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TWN Info Service on WTO and Trade Issues  (July 07/16)

28 July 2007


More developing countries attack NAMA draft text

A meeting for WTO members to give their initial reactions to the NAMA modalities draft text ended late on Wednesday (25 July) with an increasing number of developing countries attacking the draft.

In the afternoon session, India, Bolivia, Argentina, Brazil, China and Indonesia joined the criticisms that had earlier been made by major developing country groupings (the ACP and African Groups and the NAMA-11) and other individual countries. (See earlier TWN Info for a report of the earlier part of the meeting).

As the last to speak, Argentina's Ambassador Alberto Dumont concluded his statement in a dramatic way by stressing: "This range of coefficients (proposed by the Chair for developing countries) is unacceptable for my country today, tomorrow, in September, and as long as the Round lasts. This is the position of my delegation and my country and it will not change."

Earlier, the ACP Group gave an eight-point analysis of the Chair's draft text, while expressing its dissatisfaction with the paper.

Indian Ambassador, Ujal Singh Bhatia, concluded his detailed and devastating critique of the modalities paper by telling the Chair: "Your proposals have created an extremely piquant situation which has sharply polarized the negotiations. It will require all of us to exercise enormous restraint to bring the negotiations back to a semblance of balance."

Bolivia's Ambassador Angelica Navarro said that the proposals were "totally unacceptable" and could not be the basis for negotiations. 

Below is a report of the NAMA meeting.  It was published in SUNS on 27 July.

Best wishes
Martin Khor
TWN

More developing countries attack NAMA draft text

By Martin Khor, Geneva, 26 July 2007

A meeting for WTO members to give their initial reactions to the NAMA modalities draft text ended late on Wednesday (25 July) with an increasing number of developing countries attacking the draft.

In the afternoon session, India, Bolivia, Argentina, Brazil, China and Indonesia joined the criticisms that had earlier been made by major developing country groupings (the ACP and African Groups and the NAMA-11) and other individual countries. (See SUNS #6301 dated 26 July 2007 for a report of the earlier part of the meeting).

A majority of the developing countries are angry with the paper for requiring developing countries affected by the formula cut to reduce their industrial tariffs very drastically while being lenient on developed countries, and for offering too little flexibilities for these developing countries and others not affected by the formula.

The meeting had been called by Canadian Ambassador Don Stephenson, the Chair of the negotiating group on non agricultural market access (NAMA), for members to discuss his draft text on modalities for NAMA negotiations, which he issued on 17 July.

As the last to speak, Argentina's Ambassador Alberto Dumont concluded his statement in a dramatic way by stressing: "This range of coefficients (proposed by the Chair for developing countries) is unacceptable for my country today, tomorrow, in September, and as long as the Round lasts. This is the position of my delegation and my country and it will not change."

For emphasis, Ambassador Dumont, who spoke in Spanish, repeated this in English, for the benefit of those who could not understand him in the original language.

Earlier, the ACP Group gave an eight-point analysis of the Chair's draft text, while expressing its dissatisfaction with the paper.

Indian Ambassador, Ujal Singh Bhatia, concluded his detailed and devastating critique of the modalities paper by telling the Chair: "Your proposals have created an extremely piquant situation which has sharply polarized the negotiations. It will require all of us to exercise enormous restraint to bring the negotiations back to a semblance of balance."

Bolivia's Ambassador Angelica Navarro said that the proposals were "totally unacceptable" and could not be the basis for negotiations.

At the end of the meeting, Ambassador Stephenson said that he had as much fun during "this glorious day" as spending the whole day at the dentist. He perceived a unanimous "yes" to his question whether Members wanted a real negotiation.

He criticized the members, regretting that they had maintained their current positions. If they don't go out of them, there is no deal possible, he said. He added that he felt like a driver of a bus with 150 unruly passengers yelling contradictory instructions to him. He acknowledged that he had received a yellow flashing light which means that he has to proceed with caution. He also saw a couple of "yield" signs.

