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TWN Info Service on WTO and Trade Issues (June 07/13)

17 June 2007


Developing countries take tougher stand in NAMA talks

Developing countries in the NAMA 11 group have taken a tougher position in the WTO  negotiations on NAMA, including highlighting the problems in using the Swiss formula  to cut tariffs, asking that countries be allowed to choose another method that  uses linear cuts as was done during the Uruguay Round, and proposing an expansion of flexibilities for developing countries.

On 8 June, the NAMA 11 presented a new comprehensive paper which explained its dissatisfaction with the way the NAMA negotiations on the tariff reduction formula are going, and in particular the proposals by the developed countries that there be coefficients of 10 for developed countries and 15 for developing countries in the Swiss formula for reducing tariffs.

The NAMA 11 proposed that there be a spread of 25 points between the coefficients for developed and developing countries, as well as enhanced flexibilities for developing countries. Further, in the concluding part of its paper, NAMA 11 also proposed an alternative tariff-reduction approach - that of linear cuts used during the Uruguay Round.

The NAMA 11 paper and the debate it generated at the NAMA meeting on 8 Junemarks the growing conflict on the NAMA issue as the Doha negotiations hot up in the run up to the issuing of the Modalities Paper by the chair of the NAMA negotiating group in two weeks

The report below was published in the SUNS on 12 June.

With best wishes
Martin Khor
TWN

Developing countries take tougher stand in NAMA talks

By Martin Khor (TWN), Geneva, 10 June 2007

Developing countries in the NAMA 11 group have taken a tougher position in the WTO negotiations on non-agricultural market access, including highlighting the problems in using the Swiss formula to cut tariffs, asking that countries be allowed to choose another method that uses linear cuts as was done during the Uruguay Round, and proposing an expansion of flexibilities for developing countries.

On Friday (8 June), the NAMA 11 presented a new comprehensive paper which explained its dissatisfaction with the way the NAMA negotiations on the tariff reduction formula are going, and in particular the proposals by the developed countries that there be coefficients of 10 for developed countries and 15 for developing countries in the Swiss formula for reducing tariffs.

The NAMA 11 put forward several main criticisms: (1) The proposed coefficients would lead to internal imbalance within NAMA (as developed countries would have to cut their tariffs by much less than developing countries); (2) There is a great imbalance working against developing countries between the modalities in NAMA and agriculture; (3) The Swiss formula is not transparent, thus allowing developed countries to attempt to hide the relative leniency with which they are to be treated while shifting a heavy burden to developing countries; (4) The NAMA flexibilities for developing countries are inadequate.

The NAMA 11 proposed that there be a spread of 25 points between the coefficients for developed and developing countries, as well as enhanced flexibilities for developing countries. Further, in the concluding part of its paper, NAMA 11 also proposed an alternative tariff-reduction approach - that of linear cuts used during the Uruguay Round.

"In view of the situation described, there is a need for a change in negotiating positions as well as for significant leadership to reverse the foregoing imbalances," said the paper.

"Since the Swiss formula makes it difficult to compare liberalization efforts between developed and developing countries, it is undoubtedly convenient to reconsider it as the exclusive tool for tariff cuts, giving instead the choice to members whether to use it or to resort to linear cuts so as to reach the average cuts that will eventually be agreed upon.

"This was the case during the Uruguay Round in NAMA with proportionally higher average cuts for developed countries, taking into account the principles of less than full reciprocity and special and differential treatment for developing countries."

The meeting on 8 June was the last session in the week of NAMA negotiations. The paper by NAMA 11 was opposed by several developed country members including the United States, and the European Union. Some developing countries also spoke against it, while other non-NAMA 11 developing countries supported it. South Africa presented a separate paper calling for greater flexibilities for developing countries.

At the end of the meeting, the Chair of the NAMA negotiating group, Ambassador Don Stephenson of Canada, said the problem is that there is no consensus in some crucial issues.

He implied that there would not be any more meetings until he comes up with a negotiating text on NAMA modalities. That text would not be the end but the point of departure of the real negotiation. He indicated that meetings would resume in the week of 25 June, after the draft comes out.

During the NAMA meetings on 6 and 8 June, when the formula was discussed, developed country members including the US, EU, Canada and Japan reiterated their positions of having coefficients of 10 and 15 for developed and developing country members respectively.

At the 6 June meeting, Brazil, in a strong statement, rejected this position unequivocally, saying that it was "out of the question,... not attainable and... impossible." The Brazilian ambassador added that while "every country would have to suffer some pain, this pain has to be proportional, including in other areas of negotiations, and the overall consideration that this is a development round... The main problem in these negotiations is the low ambition in agriculture of the developed countries and high ambition in NAMA."

