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The WTO's Empty Hong Kong "Development Package": How the World Trade Organization's 97% Duty-Free Proposal Could Leave Poor Countries Worse Off

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This report reviews what the terms of the “Development Package” announced at the Hong Kong World Trade Organization (WTO) Ministerial would mean in reality by examining the actual scenarios regarding the promises of: duty-free market access – least developed countries, or LDCs, were promised that 97 percent of their exports to rich countries by tariff line would be given duty-free access if and once the Doha Round is completed – and “aid-for-trade” that could result from the package’s terms.

Among our key findings are:

• Of the 32 LDC WTO signatory nations, 27 already have (or could have under current policy) duty-free access to the United States on more than 97 percent of their exports under WTO most-favored nation (MFN) rules or various unilateral preference programs.

• Only four LDCs – Bangladesh, Cambodia, Maldives and Nepal – are not already eligible for duty-free treatment on more than 97 percent of their exports to the United States. However, the textile and apparel exports of these four countries are precisely the categories that the United States seeks to exclude in the three percent of tariff lines on which it would not be required under the “Development Package’s” terms to provide duty-free entry.

• The “Development Package’s” provision that allows the United States to decide what products would be excluded from duty-free access “defined at the tariff line level” means that the United States could select products to exclude so that minimal additional market access would be provided under this proposal. Already, of 1,538 products worth $16.3 billion that LDCs export to the U.S. market, 1,007 worth nearly $11 billion are automatically duty free under either WTO MFN rates or preference programs such as the African Growth and Opportunity Act (AGOA), the Caribbean Basin Initiative (CBI), or the Generalized System of Preferences (GSP). Of the remaining 531 exports, nearly $1.3 billion also enters duty free by meeting the rules of origin conditions of preference programs such as AGOA and CBI, while the remaining $4.4 billion pays a duty. By focusing the three percent exclusion on the tariff lines under which the greatest value of LDC exports enter the U.S. market, the United States could maintain tariffs on the 27 percent of total LDC exports that now face tariffs.

• While many poor countries export a variety of products to the United States, their export earnings may be concentrated in only one or two products. For example, the LDC members of the WTO as a group exported 1,538 products worth a collective $16.3 billion to the U.S. market in 2005. Under the three percent carve-out of the Hong Kong deal, as many as 46 of these products could be excluded from coverage. The top-selling 46 items (i.e. the top three percent of tariff lines among the 1,538 different products) accounted for 92 percent of the total value of the LDC exports, or $15 billion!

• Furthermore, a 97 duty-free offer that focuses solely on the products that LDCs currently export to the U.S. market, as the “Development Package” proposal is written to do, would leave intact the majority of U.S. tariff peaks. For example, LDCs currently export 1,538 products to the United States. Many of the additional products that would be easy for poor countries to export to the U.S. market – for instance, textiles and apparel, sugar and tobacco – are precisely those products for which the United States has high tariffs. Since U.S. tariff rates are generally low, just over three percent of U.S. tariffs are at or above peak levels. There are over 300 additional products that many LDCs could but do not now export to the United States (if they were to change their productive and export structure) that would face tariff peaks that are excluded from the terms of the development package.

• Finally, the promises made at Hong Kong for $2.8 billion in “aid-for-trade” funding by 2010 double count some commitments that were already made by developed countries, and use “fuzzy math” that arbitrarily counts some government expenditures as “trade capacity building.” Furthermore, countries such as Japan are actually offering loans rather than “aid,” and even the U.S. commitment is contingent on U.S. congressional approval, which is unlikely in the current climate of war and other budgetary pressures.