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TWN Info Service on WTO and Trade Issues (May05/2)

4 May 2005


NAMA NEGOTIATIONS HIT A SNAG AT NORTH COUNTRIES ATTACK ARGENTINA-BRAZIL-INDIA PROPOSAL

This is a follow up to the TWN Info report on the NAMA negotiations sent out earlier today.

The report below provides an overview of the negotiations on NAMA (non agriculture market access) held in the week of 25-29 April 2005 at the WTO.

The negotiations hit a snag when a joint proposal by Argentina, Brazil and India (now termed the ABI proposal) drew strong criticisms from developed countries, supported by some Latin American countries. The ABI proposal, however, received support from some developing countries, including Kenya, Malaysia, Jamaica and Trinidad and Tobago.

The ABI proposal includes two main components: (i) a "Swiss-type" formula to be applied line-by-line to countries' bound tariffs, and in which the country's average tariff rate is part of the formula; and (ii) a treatment of unbound tariffs in which reduction from base values would be made on the average tariffs (rather than line-by-line cuts through a formula), thus giving flexibility for countries to choose by how much to reduce each tariff line.

The opponents' main points were that the ABI formula for cutting bound tariffs was not ambitious and would create inequities. Others rejected the use of the members' average bound rates in the formula.

Some developing countries spoke in favour of the proposal, stating that it incorporates the two concepts of Less than Full Reciprocity in reduction commitments by developing countries and, separately, Special and Differential Treatment for developing countries. Some countries also said it needed some improvements.

On behalf of the three countries, Brazil made a detailed and spirited response to the criticisms.

The report below was published in the SUNS of 3 May and is reproduced here with permission.

With best wishes
Martin Khor
TWN

 ______________________________

NAMA TALKS HIT A SNAG AS DEVELOPED COUNTRIES ATTACK THE ARGENTINA-BRAZIL-INDIA PROPOSAL

By Goh Chien Yen, Geneva, 2 May 2005

Published in South-North-Development Monitor 3 May 2005

The negotiations on non-agriculture market access (NAMA) hit a snag last week when a joint proposal by Argentina, Brazil and India (now termed the ABI proposal) drew strong criticisms from developed countries, supported by some Latin American countries. The ABI proposal, however, received support from some developing countries, including Kenya, Malaysia, Jamaica and Trinidad and Tobago.

The ABI proposal includes two main components: (i) a "Swiss-type" formula to be applied line-by-line to countries' bound tariffs, and in which the country's average tariff rate is part of the formula; and (ii) a treatment of unbound tariffs in which reduction from base values would be made on the average tariffs (rather than line-by-line cuts through a formula), thus giving flexibility for countries to choose by how much to reduce each tariff line (See SUNS #5788 of 26 April).

The battle lines had already been drawn at the plenary session on 25 April when India and Brazil presented their paper, which then drew mixed reactions, with heavy criticism from the United States and support from several developing countries.

The discussion then shifted to informal mode in a smaller room (Room D) on 26-27 April, with the EU, some Latin American countries and Japan joining the US in attacking the proposal.

The opponents' main points were that the ABI formula for cutting bound tariffs was based on a formula presented at the beginning of the negotiations in 2003 by Switzerland's Ambassador Girard, and which they said had already been rejected.

They questioned whether this formula would meet the objectives of the mandate. Some said it was not ambitious and would create inequities and tariff dispersion. Others rejected the use of the members' average bound rates in the formula since this would create a situation in which "there would be flexibilities only for some" (Mexico); protectionist countries would make smaller reductions since it would shield products of some countries with high tariffs from real liberalization (Peru); and would force some developing countries to make deeper cuts than others relatively richer (Norway).

Some developing countries spoke in favour of the proposal, stating that it incorporates the two concepts of Less than Full Reciprocity in reduction commitments by developing countries and, separately, Special and Differential Treatment for developing countries. Some countries also said it needed some improvements.

When introducing the proposal, India said that members' contribution to market access had to be commensurate with their capabilities and level of economic development. Said India: "Our proposal allows for a better balance and modulation of ambition levels in line with the results in other areas of negotiations as well as the particular sensitivities of Member countries. It is a common formula approach that does not employ the 'one size fits all' standard. On the contrary, it is sufficiently flexible to be adapted to varying ambition levels while retaining sensitivity for the requirements of developing countries for more flexibility".

Brazil said that the proposal had development very much in mind, combined with liberalization.

In a strong attack, the EU said the ABI proposal was completely unacceptable to its 25 constituent countries which command a trade volume of $1.4 trillion.