Argentina, speaking on behalf of the NAMA-11, said that the imbalance now existing against developing countries is a serious problem in the Multilateral Trading System.

Speaking on the need to match the level of ambition between NAMA and Agriculture, Argentina said that in Agriculture, this level of ambition is modest, while the demand made on developing country members are "exaggerated".

The NAMA 11 said that there should at least be a differential of 25 between the coefficients to be used by the developed and developing country members, if the developmental objectives of the Doha mandate are to be met. Therefore, if the developed countries were to apply a coefficient value of 10, developing countries should have recourse to at least 35.

The NAMA-11 developing countries pointed out in their paper that even with coefficients of 10 and 35 for developed and developing country members, it would still result in a heavier burden being placed on developing countries.

"Additional flexibilities will be needed to adjust the results in order to comply with the mandate of less than full reciprocity in reduction commitments."

(The flexibilities still to be agreed upon allow developing countries to have 10% of their tariff lines (limited also to 10% of import value) subjected to half the formula cut, or to exempt 5% of tariff lines, limited to 5% of imports, from having a cut at all).

The NAMA-11 proposal on the coefficients was opposed by several developed countries. The EU said that 35 for developing countries was "astronomically high". It warned that "members are hardening their position" and that this "is going in the wrong direction." The US said that the proposal from the NAMA 11 goes far beyond the parameters in the negotiation if we want to get a proper balance.

Some developing countries (such as Chile, Mexico, Hong Kong, Colombia, Uruguay, and Costa Rica) were cool to the NAMA 11 proposal, although they said that they recognised the need for balance in the NAMA and agriculture negotiations. Chile said that it was now time for realism and for flexibility, and that a coefficient of 35 for developing country members will not lead to an agreement.

Other developing countries wanted the developed countries to have a suitably low coefficient. China said that having a coefficient of 10 and 15 for developed and developing countries "is not acceptable." They would want to see the developed countries adopt a value of less than 10 and 35 for developing countries. Other more export oriented developing countries such as Chile and Thailand argued that the coefficient for the developed countries should be at a value of 5.

The NAMA 11 paper (TN/MA/W/86 dated 8 June) was submitted by Argentina, Venezuela, Brazil, Egypt, India, Indonesia, India, Namibia, the Philippines, South Africa and Tunisia.

On the NAMA negotiating mandate, the paper said that Paragraphs 16 of the Doha Declaration and 24 of the Hong Kong Declaration instruct negotiators to observe two conditions regarding the level of ambition of the NAMA negotiation. One is within NAMA, and it is enshrined in the concept of "less than full reciprocity in reduction commitments"; the other is the balance between NAMA and agricultural market access, according to which a comparable level of ambition has to be observed.

On the Internal Balance within NAMA, the paper said that the Swiss formula makes it difficult to compare liberalisation efforts both between developed and developing countries in NAMA and between NAMA and Agriculture.

It is necessary, for equity and transparency reasons, to determine the impact that the coefficients of the Swiss formula would produce on the non-agricultural tariff structure of developed and developing countries. Only by doing this will it be possible to confirm that the mandate for less than full reciprocity is achieved.

On the coefficients, the paper said that the use of coefficients 10 and 15 for developed and developing countries (as proposed by developed countries) would reduce the developed countries' average tariffs by 40% while the linear cuts for developing countries will exceed 69% on average.

"As a result, developing countries will have to implement tariff reductions which, in linear terms, almost double those that will be carried out by developed countries. Furthermore, the average tariff cut in percentage points for developing countries will be nearly 9 times higher than the cut for developed members," said the NAMA 11.

A table in the paper shows that developed countries using coefficient 10 would have their average bound tariff reduced from 6.8% to 4%, a reduction of 40.4% and of 2.7 percentage points. In contrast, the NAMA 11 countries using coefficient 15 would have its average tariff reduced from 34.4% to 10.4%, a reduction of 69.4% , or 23.9 percentage points.

"Undoubtedly, this proposal is not consistent with the principles of less than full reciprocity and special and differential treatment set out in Doha," said NAMA 11.

Only when coefficients at least 25 points higher than those of developed countries are used for developing countries, as proposed by NAMA 11, is there a relatively balanced result between linear cuts in both groups of countries, said NAMA 11.

The paper added that some developed countries argue that a coefficient of 35 would entail no reduction in applied tariffs. This argument ignores the value of bindings and the important market access granted unilaterally in the form of autonomous liberalization. Moreover, NAMA 11's data show that if coefficient 35 is used on NAMA 11 countries, their bound tariffs would be reduced by 49.5% on average, and applied tariffs would fall by 25.9% on average, more than the average linear cuts of developed countries in either bound or applied rates.

