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TWN Info Service on WTO and Trade Issues (Jun05/4)

16 June 2005


NAMA NEGOTIATIONS:  ARGENTINA, BRAZIL AND INDIA ARGUE WHY DEVELOPING COUNTRIES NEED TO USE INDUSTRIAL TARIFFS

Negotiations on non agricultural market access (NAMA) took place at the WTO in the week of 6-11 June 2005.

On the first day of the talks, Argentina, Brazil and India presented their views on the need to maintain the use of industrial tariffs.
They also further explained their proposal which had been tabled at the previous NAMA meeting.

Below is the first report on the NAMA negotiations of that week.

Best wishes
Martin Khor
TWN

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NAMA NEGOTIATIONS:  ARGENTINA, BRAZIL AND INDIA ARGUE WHY
DEVELOPING COUNTRIES NEED TO USE INDUSTRIAL TARIFFS

By Goh Chien Yen (TWN), Geneva, 8 June 2005

Negotiations on non-agricultural market access (NAMA) resumed on 6 June at the WTO over the formula that should be used for making tariff reductions, with the US advocating for a simple Swiss formula on the one hand and Argentina, Brazil, and India supporting a flexible "Swiss type" formula on the other.

In their most detailed presentation yet on Monday under the socalled 'Room D' process (meeting in a smaller room), Argentina, Brazil and India (ABI) underscored several key reasons why developing countries would need to continue to make use to their industrial tariffs. They pointed out that developing country "economies are unstable and their industries incipient."

Hence, tariffs are needed "to develop [their] industries and better cope with external shocks. This is particularly so for countries that followed the IMF policies regarding free capital flows and liberal exchange rate regime," they added. In addition, "tariffs [also] provide revenue for developmental needs."

Furthermore, they noted that "sharp reductions in tariffs are often replaced by opaque and arbitrary non-tariff barriers."

ABI also pointed out in their presentation that there should be commensurate "ambition levels in the agriculture and NAMA negotiations."

"Tariffs for agricultural products are considerably higher than those of industrial products [and] the DDA (Doha Development Agenda) should reduce the gap between agricultural products and industrials and not increase it," they argued.

As far as developing countries are concerned, the level of ambition in NAMA is predicated on "the concessions offered by developed countries in Agriculture, Services and Rules; and the tariff cuts by developed countries, particularly the reduction in peaks, high tariffs and [tariff] escalation on products of export interest to developing countries.

"For developing countries, the mandate provides for less than full reciprocity in reduction commitments, therefore any modality that imposes greater cuts on developing countries as compared to developed countries is against the mandate."

They proceeded to demonstrate how a simple Swiss formula favoured by the developed countries would impact disproportionately on the tariff structures of developed and developing country members. Given the higher bound tariffs of most developing countries and the lower tariff rates of developed countries, and the simple Swiss formula that would cut higher tariffs more dramatically than lower ones, ABI showed that no matter which coefficient is used, developing countries would end up making more significant cuts than the developed countries.

In their example, developed countries with an average tariff of 4% will make an average cut of 60%, whereas developing countries with an average tariff of 29% will make an average cut of 89%, under a simple Swiss formula with a coefficient of 5.

Therefore, "the simple Swiss formula reverses the principle of less than full reciprocity by reducing the tariffs of developing countries more, and does not take into consideration each country's development needs" they argued.

According to ABI, a flexible 'Swiss type' formula which uses the average bound tariff of each individual as part of the coefficient would be more appropriate as this will result in "concessions commensurate with each Member's tariff profiles." They went on to show that under their proposal "concessions are roughly the same among developing countries."

In their example, developing countries with a higher bound tariff average of 29% will make a reduction of 35%, and developing countries with a lower bound average tariff of 10.5% will make a cut of 39%, when a coefficient of 2 is used in the ABI flexible Swiss formula.

In relation to unbound tariffs, ABI highlighted that these tariff lines are "by nature" more sensitive and that this should be taken into account in deciding how they should be treated. As such, the "actual tariff line binding [of currently unbound lines] is on an average basis to address the sensitivity involved." They pointed out that their proposal is "self-balancing, as each higher-than- average tariff binding will require commensurate lower bindings on other unbound tariff lines."

ABI also pointed out that less than full reciprocity in reduction commitments should not be linked to special and differential treatment (SDT). They are "conceptually different" as spelt out in the Doha mandate. In their joint proposal, ABI said that less than full reciprocity is "built into the formula through the use of differentiated coefficients." This shall not be traded off for the SDT provisions currently contained in paragraph 8 of Annex B of the July Package, as the developed country members have done in their recent proposals. According to ABI, "paragraph 8 is considered the necessary minimum for developing countries as SDT."

During their presentation, ABI also criticized arguments made by some members supporting a simple Swiss formula that the tariff reduction could promote South-South trade and was necessary for gaining "real market access."

Dispelling the contention by the developed country members that the NAMA negotiations should result in actual cuts in the current applied tariff rates of all members, ABI pointed out that "developing countries have autonomously and regularly been reducing their MFN tariffs, offering real market access."

"Developing countries should [therefore] not be punished with deeper cuts just because they have been more liberal than their existing legal commitments," they argued.

In relation to the South-South trade issue, ABI said that this "has been widely used as an excuse to seek higher concessions from developing countries in relation to developed countries." They pointed out that "according to WTO studies" South-South trade has grown faster than North-South trade due to the "new wave of regional trade agreements among developing countries; improved competitiveness of developing country exports" and "increased barriers in developed countries."

The US in their presentation argued for a simple Swiss formula. According to the US, the simple Swiss formula is easy to apply "because it contains only one element, the coefficient, to be applied to each Member's tariff schedule."

Under this formula, "tariff peaks are effectively eliminated," whereas a "Girard formula has little effect on tariff peaks," the US said. The US has defined tariff peaks as rates beyond 15%. However, developing country members have understood tariff peaks in relative terms, which are tariff rates three times more than the national bound average rate. The Girard formula, which is a variation of the Swiss formula, incorporates the national bound average tariff of each member in calculating the rate of tariff reduction.

Looking at five hypothetical national bound average tariff rates ranging from approximately 3% to 30%, under a simple Swiss formula with four different coefficients (5, 10, 15 and 20) the US tried to show that "members who start with high rates end with high rates in relation to the rest of the Membership."

For instance, the US showed that members with low current bound rates of 3.45% would end up with 1.36% under the simple Swiss formula with a coefficient of 5, whereas members with higher bound rates of 39.61% would be left with 4.43% under this same formula. Nonetheless, there is still a disparity in the final end rates. According to the US, this is a "clear example of less than full reciprocity."

In conclusion, the US said that the "results of a formula must be measured in several different ways, including how to address peaks, reduce binding overhang and provide for less than full reciprocity." And "less than full reciprocity is best measured by Members' end rates," the US added.

 


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