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TWN Info Service on WTO and Trade Issues (June06/22)

27 June 2006
 

NAMA MODALITIES PAPER SHOWS UP MANY AREAS OF DIVISION


The paper on draft modalities for non-agriculture market access (NAMA) that will serve as the basis for WTO at the end of June contains little in the form of agreed text, and more in terms of comments on the areas of present disagreement among the WTO members.

The paper, "Towards NAMA Modalities" was issued by the Chair of the NAMA negotiating group, Ambassador Don Stephenson of Canada, on 22 June afternoon.

Below is a report on this paper.

NOTE:   A discussion was held at the WTO on this paper on Friday 24 June.
On Monday 26 June a revised paper was issued by the Chair of NAMA.


With best wishes
Martin Khor
TWN

--------------------------

NAMA MODALITIES PAPER SHOWS UP MANY AREAS OF DIVISION

By Martin Khor, Geneva, 23 June 2006 


The paper on draft modalities for non-agriculture market access (NAMA) that will serve as the basis for WTO negotiations in the next ten days contains little in the form of agreed text, and more in terms of comments on the areas of present disagreement among the WTO members.

The paper, "Towards NAMA Modalities" was issued by the Chair of the NAMA negotiating group, Ambassador Don Stephenson of Canada, on 22 June afternoon.

Stephenson says in his introduction that he was requested to propose language of full modalities. "I regret that I am unable to fulfil that mandate, as a result of the failure of the Negotiating Group to find consensus on many important issues, and that the present report is, at best, a step in the direction of full modalities."

Most of the report is in the form of a table with three columns. Each issue is dealt with in the columns. The first column contains the negotiating mandates (the August 2004 framework and the Hong Kong Declaration). The second has textual language for possible modalities, some of which reflect consensus and in other cases is language proposed by the Chair. For many issues, there is no suggested text as there is no agreement.

The third column contains the Chair's commentary on the issues, including his view of the differences among the members, options and in some cases possible solutions.

The paper also has an Annex containing some textual proposals submitted by some members. This Annex could be criticised by some, because it includes proposals by some members but not by other members on the same issues.

Most glaringly, in the all-important issue of coefficients for the tariff-cutting formula, only two proposals are included: the Pakistan proposal that there be two coefficients (6 for developed countries and 30 for developing countries); and the proposal by six members (including US, Canada and Switzerland) that the coefficient for developed countries shall be at most five less than the developing country coefficient.

Missing from the Annex list is the proposal by the NAMA-11 group of developing countries, which contains several principles including less than full reciprocity (in which the coefficients for developed and developing countries must reflect that the latter reduce their tariffs on average by a lower percentage than the former).

The Chair also alludes to the dependence that the NAMA negotiations have had on what happens in agriculture.  He says the NAMA talks have been at all times constrained by and conditional upon progress in the agriculture negotiations, including in issues such as the level of ambition in the formula, the overall degree of flexibilities, and the treatment of preference erosion, small, vulnerable economies and recently acceded Members.

He also admits failure to obtain agreement on the structure of most issues. "My intent was to prepare a final stage in the negotiations which would be concentrated only on the numbers - the level of ambition.  I cannot claim much success."

Indeed, the table with three columns reveals that there are deep divisions in most of the NAMA issues.

On the all-important issue of Formula, the Chair proposes text that "We agree that the following Swiss Formula shall apply on a line-by-line basis." But beyond that, he notes that there is no consensus on the structure of the formula, and there continues to be two Swiss formula options -- the simple Swiss formula with two coefficients (for developed and developing countries) and the ABI (Argentina, Brazil, India) formula.

The Chair says there is broader support for the simple Swiss formula and discussions should focus on this structure. But this support depends on the level of the coefficients and whether they will deliver on Members' interpretations of the Doha mandate.

The key questions are: (1) the interpretation of "less than full reciprocity in reduction commitments"; (2) the extent to which "real market access" must also be achieved; and (3) the comparability of any outcome in NAMA to the ambition achieved in Agriculture.

On the formula coefficients, the Chair says there is no consensus and the discussions so far do not provide a basis to establish the coefficients, or even to propose a range of numbers.

On product coverage, the Chair admits there is also no consensus, although he has issued a list.

On the treatment of unbound tariffs, the Chair proposes text that "for unbound tariff lines, we adopt a constant non-linear mark-up of [...] percentage points to the MFN applied rate in the base year to establish base rates for commencing tariff reductions."
However, there is no consensus on the level of the mark-up. The Chair says "it is clear that the range is between 5 and 30 percentage points." He remarks that there has been greater "flexibility" after simulations showed that the effect of the mark-up is relatively small once the formula is applied.

On the period of implementation of the commitments, there is also no agreement on the number of years for developed and developing countries.

On Flexibilities for developing Members with low binding coverage, the Chair proposes text that members with less than 35 percent tariff binding would be exempt from the formula. But are expected to bind [70-100] percent of non-agricultural tariff lines at an average level of 28.5%.

The Chair notes that the 70% binding coverage (proposed by the countries with low binding coverage) was found too low by some members which wanted 95%, while others were more flexible.

On sectoral negotiations, the Chair notes that the most contentious issue had been settled at the Hong Kong Ministerial, which clarified that participation should be on a non-mandatory basis. He proposes text recognising progress in some areas and for work to intensify.