Another table in the NAMA 11 paper shows that as a result of the NAMA 11 proposal, NAMA-11 countries' new bound tariffs would face a reduction below the current applied level in 22% to 51% of tariff lines, depending on the country, without considering flexibilities. This reduction below the applied level would affect between 9% and 37% of the value of non-agricultural imports in most of these countries.

In a section on bindings and flexibilities, the paper said that developed countries' positions do not take into account the value of developing countries bindings, nor of unbound tariffs which will now be bound, nor of those already bound in previous rounds and which will now be bound at a substantially lower level.

This means that paragraph 2. a of Article XXVIII bis of GATT 1994, concerning the value that should be attached to bindings as a safeguard against tariff increases, is actually being disregarded by developed countries. The cuts on bound tariffs do have commercial value by increasing predictability thus favouring the expansion of trade.

In addition, some developed countries also ignore the obligation set forth in paragraph 3b of Article XXVIII bis which states that "Negotiations shall be conducted on a basis which affords adequate opportunity to take into account the needs of less developed countries for a more flexible use of tariff protection to assist their economic development and the special needs of these countries to maintain tariffs for revenue purposes".

Although the Hong Kong Declaration reaffirmed that paragraph 8 flexibilities are an integral part of the modalities, as WTO simulations show, the use of flexibilities and mark-up by developing countries has a negligible impact on tariff cut results, said NAMA 11. "When taking into account the effect of the coefficients on developing country tariffs, it can be seen that, even with a coefficient of 35, additional flexibilities will be needed to adjust the results in order to comply with the mandate of less than full reciprocity in reduction commitments."

The paper concludes that dveloping countries accepted an unprecedented agreement to use a Swiss formula in NAMA. "But this does not mean that developing countries will accept to apply a simple Swiss formula coefficient that would put seriously in danger their possibilities of industrial development. Only with a difference of at least 25 points between the coefficients of developed and developing countries and enhanced flexibilities in Paragraph 8 will it be possible to achieve the results mandated by Ministers at Doha."

The paper then deals with the imbalance between the NAMA and agriculture negotiations. It recalled that Ministers at Hong Kong agreed that there shall be a comparably high level of ambition in agricultural market access and NAMA, consistent with the principle of special and differential treatment.

Trade in non-agricultural products is more liberal than in agriculture: Tariffs are much lower, there are fewer tariff peaks, and simpler tariff structures - there are practically no quotas and specific tariffs, among other features.

Another important difference concerns distorting measures: in Agriculture, even after the Doha Round, significant domestic support will continue to be provided. This is in contradiction with the strict disciplines on non-agricultural products which can face countervailing duties if trade-distorting domestic supports were verified.

The paper adds that as for tariff reduction modalities, there are important differences between Agriculture and NAMA:

-- In Agriculture it was agreed to apply a tiered formula with four bands and different linear cuts to be applied in each of the bands, whereas in NAMA there was agreement on the application of a Swiss formula with coefficients.

-- In Agriculture, the possibility of imposing a maximum tariff limit or cap is still under discussion, whereas in NAMA, given the characteristics of the Swiss formula, there will be a maximum limit matching the coefficients adopted.

-- In NAMA it was agreed that all non-ad valorem duties would be bound in ad valorem terms; this has not been agreed in Agriculture.

-- In Agriculture, developed countries can exempt a percentage of sensitive products from the general tariff reduction, including products in the lower bands, without any limit as to the value of trade involved. Meanwhile, in NAMA, paragraph 8 flexibilities for developing countries have explicit limitations to trade value.

-- In Agriculture, tariff-rate quotas will be maintained. There is significant difference existing between the out-of-quota bound tariff and the in-quota applied tariff. Thus, for example, if the EU proposal in Agriculture were applied, the out-of-quota tariff would fall below the in-quota level in only 6% of tariff-rate quota lines. As can be seen, the developed countries' insistence that developing countries' applied tariffs on non-agricultural products should be reduced is not matched by their agricultural proposals, which leave most in-quota tariffs unaffected.

-- In Agriculture, the Special Safeguard (SSG), on top of being unpredictable, represents a severe obstacle to market access. There is not such an instrument in NAMA.

Besides the above, there is an imbalance between developed countries' level of ambition in NAMA and Agriculture, which is in opposition to the Doha Mandate and to paragraph 24 of the Hong Kong Declaration.

In its concluding section, the NAMA 11 paper states that he Doha Round is in its sixth year and substantial differences in NAMA and between NAMA and Agriculture remain as yet unresolved.