The EU and other developed country members were particularly opposed to the proposal's use of each country's national bound average tariff as part of the formula for calculating tariff cuts. This approach had been first suggested by Girard when he was Chair of the NAMA negotiating group in 2003, before Cancun. Developed country members have attacked this approach, claiming it would not lead to substantial cuts in the tariffs of developing countries.

Australia said that the ABI proposal was not viable as the suggested formula "does not bite into applied rates in the absence of less than one coefficient." Japan said the proposal was "not satisfactory" since it was not ambitious enough to improve real market access and reduce the disparities of tariffs between Members in order to foster trade and economy of the world.

The EU stated emphatically that if the national average tariff is used in the formula, there would be no negotiations. Characterizing the proposal as "going backwards", the EU argued that the so-called Girard or Swiss-type formula would also lead to inequity. By using the national average tariff, the EU contended that tariffs will be insufficiently slashed and consequently there will not be new market access for developing countries and the newly acceded members of the WTO.

It also said that preferential market access will be adversely affected if the developed countries also started to use their national average tariff in the formula for making tariff reductions.

Also rejecting the Swiss-type formula, the US argued that getting rid of high tariffs, tariff peaks and escalation is expected to be done by all members, and not just the developed countries. According to the US, this could not be done through the ABI proposal.

The EU was also against the proposal's concept that developing countries should have recourse to special and differential treatment such as longer implementation period and keeping some of their tariff lines exempt from reduction. The EU's position was that developing countries would not be eligible for these flexibilities if they did not embark on a substantial reduction of all their tariff lines, through a common approach for all members to cut tariffs.

In contrast, India, Brazil and Argentina have proposed different rates of tariff reduction for developing and developed countries and that all developing countries should have further flexibilities, according to the principles of "less than full reciprocity" and special and differential treatment as stipulated in the Doha mandate.

The US argued that the "less than full reciprocity" principle was already satisfied through the NAMA Annex in the July 2004 framework, since this exempts LDCs from making tariff reductions, allows a small number of developing countries having low level of tariff bindings to undertake a modest tariff cut, and contains other flexibilities in its paragraph 8, such as longer implementation period for developing countries. As such, the developing countries should not expect a different rate of tariff reduction from that of developed countries. The US was insistent that "all countries must contribute."

At the previous NAMA session in March, the developed countries have set conditions that the extent of "paragraph 8 flexibilities" allowed would depend on how ambitious the formula for tariff reductions would be for developing countries. Linking the two aspects, they have argued that only if an aggressive formula for making tariff cuts is used, would developing countries be entitled to use these S&D provisions.

On the issue of the treatment of unbound tariffs, the ABI proposal has also incurred the ire of the EU. Argentina, Brazil and India have proposed that an average reduction target for unbound tariffs be determined through a formula. This reduction target will not be applied on the unbound tariffs on a line-by-line basis, thereby providing some flexibility to developing countries when they determine how their unbound tariffs would be bound into the WTO system.

However, the EU stated that it was not going to entertain this proposed method for unbound tariffs. These tariffs, according to the EU, should simply be multiplied by two times (to obtain base values), be reduced via an ambitious formula, and then bound.

Brazil gave a spirited and detailed response to the barrage of criticisms. It argued that their joint proposal is "balanced because besides addressing tariff peaks, high tariffs and tariff escalation, it preserves for developing countries the freedom to use tariff structure to promote industrialisation and investment."

Brazil added that it would not like to follow the example of some developed Members that, after reducing significantly their tariffs, now have resorted to highly questionable trade defense practices.

Brazil reminded Members that the "mandate establishes that we negotiate on the basis of bound tariff We do not think that these countries shall be rushed to reduce all their industrial tariffs to under the applied levels, lest their economies might go through severe and painful adjustments, with deep social consequences that our countries do not have the means to take on."

Speaking also on behalf of Argentina and India, Brazil pointed out that their proposal "does not attempt to negotiate away the less than full reciprocity in reduction commitments and the flexibilities in paragraph 8 in order to get a higher coefficient in a Swiss formula, thereby giving away the principles provided for in the mandate and in Annex B of the July Package.

"These elements are already there and are not supposed to be subjected to trade-offs," Brazil emphasized.

Brazil also queried why those delegations that spoke so enthusiastically about the lack of equity in the proposal, would actually want to destroy or to shove the principles of less than full reciprocity and S&D under the carpet.

