances in 2005, when its gross domestic product (GDP) grew at an annual rate of over 10 percent.862 The position held by most poor countries on the SSM is more than a devilish technical detail. Fitting squarely within the middle “D” of the DDA, the SSM implicates a truly grand theme.

As a final point about the middle “D,” it is important for developing countries—especially major ones—to assume responsibility for fostering a coherent world trade regime in which the poverty-alleviating effects of trade may be felt. The United States has rightly pointed out that South-South trade must increase; poor countries must lift themselves out of poverty in part by trading more with each other.863 The United States has its own interest at stake: many American businesses operate in multiple developing countries and would benefit from reduced tariff and non-tariff barriers that inhibit these businesses from supplying goods (either for captive consumption or the merchant market) across developing country boundaries.864 That said, Brazil, China, and India in particular cannot blame a Doha Round collapse, or the failure to resurrect the Round, solely on their reluctance to open their markets to American products. As long as they inhibit real trade flows amongst themselves and other developing countries, they block the evolution of a

857. Id. 858. Lynn, U.N. Expert Says Trade Will Not Feed Hungry, supra note 852. 859. See Mary C. Wright, The Chinese Peasant and Communism, 24 PAC. AFF. 256, 259 (1951)

(discussing the relationship between the success of the Communist party and rural agrarian poverty). 860. See GEORGES LEFEBVRE, THE FRENCH REVOLUTION: FROM ITS ORIGINS TO 1973, at 116–19

(Elizabeth Moss Evans trans., Routledge 2005) (1962) (explaining that rural poverty allowed the leaders of the French Revolution to succeed in overthrowing the regime of its day).

861. Jonathan Lynn, No Doha Would Threaten Commerce, Stability—Experts, REUTERS INDIA, Dec. 10, 2008, available at http://in.reuters.com/article/businessNews/idINIndia-36964420081210?pageNumber=1&virtualBrandChannel=0.

862. Geoff Dyer, Unmade in China, FIN. TIMES, Dec. 17, 2008, at 6. 863. See Amy Tsui, USTR Seeks Coherent World Trade Regime in WTO, Trade Among Developing

Nations, 26 Int’l Trade Rep. (BNA) 73 (Jan. 15, 2009) (explaining that the resistance of poor countries against the development of a coherent world trade policy would frustrate the development of trade-related economic growth).

864. Stuart Eizenstat & Hugo Paemen, Europe and America Must Save the Doha Round, FIN. TIMES, Mar. 21, 2006, at 13.

10 Bhala PUB 11/13/2009 9:37:45 AM


coherent trade regime among countries at the same and different levels of development.865

D. What Happened to Winning Muslim Hearts and Minds?

One of the most extraordinary features of the December 2008 Draft Modalities Texts is that they say nothing explicitly about the Islamic world. For all the categories these texts create among WTO Members, one cohort they do not address is Muslim countries. Indeed, this characteristic is true of all the major Doha Round documents. Consider cotton: from the Uyghur people to many residents of the Cotton Four countries, the farmers are Muslim. The adjustment costs to the United States and other non-Muslim developed countries of cotton market access and subsidy concessions might be more than offset by the economic, political, and national security gains from healthier, wealthier cotton farmers in western China and Sub-Saharan Africa.

Similar arguments can be made in other agricultural and industrial sectors. The Doha Round was launched in the aftermath of the terrorist attacks of September 11, 2001. A key reason for meeting in Doha, and pushing through the DDA, was to show that evil extremists are not only un-Islamic, but also hideously lousy economists.866 The world—aside from the extremists—has a shared interest in cross-border commercial intercourse, and therefore an interest in the concomitant necessary conditions of peace and security. War impedes trade, and as trade declines, so do job and income growth. These points hold as true for Muslims as for Catholics, Protestants, Jews, Buddhists, Sikhs, and so on.

To be sure, aside from particular issues arising under the Shari’a (Islamic Law), such as forbidden products (alcohol, pork, and pornography), banking transactions (those that involve riba, which loosely translated is interest), and insurance policies (those that involve gharar, which means uncertainty), there is no such thing as “Muslim trade law.” That is similarly true of other faiths—there is no Catholic trade law, although Catholic countries may have distinct concerns about certain trade policies and their implications.

