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TWN Info Service on WTO and Trade Issues  (July 07/15)

27 July 2007


NAMA draft comes under heavy fire at WTO

Major groupings of developing countries severely criticized the draft text on modalities put forward by the Chair of the WTO negotiations on non-agricultural market access (NAMA) when the NAMA group met to discuss the draft on 25 July.

Those criticizing the draft included the NAMA-11 alliance, the ACP Group, the African Group, the LDC Group as well as individual countries.

Some of the criticisms almost amounted to a vote of no confidence on the paper. The NAMA-11 gave an incisive critique of what it called six basic flaws in the paper, including that it prejudges the outcome of the negotiations, turns the Round's agriculture focus around by asking developing countries to pay heavily with NAMA, re-interpreting the Doha mandate, and undermining the Hong Kong agreement to have comparable ambition for NAMA and agriculture.

Venezuela stated that it regarded the document as only reflecting the position of the Chair, with no legal standing whatsoever. Instead, the governments' papers containing positions of members should constitute the basis for discussion. Nigeria did not believe that the Chair's text provides a substantial basis for moving the Doha Round negotiations forward.

"In all my experience of following GATT and WTO, over 29 years, I have not seen an occasion where a text from the Chair has received such criticisms and repudiation from a range of developing countries - in fact, by more than half of the WTO membership," said Chakravarthi Raghavan, a veteran trade analyst.

In contrast, the United States, European Union and other developed countries were positive about the draft and had no hesitation in wanting it as the basis for negotiations starting in September, although they said that the paper did not go far enough in cutting developing countries' tariffs.

Below is the first of two reports on the NAMA meeting to hear reactions on the paper.  It was published in the SUNS of 26 July.  The second report will be sent to you in due course.

With best wishes
Martin Khor
TWN

NAMA draft comes under heavy fire at WTO meeting

By Martin Khor (TWN), Geneva 25 July 2007

Major groupings of developing countries severely criticized the draft text on modalities put forward by the Chair of the WTO negotiations on non-agricultural market access (NAMA) when the NAMA group met to discuss the draft on Wednesday.

Those criticizing the draft, authored by Ambassador Don Stephenson of Canada, included the NAMA-11 alliance, the ACP Group, the African Group, the LDC Group as well as individual countries.

Some of the criticisms almost amounted to a vote of no confidence on the paper. The NAMA-11 gave an incisive critique of what it called six basic flaws in the paper, including that it prejudges the outcome of the negotiations, turns the Round's agriculture focus around by asking developing countries to pay heavily with NAMA, re-interpreting the Doha mandate, and undermining the Hong Kong agreement to have comparable ambition for NAMA and agriculture.

Venezuela stated that it regarded the document as only reflecting the position of the Chair, with no legal standing whatsoever. Instead, the governments' papers containing positions of members should constitute the basis for discussion. Nigeria did not believe that the Chair's text provides a substantial basis for moving the Doha Round negotiations forward.

"In all my experience of following GATT and WTO, over 29 years, I have not seen an occasion where a text from the Chair has received such criticisms and repudiation from a range of developing countries - in fact, by more than half of the WTO membership," said Chakravarthi Raghavan, a veteran trade analyst.

In contrast, the United States, European Union and other developed countries were positive about the draft and had no hesitation in wanting it as the basis for negotiations starting in September, although they said that the paper did not go far enough in cutting developing countries' tariffs.

The US Ambassador Peter Allgeier said that the draft's coefficient range of 19-23 for developing countries was not ambitious enough and had to be brought down, while there was "a whole lot of less than full reciprocity" in the draft. (See details at the end of the article).

Sensing that his draft would face widespread criticisms from developing countries, Stephenson, at the start of the meeting, joked that he had an ambulance and a psychotherapist standing by. He also clarified that "they are my proposals, it is not a negotiated text. It has no legal standing and so far, it is agreed by no one... This is the Chair's text, on the Chair's own responsibility... at your request."

