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TWN Info Service on WTO and Trade Issues (June 06/06)

8 June 2006
 

WTO members draw opposite conclusions from NAMA simulation paper


WTO members have clashed (mainly on North-South lines) over the interpretation of a paper by the WTO Secretariat providing data on the effects of applying different coefficients and two types of flexibilities in formulae for reducing tariffs in NAMA.

At a NAMA meeting on Friday 2 June, developed countries cited data from the Secretariat paper on "Simulation of tariff reductions for non- agricultural products" to continue pressing developing countries to adopt a low coefficient for the Swiss formula which is close to a coefficient to be applied for themselves.

The renewed clash of positions took place as time pressure intensifies on WTO members to finalise modalities for NAMA within a few weeks. The NAMA negotiations chair, Ambassador Don Stephenson of Canada, is scheduled to issue a draft text of modalities by around 19 June, and a "mini-Ministerial" meeting is targeted to finalise the modalities for both NAMA and agriculture in the final week of June.

At the 2 June meeting, some developed countries continued to advocate coefficients of 10 for developed members and 15 for developing countries. They also continued to press their point that what really mattered was to cut the applied tariff rates of developing countries, as only then would there be real market access.

These views were countered by many developing countries, notably those belonging to the "NAMA 11 Group", which also made use of the Secretariat paper's data to argue the contrary case.

The developing countries argued that there should be a sufficiently wide gap between the coefficients for developed and developing members, otherwise the developing countries would be required to undertake significantly higher cuts in bound tariffs than the developed countries, because of their different current tariff profiles.

They used the Secretariat data to show that with the coefficients of 10 and

15 proposed by the developed countries, the developing countries would have to undertake far deeper cuts than the developed countries, as the latter presently have lower tariffs.

Below is a report of the meeting and the main arguments on both sides.


With best wishes
Martin Khor
TWN

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WTO members draw opposite lessons from NAMA simulation paper

By Martin Khor (TWN), Geneva, 4 June 2006


WTO members have clashed (mainly along the lines of developed and developing countries) over the interpretation of a paper by the WTO Secretariat providing data on the effects of applying different coefficients and two types of flexibilities in formulae for reducing tariffs in non-agricultural market access (NAMA).

At an informal meeting of the NAMA Negotiating Group last Friday (2 June), developed countries cited data from the Secretariat paper on "Simulation of tariff reductions for non-agricultural products" to continue pressing developing countries to adopt a low coefficient for the Swiss formula which is close to a coefficient to be applied for themselves.

The renewed clash of positions took place as time pressure intensifies on WTO members to finalise modalities for NAMA within a few weeks. The NAMA negotiations chair, Ambassador Don Stephenson of Canada, is scheduled to issue a draft text of modalities by around 19 June, and a "mini-Ministerial" meeting is targeted to finalise the modalities for both NAMA and agriculture in the final week of June.

At the 2 June meeting, some developed countries continued to advocate coefficients of 10 for developed members and 15 for developing countries. They also continued to press their point that what really mattered was to cut the applied tariff rates of developing countries, as only then would there be real market access.

They used this point to argue that developing countries should take on a low coefficient of about 15 in order that many of their new bound tariffs would go below their present applied tariffs. They further argued that the "flexibilities" provided in the present NAMA framework (of July 2004) would significantly offset the effects of the formula cuts, thus implying that the extent of flexibilities be reduced.

They also reiterated their "innovative" interpretations of the "less than full reciprocity" principle. One such interpretation is that the principle is fulfilled if developing countries still have higher applied tariffs as compared to developed countries after the tariff-cutting exercise.

These views were countered by many developing countries, notably those belonging to the "NAMA 11 Group", which also made use of the Secretariat paper's data to argue the contrary case.

The developing countries argued that there should be a sufficiently wide gap between the coefficients for developed and developing members, otherwise the developing countries would be required to undertake significantly higher cuts (in percentage terms) in bound tariffs than the developed countries, because of their different current tariff profiles.