Nevertheless, it just so happens that Muslim countries are in special need of integration into the GATT–WTO order. Consider just a few stark realities in the Arab Muslim world:867

(1) As of 1999, the Gross Domestic Product of Arab countries combined was $531.2 billion, which was less than that of Spain.

865. Similarly, the large amount of tariff revenues collected by one developing country on imports

from another developing country bespeaks to the reliance of these countries on customs duties for government revenue. Thus, openness to South-South trade is linked to reform of domestic tax regimes in poor countries, with a view to enhancing income and sales tax collection systems. Such reform, in turn, often depends on a serious anti-corruption campaign, as well as enhanced administrative systems for recording and keeping track of assets.

866. See William A. Lovett, Bargaining Challenges and Conflicting Interests: Implementing the Doha Round, 21 AM. U. INT’L L. REV. 951, 958–59 (2002) (describing the September 11th attacks and other concerns as encouraging countries to engage in negotiations).

867. The statistics below are from Bernard Lewis, Free at Last? The Arab World in the Twenty-First Century, 88 FOREIGN AFF., Mar./Apr. 2009, at 81–83.

10 Bhala PUB 11/13/2009 9:37:45 AM


(2) The total value of non-oil exports from Arab countries is less than that of Finland. There are 300 million people in the Arab world and five million people in Finland.

(3) During the 1990s, the growth rate of exports from Arab countries was 1.5 percent per year. The average global growth rate was 6 percent.

(4) The export base of Arab countries is not diversified. Oil and oil-related products account for 70 percent of Arab exports.

(5) Regarding intellectual development, Arab countries lag behind the rest of the world. The number of books translated each year into Arabic in the entire Arab Muslim world is just 20 percent of the number translated into Greek in Greece. The number of books published per million people in the Arab Muslim world (whether written in Arabic, or translated into Arabic) is lower than every other region of the world, except Sub-Saharan Africa.

(6) On intellectual property (IP) generation, the Arab countries also lag behind the rest of the world. Between 1980 and 2000, Israel registered 7,652 patents and South Korea registered 16,328 patents in the United States. In that same twenty-year period, Saudi Arabia led the Arab Muslim world in registering patents in the United States—with a pathetic 171. Egypt had 77, Kuwait 52, the United Arab Emirates 32, Syria 20, and Jordan 15. Further, Arab countries have one of the lowest numbers of research scientists who publish frequently cited articles.

(7) Concerning education, the Arab countries again lag behind the rest of the world. In 2003, China began publishing a list of the 500 best universities in the world. None of the over 200 Arab universities were on that list, nor do any of them appear in the subsequent annual rankings. Even when the list is narrowed to the Asia–Pacific region, covering the Middle East, no Arab university is listed.

(8) In political development, the countries of the Middle East and North Africa are consistently ranked by Freedom House as having the lowest freedom rating.

(9) On women’s rights, women account for slightly more than half of the Arab population. But, they are largely absent from economic and political life, and (as is widely known) from the driver’s seat of cars in Saudi Arabia.

(10) On overall average standard of living, only Sub-Saharan Africa has a lower figure than Arab countries.

Candidly, these realities are scary. Left unchanged, they play into the evil hands of extremists. That is because many in the Arab world develop a sense of oppression and exclusion. All faith that domestic politicians and the global economic regime can help change reality for the better is lost. The poison of extremism starts to appear to be an anecdote.

The obvious inference from these points is that the Doha Round should have focused in part on boosting trade with and among Muslim countries. Unless the paradigm has shifted again since the launch of the Doha Round, international trade law can play a positive role in assisting progress in the Arab world. Regrettably, no such trade-boosting goal has been articulated in the Round. Accordingly, the

10 Bhala PUB 11/13/2009 9:37:45 AM


perception among Arab countries, and throughout the Muslim world, that the Doha Round is doing little to address the above-listed serious problems is not irrational.868

If there is a link between susceptibility to extremist ideology and oppressive economic circumstances (or at least the perception thereof), then the latest Doha Round was a strategic opportunity. For instance, why not consider the following elements as part of a Doha Round package:

(1) An accelerated accession of Iran and Syria into the WTO?

