The Hong Kong Standard

by Greg Rushford
Tuesday, December 20, 2005

It sure sounded like good free-trade news when the World Trade Organization's highly contentious six-day meetings in Hong Kong concluded with a pledge from the rich countries to give duty-free, quota-free access to 97 percent of products from the world's poorest countries.

But hold the applause. The story didn't end with the publication of the WTO's "final" draft ministerial declaration Sunday. This fight is far from over.

As bizarre as it may sound to those unfamiliar with the often-gritty politics of international trade, the most bitter wrangling over tariff cutting pitted the world's mightiest economic superpower, the United States, against the likes of impoverished Cambodia and Bangladesh.

Specifically, the United States has high tariffs on clothing that hover in the 18 to 36 percent range, and the poor countries' exports center on clothing. The US textile lobby and its allies in Congress fear increased imports of clothing from anywhere - even Cambodia and Bangladesh. So the fight was joined inside the Convention and Exhibition Center, Wan Chai, last week.

The first four days of the WTO talks produced a stalemate, as Bangladesh led the charge for the poor countries, while US trade representative Rob Portman resisted.

Aiming to break the logjam, WTO director general Pascal Lamy released a suggested working draft late Saturday. Paragraph 45 on page eight of his document declared that the WTO's wealthy countries would "take additional measures to provide effective market access, including simplified and transparent rules of origin so as to facilitate exports" from the world's poorest countries.

The key words were: "simplified and transparent."

When vigilant US textile lobbyists saw them, they hit the roof. That may be the way the WTO does things, they fumed, but that's not our way, not when it involves the rag trade.

In its various bilateral trade deals with trading partners ranging from Mexico and the Caribbean to Singapore, the United States has insisted upon a rule of origin that basically gives those countries duty-free access to US clothing markets only if they agree to purchase American yarn and fabric to make those clothes.

Instead of simple and transparent, these rules are complex and opaque.

Congress would never accept "simple and transparent" rules, Cass Johnson, the president of Washington- based National Council of Textile Organizations, said when he read the Lamy draft.

"If they want to kill the round here, this is the way to do it." he said.

Johnson was confident that Portman, a former member of Congress who has a keen sense of how far he can push his former colleagues, would resist.

Indeed, it appears that that's exactly what happened as the WTO's negotiators wrangled all night Saturday and into the early hours of Sunday.

When the "final" draft that was eventually approved by the WTO's 149 members was made public, it retained Lamy's language calling for "simplified and transparent" rules that would apply to poor-country exports.

But there was also an Annex F, buried deep in the new document.

It gives the poorest countries duty- free access to rich country markets for 97 percent of their exports. While that sounds like a reasonable compromise, for Bangladesh the problem is that the remaining 3 percent of their exports could cover major items still to be negotiated like knitwear, pants, blouses and underwear. When they are finally nailed down, the remaining US tariff lines could hit the likes of Cambodia and Bangladesh hard.

Moreover, Annex F leaves open the rich-country option of retaining "preferential rules of origin," although it says that such special rules should be "transparent and simple."

When US lobbyists saw these words, they had reason to smile, as Congress could insist that its rules requiring trading partners to buy US fabric are simple enough.

As usual, the proverbial devil will be in the details that will be fleshed out later next year. It remains an open question whether small countries like Cambodia and Bangladesh will receive truly meaningful access to US clothing markets.

The United States was not the only wealthy country to play hardball with negotiators from poor countries.

Japan, eager to protect its rice farmers with 700 percent tariffs, joined the Americans in seeking to have "sensitive" product lines excluded from the duty-free access promises.

Even Pakistan - only a notch above Bangladesh in economic development - resisted giving only such truly impoverished countries total duty-free access to US clothing markets, which could cut into Pakistan's own rising clothing export opportunities.

Still, America's traditional claims to occupy the moral high ground in respected international trading circles took a hit last week. Alas, this is no cause for embarrassment in today's Washington.

Greg Rushford is editor of the Rushford Report, a Washington, DC, based newsletter on trade politics