"Developed countries proposals in NAMA show a noticeable imbalance arising from substantially lower contribution they are offering in tariff reductions, both in linear terms and in percentage points, compared to the exaggerated demands they are requiring from developing countries.

"Making this imbalance worse, developed countries do not take into account the significant value of bindings offered by developing countries, either by binding currently unbound tariffs or by substantially reducing already bound tariffs.

"Moreover, the differences between what developed countries are willing to offer in Agriculture and what they demand in NAMA show a position that is in clear disagreement with paragraph 24 of the Hong Kong Declaration.

"In view of the situation described, there is a need for a change in negotiating positions as well as for significant leadership to reverse the foregoing imbalances.

"Since the Swiss formula makes it difficult to compare liberalization efforts between developed and developing countries, it is undoubtedly convenient to reconsider it as the exclusive tool for tariff cuts, giving instead the choice to members whether to use it or to resort to linear cuts so as to reach the average cuts that will eventually be agreed upon. This was the case during the Uruguay Round in NAMA with proportionally higher average cuts for developed countries, taking into account the principles of less than full reciprocity and special and differential treatment for developing countries.

"The NAMA-11 proposal on non-agricultural products and the G-20 proposal on Agriculture redress the imbalances. They are both constructive, ambitious and middle ground proposals. Thus, they constitute a solid base to fulfil the Mandate and successfully conclude the Doha Round."

South Africa, which is the coordinator of NAMA 11, submitted a separate paper on its own behalf on the need for additional flexibility. It said that it is a member of South African Customs Union (SACU) together with Botswana, Lesotho, Namibia, and Swaziland, and SACU has a common external tariff (CET).

SACU took deep cuts in the Uruguay Round, reducing their bound rates to almost half the average for developing countries and the applied rates for most sensitive sectors are relatively high with very little "water" in the tariff to absorb any deep cuts.

"South Africa is deeply concerned at the potential negative effects of current proposals emanating from some developed countries," it said. "Extraordinary high rates of unemployment will make the cost of any deep tariff cuts in its most sensitive sectors extremely costly in both social and political terms. The cuts could also foreclose industrial policy objectives particularly for the small and vulnerable economies."

Souith Africa was concerned that the NAMA mandates have not acknowledged the situation of a developing country customs union that includes a developing country, three small and vulnerable economies (SVEs) and an LDC.

South Africa said the flexibilities for developing countries under the July 2004 Framework are "highly constrained." Under paragraph 8, developing countries that are subjected to the Swiss formula can exempt 5% of their tariff lines from the formula cut so long as that does not account for more than 5% of their imports, or they may apply 50% of the formula cut on 10% of lines so long as that does not account for than 10% of imports. The 5% and 10% numbers are still not agreed.

LDCs are exempt from taking any tariff cut obligations, while SVEs may expect some additional flexibility under the tariff cutting modality.

"On flexibility under paragraph 8 of the July Framework, we consider that greater flexibilities in terms of higher number of tariff lines and larger trade coverage will be required by developing country Members to address their specific situations," stressed South Africa.

"In this context, South Africa will be required to make formula cuts on the basis of a common tariff schedule and common external tariff, notwithstanding the fact that SACU includes a developing country (South Africa), three SVEs (Botswana, Namibia and Swaziland) and an LDC (Lesotho).

"South Africa, therefore proposes that the number in the brackets of paragraph 8 of the July 2004 Framework Agreement be expanded to accommodate our development needs.

South Africa said that the principle of Less Than Full Reciprocity (LTFR) is particularly important, as it requires that developed countries do more than developing countries in reduction commitments.

Paragraph 24 of the Hong Kong Declaration attempts to mitigate unfair negotiating proposals from major WTO Members which demand that developing countries reduce their industrial tariffs dramatically while accepting comparatively minor reductions in their own industrial tariff rates.

On the coefficient, therefore, the spread between coefficients for developed and developing countries shall be no less than 25 points.

Commenting on the South African proposal, Kenya said that there were also other regional arrangements besides SACU in which there are developing countries and LDCs and therefore expanded flexibilities are important. Countries with less than 30% binding like Kenya therefore need to have the flexibility to maintain 30% of their tariff lines unbound.

Comparing the NAMA and agriculture negotiations, Kenya said that one developed country had overall trade-distorting support of $7 billion in 1995 but this had risen to $19.6 billion in 2005. On the other hand, developing countries had reduced their applied industrial tariffs significantly. Thus, in terms of "real trade flows", developed countries were still blocking their market access in agriculture, while developing countries had already given market access in advance in NAMA through autonomous liberalisation, said Kenya.

(* With inputs from Goh Chien Yen.) +

 


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