(2) Duty-free treatment for all non-oil exports, without exceptions for T&A or footwear, or for otherwise sensitive farm products, from all Arab Muslim countries?

(3) A list of farm and industrial products of potential export interest to Muslim countries and demand free trade on those products?

(4) A “Muslim Sectoral Agreement,” to be followed by all WTO Members, without exception?

(5) A “Muslim Technical Facility,” to boost as rapidly as possible the legal capacity in trade ministries from Morocco to Malaysia?

Might there be other terms of a package that could support reform in the Arab world? Such elements of a Doha Round deal would not change all of these problems in the short term, but they would be small, practical steps of potentially large symbolic importance.

These questions were never asked during much of the Doha Round, while the WTO was led by French Director-General Pascal Lamy, who works in a secular internal organization in Europe that sometimes prides itself as post-religious. Preach the virtues of free trade, yes, but preach the link between free trade, religion, and a better future, no. Rather, anointing major developing countries—Brazil, China, and India—into the elite group of WTO Members that could make or break a deal in the confines of the Green Room of the WTO Secretariat has been as much of a revolution as the Director-General and Secretariat could orchestrate or imagine. Who in the Green Room represents the Muslim world?

The anointing of Brazil, China, and India is also part of the unwinding of the relatively straightforward Uruguay Round Era distinction among developed, developing, and least-developed countries. It is an example of the metastasizing of categories among WTO Members. Yet, if there is to be a new category, then surely that of “Islam” is a compelling one consistent with the DDA.

E. Is Multilateral Trade Law Now Impenetrable?

It takes a herculean effort to rise above the technical details of the Doha Round and find an overall balance of rights and obligations in the negotiating texts. None of the texts achieve concinnity in support of free trade, poverty alleviation, or a multilateral commitment to linking these two goals. The texts are trees. The forest is a blur. The figures (i.e., individual WTO Members) darting up, down, and around

868. See Bhala, Poverty, Islam, and Doha, supra note 2, at 169–72 (outlining ten negative perceptions

of the world trading system that are common in undeveloped countries).

10 Bhala PUB 11/13/2009 9:37:45 AM


the trees appear considerably more different than each other now than perhaps they are, or need to be.

This loss is due in no small part to the long-standing, single-minded pursuit of national self-interest by powerful, vocal WTO Members, most notably the United States and certain developing countries and RAMs. For poor and—ironically—for rich, the Doha Round Texts have proposed considerably more special and differential treatment, with finer gradations, than the Uruguay Round Accords ever allowed or even contemplated. Not only have the Texts created multiple categories of developing countries by delineating RAMs from each other, they have even (for example) differentiated among developed countries in the same Base Level OTDS and Total AMS tier—effectively creating a band within a band in the Second Tier.

What has emerged from the Doha Round is a separate set of rules for nearly every WTO Member or grouping thereof. Multilateral trade law is becoming as complex as American tax law, where it might be urged that there is an Internal Revenue Code for each taxpayer. This result is because the win-win game of trade, a game played in pursuit not only of self-interest, but also of the common good, has become one chaotic zero-sum game. There seems to be no comprehension that the relentless and even successful pursuit of short-term self-interest is not a long-term advantage. Put succinctly, the WTO seems less a community and more an environment with the hallmark of social Darwinism.

It is wrong to characterize the Doha Round Texts, and the inscrutable rules proposed therein, as an evil necessitated by the larger number, and deeper nature, of schisms in the Doha Round than in the Uruguay Round. It is not naïve to expect more from the WTO Members than this kind of work product, which has led to bitter deadlock. The Uruguay Round eschewed excessive differentiation and unnecessary complexity and produced the most breathtaking set of international rules in human history. There was hard bargaining, but there also was a drive for the common good shared by the then-GATT contracting parties that ultimately transcended immediate short-term national interests. Given that 1986–1993 history, is faith in a resurrection of the present Round really a heretical belief?

Resurrecting the Doha Round: Devilish Details, Grand ......10 Bhala PUB 11/13/2009 9:37:45 AM 2009]...

Documents

Transcript of Resurrecting the Doha Round: Devilish Details, Grand ......10 Bhala PUB 11/13/2009 9:37:45 AM 2009]...