TWN Info Service on WTO and Trade Issues (Dec04/3)
Third World Network
12 December 2004
NORTH-SOUTH DIFFERENCES ON MANY ISSUES IN WTO’S NAMA NEGOTIATIONS ON 6-8 DECEMBER 2004
The WTO’s negotiating group on non-agricultural market access (NAMA) held a meeting on 6-8 December. It discussed seven issues that the group’s chairperson had placed in a list for the meeting, as well as the issue of non-tariff barriers.
Attached is a TWN report by Goh Chien Yen on the meeting.
The meeting saw sharp differences of positions between developing and developed country members on a range of issues. In particular:
· Developing countries found the Chairman’s list to be too long and wanted the negotiations to focus first on key issues, such as “core modalities”, which involved the tariff reduction formula, as well as special and differential treatment and the “less than full reciprocity” principle. However the developed countries supported the Chair’s approach of including many issues, including the sectoral approach (which developing countries do not consider a core modality).
· On the tariff-reduction formula, the major developed countries strongly argued for a simple Swiss or non-linear formula. This formula would result in very step cuts for industrial tariffs in many developing countries. Many developing countries spoke against the adoption of an aggressive non-linear formula as this would not be suitable for developing countries and would also negate the principle of special and differential treatment.
· On the principle of “less than full reciprocity”, many developing countries stressed its crucial importance, with some arguing that it meant that developing countries should be allowed to choose and undertake the scope of tariff bindings and rates of tariff reduction appropriate to their development, financial and fiscal needs. However, several developed countries said that the existing text (Annex B of the July Package) already took care of the principle.
· On the sectoral approach, many developed countries considered it to be a priority and wanted rapid progress on it, implying that there should be a high level of participation, even if it is to be on the basis of “critical mass of members” in the sectors, and not full participation. However, many developing countries did not consider the sectoral approach to be of the same importance, and argued that the issue of tariff reduction formula should be settled first. Some developing countries reiterated their position that participation by developing country members in a sectoral approach should not be mandatory but should be on a voluntary basis.
· Many developing countries expressed serious concern that tariff reductions resulting from the negotiations would sharply reduce government revenue, as customs duties constitute a very significant part of total government revenues. As one developing country pointed out, tariff revenue is only 1% of OECD countries’ government revenue, but over 15 or 20 per cent of the total revenue of many developing countries.
The next meeting of the NAMA group will take place on 31 Jan-4 Feb 2005.
We hope the report will be of interest and use to you.
With best wishes
NORTH-SOUTH DIFFERENCES ON MANY ISSUES IN WTO’S NAMA NEGOTIATIONS ON 6-8 DECEMBER 2004
TWN Report by Goh Chien Yen, Geneva, 10 December 2004
The Negotiating Group on Non-Agriculture Market Access held its last meeting for the year on 6-8 Dec 2004. The first two days were spent discussing the list of issues identified by Amb. Johannesson of Iceland, Chair of the Negotiating Group. The third day of this three day meeting entirely devoted to Non Tariff Barriers. Members were also expected to meet among themselves bilaterally or plurilaterally, over 9 and 10 Dec.
The list of issues (which the Chair had identified ahead of the meeting) for discussion at this meeting is as follows:
1.. Tariff peaks, high tariffs and escalation
2.. Products of export interest to developing countries
3.. Less than full reciprocity in reduction commitments
4.. Credit for bound autonomous liberalisation measures by developing countries since the Uruguay Round
5.. Product Coverage and participation in sectorals
6.. Appropriate studies and capacity building measures
7.. Tariff revenue dependency
On the first day of the meeting (6 Dec) several developing country members raised concerns with the packed agenda proposed by the Chair. Argentina noted that the list of issues is too long. Some members such as India and Egypt suggested that the consultations at this stage should be focused on the core modalities and in particular on the formula that is to be used for making tariff reduction commitments. Some others including the Philippines, Indonesia and Thailand, proposed that issues considered in previous consultations should be concluded first before discussing new ones. Supporting this, Brazil reiterated that prior issues should be dealt with till a point of maturation before moving on to other issues. In this vein, Ecuador encouraged the Chair to organize sessions to “rake up what has taken place” so far in the NAMA consultations. Ecuador also pointed out that the issues should be at this stage tackled in a multilateral setting as opposed to bilateral or plurilateral discussions among the members.
