TWN Info Service on WTO and Trade Issues (Jul05/7)

13 July 2005

Major differences remain in NAMA talks

A week of discussions (beginning on 4 July) in the Negotiating Group on Non-Agricultural Market Access (NAMA) ended on the morning of 7 July with indications that the end-July target for coming up with "first approximations" on the deal to be taken to Hong Kong was not likely to be met.

The chairman of the negotiating group announced that he intended to produce only a progress report on the discussions.

The chairman's decision to limit himself to a progress report is due to strong divisions among WTO members over critical issues during the week.

Below is a report by Tetteh Hormeku on the NAMA talks of last week.

With best wishes
Martin Khor


Major differences remain in NAMA talks

By Tetteh Hormeku (TWN-Africa), Geneva, 8 July

A week of discussions (beginning on 4 July) in the Negotiating Group on Non- Agricultural Market Access (NAMA) ended on the morning of 7 July with indications that the end-July target for coming up with "first approximations" on the deal to be taken to Hong Kong was not likely to be met.

At the short session which closed the week of discussions, the chairman of the negotiating group, Ambassador Stefan Johannesson of Iceland, announced that he intended to produce only a progress report on the discussions so far, to be circulated to members by Friday.

While members were free to engage in bilateral consultations, there would be no meeting on the report on Friday. A Heads of Delegation meeting was scheduled to take place on Friday to take reflections on the progress of work on all the areas of negotiations so far, both in the run-up to next week's China mini-ministerial and the end-of-July General Council meeting.

According to trade officials, in his assessment to the informal Heads of Delegation meeting Friday, the WTO Director-General Supachai Panitchpakdi said that positions in NAMA appear to be hardening. "I fear that the obvious constraint here is still the lack of progress on Agriculture," he said.

Trade negotiators have attributed the chairman's decision to limit himself to a progress report to the strength of divisions among members over critical issues in the NAMA negotiations in the course of the week.

New proposals tabled by some members during the first two days of the discussions brought to the fore persisting differences which had seemed to have been papered over at the end of June - particularly over issues such as the tariff reduction formula, treatment of unbound tariffs, and flexibilities for developing countries.

On the question of the tariff reduction formula, Johannesson's suggestion in his summary at the end-June NAMA meeting of a growing convergence around a 'simple' Swiss formula was seriously undermined on Monday afternoon when a group of Caribbean countries put forward their own formula for tariff reduction.

That new formula incorporated elements of the ABI (Argentina-Brazil-India) proposal, in particular linking a country's tariff reductions to its average tariff level. At the same time, the formula adds a new factor, in terms of a 'credit' to be added to the base coefficient of the non-linear formula so far on the table. The higher the credit and the base coefficient, the less steep will be the rates of tariff reduction.

The credit would be only for developing countries, and would be accumulated by those that are eligible for a number of "development-related" factors, such as credit for autonomous liberalization, dependence on tariff revenue, maintenance of vulnerable industries, policy space for potential industries, and trade openness of the economy (see SUNS #5836).

It was widely acknowledged that the Caribbean submission changed the dynamics of the discussions over the tariff reduction formula. Prior to this, four of the five formulas for tariff reduction favoured the "simple Swiss" formula. It would have only one coefficient (for both developed and developing countries) or two base coeffeicients ("within sight of each other", in the US proposal).

In the Swiss formula, higher tariffs are subjected to significantly deeper cuts than lower tariffs. If the coefficient is the same for all countries (or not too dissimilar), then the simple Swiss formula would subject the developing countries to steeper tariff cuts than developed countries, since the former generally have higher tariffs. The developed countries advocate the simple Swiss formula, with many developing countries opposing it.

The last of the five formulas, put forward by Argentina, Brazil and India (the ABI formula) is different from the simple Swiss formula, in that while it too also cuts higher tariffs more substantially that lower ones, it links the coefficient for each country to its existing average bound tariff level. Thus, countries with relatively high tariffs would be able to reduce their tariffs less steeply than demanded by the simple Swiss formula.

At the beginning of this week's talks, there had been suggestions, especially on the part of the NAMA Chairman, that there was growing convergence among members around the simple Swiss formula. This implied not only the marginalization of the ABI proposal, but also a closure of the space for exploring other options.