In a lengthy paper, the NAMA-11, represented by South African Ambassador Faizel Ismail, gave a comprehensive comment, rebutting much of the Stephenson paper point by point. The NAMA-11 said a good text has the potential to build genuine negotiation and ultimately consensus. From the point of view of the NAMA-11, and the majority of developing countries in the WTO, this text does not meet this objective. The NAMA-11 was "deeply concerned that the Chair's NAMA text suffers from some basic flaws that will have to be addressed."

First, the draft text prejudges the outcome of the NAMA negotiations before members have had an opportunity to negotiate these outcomes. This is in contrast with the agriculture draft text where members' positions are substantially preserved, allowing them significant scope to negotiate further.

Though the text says that it seeks to prompt real negotiations, the ranges in the brackets for developing countries that have to apply the formula precludes any real negotiation, as the range is narrow and excludes the positions of the NAMA-11 group.

The text states that its intention is to propose specific outcomes. However, this approach does not facilitate engagement, said the NAMA-11. It has largely excluded the positions of the NAMA-11. It is in sharp contrast to the approach taken by the agriculture chair who has accommodated the concerns of different members to facilitate the negotiations. The draft also limits the use of Paragraph 8 flexibilities to that already provided in the brackets and thus excludes the NAMA-11 proposals to expand the flexibilities. On the mark-up for unbound tariffs, the Chair's formulation seeks to close the opportunity for further negotiation.

Second, the draft text changes the principle that Agriculture should lead the ambition of the Doha Round, with the developed countries making the greatest reforms in their trade distorting policies. Instead, the draft text makes developing countries pay first in the NAMA negotiations and requires them to make severe cuts in their industrial tariffs.

In Paragraph 9, the text states that whilst the level of ambition in Agriculture may be low, it advises members who have an interest in a high ambition in Agriculture to strive for this in Agriculture and not lower the ambition of NAMA. "This is a tall order!" exclaimed the NAMA-11 statement.

The chair thus unilaterally has changed one of the cornerstones of the development mandate, namely, that Agriculture is central and that the developed countries should make the greatest contribution. Instead, the text has proposed that it is the developing countries that should lead the level of ambition and pay first with the hope that the developed countries will reciprocate in their agricultural offers. "Indeed, it is this logic that has created an enormous asymmetry between the two texts," said the NAMA-11.

Third, the draft seeks to re-interpret the mandates of the Doha round, that have called for less than full reciprocity (LTFR) in reduction commitments by developing countries, by asking developing countries to contribute disproportionately, compared to the contributions requested from developed countries.

The Chair admits that it is difficult for him to assess whether LTFR has been achieved but nevertheless goes on to state that he is "confident" that his proposed modalities satisfies the LTFR requirement.

The NAMA-11 said that it has demonstrated that at least a 25-point difference in the coefficients of developed and developing countries will be required to meet the mandate of LTFR. Instead, the paper has reduced this spread by about half of 25 points and has only offered a reduction of 1 or 2 points for the developed country coefficient.

"Therefore, the imbalance in the contributions between developed and developing countries will be considerably exacerbated, turning the concept of LTFR on its head and thus making the developing countries the major contributors of the Round," said the NAMA-11.

Fourth, the draft has called for contributions by developing countries that are not consistent with their development needs and levels of development. Indeed, it is the logic of the need to satisfy the commercial interests of the developed countries, rather than the development objectives of the Doha round that permeates the Chair's text.

The NAMA-11 is concerned that the draft's proposals for Paragraph 6 countries (with low binding coverage) is too onerous and not consistent with the development needs of these countries. Similarly, the proposed target averages for the small and vulnerable economies (SVEs) is disproportionate and not consistent with their levels of development.

Fifth, said NAMA-11, the draft has also undermined an agreement reached at the Hong Kong ministerial meeting to ensure that the level of ambition of the NAMA negotiations shall be comparable to that in agriculture. The Chair concedes that members have not been able to agree on a methodology for comparing the balance in the ambition level of NAMA with Agriculture.

