TWN Info Service on WTO and Trade Issues (Jul05/5)

11 July 2005


Further to the last TWN Info Service (Jul05/3) on the NAMA negotiations, reproduced below is the paper that was presented by the Caribbean
countries to the NAMA meeting on 5 July 2005.


A Development-oriented Approach to Tariff Reduction

Communication from Antigua and Barbuda, Barbados, Jamaica and Trinidad and Tobago

The eventual modalities for making tariff reductions commitments must at the end of the day be consistent with the negotiating mandate provided to members in paragraph 16 of the Doha Ministerial Declaration, where it is unequivocally stated that "the negotiations shall take fully into account the special needs and interests of developing and least developed country participants including through less than full reciprocity in tariff reduction commitments...". These principles are reaffirmed and reiterated in Annex B of the General Council decision of 2 August 2004.

We have over the course of the negotiations repeatedly underscored our developmental needs and interests. However, these concerns have not been adequately and appropriately assimilated into the various formula proposals we have before us, in particular the simple Swiss formula.

We wish to reiterate that our preference would be for an overall average tariff-reduction approach along the lines used in the Uruguay Round.   Nonetheless, we are presently prepared to engage with other members in a search for an appropriate non-linear formula approach that responds to development concerns. This is without prejudice to our support for a Uruguay Round approach as the best means to achieve these development concerns, nor does this derogate from our view that a key to meeting development concerns is differentiated coefficients at a sufficient distance to lead to significantly different outcomes for developed and developing countries. Thus, we reserve the right to propose other approaches if this search is unable to yield appropriate results that satisfy the Doha mandate.

Many of the proposals currently on the table envisage more than one coefficient to be used in the non-linear formula either through the idea of a system of credits or taking into account the tariff profiles of members. We would like to make use of the concept of multiple coefficients in order to fulfill the mandate of paragraph 16 of the Doha Ministerial Declaration by taking more fully into consideration the special needs and interests of developing countries.

The "Swiss-type" proposal by Argentina, Brazil and India is a positive attempt to take into account one important variable that has implications for developing countries, namely the present average bound tariff rate of the country. To some extent this is a useful reflection of a member's tariff structure and hence its concomitant sensitivities and domestic economic priorities. However, the national average bound tariff is only one useful variable. Other relevant factors that are important for development and for developing countries should also be incorporated in order to ascertain the appropriate rates of reduction, consistent with developing country members' circumstances and development needs.

Other relevant factors that need to be taken into account include the following :

(1)    Developing country Members which have bound a substantial percentage of their tariff lines;

(2)  Developing country Members that have undertaken autonomous liberalization. The incorporation of this factor in the formula is one meaningful way to provide such credit;

(3) Members dependent on customs and other border taxes which constitute an important portion of government revenue;

(4)  Developing country members with incipient industries will require the continued use of tariffs to ensure the continued and increased viability of local industrial enterprises and to significantly increase or least maintain industrial jobs and employment;

(5) Developing country members need to be able to maintain or expand their national policy space so as to be able to adopt measures that lead to successful industrial development. There should thus be flexibility in the use of tariffs to enable potential industries to develop; 

(6) Developing countries also need to have the flexibility and policy space to vary their tariff levels in line with developments and needs such as changes in economic priorities or circumstances;

(7) Developing countries facing the challenge of preference erosion should also be accorded additional policy space to help address the adjustment costs resulting from this new trading environment;

(8) The degree of openness of the economy of developing country member to trade, which is an important measure of both liberalization as well as of vulnerability of the economy to external shocks; 

(9)  The economic vulnerabilities of developing countries.

The list above is not exclusive.  It is crucial, if this exercise is to be meaningful, that the above and other developmental factors (together with the already proposed variable of national average bound tariff) are effectively incorporated into the eventual formula that would be adopted.

The challenge is to find a formula which can incorporate these factors. We are proposing for consideration a possible development-oriented approach which could be one way in which these factors are effectively taken into account when determining the modalities for making tariff reduction commitments.

Proposed Formula
Incorporating the factors articulated above, the non-linear formula could be expressed as:

T1 = (B  + C ) x Ta x T0   

       [(B + C) x Ta] + T0


            T1 is the final rate, to be bound in ad valorem terms
            T0 is the bound base rate
            Ta is the average of the current  bound rates
            B is a coefficient, its value(s) to be determined by the participants

C is the credit to be accorded to developing country members. The value of C will be   the sum of the values (to be determined) of relevant factors summarized below (other factors may be identified) for each developing country member:

  • Substantial tariff binding coverage
  • Autonomous liberalization
  • Revenue dependence
  • To maintain and strengthen incipient domestic industries and address their vulnerability
  • Policy space for development of potential industries and for industrial development generally
  • To address adjustment costs for the loss of preferential market access as a result of multilateral liberalization
  • The existing degree of openness of an economy to trade, which is a measure of liberalization as well as vulnerability to external shocks.  This can be measured by relevant variables such as import-to-GDP or trade-to-GDP ratios.
  • Economic vulnerability

We request members to consider the points made above and the proposed formula to assess whether it will adequately and appropriately fulfill the development objectives, parameters and principles of paragraph 16 of the Doha Declaration.

We would also like to clarify that the flexibilities in paragraph 8 of Annex B of the General Council Decision of 2 August 2005 are not affected by the application of the proposed formula.