At the meeting, in contrast to the bulk of the developing countries, the developed countries including the United States, European Union, Japan and Canada took the position that the paper was a good starting point for negotiations, but they were unhappy that the developing countries were being asked to do too little to cut their tariffs.

A number of developing countries, which are asking for major cuts in developing countries' tariffs, also supported the Stephenson paper, which they saw as balanced. These included Chile, Mexico and Singapore. They are part of a group whose proposal had been adopted as the basis for many points in the Stephenson paper.

Argentina, a leading NAMA-11 member, and represented by Ambassador Alberto Dumont, said that the Chair's paper did not facilitate negotiations as it left out the views of many developing countries. The proposals will seriously damage the possibilities of our industrial progress, and will also work against our regional trade agreements like Mercosur and SACU in which there are some LDCs or Small and Vulnerable Economies (SVEs).

Argentina had four main problems with the paper. First, it did not respect the less than full reciprocity (LTFR) principle but in fact reverses it. If the proposals are accepted, the Doha Round will be the first that will not respect this principle.

Second, it does not respect the balance between NAMA and agriculture levels of ambition, but is opposite to the balance indicated by Ministers in para 24 of the Hong Kong Declaration. The draft inverts the meaning of this paragraph by taking the results of its NAMA proposals as fixed, while asking that agriculture adjust to it. This is wrong, as agriculture is central and NAMA should be decided on later. Developing countries would have to carry the biggest burden in the round, if they follow the Chair's proposals.

Third, the Chair's proposals on tariff cuts is imbalanced (as between developed and developing countries) and this is hidden because they are in coefficient numbers rather than in percentage cuts. The range of coefficients proposed is unacceptable today, tomorrow, in September and as long as the Round lasts.

Fourth, the flexibilities proposed (by removing paragraph 8 brackets) are insufficient and have to be increased.

Argentina said that several proposals of the NAMA-11 had been ignored. The Chair's proposals are not a compromise but are against the mandate. A valid basis for negotiations, in September, requires valid inputs. The draft fails in the objective of moving the negotiations forward.

Two developing countries rejected the draft as the basis for future negotiations.

Bolivia found the proposals of the Chair totally unacceptable and said that it was not a basis for negotiations.

Venezuela said that it was happy that the Chair explained that the text has no legal entity. His document should be taken as just another document like many others but not as a basis for negotiations, as it is biased.

In a strong and detailed statement, India, represented by Ambassador Ujal Singh Bhatia, said that many developing countries (including India) had made huge contributions to the generation of new trade flows since the Uruguay Round. In a strange reversal of roles, many countries are posing as demandeurs in this negotiation who have not brought down their tariffs by even one percentage point since the Uruguay Round.

"Their proselytizing zeal would have carried more conviction if they had taken even small steps to address high tariffs and tariff peaks which affect the trading prospects of the poorest countries. Let us be clear about this fundamental fact. Developing countries have made huge contributions in new market access since the Uruguay Round and are prepared to do more.

"On the contrary, it is those countries who have not created any new market access who are shooting from the trenches," he said.

Bhatia also ridiculed the bogey of fear of Chinese competition that has been raised to explain away the opposition of developing countries to Stephenson's NAMA text, and said: "We have heard some statements from some, who really should know better, that many developing countries are afraid to bring down their tariffs because they are scared of China. This is patently absurd as the autonomous liberalisation of developing countries has been on an MFN basis.

"The issue therefore in the negotiations, is not whether the developing countries are prepared to contribute, but the proportionality of the contributions as required by the mandate. As long as your proposals reflect this central element of the mandate, they can lead us to an outcome which respects the mandate. It is our assessment that your proposals do not pass this test by a long margin."

India then elaborated on concerns that it had on the Chair's proposals.

-- The proposals imply an entirely whimsical interpretation of LTFR by shifting the burden of the contribution disproportionately to the developing countries. On average, the proposals imply that developing countries will need to bring down their tariffs by around twice that by developed countries.

