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TWN Info Service on WTO and Trade Issues (Jun05/6)

23 June 2005
 

Battle of Swiss vs Swiss-type formula in NAMA negotiations
 
Negotiations on non-agricultural market access (NAMA) at the WTO wrapped up a week-long meeting on 10 June with the Chair of the talks indicating that support for a simple Swiss formula for tariff reduction "has grown measurably."

However, several delegates from developing countries have told SUNS that they had not endorsed the Swiss formula, and some said they were opposed to it. This formula has been championed by major developed countries led by the US and the EC, and supported by a number of developing countries, particularly from Latin America.

The meeting thus continued to see a sharp divide between those advocating a "simple Swiss formula", and those opposed to it.

Below is a report on an overview of the NAMA negotiations session of 6-10 June. It was published in SUNS (South North Development Monitor) on 14 June 2005.

With best wishes
Martin Khor
TWN

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Battle of Swiss vs Swiss-type formula continues in NAMA negotiations

Report by Kanaga Geneva (South North Development Monitor)
Geneva, 13 June 2005

Negotiations on non-agricultural market access (NAMA) at the WTO wrapped up a week-long meeting Friday (10 June) with the Chair of the talks indicating that support for a simple Swiss formula for tariff reduction "has grown measurably, with the support depending on the level of the coefficients and their linkages with the flexibilities."

However, several delegates from developing countries told SUNS that they had not endorsed the Swiss formula, and some said they were opposed to it. This formula has been championed by major developed countries led by the US and the EC, and supported by a number of developing countries, particularly from Latin America.

The meeting thus continued to see a sharp divide between those advocating a "simple Swiss formula", and those opposed to it.

The so-called simple Swiss formula represents an "aggressive" approach, requiring drastic cuts in tariffs, with deeper cuts for higher tariffs. This will affect most developing countries more, as their tariffs are generally higher than those of industrialized countries.

Opposing the simple Swiss formula, Argentina, Brazil and India had proposed another non-linear formula (known in WTO jargon as the Swiss-type formula or the Girard formula) which incorporates the average bound tariff of a country into the equation. This will soften the tariff cuts, especially for countries with higher bound average tariffs.

Much of the week-long NAMA meeting was devoted to a discussion of the formula for tariff reduction. A significant part of the discussion dealt with the proposal by Argentina, Brazil and India (referred to as the ABI proposal, TN/MA/W/54) which had been tabled at the last NAMA meeting in April.

The ABI proposal (which deals with the formula for tariff reduction, the treatment of unbound tariff lines and special and differential treatment for developing countries) supports a flexible "Swiss type" formula based on each member's average bound rate, using as a coefficient the average bound rate.

During the discussions on Monday and Tuesday on the ABI proposal (see SUNS #5817 for detailed reports on the discussions), Argentina, Brazil and India defended their proposal as the only one that can achieve a balanced result taking into account the mandate, the needs of developing countries and providing Special and Differential Treatment and Less than Full Reciprocity.

They said that a simple Swiss formula (proposed by the US) leads to harmonization among countries, which they said, is not in the mandate, and it does not take into consideration each country's development needs and reverses the principle of "less than full reciprocity" by reducing the tariffs of developing countries more. They also said that it has particularities that if not corrected can lead to unwanted and unbalanced results.

They stressed that their formula is the one that best addresses two aspects of the mandate: attack peaks, tariff escalation and high tariffs and takes into account the special needs of developing countries. They added that simple solutions proposed by some members can lead to disastrous results.

They said that the argument of promoting South-South trade is not contemplated in the mandate, and focusing on barriers to South-South trade "conveniently distracts attention from Northern protectionism, which is the critical issue here".

The ABI proposal was strongly opposed by Japan, the US, the EC, Canada, New Zealand, Korea, and Costa Rica. The often strong statements placed the ABI proposal under considerable pressure.

Japan used a power point presentation to try to illustrate their contention that the ABI proposal is "not equitable", will not "redress the tariff rate disparities among Members", and will not improve enough the market access for products of interest to many developing countries.

The US also made a presentation to defend a simple Swiss formula with two coefficients, saying it was straightforward as it had only one element (the coefficient) to be applied to each member's tariff schedule. It said that a Girard-type formula "has little effect on tariff peaks and preserves high tariffs and nearly all of the peaks".