In his third column, the Chair recognises the controversial sectoral proposal by Turkey on the textile and clothing sector, with an outcome that is not "over and above" the formula (i.e. that this sector is allowed to have less liberalisation). He notes that the proposal is opposed by many. However, a summary of the Turkish proposal is placed in the annex.

On Flexibilities for developing Members subject to the formula, the Chair reproduces the text of para 8 of the August 2004 NAMA framework, with flexibilities of either (a) less than formula cuts to up to [10] percent of tariff lines provided that the cuts are no less than half the formula cuts and these tariff lines do not exceed [10] percent of the total value of non-agricultural imports; or (b) keeping tariff lines unbound, or not applying formula cuts for up to [5] percent of tariff lines provided they do not exceed [5] percent of the total value of non-agricultural imports.

The Chair notes that there is no consensus on the percentages, but his sense is that Members could agree to the numbers already in the brackets provided the coefficients in the formula are satisfactory.

On flexibilities for small, vulnerable economies (SVEs), the paper reveals many differences of views. On criteria, there is agreement that SVEs are those which have less than [0.1%] of world NAMA trade; but there are other issues raised by other criteria.

On the treatment of SVEs, there is no text as there is no consensus. According to the Chair, there are two options: a para 6-type solution (that SVEs be exempt from the formula and have to bind their tariffs at a certain level or levels) or a paragraph 8-type solution (SVEs apply the formula but have more flexibilities in paragraph 8).

"Unfortunately, I am unable to provide much guidance on this issue," says the Chair, noting that "a satisfactory contribution from these Members can be achieved using either the paragraph 8 or paragraph 6 approach. The central question, therefore, is how great a contribution is required of these Members."

On LDCs, the Chair provides detailed texts on flexibilities as well as market access for LDCs, based mainly on the agreement in Hong Kong on duty and quota free access.

On recently acceded members (RAMs), the Chair proposes text that RAMs shall have an additional implementation period of [  ] years in respect of [  ].

He comments that there is consensus on providing RAMs with longer implementation periods but Members differ on how such longer implementation periods should apply (i.e. to all tariff lines or only to tariff lines on which accession commitments have not yet been fully implemented).

The Chair says a proposal by China for additional flexibilities for RAMs (including a higher coefficient, greater paragraph 8 flexibilities and grace periods for the implementation of the formula) had little support. The China proposal is in the annex.

Under the heading "Supplementary Modalities", the Chair also provides text that "We agree that Members may use the request & offer approach as a supplementary modality following agreement on the core modalities."

On non-tariff barriers, the Chair provides text which he says is "compromise language" merging the proposals of US/EC and the NAMA 11.

The significant part of the text is that "Some Members have also already submitted specific requests and specific negotiating proposals, including on horizontal issues such as export taxes, export restrictions, remanufactured goods and a future mechanism for resolving NTBs, as well as on vertical initiatives on automobiles, electronic products, textiles, clothing and footwear and wood products. Members have expressed different views regarding these proposals and negotiations are now required to obtain results in line with the mandate."

The Chair comments that important details remain to be sorted out, in particular many Members oppose the proposals to negotiate disciplines on export taxes or export restrictions. A consensus on the substance of some NTB proposals remains, at best, uncertain.

On "Appropriate Studies and Capacity Building Measures", the Chair proposes text that narrows these down to enhancing delivery mechanisms to assist LDCs, and Members in the early stages of development, to assist them address challenges from tariff reduction and supply side capacity constraints. These mechanisms are to enable the countries to take advantage of increased market access opportunities and overcome non-tariff measures.

On non reciprocal preferences, the Chair cannot provide any text. He notes that there is no consensus on possible solutions, with members having strong views.

"Many Members are at least open to a discussion of a trade solution, in addition to Aid-for-Trade, but only in respect of longer implementation periods," says the paper. "There is little support for a correction coefficient, the other measure suggested by the proponents of this issue. However, some Members are opposed to any trade measures to respond to the preference problem, as this would be at the expense of their own access to major markets."

In the annex, the Chair also pointedly does not include the ACP Group's proposal on the "correction coefficient" and other proposals on this issue, although he includes proposals by the NAMA 11 and Sri Lanka.

On Tariff Revenue Dependency, the Chair comments that no textual proposal has been submitted, and it is his sense that "the proponents are satisfied that this issue is being resolved through other parts of the modalities."

On Non-agricultural environmental goods, the Chair also does not provide text, as there is no consensus. In his commentary, he says that a group proposed  tariff elimination on environmental goods but this proposal was met with opposition. Many Members also believe that participation in any initiative in respect of environmental goods should be non-mandatory, while others feel that there is a mandate to do something more on these products than on those treated under the formula or the sectoral negotiations.

On para 24 of the Hong Kong Declaration (establishing a link between the NAMA and agriculture negotiations), the Chair noted that a proposal (TN/MA/W/67) was made to operationalize this paragraph. "While there was some support for this proposal, and most Members thought it a useful contribution to the negotiations, many of the Members who have taken the floor during discussions on this issue were of the view that individual Members will judge for themselves whether the requirements of this paragraph have been met," said the Chair.

In the Annex are selected proposals by members on the formula, coefficients,  credit for autonomous liberalisation, sectorals, para 8 flexibilities, SVEs, recentlyacceded members, preferences, and environmental goods.

 


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