-- While the paper articulated the principle that all must contribute according to their capacity, the proposals demand a huge price from the countries least equipped to pay it - the small and vulnerable economies. On average, the SVEs will have to cut their tariffs by over 50%, higher than the developed countries.

-- Members have pinned their hopes on a genuine multilateral process inclusive of all interests but the proposals exclude the positions of a large number of countries and have effectively shut them out from the negotiations. Instead of facilitating negotiations, the proposals have put many members in the position of negotiating with the Chair, which is not a healthy process.

-- On the relationship between Agriculture and NAMA, the Agriculture text reflects negotiating realities and the broad range of the possibilities. No inferences can be drawn from the text for the present, regarding the level of ambition that can be achieved, especially in domestic support and market access.

On the other hand, the NAMA text, by excluding the positions of a large section of the membership, defines the likely ambition in NAMA much more tightly and precisely than is warranted by the present state of negotiations. This has created a huge asymmetry in the negotiations.

-- Sectoral initiatives, a modality favoured by a few Members, are included in the text as a key modality with specific time-lines. It is up to the members to collectively decide once the core modalities are finalised, about the role that sectorals can play in topping up their ambition. The proposals prejudge the importance of the sectorals for members and in assessing the balance of concessions.

-- On the other hand, there is only procedural language on non-tariff barriers, an issue of crucial importance for all. A clear direction and time-lines on the horizontal mechanism should have been given.

-- On the issue of environmental goods, the instruction to initiate negotiations prejudges the outcome of the discussions in the Committee on Environment. Only when that committee has completed its deliberations can a view be taken about the work required in the NAMA group.

-- On the erosion of non-reciprocal preferences, the solution suggested only allows two developed members more time to phase in their concessions. The draft does not help the preference-receiving countries to cope with the problem.

India concluded by telling the Chair: "Your proposals have created an extremely piquant situation which has sharply polarized the negotiations. It will require all of us to exercise enormous restraint to bring the negotiations back to a semblance of balance."

The ACP Group, represented by Ambassador Gail Mathurin of Jamaica, said that the Group considers the text as an input. First, the Group strongly feels that many of the proposals put forward by its Members have not been taken into account. Second, ACP members have considerable discomfort with elements in the text.

The ACP has been insisting that NAMA modalities must not be crafted from a purely commercial objective but should address development concerns.

Aggressive MFN liberalization and ambitious tariff cuts in NAMA, as proposed in the text, will entail severe sectoral adjustment problems arising from revenue losses and significant depletion of policy space which our countries require to promote domestic industries, said the ACP. This is why the NAMA text is inconsistent with the mandates and runs counter to developmental needs and aspirations.

Firstly, the agreed less than full reciprocity (LTFR) principle has been ignored and even reversed. Indeed, the level of tariff reductions that developing countries will have to make is significantly disproportionate when compared to the contributions by developed economies.

Secondly, the principle "that all must contribute" does not appear in the mandate. Yet, this is the principle on which rests the whole architecture of the proposals in the text. The claim that all must contribute and the way it has been applied is not acceptable.

Thirdly, there is the issue of balance. The text disregards paragraph 24 of the Hong Kong Ministerial Declaration which calls for high comparable ambition in market access in agriculture and NAMA.

"Instead, we are told that those that would seek to lower the ambition should do it elsewhere rather than in NAMA. We do not accept such an approach, and we believe that it is not in keeping with the mandate."

"We have been consistently arguing that balance should be achieved vertically within various elements of the NAMA negotiations, within each pillar and across the three pillars of Agriculture and horizontally between Agriculture and NAMA."

Fourthly, there are concerns regarding the implementation period proposed for developing countries, which are given 9 years to implement radical and painful reforms. The period should be 10 years, with a longer period for those countries facing specific circumstances.

Fifthly, the proposal that the Paragraph 6 countries bind 90% of their tariff lines is unacceptable. The Paragraph 6 countries have proposed binding up to 70% which represents a just and reasonable solution.