However, he goes on to state that members should "focus their efforts on improving ambition elsewhere, rather than reducing it for all in NAMA". In other words, developing countries should first make onerous commitments to make drastic tariff reductions even before developed countries have agreed to fulfill their obligations to reduce their trade distorting subsidies and open their markets in Agriculture. This is not only unfair but a negation of the Hong Kong mandate on comparable ambition levels.

The NAMA-11 said that the 24 July meeting on agriculture heard the reactions of the developed countries to the Chair's Agriculture text. The position of the United States on overall trade distorting support (OTDS) is still not clear, and on Cotton, the US is not willing to accept the Chair's formulation. The EU response to the Chair's text makes even more unclear what the Market Access contributions of the developed countries are likely to be.

"You have to be a gambler with a lot of money to spare, to bet on the outcome of the level of ambition in the agriculture negotiations," said the NAMA-11. "We are not gamblers. We represent millions of people in developing countries who have high hopes for a development outcome in this round and cannot afford to allow an unfair and disproportionate outcome in the round to create massive unemployment and de-industrialization in our countries."

Sixth, the draft text makes loose claims about reflecting the majority view when this is clearly not the case. In paragraph 15, 16, and 26, the Chair claims to take positions and make proposals in line with the views of a clear majority. The statements of the African Group, ACP and LDCs have demonstrated the fallacy of this argument.

NAMA-11 also counters the criticism of the Chair that some developing countries have taken a north-south approach in the NAMA negotiations. It said that the NAMA-11 was created after the developed countries closed ranks on the formula in October 2005 and proposed an unfair outcome that would have required developing countries to cut their average tariffs by 65-70% whilst the developed countries only cut their average tariffs by 25% (Swiss 10 for developed and Swiss 15 for developing countries).

Developed countries have chosen to close ranks, said NAMA-11. "We challenge developed countries to express different views on the formula," it said. "However, we should all be aware that the needs of developing countries are different. Their needs have been largely ignored by the trading system for more than 50 years. This is why the mandate refers to the needs and interests of developing countries that have to be addressed in this Round. We cannot so easily forget the promise made in Doha by all WTO members to make this round a development round."

The NAMA-11 concluded that the flaws in the draft text must be corrected to secure a fair, balanced and development-oriented outcome in the Doha round. This can be achieved through a genuine bottom-up and inclusive process that allows for genuine negotiation and engagement in September to address these flaws.

The African Group, represented by Uganda, said that we must not lose sight of the spirit and principles on which NAMA negotiations are anchored that must be consistent with agreed mandates, especially that negotiations shall take fully into account the special needs and interests of developing and least-developing country participants, including through less than full reciprocity in reduction commitments.

It stressed that both the NAMA and Agriculture modalities must not be undertaken purely from a mercantile perspective of promoting trade but also ensure that the development perspective is addressed. The African Group was greatly concerned with the "principle that all must contribute", in the draft.

"The African Group is not aware of this principle, and would therefore like to know its source," it said. "What is very clear is that this is a development round for the developing and least developed countries and not one where the less developed pay more than the developed. On the formula, the Group said the LTFR principle has not at all been given any consideration in suggesting the range of coefficients for developed and developing countries. The percentage reductions to be undertaken by the developing countries as suggested in the draft are massive compared to the apparent minimal contributions to be made by the developed countries.

On flexibilities for developing members subject to the formula, the Group supported the proposal tabled by South Africa calling for a solution to redress the situation of Customs Union and other regional integration arrangements in Africa which will be affected by the application of the formula. In the SACU case, there is a single customs regime and in other regions, customs unions are being sought and will be affected by the Round, as in the case of COMESA members. These realities should be addressed in the draft.

On flexibilities for developing members with low binding coverage, the Group said that Para 6 countries had proposed to increase their scope of binding coverage up to 70% at an overall average rate of 28.5% to enable them to have sufficient space to expand and strengthen their weak industrial base. "The draft text ignores this proposal and instead proposes a binding coverage of 90% at an average level not exceeding 28.5% without taking into account that the figures 70% and 28.5% are intrinsically related and a change in one would affect the other," said the Group.

