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TWN Info Service on WTO and Trade Issues (May05/1)

4 May 2005


ARGENTINA, BRAZIL, INDIA PRESENT NAMA PROPOSAL AT WTO MEETING TO MIXED RESPONSE

A new proposal by India, Brazil and Argentina on NAMA (non agriculture market access) was presented at the NAMA Negotiating Group meeting on Monday

25 April at the WTO. It received mixed reactions. IIt received varying degrees of support from several developing countries, while being strongly criticised by the United States for not delivering sufficient market access.

The proposal (TN/MA/W/54, dated 15 April) deals with general principles, the tariff-reduction formula, and treatment of unbound tariffs.

Below is a report on the proposal, as well as responses to it on the first day of the NAMA negotiations on 25 April. The report was first published in the SUNS (South North Development Monitor) on 26 April and is reproduced here with permission.

We will be sending you another report on the NAMA negotiations shortly.

With best wishes
Martin Khor
TWN

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ARGENTINA-BRAZIL-INDIA PROPOSAL ON NAMA GETS MIXED REACTION AT WTO MEETING

By Martin Khor, Geneva, 25 April 2005
South-North Development Monitor (SUNS) 26 April 2005

A new proposal by India, Brazil and Argentina received mixed reactions when negotiations on non-agricultural market access (NAMA) resumed at the World Trade Organisation on Monday.

The proposal was presented by representatives of the three countries at the start of week-long meetings of the Negotiating Group on NAMA. It received varying degrees of support from several developing countries, while being strongly criticised by the United States for not delivering sufficient market access.

The proposal (TN/MA/W/54, dated 15 April) deals with general principles, the tariff-reduction formula, and treatment of unbound tariffs.

In the first part, it states that the NAMA framework in Annex B of the July framework agreement represents the Doha Ministerial Declaration mandate, and thus accordingly the formula shall reduce tariff peaks, high tariffs and tariff escalation and take fully into account "less than full reciprocity in reduction commitments" and special & differential treatment (SDT) for developing countries.

The proposal adds that the concepts of "less than full reciprocity in reduction commitments" and SDT are different. "Less than full reciprocity" has to be an in-built component of the formula to be achieved by incorporating sufficiently higher coefficients for developing countries as compared to developed countries, resulting in higher percentage reductions for developed countries and taking into account the differences in tariff profile amongst Members.

On the other hand, says the proposal, SDT relates to flexibilities in the application of the formula, including longer implementation periods, less than formula cuts and the exclusion of some tariff lines. The present structure of the S&D provisions in paragraph 8 of Annex B is the "minimum necessary" to meet the development goals of the developing countries in this regard.

The proposal then comments on "harmonisation of tariffs". In this, the proposal is referring to a key objective of developed countries in the negotiations, i. e. to "harmonise" tariffs (i. e. to bring down higher tariffs at steeper rates so as to be much nearer to lower tariff rates). As the bound industrial tariffs of developing countries are generally higher than those of developed countries, such a "harmonisation" objective will result in significantly greater reductions in developing countries' tariffs.

The proposal stresses that "harmonization of tariffs" is not an objective of this Round. "It has not been envisaged in the Mandate and was not included in the July Framework as one of the necessary features of the formula. Harmonizing the customs tariffs amongst countries with differing industrial/ economic structures and with varying societal needs is not desirable and would not deliver the development objective of the Round."

The three countries state that after consideration of the various formulae proposed for these negotiations, it believes that a Swiss 'type' formula incorporating each country's tariff average seems best suited to address the mandate in its entirety.

It then provides a formula in which the final bound rate of a product (after the reduction exercise) would be a function of a coefficient B to be multiplied by the country's current average bound rate and multiplied by the product's present bound base rate, and then divided by B multiplied by the average bound rate plus the bound base rate.

Analysts point out that this formula, which is similar to the so-called "Girard formula", proposed by the Swiss Ambassador Pierre Girard who was then Chair of the NAMA negotiations, enables countries with a higher average bound tariff to reduce their tariffs less steeply than countries with a lower average bound tariff from the same starting point (i. e. the same present tariff). This is because the average tariff of a country is a key component of the formula and in a particular way.