Sixthly, the ACP Group also has concerns about the flexibilities for developing members subject to the formula. "The situation faced or likely to be faced soon by almost all members of the ACP Group given their current or anticipated involvement in regional customs unions, deserves our fullest attention." said the Group.

"Almost all ACP members, including LDCs, SVEs, paragraph 6 countries, will have to apply the tariff reduction formula sooner or later. All this is to say that the ACP Group as a whole has high stakes on the issue of the tariff reduction formula."

Seventhly, on the issue of Non-Reciprocal Preference Erosion, "we reiterate that MFN liberalization will erode trade preferences on which many of our members depend for export competitiveness," said the Group. A delicate balance needs to be struck between those with offensive interests and those with defensive ones.

In the light of this balance, the ACP Group has been calling for a trade-based solution combined with other accompanying measures to address the issue of erosion of preferences (such as compensatory and adjustment mechanisms) taking into account the difficult economic reform process under way in many ACP States.

"To our great disappointment, however, the text only proposes an implementation period of 7 years, i. e. merely 2 additional years for the preferences granting members, which is even less than the 9 years proposed for developing countries. Such a short period is unacceptable to the ACP Group.

"On the basis of such a schedule, and in view of the very small margin that determines competitiveness in industrial tariffs, the ACP preference-receiving countries will find themselves losing their market access after the third year of implementation. We expect a reasonable transition period and back-loading of the tariff dismantlement."

Eighthly, the level of ambition targeted for small and vulnerable economies (SVEs) is too high relative to the Para-6 type of solution they have been proposing.

With regards to LDCs, the ACP Group said that improving rules of origin for LDCs is an integral part of the multilateral effort of the NAMA modalities. The LDC group recently put forward a proposal that could serve as a concrete basis for addressing this issue that has yet to be discussed satisfactorily.

Brazil, represented by Ambassador Clodoaldo Hugueney, said that the Chair's introduction fails to build the case for the numbers proposed.

Referring to the Chair's suggestion that, in assessing the proposed modalities, we should start with the end in mind, Brazil said that the place to start, however, is the mandate. The only true yardstick for assessing any endpoint is the mandate.

And if one is to look at the final numbers, one must also consider the point of departure. The EC and the US have average bound rates for their industrial goods of 3.9% and 3.3%, respectively. Bringing those averages down to something below 3% will not make much of a difference. In contrast, for developing countries applying the formula, the average bound rate would go down from over 30% to less than 12%. It is clear who would be making the greater contribution.

Brazil criticized the draft's treatment of less than full reciprocity (LTFR). It said that this Round, for the first time, mandated less than full reciprocity in reduction commitments. This mandate for LTFR in reduction commitments was meant to be imbalanced in favour of developing countries. This is a central aspect of the Doha Mandate that clearly differentiates it from the mandate for NAMA in previous rounds.

The introduction also states that developed and developing countries are so diverse that it doesn't make sense to speak of their interests in any aggregated form, said Brazil. And yet, the mandate contains several provisions in favour of developing countries; for example, the Doha Declaration says that the majority of WTO Members are developing countries and "we seek to place their needs and interests at the heart of the Work Programme."

The text shows its concern for the need for greater access to developing countries' markets, said Brazil.

The reality, however, is that South-South trade is growing today at a very fast pace. Such trends are the result of unilateral liberalization in the South and stronger regional integration. Besides that, Brazil is committed to improving trade flows in the developing world, as demonstrated by our decision to grant duty- and quota-free access for the LDCs and through GSTP negotiations.

"As regards most of the numbers in your text, including the coefficients in the formula, you opted, differently from the agricultural text, for an approach that tries to constrain developing countries to narrow ranges and high levels of ambition," said Brazil. "This approach fails to acknowledge the concerns of many Members.

"Its imbalance with the Agricultural text seems to imply that the level of ambition in NAMA could be defined prior to, and independently from, agriculture. This not only challenges the provisions of paragraph 24 of the Hong Kong Declaration, but also runs counter to the views and positions of the vast majority of the Membership, which has consistently maintained that agriculture and development are to define the level of ambition of this Round."

