TWN Info Service on WTO and Trade Issues (July 07/11)

22 July 2007


Please see below a report on the growing opposition to the draft NAMA text issued by Ambassador Don Stephenson last week.

One diplomat called it a "Don-vastating" draft.

The world's major trade union movement (the ITUC) has also attacked it for ignoring union views across the world.

This article was published in the SUNS.

Best wishes
Martin Khor

Opposition builds to the "Don-vastating" NAMA modality text

By Martin Khor (TWN), Geneva 19 July 2007

Opposition is mounting to the draft modalities paper on non-agricultural market access, issued at the World Trade Organisation on Tuesday by Canadian Ambassador Don Stephenson, who chairs the NAMA negotiating group.

Diplomats from a range of developing countries are preparing their response to the paper, in meetings to be held next week. In informal discussions and in interviews, the reaction of many countries can be described as ranging between disappointment and dismay to anger and outrage.

"The NAMA text is not only devastating, it is Don-vastating'," said a diplomat from an African country, which will be affected by the formula tariff reductions proposed in the paper. "There is no development premise or foundation in the paper. There is no balance within NAMA itself (between developing and developed countries) and there is no balance between NAMA and agriculture."

The international trade union movement has also issued a strong protest. The NAMA modality paper will have serious effects on employment and industrial development in many developing countries, and the suggested coefficient is so low that it will undermine industrialisation prospects, said the General-Secretary of the International Trade Union Confederation.

The Ambassador of a leading developing country said that there is a sharp difference between the NAMA paper and the modalities paper on agriculture (prepared by New Zealand's Ambassador Crawford Falconer).

Although he was also critical of many elements in the Falconer paper, he said that at least the agriculture Chair had tried to incorporate the concerns of various groups, and the items had been placed in a certain structure.

"But it is a different kettle of fish with the NAMA paper," said the diplomat. "It has disregarded the views and interests of large sections of the members. It is deeply imbalanced, and it is attracting sharp criticisms already."

The head of delegation of a leading NAMA-11 country said that it was unfair for the NAMA Chair to stack up such a "high ambition" for developing countries to fulfill, when there was such "low ambition" for developed countries to undertake in both NAMA and agriculture. "The NAMA Chair wants developing countries to do the paying for the Round, and this is unacceptable," he remarked.

Diplomats from two small developing countries also expressed their dismay that the NAMA paper is requiring very steep cuts in the average tariff of the small and vulnerable economies (SVEs). At the end of the exercise, the SVEs would need to bring their average industrial tariffs down to 14, 18 or 22 per cent.

"We are still in a state of shock," said one of the diplomats. "Our voice was not heard."

The centerpiece of the Stephenson paper is that a Swiss formula for cutting industrial tariffs be adopted with coefficients of 8 or 9 for developed countries and between 18 to 23 for developing countries.

This translates into a cut in average tariff for the United States, the European Union and Japan of about 28%, assuming a coefficient 8 is used. On the other hand, developing countries with an average tariff of 30-36% would have to undertake a massive average tariff reduction of 60-65%, assuming a coefficient 20 is used on them. (See details in SUNS #6296 dated 19 July 2007).

Thus, many developing countries that have to apply the formula would have to undertake reduction commitments more than double those of the three major developed country members of the WTO. This is the reverse of the principle that developing countries should enjoy "less than full reciprocity in reduction commitments" mandated by the Doha Declaration.

The NAMA modality paper also proposes that for unbound tariffs, there be a constant non-linear mark-up of only 20 percentage points to the applied rate to form the base rates. Tariff cuts will then be applied to these base rates, according to the Swiss formula. This will lead to very drastic reductions as many developing countries have unbound tariffs that are low.

It will also be the first time that applied rates are used as the basis for calculating reductions in bound tariffs. Until now, countries have been free to choose the rates at which they bind their industrial tariffs.

Several developing-country diplomats are now considering how to register their objections to the NAMA paper. Many of them do not think that it should be the basis for further negotiations.

Meanwhile, outside of the Geneva negotiating circles, opposition to the NAMA draft has also been building up in the civil society, particularly among trade unions who fear that the NAMA negotiations will lead to loss of jobs in developing countries. The unions' fears have been confirmed and heightened by the Stephenson paper.

The world's largest trade union movement, the International Trade Union Confederation (ITUC), issued a statement today sharply criticizing the NAMA paper for ignoring the numerous concerns that the ITUC and many of its affiliates have expressed on NAMA over the past couple of years.