They used the Secretariat data to show that with the coefficients of 10 and

15 proposed by the developed countries, the developing countries would have to undertake far deeper cuts than the developed countries, as the latter presently have lower tariffs.

Such an outcome would be counter to the mandated Doha principles of less than full reciprocity and special and differential treatment, which the developing countries interpreted to mean that they are allowed to undertake lower percentage cuts than developed countries in bound tariff rates.

They also argued that the relevant calculation should be how the coefficients affect the bound tariffs (in terms of percentage reductions), in line with all previous rounds in the GATT system, and not how they cut the applied rates. They implied that keeping a difference between bound and applied rates was a prerogative of developing countries that was important to allow a space to be maintained for the applied tariff to be raised if necessary for development purposes.

They further argued that the Secretariat paper shows that the flexibilities in paragraph 8 of the July 2004 NAMA framework had insignificant effects in moderating the extent of tariff reductions to be undertaken by developing countries, implying that these paragraph 8 flexibilities (in terms of lower percentage cuts than required by the formula) should be allowed in full in the agreed modalities.

The 2 June meeting was held specifically to discuss the Secretariat's simulation paper. The "room document" (dated 30 May) provides data for each WTO member that is obliged to apply the formula (i. e. excluding LDCs and "para 6 countries" with less than 35% of their NAMA tariffs bound at present).

The data show each member's present average bound and applied rates, and the new average bound and applied rates under different conditions. The simulations are done on coefficients of 2, 5, 10 and 15 for developed countries and coefficients of 15, 20, 25, 35 and 40 for developing countries in a "simple Swiss" formula, as well as on coefficients of 1 and 3 for both developed and developing countries in the B variable of the "ABI formula" (the Swiss-type formula proposed by Argentina, Brazil and India).

The simulation also covers situations where the flexibilities of para 8(a) or para 8(b) of the July 2004 NAMA framework are taken into account for each developing country, and where such flexibilities are absent, to enable effects of each type of flexibility to be seen.

As the meeting started, Australia read a statement on the WTO Doha agenda adopted the previous day by the APEC Trade Ministers' meeting in Hanoi. On NAMA, the statement supported "a formula with two ambitious coefficients applying to developed and developing Members delivering real and meaningful market access improvements."

In their reactions to the Secretariat paper, each delegation seemed to be making use of and interpreting the simulation data to back up their already known positions, and thus the same data were used to support different interpretations and make contrasting and often opposite conclusions. This revealed that the chasm among members remained and was even reinforced by the paper.

On behalf of the NAMA 11 group, South Africa made a statement stressing that the simulations show that there should be sufficient space between the coefficients of developed and developing countries in line with the less than full reciprocity principle which involves lesser percentage cuts for developing countries. The Group added that the simulations also exposed the imbalances between what is being requested of developing countries, and what the developed countries themselves are offering.

South Africa stated that in assessing the simulations, the NAMA 11 was guided by the principles outlined in its earlier document TN/MA/W/68, which serves as a basis for assessing the ambition of the NAMA negotiations.

An important component of the Doha Mandate, established in the Doha Ministerial Declaration, is the principle of "less than full reciprocity in reduction commitments", which means that developing countries should undertake lesser average percentage reductions in their tariffs as compared to those by the developed countries, said the NAMA 11.

The group added that it is clear from the simulations that there should be sufficient space between the coefficients (using different Swiss formulae) for developed and developing countries so that the cuts made by developing countries are lower than that made by developed countries in order to deliver on this principle. The simulations help provide comparability in terms of the average percentage reductions Members will make under different coefficients. In addition, it would be useful to bear in mind other parameters, including the effective contribution of Members in absolute terms.

Further, these new simulations show that the impact of the application of the flexibilities on the level of ambition is minimal, said the NAMA 11. However, the decision of the Secretariat to change the methodology from that followed in the original simulations of ten countries by the Secretariat selecting tariff lines with the lowest import values, results in a bias which strongly underestimates the trade restriction which developing countries will face in reality, when resorting to the flexibilities. The group asked the Secretariat to clarify the rationale of this change.

