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
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.
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
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.
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
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
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
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.
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;
(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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