"We cannot support a trade deal that systematically ignores the interests of workers worldwide and undermines the developmental needs of developing countries", said Guy Ryder, General-Secretary of the ITUC. "We need to see a balanced outcome of the negotiations that advances development in developing countries, whereas this proposal will simply aggravate existing imbalances."

ITUC represents 168 million workers in 153 countries and territories and has 305 national affiliates.

It said that proposals for a coefficient for developing countries of between 19 and 23 will have "serious impacts on employment and industrial development in a large number of developing countries at a moment when the creation of decent work poses a major challenge."

The ITUC added: "A coefficient of around 20 will lead to average tariff cuts of around 60% for developing countries and will bring maximum tariff levels for all tariff lines down to levels of around 12%, a level so low as to undermine prospects for industrialisation and diversification in many developing country economies.

"Previous simulations by the ITUC have shown that such low coefficients will lead to substantial cuts in applied tariff rates in developing countries that will further increase already high unemployment and underemployment levels."

The ITUC added that the proposed "flexibilities" that would allow developing countries to shield a specified number of labour intensive sectors are so minimal as to provide little protection for the workers who are vulnerable.

According to ITUC calculations, sectors such as textiles and clothing, leather and footwear, plastics, paper, rubber, metals, automobile and furniture will be particularly affected in terms of job losses.

The ITUC General Council, in its recent resolution of 22 June, had strongly rejected NAMA proposals based on low coefficients and very restrictive flexibilities, as are being proposed now in the draft modalities text.

"Many ITUC affiliates in developed and developing countries alike - including from the NAMA 11 group, the EU, US and Latin American group - have written to their ministers on several occasions to demand a more balanced outcome in NAMA. Their views are not being taken into account," said the statement.

"The disconnect between the discussions on development strategies and the creation of decent work in developing countries on the one hand and the NAMA proposals as presented yesterday is enormous and cannot result in a pro-development outcome of the Doha Round," concluded Guy Ryder.

The ITUC and its affiliates have also been critical of a late 26 June proposal by a group of developing countries coordinated by Chile (and including Colombia, Costa Rica, Hong Kong, Mexico, Peru, Singapore and Thailand) that put forward a coefficient of "less than 10" for developed countries and "between the upper teens and low twenties" for developing countries.

The countries also proposed a mark-up of 20 to 30 percentage points as mark up for unbound tariffs (to form the base level on which the formula cut would then apply).

Many diplomats and observers believe that Stephenson made use of this late paper to draw the numbers for his Modality text (which proposes coefficients of 8-9 for developed countries and 18-23 for developing countries, as well as a mark-up of 20 percentage points for unbound tariffs, which are close to the figures in the paper by Chile and others).

In early July, national trade unions of many of the countries that put forward the proposal criticized their governments for doing so.

A Declaration was issued by trade unions from Chile, Costa Rica, Colombia, Peru and Mexico, expressing their concern with the proposal of the governments, in particular with regard to the impact this proposal will have on employment and industrial development.

It called on the governments to revise their position and align themselves with the NAMA 11 governments, and not to make concessions just to move the negotiations forward and to accommodate the demands of the EU and US.

The declaration was signed by CUT Chile, CUT Colombia, CTC Colombia, CTRN Costa Rica, CGTP Peru, CUT Peru, UNT Mexico, and CROC Mexico.

According to Esther Busser, who is the Advisor of ITUC in Geneva, the NAMA Chair's proposed coefficients between 19 and 23 are very low and unlikely to be acceptable for the NAMA 11. In addition, the flexibilities remain the same, 5% of tariff lines exempted from reductions OR 10% of tariff lines with half the formula cut.

"In fact, the NAMA draft modalities reflect basically the proposal of Chile and others that came out two weeks ago, and which did not seem to be acceptable to the NAMA 11, although no official reaction was given to it.

"A coefficient of around 20 will lead to tariff cuts of around 60% for developing countries, and will bring average tariff levels down to around 12-13% which is extremely low, and will also result in cuts in applied tariffs for many sectors in many developing countries.

"In fact, the difference between a coefficient of 19 or 23 is very small and does not make a big difference, so it is not providing real negotiating options for developing countries. A coefficient of 19 will bring the average bound tariff from 30 to 11.6%. A coefficient of 23 will bring the average bound tariff from 30 to 13%.

"This is a difference of only 1.4 percentage points which is not making a significant difference in the number of tariff lines that is going to be affected."