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TWN Info Service on WTO Issues
Geneva 25 Oct 2001


AFRICAN COUNTRIES CALL FOR INDUSTRIAL TARIFF NEGOTIATIONS TO BE DEFERRED;  SUGGEST STUDY PROCESS INSTEAD

Seven African countries have proposed that the WTO Doha Ministerial meeting should not launch negotiations on industrial tariffs (or market access in non-agricultural products).  Instead they propose that a study process be initiated to draw lessons from past experiences, especially on how reductions on tariffs in industrial products have affected developing countries.

This proposal from Kenya, Mozambique, Nigeria, Tanzania, Uganda, Zimbabwe and Zambia, is in response to the draft Ministerial declaration which in para 13 states that Ministers agree to negotiations to reduce or eliminate tariffs of non-agricultural products, and that product coverage shall be comprehensive and without a priori exclusions.

The African countries'  proposal was submitted to the Chairman of the General Council (Stuart Harbinson of Hongkong) on 19 October.

In their proposal, the African countries stated that many developing countries had already liberalised their imports of industrial products (as a result of structural adjustment) and this had led to serious problems, such as local industries losing market share and closing down, causing unemployment, and governments losing revenue.

The proposal provided many examples of African countries that had suffered deindustrialisation, closure of local industries and serious loss of manufacturing jobs.  The countries cited included Senegal, Cote d'Ivoire, Nigeria, Sierra Leone, Zambia, Zaire, Uganda, Tanzania, Sudan, Kenya, Ghana, Zimbabwe, Mozambique, Cameroon, Malawi. The experience of Latin American countries such as Peru, Nicaragua, Ecuador and Brazil was also mentioned.

The proposal stated that a study process should be initiated to take into account the needs of developing countries, including the effects of previous liberalisation on domestic firms, employement and government revenue;  the effects of tariff peaks and escalation in developed countries on trade prospects of developing countries; and the implications of these for future policies.  The study process should focus on reducing/eliminating developed countries' tariff peaks and escalation; clarify that LDCs and developing countries with a weak industrial base should be exempted from further liberalisation commitments; and allow non-reciprocity for developing countries and their ability to increase their tariff beyond bound rates in certain cases.

This proposal is very significant because it spells out in detail the problems faced by many developing countries as a result of import liberalisation in industrial products, which has traditionally been the central aspect of the GATT/WTO system.  It is also significant in that these countries are asking for negotiations for further liberalisatio
not to take place until a study process on how to deal with these problems has been completed.  Another very significant request is that LDCs and developing countries with a weak industrial base be exempted from further liberalisation and that they also be allowed to increase their tariffs beyond the bound levels for specific products and periods, without having to pay compensation.

These proposals have far reaching implications and are aimed at redressing the very serious problems of deindustrialisation that have resulted from over-rapid cuts in import tariffs in many developing countries.

A few days ago, at a meeting of the heads of delegations at WTO, the Kenya Ambassador spoke on the sujbject and introduced a summary of the proposal.  Her statement was supported by several developing countries, including Egypt, India and Brazil.

It remains to be seen whether the concerns and suggestions contained in the proposal will be addressed in the revised draft declaration which will be issued on 26 October.

Below is the full text of the African countries' proposal on industrial tariffs.
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PREPARATIONS FOR THE WTO 4TH MINISTERIAL CONFERENCE

Proposal on Market Access for Non-Agricultural Products, submitted by Kenya, Mozambique, Nigeria, Tanzania, Uganda, Zambia and Zimbabwe.


A.  RATIONALE.

Although the Uruguay Round and the subsequent Ministerial conferences did not make any mention on future negotiations on industrial tariffs, it is widely recognized that tariff reduction has been one of the key functions of the multilateral trading system. However, any decision to undertake further reduction on tariffs in this sector would require an explicit decision, and the consensus of all Members.

In order to get a fairer picture of the current situation in developing as well as least developed countries and make an informed decision on whether to engage in negotiations or not, there is an urgent need for the WTO Membership to conduct a stocktaking exercise on the relationship between liberalization on industrial products and development concerns of this group of countries.  This need arises from the experiences, which have had adverse effects arising from past liberalization on industrial products.