On Small and Vulnerable Economies, the Group said that these countries have already undertaken voluntary liberalization. However, the draft's proposal goes far beyond their technical, financial and development capacity and is also not explicit as to whether SVEs would have recourse to paragraph 8 flexibilities. On non-reciprocal preferences, the Group criticised the paper for only proposing an extra two years of implementation for the products involved.

The LDC Group, represented by Lesotho, said the text does not reflect the commitment made in Hong Kong on duty- and quota-free market access for LDC products, especially operationalising the move from 97 to 100% of tariff lines within the time frame specified by the LDCs. The Group was also deeply concerned that improving the rules of origin for LDCs was omitted from the draft modalities, which amounted to changing the Ministers' decision, which is unacceptable.

The Group was also concerned with the manner the Chair dealt with the preference issue. It wanted the issue of the impact of tariff cuts on LDCs belonging to the same Customs Unions as some developing counties (which it said would have dire consequences for the LDCs) to be dealt with.

Nigeria, represented by Ambassador Yonov Agah, said that it does not believe that the Chair's text provides a substantial basis for moving the Doha Round negotiations forward. The development mandate must remain central. Any attempt by any Member or Chair of a Negotiating Group to deviate from the mandate must be seen as a distraction from the goal of successfully concluding the Round.

Nigeria criticised the draft for being not only inconsistent with the mandate but also insensitive to the comparability in the level of ambition in NAMA and Agriculture. It challenged the underlining assertions on which the proposals are premised. "As this Round is not a market access round but a development round, poor nations cannot be pushed into exposing their volatile and fragile manufacturing sectors to foreign competition in a manner that undermines their chances of developing local industries," said Nigeria.

"Modalities on industrial tariffs should not lead to job losses and the de-industrialisation of developing economies. We cannot, therefore, support your approach which imposes a high level of ambition for developing countries to fulfill while maintaining a low ambition for developed countries to undertake in both NAMA and agriculture."

Nigeria disagreed that the proposed modalities satisfy the LTFR requirement, when in actual fact many developing countries would be forced to reduce their industrial tariffs by more than twice the reduction rates of the major developed countries.

"We cannot also agree that your proposals enjoy the unanimous support of the majority of the membership," said Nigeria. "Rather, we contend that you have, indeed, ignored the views of the majority. In fact, it remains contentious that the majority in this process favour the formula approach that you have so eloquently espoused.

"G-90 Trade Ministers have never supported the formula approach right at the beginning of the negotiations. Even after the formula was eventually adopted, a large majority of the membership have sought and obtained different types of deviations that exempt them from applying it in their tariff cuts. Equally significant is the fact that the proposals of the NAMA-11, rather than being isolated as you would want us to believe, have enjoyed the full support of the G-90 Plus. My delegation, therefore, wonders what else constitutes the majority in this organization."

Nigeria said that as a Paragraph 6 country, it re-emphasised that both figures of 70% and 28.5% are intrinsically linked. As the group has repeatedly stated, the 28.5% average tariff rate is based on the binding coverage of 70%.

"Therefore, you leave us no room for negotiation with your proposal to bind 90% of tariff lines at an average rate of 28.5%," said Nigeria. "Your proposal, therefore, is unacceptable largely because of our specific circumstances, particularly as we stand to loose the flexibility to use tariff changes on certain products to protect our industries as well as fully implement the Common External Tariff (CET) under the ECOWAS Trade Liberalisation Scheme, which comprises mostly of LDCs who are not required to undertake any commitments in these negotiations."

Nigeria said the present predicament reflects the fact that the major players have remained unwilling to reach the political-level agreement on the level of ambition in the Round's critical components of agricultural market access and subsidy reduction. "They have rather continued to take refuge in overly complex formulae and suggested modalities, instead of reaching the political decisions necessary to bring about the successful conclusion of the Doha Round. This is the challenge that you face. As Chair, there is, indeed, very little you can do in that situation.