Kenya reminded that when considering all elements of NAMA including the formula, the cross cutting issues of special and differential treatment (S and D), less than full reciprocity and preferences should inform and be central to the consultations. Zambia, speaking on behalf of the Least Developed Countries (LDCs) highlighted that the issue of development should be key to the negotiations.
On the other hand the developed countries such as the US, Japan, Canada, New Zealand and the EU, are in the main supportive of the Chair’s approach to the consultations. Japan felt that the topics selected by the chair were “balanced and appropriate.” New Zealand and some other developed country members argued that the formula is important and “cannot be isolated in the consultations from other issues and cannot be finalized in isolation.” The EU added that the consultations must be balanced and cover the interests of all members, including the developed countries.
The Chair wrapped up the discussion at this stage and observed that there is a “willingness to get down to business.” He promised to go through the previous issues discussed in prior consultations, especially if proposals had been made by members. He assured members that the “development mandate is clear” and that the development issues he has raised are not “exhaustive.”
The members then proceeded to discuss the list of issues identified by the Chair. Below is a summary of the discussion on the issues.
2. High Tariffs, Tariff Peaks and Escalation
The discussion on high tariffs was centered on the kind of approach that should be adopted for making tariff reduction. There was a long discussion on the formula which members considered to be the key modality in the NAMA negotiations.
The developed country members such as the EU, US, and Switzerland argued strongly for a simple and stringent Swiss or non-linear formula to be used for making tariff reduction commitments. The idea is to reduce higher tariffs by a greater proportion than lower tariffs. The US and other members added that in the formula the key element is the coefficient,. While no concrete proposals and numbers were given on what the coefficient should be they said that it should result in a strong formula (i.e. one that results in steep cuts).
Many developing country members however are not in favour of an aggressive Swiss formula. Developing countries said that such a formula would not be able to provide special and differential treatment for developing countries and the concept of less than full reciprocity in reduction commitments contained in the Doha mandate. Pakistan argued that a simple Swiss formula will not address the issue of special and differential treatment and proposed there must be flexibilities in the formula for development. Similarly India pointed out that a simple Swiss formula will not be balanced and is incapable of taking into consideration development.
Another proposal is for the establishment of a pre-determined ceiling (a maximum level beyond which tariffs are not allowed) as an effective way to tackle tariff peaks.
Some countries receiving preferences argued that liberalisation using a formula should not leave them being worse off. These countries proposed that the formula to be adopted must incorporate elements that allow certain products a longer staging period in order to help preference receiving counties adjust. In this respect, Kenya suggested that tariffs for these products or sectors could be used for the formula rather than the national average tariff; hence, making the pace of tariff reduction more gradual.
3. Less than Full Reciprocity In Tariff Reduction
The issue of less than full reciprocity also pertains to the kind of approach that is to be determined in the negotiations for making tariff commitments.
Kenya stated that special and differential treatment should not be confused with less than full reciprocity and that these two principles should be separated. Kenya explained that special and differential treatment is to help developing country members implement WTO rules. On the other hand, the principle of less than full reciprocity is to address members’ development concerns. Hence, this is why this principle is found in part VI of GATT which deals precisely with development. Kenya further pointed out that if the paragraph 6 of Annex B of the July Package already reflects the principle of less than full reciprocity as argued by some members (i.e. from developed countries, such aqs Japan and the US), then it should be the understanding that this paragraph should allow affected members the right to determine the scope of tariff bindings and the rates at which this is to be done. This was supported by some other developing countries.
Another developing country member also stated that the principle of less than full reciprocity means that each developing country member is to undertake tariff commitments according to its own level of development.
India said that its understanding of less than full reciprocity entails developing country members making less tariff commitments than the developed country members. And that the commitments of developing members should be evaluated according to development- based parameters.
Indonesia, suggested that the principle of less than full reciprocity could also mean different coefficients in the eventual formula for developing and developed country members.
Pakistan argued that one concrete satisfaction of the less than full reciprocity principle is for developed countries to eliminate their nuisance tariffs in accordance to paragraph 13 of Annex B of the July Package. This recommendation was supported by the Philippines.