A study process involving stock-taking, examination and analysis will assist the WTO membership to draw lessons from the experience of the past and make conclusions on the most appropriate manner in which to proceed on this matter.  Such an educative process is needed to examine the positive and negative experiences of different Members, so that each Member can draw from the lessons of these experiences and devise appropriate policies that would avoid negative effects whilst achieving positive effects in their industrialization process.  The educative process may also provide valuable inputs to the evolution of appropriate policies, guidelines and modalities for the future work of the multilateral trading system in this area.  It would be premature to begin a process of negotiations before the study process is completed.

Therefore, negotiations in this area should not be launched at the 4th Ministerial, but should await the conclusions drawn from the study process. Since the WTO is seeking to place the interests and needs including development of developing and least developed countries at the heart of the WTO's work, the study process on the impact of liberalization on industrial products should be given first priority after Doha.

Experience of some developing and least developed countries:

Liberalization has taken place at a significant rate and in a wide scope in many developing and least developed countries.  Whilst some developing countries have managed to tailor their liberalization on their capacity to compete, many other countries were unable to do so.  The latter group of countries had an over-ambitious liberalization programme, in some cases as a result of structural adjustment reform policies that did not offer much flexibility.  As a result, many local industries lost their market share arising from uncontrolled imports and subsequently closed down rendering many people out of employment. Governments that substantially reduced their customs tariffs also experienced significant loss of revenue, which has added to pressures on the government budget deficit, a problem made worse by the decline in aid flows, the fall in commodity prices, and the continuation of debt servicing.

Recent studies by international agencies and academics have provided increasing empirical evidence of many developing and least developed countries experiencing these negative consequences.  For example, a new publication by Cambridge University Press authored by Professor Edward Buffie (2001), entitled "Trade Policy in Developing Countries" has collated what he calls "the most disturbing evidence" of post-1980 liberalization episodes in the African region.  According to information collected in the book (page 190-191):

-- Senegal experienced large job losses following a two-stage liberalization program that reduced the average effective rate of protection from 165% in 1985 to 90% in 1988. By the early nineties, employment cuts had eliminated one-third of all manufacturing jobs (Weissman, 1991; African Development Bank, 1995, p.84).

-- The chemical, textile, shoe, and automobile assembly industries virtually collapsed in Cote d'Ivoire after tariffs were abruptly lowered by 40% in 1986 (Stein, 1992). Similar problems have plagued liberalization attempts in Nigeria. The capacity utilization rate fell to 20-30%, and harsh adverse effects on employment and real wages provoked partial policy reversals in 1990, 1992, and 1994.

-- In Sierra Leone, Zambia, Zaire, Uganda, Tanzania, and the Sudan, liberalization in the eighties brought a tremendous surge in consumer imports and sharp cutbacks in foreign exchange available for purchases of intermediate inputs and capital goods. The effects on industrial output and employment were devastating. In Uganda, for example, the capacity utilization rate in the industrial sector languished at 22% while consumer imports claimed 40-60% of total foreign exchange (Loxley, 1989).

-- The beverages, tobacco, textiles, sugar, leather, cement, and glass products
sectors have all struggled to survive competition from imports since Kenya initiated a major trade liberalization program in 1993 (African Development Bank, 1998; Ministry of Planning and National Development, 1998). Contraction in these sectors has not been offset by expansion elsewhere in manufacturing. The period 1993-1997 saw the growth rates of output and employment in manufacturing fall to 2.6% and 2.2%, respectively (Ministry of Planning and National Development, 1998, p. 164).

-- Manufacturing output and employment grew rapidly in Ghana after liberalization in 1983 and generous aid from the World Bank greatly increased access to imported inputs. But when liberalization spread to consumer imports, employment plunged from 78,700 in 1987 to 28,000 in 1993 (African Development Bank, 1995, p. 397). The employment losses owed mainly to the fact that "large swathes of the manufacturing sector had been devastated by import competition" (African Development Bank, 1998, p. 45).