Thus, the Girard formula, which the India-Brazil-Argentina proposal has termed "Swiss type" formula (as contrasted to the "simple Swiss formula" proposed by major developed countries, which does not contain the country's average tariff) enables countries with higher bound tariffs to be subjected to more lenient tariff reductions.

As many developing countries have relatively high bound tariffs, the Girard formula is preferred by them over the simple Swiss formula which would require far steeper cuts. Also for this reason, the developed countries had objected to the Girard formula in 2003 as they would like the developing countries to be subjected to very steep cuts. As a result of pressures from the major developed countries, the Girard formula faded from sight, only to return now with the new India-Brazil-Argentina proposal.

The paper also states that the formula would apply to bound tariff lines. B is a coefficient whose value or values are to be determined by the participants. Moreover, the coefficient 'B' will be modulated to reflect the ambition in other areas relevant to market access agreed to for this Round.

This part of the paper can be interpreted as opening the possibility that the coefficient B can have more than one value, depending on the type of country or the circumstances of countries. The statement that the coefficient B can be modulated is interpreted by many to mean that the "level of ambition" or the steepness of the reduction agreed to would partly depend on the results of negotiations in other areas, especially agriculture.

Commenting on its own proposal, the paper states: "This is an equitable formula as it takes into account the present tariff commitments of Members. It improves the tariff profiles by compressing the dispersion of tariffs within each Member. It is transparent as it uses a well known factor, each Member's tariff average, as the basis. It seeks to match the ambition level in all areas of market access negotiations in the WTO, with the inclusion of a 'B' factor.

"The overall reduction commitment it imposes in percentage terms is proportional amongst developed and developing countries, removing the shortcoming in the simple Swiss formula that imposes much greater reduction requirements on the participating developing countries.

"The impact of any tariff reduction formula depends on the numbers which are the essence of the formula. At this stage the important consideration is whether the formula by its nature complies with the mandate, i. e. whether it reduces or eliminates tariff peaks, high tariffs, and tariff escalation taking fully into account the special needs and interests of developing and least-developed country participants, including through less than full reciprocity in reduction commitments."

The paper states that its formula is the most appropriate because it is based on the current tariff profile; it has an element of progressivity in national tariffs; it allows for less than full reciprocity in reduction commitments; and its liberalizing effect can be adjusted by variations in the coefficient 'B'.

The proposal then deals with the mandate on SDT in applying the formula on current bound tariffs. It states that the particular sensitivities of developing countries would be attended by longer implementation periods, less than formula cuts for some tariff lines and the exclusion of some tariff lines from any formula cut. The figures related to those flexibilities would have to be negotiated after an agreement on the formula itself.

The paper then deals with the treatment of unbound tariff lines. It concedes that "increasing the binding coverage to 100 per cent is a desirable objective for this Round" but also says that however appropriate flexibilities are required by developing countries to achieve this objective.

Its proposal is that the average as on the base date of presently unbound lines will be marked up by x times, which shall be negotiated as indicated in the framework agreement.

Thereafter, the marked up unbound tariff lines could be bound at an average level after the application of the formula. Developing country Members would then have the flexibility to fix individual tariff lines around this average. The formula for unbound tariff lines will be slightly modified i. e., the formula would apply only on the tariff average and not on a line by line basis.

In the paper, the modified formula for unbound tariff lines is that the average tariff for newly bound tariff lines shall be a function of a B coefficient (to be determined during negotiations) multiplied by the marked up tariff average of MFN applied rates (as on the base date) and multiplied by the tariff average of MFN applied rates (as on the base date) and then divided by the B coefficient multiplied by the marked up tariff average of MFN applied rates plus the tariff average of MFN applied rates.

An examination of the paper shows that the major difference between this approach to unbound tariffs is that there is greater flexibility in that only the average tariff will be reduced (thus enabling the country to choose the rates at which different tariff lines are to be cut, so long as the result of the exercise is that the targeted average rate for the newly bound tariffs is met). In contrast, for those tariff lines that are already bound, the formula will apply on a "line-by-line" basis, in that all tariff lines will be affected (excepting those that are excluded through the SDT provision).