Brazil also took the view that less than full reciprocity could be built into the formula. However, it added that this should be done right from the start and not the end of the negotiations. Brazil pointed out that the lowering of MFN tariffs need not necessarily lead to increase in South-South trade. The duty and quota free access provided by developed countries has not significantly increase LDCs’ exports. Hence, it is not just an issue of tariffs but other capacity and supply constraints. In this regard, Brazil emphasized that developing countries require policy space. Furthermore, it pointed out that if South-South trade is already increasing there is no need to interfere with that. What needs to be addressed, Brazil argued, are the barriers in the North against developing countries’ exports, since North-North trade is more liberalised than South-North trade.
Japan argued that the principle of less than full reciprocity is already in paragraphs 6 and 8 of Annex B (on NAMA) of the July Package.
Norway suggested three ways in which the principle of less than full reciprocity could be operationalised. It could be reflected in the formula, used as an exception or credit. Ultimately, it said what is required is differentiation as to who is to do what in the negotiations. According to Norway, the Girard formula is able to capture this to some extent, since the average tariff of members are taken into consideration and the average tariff reflects the level of development.
The US said it was open to a range of ideas on less than full reciprocity. The US feels that this principle is already in paragraphs 6, 8 and 9 of Annex B and therefore meets part of the Doha mandate. The US also envisaged different coefficients in the formula for making tariff reductions for developed and developing country members. Nonetheless, this should not interfere with South-South trade.
Like other developed country members, New Zealand argued that the principle of less than full reciprocity is already adequately contained in the July Package, and all that remains to be done is to work on the details of operationalising this principle.
The chairman said he noticed two emerging convergences in the discussions that (i) the principle of less than full reciprocity be incorporated into the formula, (ii) less than full reciprocity principle is incorporated in the overall negotiations. He said that he was clear of the universe of issues to be discussed under the principle of less than full reciprocity.
4. Products of Export Interest to developing countries
On the issue of identifying products of export interest to developing countries, some developing countries such as Costa Rica and Chile argued that all products are of interest. However, other members such as Kenya, Jamaica and Indonesia made suggestions as to how such products can be identified. Kenya pointed out these products could be those with high export growth. Expanding on this idea, Jamaica suggested that a criterion of export growth that could be used to ascertain these products of export interest to developing countries, and that some economic indicators could be used in this regard.
Indonesia proposed the identification of these products according to the tariff peaks, high tariffs and escalation these products are currently facing. Indonesia then suggested that the WTO secretariat should undertake a study looking at high tariff, peaks and escalation, which was acknowledged by the Chair. This was supported by Malaysia which also argued for the inclusion of non-tariff barriers as well.
A combination of the two methods was proposed by Norway. It said that tariffs on products could first be analysed and then to consider the prospective trade that could take place as a result of lowering those tariffs.
5. Credit for autonomous liberalisation
The issue was discussed, of how to give credit to countries which have liberalized further beyond the Uruguay Round. Those which spoke said that credits should be given to these countries. The question is how to make such calculations and how to use the credit given. It was pointed out (by the Chair) that Amb. Girard of Switzerland, the first chair of NAMA, had previously made some proposals on this issue. But some developed countries said that they have concerns with these proposals.
6. Sectoral Approach and Participation
There was disagreement between developed and developing countries on how the proposed “sectoral approach” should be handled, with the former wanting to move ahead rapidly, whilst the latter were reluctant to give it priority.
Many developed countries consider the sectoral approach for the elimination of tariff as an important tool in their efforts to speed up liberalisation. In particular, Canada said that if members were serious about liberalization then tools will be required, and the sectoral approach could be such a tool.
The US expressed its expectations to see a high level of participation among members in the sectoral approach. It further explained that a large number of countries may not be needed to constitute a “critical mass.” This mass could be reached if participating countries account for 80%-90% of world trade in those sectors. It also pointed out that while participation is not mandatory, it could add impetus to the liberalisation exercise, and reminded members that the July Package talked about the sectoral approach being a key element in achieving the objectives of the Doha mandate. The US tried to forward its case further by arguing that sectoral approaches have been used successfully in the past, during the Uruguay Round such as in the areas of transport, pharmaceuticals, toys, construction materials and also the Information Technology Agreement (ITA).
Some developing countries such as China and Brazil contested this, and were of the opinion that the ITA has not been as successful as its advocates have claimed. Brazil added that the pursuit of the sectoral approach could be regarded as a failure of the multilateral negotiations.
