TWN Info Service on WTO and Trade Issues (Mar05/7)

22 March 2005


Among the countries that submitted papers at the WTO's meeting on Non-agriculture market access (NAMA) last week were the European Communities and Malaysia.

The EC paper proposed a Swiss formula with a single coefficient that would drastically cut tariffs of developing countries. It also proposed that countries be encouraged to give up the use of "flexibilities", for which they would be given "credits" enabling a lower rate of tariff cuts.

On the other hand, Malaysia's paper proposed that countries that bind their presently unbound tariffs should not be subjected to tariff cuts via the formula, but that the unbound tariffs be bound with a maximum of 40% and an average of 25%.

Below is a report of these two proposals. A future edition of TWN Info will provide a detailed report of the NAMA negotiations.

With best wishes
Martin Khor



By Goh Chien Yen, Geneva, 20 March 2005

The EC in last week’s NAMA negotiations (14th – 18th March 2005) unveiled its ambitious proposal to cut drastically all members’ tariffs in order to gain “real market access.”

According to the EC, “all countries are in principle subjected to a simple Swiss formula with a given coefficient.”

The EC formula is (T1 = (X * T0) / (T0 + X)  where T1 is the final tariff, X is the given coefficient and T0 is the initial tariff).

Developing countries members which accept this Swiss formula “could use the provisions of paragraph 8 in full.”

Para. 8 of Annex B of the July Package states that

We agree that developing-country participants shall have longer implementation periods for tariff reductions.  In addition, they shall be given the following flexibility:

            a) applying less than formula cuts to up to [10] percent of the tariff lines provided that the cuts are no less than half the formula cuts and that these tariff lines do not exceed [10] percent of the total value of a Member's imports; or

            b) keeping, as an exception, tariff lines unbound, or not applying formula cuts for up to [5] percent of tariff lines provided they do not exceed [5] percent of the total value of a Member's imports.

“Alternatively, developing countries could use “credits” (y) to increase the single coefficient x, within an agreed maximum.”

So, for instance, a developing country member which has bound 100% of its tariffs could have y points added to the coefficient. The member which does not make use of the “less than full formula cuts provision (contained in para 8) could have y points added to the coefficient.

In effect the EC proposal will narrow and tie developing country members’ recourse to the special and differential treatment and less than full reciprocity provisions

The EC also urged members to “submit…views on elements that will constitute the formula with a view to agreeing on it before June 2005.”

On the treatment of unbound tariffs for the purposes of applying the eventual approach to making tariff reduction commitments, Malaysia proposed during the NAMA consultations that these unbound tariff lines be bound at an average of 25% with a maximum of no more than 40% for each of these tariff lines. Furthermore, “no tariff reductions in this round” are to be made “for new tariff bindings.”

“The concept of ceiling will address issue of reducing high tariffs as it does entail cuts and is effective in addressing high tariffs.”

The current suggestion, contained in para 5 of Annex B of the July Package, states that “for unbound tariff lines, the basis for commencing the tariff reductions shall be two [2 X] time the MFN applied rate in the base year.” (Raising the MFN applied rate by two times is deliberately square bracketed in the Annex to explicitly denote that fact that it is to be determined through negotiations.)

According to the Malaysian proposal this is inappropriate because “for developing countries with a large number of unbound lines applied at between 0-5%, applying the formula of 2X applied rate followed by tariff reductions does not provide any form of tariff protection but instead force countries with low tariffs to undertake further cuts while those with high tariffs are allowed the benefit of doubling the tariffs before undertaking cuts.”

Moreover, “binding of tariffs at such low rates is considered too drastic,” the Malaysian proposal argued, and is not “commensurate with the capacity and readiness of developing countries to undertake” such reductions.

The proposal also highlighted the fact that tariffs in some sectors have been left unbound for industrial development purposes and that it is important that this is maintained for “industries at their initial development stage.”

Malaysia pointed out that by offering to “remove the flexibilities of keeping tariffs unbound” developing countries would be contributing to the “predictability and stability of the international trading environment.”