-- Following trade liberalization in 1990, formal sector job growth slowed to a
trickle in Zimbabwe and unemployment rate jumped from 10 to 20%. Adjustment in the nineties has also been difficult for much of the manufacturing sector in Mozambique, Cameroon, Tanzania, Malawi, and Zambia. Import competition precipitated sharp contractions in output and employment in the short run, with many firms closing down operations entirely (African Development Bank, 1998, pp.45, 51).

The book also provides some information on other developing countries outside Africa.  According to the author:  "Liberalization in the early nineties seems to have resulted in large job losses in the formal sector and a substantial worsening in underemployment in Peru, Nicaragua, Ecuador and Brazil.  Nor is the evidence from other parts of Latin America particularly encouraging: 'the regional record as it now stands suggests that the normal outcome is a sharp deterioration in income distribution, with no clear evidence that this shift is temporary in character.'(Berry 1999,  p4)."

Information of this type indicates that for many developing countries the effects of import liberalization can be negative and sometimes devastating, reducing their prospects for industrialization and indeed in some cases destroying the domestic industrial base.

There is thus a need for the WTO to review the basis of its policies, rules and guidelines in relation to industrial tariffs.

Developing countries have an interest in obtaining more access to the markets of developed countries, especially in product areas where developing countries are able to benefit in.  Thus, the study process will identify area where further liberalization should begin and which products should be targeted. Should the study show that because of their limited productive capacity and weak industrial base developing and least developed countries are unlikely to benefit from further liberalization, then they should be exempted from further tariff reduction.

While this measure may be necessary, it may also not be sufficient for the purpose of giving an opportunity for the affected countries to rebuild domestic industrial capacity in view of the closure of local firms and industries.  In order to take full account of this extremely serious situation, action should be taken as soon as possible, even when the study process is progressing. We propose that the rules of GATT 1994 be revisited to take this serious situation into account.  Developing countries, which have been adversely affected, should be allowed to reevaluate tariffs beyond their allowed threshold levels in respect of specific products and product areas, in order to enable them to rebuild the domestic capacity that had endured a decline, or to prevent a decline in such domestic capacity.


B.   PROPOSAL.

The draft Ministerial Declaration issued on 26 September 2001 contains a paragraph (Para 13) on the issue of market access for non-agricultural products.  We propose that this paragraph be replaced by the following:

We agree to initiate a study process to be conducted in a working group to examine the issue of market access for non-agricultural products. The study process shall take into account the special needs and interests of developing and least-developed country Members, including:

(1) the effects that previous liberalization and tariff reductions have had, including on domestic firms, employment and government revenue;

(2) the effects that tariff peaks and tariff escalation in developed countries
have had on the trade prospects of developing and least developed countries; and

(3) the implications of these for future policies.

The study process shall focus on the reduction or elimination of tariff peaks and escalation in developed countries in sectors and products of export interest to developing countries.

It should also clarify that, exemptions from further liberalization commitments shall be given to least developed countries and to developing countries that have been and would be adversely affected by such liberalization.

It should also clarify the appropriate framework, guidelines and rules that can cater to the different conditions and needs of Members, including non-reciprocity for developing countries, and the ability of developing countries to increase their tariff beyond bound rates in certain cases.  The study process, based on an examination of these elements, may make recommendations for guidelines and modalities for any future negotiations.

While the study process is proceeding, the following action shall be taken:

1.  Developed countries shall eliminate/substantially reduce their tariffs in product of export interest to developing countries.

2.  In the course of their developmental efforts, the developing countries may enhance their tariffs beyond the bound levels in respect of specific products/product areas for a specified period in pursuance of the provisions of Article XVIIIA and XVIIIC of GATT 1994.  They shall not be called upon to give any compensation for these measures.

3.  The developed countries shall remove their specific tariffs and convert them into ad valorem tariffs within the next two years. Care must be taken to avoid effective increase in the tariff levels as a result of such conversion.

 


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