New Zealand claimed the ABI proposal "will widen rather than narrow inequities among members". Norway called it discriminating and said "we should get rid of it." The EC claimed it is a minority proposal which doesn't tackle high tariffs, tariff escalation and peaks.

However, several developing countries were against the simple Swiss formula and some in favour of the ABI proposal as an alternative. Those who spoke in this vein included Caribbean countries, such as Guyana, Barbados, Jamaica and Trinidad and Tobago. They insisted on the need to provide policy space for developing countries. They said this policy space can only be achieved by maintaining a gap between the applied rates and the bound rates. This policy space will not be there if bound rates are reduced drastically.

According to trade officials, some countries also said they supported the reference to NAMA in the declaration of the APEC ministerial meeting in South Korea on 2-3 June, which called for "substantial improvements in market access opportunities, including a Swiss formula with coefficients to be negotiated for tariff reduction applied on a line by line basis, the principle of binding all tariff lines and making them subject to the tariff reduction formula".

At a formal wrap-up session Friday of the Negotiating Group, Chairman Stefan Johannesson of Iceland said: "My impression from our discussions is that support for a simple Swiss formula has grown measurably, with the support depending on the level of the coefficients and their linkage with the flexibilities".

He also said that "while much progress has been made, there are many issues that remain to be addressed".

An African delegate said outside the meeting that most African countries had not actively taken part in the meeting as most of them had been at the African Trade Ministers' Conference in Cairo taking place at the same time as the NAMA meeting.

At the formal NAMA meeting on Friday, Kenya also presented a summary of the African Ministers' Declaration pertaining to NAMA. The Declaration said that the Ministers are concerned that some of the proposals on the formula submitted by WTO Members would result in deep tariff reductions by some African countries in comparison to developed countries; contrary to the principle of less than full reciprocity and special and differential treatment (SDT) enshrined in the Doha mandate.

In addition, African countries would be adversely affected as these proposals would result in erosion of their preferences. This would undoubtedly deepen the crisis of de-industrialization and accentuate the unemployment and poverty crisis confronting African countries.

The Declaration called for an appropriate formula or tariff approach that would allow African countries to undertake industrial policy and diversification objectives and take as priority the principles of non-reciprocity and SDT. It asked for policy space and flexibility that fully takes account of African countries' developmental, financial and industrial needs which removes the risk of de-industrialization, and provide flexibilities for African countries to determine their binding coverage commensurate with their development objectives.

The Declaration also opposed sectoral initiatives because of their potential detrimental effects on African countries, and underscored that negotiations on non-tariff barriers should be conducted in tandem with those on tariff reductions in the NAMA negotiating group.

Meanwhile, on Thursday, the NAMA Group held discussions on non-tariff barriers (NTBs), with a new notification by the EC on export taxes (TN/MA/W/46 Add 12).

The EC was of the view that there is a lack of discipline in the application of export taxes and that this practice could distort international trade and reduce the benefits from trade of other WTO members in different ways.

The notification by the EC says that in a sample of 103 countries, half of them apply export taxes and some of them apply levels higher than 15%. The products affected are textiles, leather, skins and hides, minerals and metal products as well as wood and forestry products.

The EC said the ideal solution would be to eliminate these taxes but an intermediate solution would be to reduce them. The EC also said that the "bare minimum" that should be done would be to have disciplines, adding that one of the basic distortions created by these taxes is that importers of manufactured goods cannot get the raw materials they need.

Japan supported the EC statement, saying that as well as import duties, export duties should also be at the negotiating table.

Argentina, Malaysia and Paraguay however said that there is no mandate to discuss export taxes and that this practice is not an obstacle to trade. These countries also said that the export taxes are useful as a policy tool for developing countries, and to encourage the development of domestic industries and areas in which the countries have competitive raw materials. They denied that this was a question of market access.

Mexico also made a presentation on its proposal for the treatment of unbound tariffs.

There was also a short discussion on ad valorem equivalents (AVEs), with many countries saying that the formula agreed on AVEs at the agricultural negotiations cannot be automatically applied to NAMA, although many elements can be used. NAMA needs a simpler solution, these countries said.

The US said that the only area in which NAMA must differ is in the use of filters. "The two-tier filtering system adds a complexity that is not needed in NAMA," the US said.

At the end of the meeting, the Chair also said that he has organized a four-day session of the Negotiating Group on 28 June to 1 July.

According to trade sources, the Chair indicated that he would like a draft (to be used for the July "first approximation") to be produced from the meeting.

 


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