A crack in this view came with a circulation of a paper during the week by the ABI which compared the ABI proposal with the 'simple Swiss' formulas, showing that the ABI formula was more consistent with the Doha mandate, especially its developmental dimensions, than the simple Swiss formulas.

However, the major challenge to the view of an emerging consensus around the simple Swiss formula came from the Caribbean proposal, put forward by Antigua and Barbuda, Barbados, Jamaica and Trinidad and Tobago.

Ambassador Ransford Smith of Jamaica, speaking on behalf of the co-sponsors, said their formula sought to ensure that "not only the individual tariff levels of members will be taken into account, but that other important factors will influence the reduction a developing country will be required to make."

As many trade negotiators observed, the Caribbean proposal and the rigours of exchanges that followed, both for and against the proposal, underlined the persisting depth of difference among members on the issue, which countries like Bolivia urged the chairman of the negotiating group to reflect in his report.

One trade negotiator observed: "It would be that much more difficult for the Chairman to report a convergence for the purposes of a July approximation on the issue of reduction formula".

Another highlight of the week's discussion related to separate proposals by two groups of countries seeking exemption from further damaging tariff liberalisation.

The first was a proposal, jointly submitted by Congo, Cote d'Ivoire, Cuba, Kenya, Mauritius, and Zimbabwe for the treatment of unbound tariffs in relation to "paragraph 6 countries", i. e. those countries that have so far bound less than 35% (this figure subject to negotiation) of their total tariffs.

Under paragraph 6 of Annex B (on NAMA) in the July 2004 package, these countries would not have to apply the tariff-reduction formula, but would have to bind all (or almost all) their tariffs, and at the end of the exercise their bound tariffs cannot exceed the average bound rate of developing countries at the end of the Uruguay Round.

The new proposal by the countries (which are all affected by paragraph 6) called for members with a binding coverage of less than [35]% to be exempt from tariff reduction; to be encouraged to substantially increase their binding; and for the countries to be allowed to bind their tariff lines at a level "consistent with their individual development, trade and fiscal needs."

The co-sponsors cited in support of their proposals the experience of "economic hardships due to prior unilateral liberalisation undertaken through structural adjustment programs". Their proposal was meant to aid these countries, who were described as dependent upon both a limited number of primary commodities, and on tariffs as an important aid for the further diversification of their economies, "to meet their individual development needs."

Another paper by a number of newly acceding transition economies (Armenia, Georgia, the Kyrgyz Republic, and Moldova) also put forward the proposal that such economies be exempted from tariff reduction. They cited the extensive market access commitments they had to make as part of their accession agreements.

Developed countries did not take kindly to the proposals, with some like Norway suggesting that the proponents wanted to make even less reduction commitments than the LDCs, a charge that was vigorously denied by the proponents.

There was also considerable difference of views among members on another NAMA issue, the treatment of unbound tariffs. There were new submissions from Mexico as well as from Norway on this issue.

On Thursday, the final day of the week's NAMA negotiations, a final submission was made, being a statement of the position of "small economies".

Introduced by Barbados during the closing session of the discussions, the statement recalled the mandate of paragraph 35 of the Doha Ministerial Declaration on small and vulnerable economies, and which was reaffirmed in the July 2004 Package.

Arguing that tariffs are a primary means of ensuring the "viability of vulnerable domestic industries, achieving sustainable levels of development and maintaining revenues", the statement called for a tariff reduction approach that was "suited to the developing countries' trade profiles and their ability to offer and sustain concessions". They also asked for the less than full reciprocity and special and differential treatment to the foundations of the NAMA modalities.

The statement provided an indicative list of results that small economies would wish to see as an outcome of the negotiations that would address their situation. These would include: "the reduction of tariffs and elimination of NTBs on products of export interest to small economies and the resulting expansion of market access opportunities"; "lower level of tariff reduction for small economies"; and "tariff reductions from bound rates and which in no way impact on the current applied rates of small economies".

Others are: "no tariff reduction on products which have strategic value for the economic development of small economies"; "credit for substantial percentage of tariff binding coverage"; and "targeted technical assistance, including in the area of supply side constraints, in order to facilitate use of market opportunities."

According to trade officials, some Latin American countries such as Ecuador, Peru and Colombia raised concerns over the proposal in that a new category of countries would be created with less reduction commitments than other countries in a similar economic situation.

The Chairman informed delegates that the next round of NAMA negotiations will be held on 18-20th July.