The NAMA 11 also remarked that a detailed line-by-line analysis of the raw data will "enable us to assess the extent to which the tariff peaks and tariff escalation in developed countries will be eliminated." In this respect however, it is unfortunate that the columns on the applied maximums (as contained in the original simulations) were not included in the summary data.

The group also stressed the need to adhere to the principle of "reduction from bound rates". "Needless to say, the legal basis and benchmark for evaluating reduction commitments are bound rates, as contained in the July Framework Agreement," said the NAMA 11.

"We make our position quite clear in TN/MA/W/68, outlining five points on this in our document which we will not repeat here. The information contained in the simulations can, at most, be used by all Members for their own satisfaction. It is therefore unfortunate that there is data missing for some developed and developing countries."

Regarding the principle that "all developing countries should gain from the DDA [Doha Development Agenda]", based on the arguments in the document "Reclaiming Development" (WT/COMTD/W/45), further study of the simulations will provide additional light on issues of particular concerns to some developing Members, said the NAMA 11.

With reference to the "level of ambition", there is the principle of "comparably high level of ambition in both NAMA and agriculture", as instructed by Ministers in Hong Kong. The comparison between the levels of tariff cuts proposed cannot be assessed solely by simulations in NAMA, as they only show a part of the picture, said the NAMA 11.

The group concluded that the main utility of the simulations will be for the individual assessment of Members, but has little role to play in helping assess the level of ambition. "It certainly does shed light on the imbalances between that which is being requested of developing countries, and what the developed countries themselves are offering."

India supported the NAMA 11 position, saying that the simulation data lay to rest the contention that the flexibilities make a huge difference to the reduction that would be offered by developing countries. The simulation shows that the use of flexibility reduces the average reduction in dutiable bound tariffs by at the most 2 to 3 percentage points.

Other NAMA 11 members also reinforced the group's position. Argentina stressed that it is wrong and false to say that there would not be cuts into the tariffs of developing countries if the basis of the reduction is made on the bound rates. Brazil said that developing countries would make significant cuts contrary to what some members were saying.

However, Chinese Taipei said it would not accept that they "make cuts to the bone" while others would get away doing almost nothing.

Several developed members spoke sharing similar views among themselves. Canada said that a simple Swiss formula with two coefficients is the right modality to achieve new market access while providing special and differential treatment for developing countries.

It said the simulations show that the Swiss formula cuts would bring the already low tariffs in developed countries down to negligible levels. It also showed that the tariff paid by exporters to get access into a developing country versus a developed country is significantly higher.

On the coefficient, Canada did not envisage an extremely low developed country coefficient unless major developing countries are also prepared to grant real market access improvements, i. e. a low developed country coefficient will also necessitate a low developing country coefficient.

According to the United States, the simulations show three points: that we can meet the mandate and achieve ambition through a Swiss formula with dual coefficients of 10 and 15; that this combination can deliver commercially meaningful results without damaging developing country interests; and that developing countries can contribute meaningfully, while still obtaining less than full reciprocity in overall reduction commitments.

The US also commented that the simulations show many cases of poorer developing countries having to make much larger contributions than more advanced developing countries.

The European Communities said that applying the reduction to bound rates would mean no pain for many developing countries because their bound tariffs are artificially high. It added that there is no statistical evidence to show that the effect of the application of the flexibilities for developing countries would be limited. The result will be that developing countries will end up with higher end rates. To the EC, this is "less than full reciprocity."

New Zealand said it is obvious from the simulations that low coefficients for both developed and developing countries will increase real and meaningful market access opportunities.

The Chair, referring to the discussion, said that at least now members can talk the same statistical language. In the coming week, he will be talking to members in "confessional" meetings, a WTO code term for asking members what their real position and their real bottom line and sensitivities are. There will be another NAMA plenary meeting on Friday (9 June).

 


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