China also stressed the importance of LTFR. The gap between the two coefficients should be wider than the Chair's proposal. For many developing countries, a coefficient higher than the range of the Chair's text is necessary. At the same time, a coefficient between 8 and 9 for developed countries fails to deliver the ambition of the Doha Development Agenda.

According to China's simulation, the coefficient for developed countries should be lower than 8 in order to enhance market access for developing countries. If both developed and developing countries equally cut 50% of their bound tariff under the formula, the coefficient would be 5 for developed and 35 for developing countries.

China fully understands the concerns of the NAMA-11, the para 6 members, the LDCs and SVEs, "It is our belief that we should listen carefully to their specific proposals in order to find a proper solution to achieve the development objectives."

On Recently Acceded Members (RAMs), the inclusion of the grace period and longer implementation as treatment for RAMs alone could not address our concerns and there is need for more flexibilities, added China.

Namibia, represented by Mr. Benjamin Katjipuka, said that developing countries regard tariffs as a legitimate policy tool to climb the ladder of industrialization and overcome the imbalances they have vis-a-vis developed countries. The level of contribution of developing countries should be in line with their capacity.

The notion that tariff liberalization which leads to open markets is good for growth and development of developing countries without commensurate institutional capacity to absorb these radical reforms is simply an unacceptable economic orthodoxy that perpetuates our remaining at the periphery of development, said Namibia.

Namibia along with other members of the South Africa Customs Union undertook extensive commitments in the Uruguay Round. The Chair chose to appease Mexico and provide Mexico with a solution to its concern while a fundamental and valid concern raised by South Africa (on the effect of formula cut to a member of a customs union on its other members) was left unresolved. This is inequitable and unfair treatment, said Namibia.

SACU has a single customs regime and no member should anticipate that all five members (which includes LDCs and SVEs) should be subject to the same level of flexibilities as accorded to one country (i. e. South Africa). The Chair's suggestion to settle the numbers in paragraph 8 (on flexibilities) without heeding the concern of these members precludes any real negotiations on this issue.

Many other developing countries also criticized the draft. Indonesia said that the text favours "market access", which is an objective of developed countries, and there is limited room for manoeuvre for developing countries. To the Philippines, the proposed range of coefficients does not represent an equitable solution.

El Salvador, on behalf of the Small and Vulnerable Economies, said that the SVEs were being forced (by the draft's proposals) to undertake commitments that were beyond their possibilities.

Several other developing countries supported the draft. Mexico said that a balance had been found in the text which is a solid point of departure.

Chile said that it was a good starting point. According to Costa Rica, the text is a great advance and very positive since the extreme positions have been abandoned. It claimed that the numbers reflect the positions of the majority of developing Members.

Singapore said that the draft was a good foundation to construct a landing zone, adding that the ranges of the coefficients should be narrower, at 6-8 and 17-19. Pakistan said that it was a good basis to engage in serious negotiations. Developed countries need to show leadership and go down to a coefficient of 5.

Malaysia found it a balanced text, since everybody found something to object to; it said that developed countries should accept a coefficient of 8.

Many developed countries supported the draft as a basis for negotiations, although they wanted it changed to require deeper tariff cuts for developing countries.

The European Communities said that the draft takes us forward and it contains the LTFR principle. It stressed that many developing countries do not have to apply the formula. There is an imbalance between what is required for developed Members and the requirements for advanced developing Members.

The US said that the right coefficient is the key and the range proposed is too high and the gap between coefficients too wide. The ranges for developing countries are not realistic. LTFR has been generously provided in many areas in the text.

Canada wanted real market access and the level of ambition provided does not guarantee that. Norway complained that the text contained less ambition than it hoped for.

New Zealand said that the text is a starting point. A coefficient of 8 to 9 is a real difficulty for it, and 19-23 is too high.

Japan said that if the coefficients are spread too far apart, this would not enhance trade opportunities. The text is a starting point for future work and the last effort to save the Round.

 


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