Brazil explained that they "tried to reflect in their proposal the main objective of this Round, that is, development," rather than how other delegations have done to "read it according to their interests and negotiating strategies." Brazil stressed that "ambition" should be defined in terms of "giving concrete meaning to development in terms of achieving better market access to products exported by developing countries, without impairing their capacity to continue on their industrialisation path, according to their particular economic and social situations."

Several developing countries, including Malaysia, Jamaica, Ecuador, and Trinidad and Tobago supported the ABI proposal and its usage of national average tariff in determining the formula for making tariff reductions. Apart from having differentiated coefficients between developed and developing countries, Barbados and Trinidad and Tobago argued for multiple coefficients for developing countries.

Jamaica, and some other countries, also supported the ABI proposal for separately treating the principle of less than full reciprocity and the principle of S&D treatment, rather than merging the two, which some other proposals had sought to do.

In his conclusion on the debate on the ABI proposal, Ambassador Stefan Johananesson of Iceland, Chairman of the NAMA negotiating group, said that "on the form of the formula, members are all focusing on the Swiss type formula, what is to be done now is to work out the details."

He added that there are enormous differences, for example, on the question of the coefficient, how many coefficients there would be, how the coefficient is to be determined, and whether the coefficient is independent of the flexibilities. There are also differences over the level of ambition and objectives of the negotiations, he said.

He noted that there were further divergences over the treatment of unbound tariffs such as differences in methodology, whether binding should be considered as concessions, and whether newly bound tariffs should be subjected to cuts.

Besides the ABI proposal, the NAMA informal meeting also discussed other proposals regarding the formula, the sectoral approach and the erosion of preferences. In addition, non-tariff barriers were discussed in informal bilateral meetings.

Norway explained the major objectives of their proposed formula, i. e. a Swiss formula using dual coefficients with credits (to be able to apply a more lenient coefficient) for members that choose not to make use of "flexibilities" contained in para 8 of the NAMA framework, i. e. those that choose to bind all tariffs, apply formula cuts to all tariff lines and participate in sectors of export interest to developing countries.

Two papers were tabled on the "sectoral component", i. e. that for selected sectors there be accelerated liberalization, including that tariffs be reduced to zero. A revised proposal by the United Arab Emirates (TN/MA/W/37. add2) contained a list of products (raw materials) which could be included for a zero-for-zero elimination of duties.

The US explained their joint proposal with Canada (TN/MA/W/55) on a "critical mass" approach to the sectoral component. It said that in the last few weeks there were meetings to explore different proposals relating to chemicals, wood products, fish, pharmaceuticals, jewels, electronics, environmental goods, etc.

Critical mass could be achieved when a number of countries decide to participate in a sectoral initiative when their collective volume of trade accounts for 80 or 90 percent of the total. So what counts is the value of trade more than number of countries, said the US.

There was also a debate on non-reciprocal preferences based on two submissions from the African Group (TN/MA/W/49) and the ACP Group of States (TN/MA/W/53), with parties taking their old positions. The ACP countries put forward their case that continuation of preferences are needed by their small and vulnerable economies for them to participate in world trade. Many countries (mostly Latin-American) continued their opposition to the perpetuation of preferences at the WTO, which they consider unfair, discriminatory and against the MFN principle.

Old positions were also maintained in a debate on the elimination of low duties, i. e. duties below 5%. The discussion was based on a Canada-Norway paper (TN/MA/W/52) proposing that Members should bind to zero, at the conclusion of the round, base rate duties that are below a figure to be agreed but which they propose to be 5%. Several countries said they need to maintain low tariffs including for revenue purposes while others consider they are effective to protect industries, and entailed unnecessary administrative costs.

At a formal session on Friday afternoon, several members reported on small group meetings they held on non-tariff barriers and the sectoral component. The US reported on two meetings it had sponsored on NTBs in the auto and footwear industries. Korea reported on its meeting on the electronic industry, Canada on forestry products, the EC on export taxes as an NTB, New Zealand on wood products, and Switzerland on pharmaceutical and medical equipment, and on chemicals.

In his concluding remarks, the Chairman of the NAMA negotiating group said that Members had accepted the use of a non-linear formula and more particularly a Swiss or Swiss type formula. He added that there is wide divergence of views on the treatment of unbound tariff lines, and that the guidance of Ministers would be needed.

He also said the small group discussions he had held on the formula, unbound tariff lines and NTB's were "better than expected" but he encouraged members to work harder on the first two issues since there are only 35 workings days before the July "approximation". The next NAMA negotiating group meeting will be on 6-8 June.

 


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