The India-Brazil-Argentina proposal also states that Members covered by paragraphs 6 and 9 of Annex B of the framework shall not undertake tariff reductions in this Round. Members should also recognize liberalisation recently undergone by newly acceded Members. Paragraph 6 refers to countries with a binding coverage of industrial tariffs of less than 35% (this figure is still to be confirmed in negotiations) and paragraph 9 refers to LDCs.

A preliminary analysis is that the India-Brazil-Argentina proposal would most likely result in developing countries generally being subjected to less draconian tariff reductions, due to: (I) the choice of a Girard Swiss-type formula; (ii) the treatment of unbound tariffs through an approach using the average tariff rather than a line-by-line tariff cut, and (iii) recognition of the need for flexibilities under the SDT principle.

However, the fact that the Girard formula is to apply on a line-by-line basis to presently bound tariffs reduces the degree of flexibility and policy space for developing countries. Also, the suggestion that increasing the tariff bindings to 100% in this Round is desirable is a major concession compared to the wide flexibility in the present system, in which countries are free to choose how many tariffs to bind and at what rates. However, the paper also advocates flexibilities including exceptions to this "desirable objective" under the SDT principle.

The India-Brazil-Argentina proposal is especially less draconian in comparison to the other proposals on the table from the US, the EC, Norway, Mexico-Chile-Colombia (See SUNS #5765, 22 March 2005), which had been presented at the last NAMA session on 14-18 March.

These other proposals aim at "high ambition" in tariff cuts, based on a simple Swiss formula, a draconian treatment of unbound tariffs (i. e. that the current applied rates be each multiplied by two and then subjected to the formula cut line-by-line), and with very restricted use (or no use at all) of flexibilities regarding exceptions to formula cut or tariff binding.

At Monday's NAMA meeting, the three countries presented their proposal. India said the proposal had two prongs, dealing with presently bound tariffs and treatment of unbound tariffs. It stressed that the paragraph 8 (of the Annex B) flexibilities are a bedrock and not a bargaining chip. It added that the value of coefficient B in the proposed formula would be used to indicate the level of ambition.

Brazil said that the proposal was rooted in the Doha mandate for NAMA and balances ambition with flexibility. It is also a departure from more defensive approaches of the past. It added that development concerns are at the core of the liberalisation aspects, and that both components (development and liberalisation) have to be addressed together to take into account developing countries' concerns.

Egypt said that the proposal is a good basis for negotiations, supporting the need to take account of the SDT principle. It agreed with the proponents of the paper that harmonisation of tariffs is not in the mandate.

Kenya, on behalf of the African Group, said the proposal meets three tests of SDT, less than full reciprocity and the special needs of developing countries. It said however that "we need to see the impact of the formula on preferences." It supported the paper's proposal to exempt LDCs and countries with less than 35% tariff bindings from tariff reduction in this Round.

The Philippines agreed that the Swiss-type formula being proposed was equitable and had flexibility, meeting the principles of SDT and less than full reciprocity. It wanted to know on what basis the coefficient B would be selected. The Philippines however did not support the proposal's treatment of unbound tariff, as the presently unbound tariffs should not be subject to formula cuts. It added that the India-Brazil-Argentina formula (to be used for unbound tariffs) was only suitable for countries with high unbound tariff rates and not for countries with low applied and unbound rates. It instead supported the proposal on treatment of unbound tariffs by Malaysia.

(The Malaysian proposal, presented at the March meeting, is that unbound tariffs be bound at a maximum of 40% and at an average 25% rate, and that they should not be subjected to a formula cut).

Malaysia endorsed Philippines' statement on treatment of unbound tariffs.

Indonesia stated that the Doha mandate should be the guiding principle in the negotiations, and that the "Swiss type" formula (instead of the simple Swiss formula) is more appropriate for developing countries and for meeting development concerns.

The United States strongly criticised the proposal, saying it was unacceptable, did not contain new ideas and was "Girard minus minus" and did not provide market access or equity. It had concern that the treatment of unbound tariffs made use of reductions on an average basis and not on a line-by-line basis. Politically it could not make progress in agriculture if it did not see progress in NAMA.

The NAMA negotiations continue the rest of this week and will end on 29 April with a warp-up plenary session. The topics being discussed include non-tariff barriers, the tariff-reduction formula, sectoral initiatives, non-reciprocal preferences, elimination of low tariffs and data availability.

 


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