Many developing countries took the view that having a formula for tariff reduction is already a strong enough instrument for liberalisation Mexico, Brazil, Indonesia and China argued that the focus of negotiations should first be on the formula for making tariff commitments, after which they can then decide the extent to which the sectoral approach is needed. Others such as Egypt also pointed out that the sectoral approach must be voluntary.
To this the US and Norway responded by arguing that the sectoral approach and formula should be pursued in tandem and how much liberalization that is to take place under the formula or sectoral approach is to be determined simultaneously. Norway added that the sectors previously identified by the first Chair of the NAMA group, Amb Girard, need not be those very sectors subject this approach. This suggestion was echoed by Pakistan which said that the earlier identification of the specific sectors could be avoided.
The US pointed out that the sectoral approach does not necessarily entail a complete elimination of tariffs, it need not be a zero for zero approach. While this could still be the goal it need not be the target. The level of tariff could be at a rate higher than zero and determined during then negotiations. As another variation to this approach, Switzerland proposed that the developed country members could go for total tariff elimination under the sectoral approach while developing country members could maintain a tariff rate to be determined.
Mauritius said that the sectoral approach should not affect the competitiveness of preference receiving countries.
Croatia requested the WTO secretariat to produce a paper on previous sectoral approaches in the previous rounds of negotiations, which the Chair acknowledged.
7. Appropriate Studies and Capacity Building measures
Several developing country members such as Kenya, Guyana and Trinidad and Tobago highlighted the need for studies on the various formula approaches presented so far, to see how they will impact on developing countries. They also called for studies to be prepared on the impact that the proposed liberalisation would have on tariff revenue. A similar study on the impact of sectoral approaches could also be carried out. Kenya further proposed the need for detailed analyses to be undertaken on the non-trade barriers faced by developing countries, and an indication on how these issues could be resolved.
8. Tariff revenue dependency
Many developing countries were concerned with the impact that liberalization efforts in the negotiations could have on their tariff revenue. This is of particular importance to some members especially those that rely on a large extent on custom tariff as a tool of state revenue. These countries, many from the Caribbean, said that trade liberalization, will prevent them from raising such revenue and would force them to adopt other means of financing such as VAT and other means of taxation, something which is difficult to do and perhaps less effective and they will need time to readjust their economies to this. One member, provided some telling statistics, that in the OECD tariff revenue comprises only about 1% of total government revenue, but for an average developing country this is around 15%, and yet for others it is more than 20%.
9. Non-Tariff Barriers
The third day of this three-day meeting was entirely devoted to the issue of Non Tariff Barriers. There are new notifications from Japan (W46 add7), from the United States (W46 add8rev1), from Korea (W46/add10) and from Cuba. The Cuban notification mentions some of the US laws that establish the current embargo on their goods. (TN/MA/W/46/add.9). China raised the issue of possible duplication of work with the Negotiating Group on Trade Facilitation since some of the notifications, from Korea, for instance, relate to Technical Barriers to Trade and articles 5, 8 and 10 of the GATT which are at the core of the negotiations in Trade Facilitation. After a little discussion on this point, the Secretariat said that at this stage submission by members represent an exercise in transparency and it is true that some NTBs will be dealt with in other negotiating groups. The chairman said that he would consult with the chairman of the Trade Facilitation group to clarify the matter.
Korea had previously submitted a paper on the NTBs faced by the electronic industry and suggested that these be dealt with as a vertical direct exclusive matter. Korea also said that this way of dealing with one particular industry could be a test case for dealing with other NTBs in particular sectors, like forestry, automobile and others. There was support for this approach and there was a suggestion for the Koreans to convene a small meeting of other members interested in the same sector.
There was no opposition to the views of some delegations that NTBs represent a more significant trade impediment than tariffs and as such have to be dealt with in a serious, practical matter.
Uganda mentioned a particular NTB which it said is difficult to classify, i.e. the difficulty of obtaining visas for their experts who want to undertake market access surveys in Europe or the US.
10. Chair’s Summing up
Summing up, the Chairman said that the three day meeting fulfilled the objective of clarifying issues and defining them so members can get a sharper view of each other positions. This, he said, is a pre-condition to move forward. “It’s a necessary phase to prepare the ground for when we reach the next stage in the New Year, which should be a negotiating stage.”
The next NAMA meeting will be held on 31 January to 4 February 2005.