"If Members remain unwilling to move, the Round would remain at the cross-roads with the risk of outright failure or being put on the ice for a very long time. As Chair, my delegation would urge you to assist and guide us away, rather than zealously push us over this precipice."

Venezuela said that it had a fundamental problem with the NAMA text which it said closes the possibility of negotiations and turns upside down the very basis of this negotiation. The NAMA document contains a worrying and unwelcome introductory part, where two debatable principles (pragmatism and political realism) replace the principles of "less than full reciprocity" and the required balance between agriculture and NAMA.

The LTFR concept is not subject to negotiation. Venezuela challenged the draft's premise that "there has never been an agreed definition of reciprocity".

The Decision of 28 November 1979 on Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries, states: "The developed countries do not expect reciprocity for commitments made by them in trade negotiations to reduce or remove tariffs and other barriers to the trade of developing countries, i. e., the developed countries do not expect the developing countries, in the course of trade negotiations, to make contributions which are inconsistent with their individual development, financial and trade needs. Developed contracting parties shall therefore not seek, neither shall less-developed contracting parties be required to make, concessions that are inconsistent with the latter's development, financial and trade needs".

Venezuela reminded the NAMA Chair that this concept, legally speaking, has been approved by consensus by Ministers years ago. Also, the Doha Declaration in its paragraph 16, relating to NAMA, and more broadly, in its paragraph 50, relating to general issues of the tariff reduction negotiations, mandated the negotiations "to fully take into account: (a) the relevant provisions in article XXVIII bis in GATT 1994; (b) part IV of the GATT 1994; ( c) the Decision of 28 November 1979 on Differential and More Favourable Treatment; reciprocity and fuller participation of developing countries and all other relevant WTO provisions."

Venezuela said that the draft contradicts these principles. "With a coefficient of 20, our country should make an average reduction of more or less a 60 % in our bound tariffs," while the coefficients given by the Chair would result in 43% cut for Canada and 36% cuts for Japan and the US. This is unacceptable.

Venezuela also opposed the concept that this negotiation needs to generate new trade flows. According to this concept, the LTFR principle cannot block new trade flows that are supposed to help economic growth. In fact, the reverse causality is true, that economies need to grow and develop to increase their international trade.

Venezuela also cited the G90 Plus Declaration and its reference to LTFR to conclude that the Chair's proposal completely leaves out the positions not only of the NAMA-11, but of this group of more than 90 countries. Incredibly, in addition, the proposal follows a similar one presented by a minority of members, which has not even been widely debated.

Venezuela said that for these reasons, it regarded "this document merely as the position of the Chair, with no legal standing whatsoever. Instead, government's papers containing the outstanding positions of members should constitute the basis for discussions in September. We also expect language on these issues at the Trade Negotiations Committee and General Council to reflect this understanding." It added that its objection to this text is not an objection to a more transparent and inclusive negotiation process. "We object to the draft precisely because it will impede a more inclusive process."

US Ambassador Peter Allgeier told reporters that the US criterion (for the Round's success) is whether people pay less tariffs after the Round is over. By this standard, the paper is not sufficiently ambitious especially on the 30 advanced developing countries using the formula. He told the meeting that the range 19-23 in the coefficient proposed by the Chair for developing countries had to go down or there would be no real market access.

He remarked that the average applied rates of the 28 developing countries (that would have to apply the formula) are twice the applied rates of developed countries. In any scenario under the Stephenson paper, that ratio would be three times (after the cuts).

Allgeier also claimed that there is a "whole lot of less than full reciprocity" in the Chair's paper, citing there being two coefficients, a mark up on unbound tariffs, Para 8 flexibilities for developing countries, and special treatment for SVEs and Paragraph 6 countries. "We have problems with the paper but we'll use it in September to negotiate," he said.

(The NAMA meeting was still in progress as the SUNS went to press. The next issue of SUNS will carry another report on it.)

 


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