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TWN Info Service on WTO and Trade Issues (Mar08/01)
5 March 2008
Third World Network

Trade:  NAMA Chair’s 8 new ideas on formula and flexibilities

Published in SUNS #6428 dated 5 March 2008

Geneva 4 Mar (Martin Khor) – The move by the chair of the WTO negotiations on non-agricultural market access (NAMA) to introduce a new set of eight “possible ideas” on the tariff-reduction formula and flexibilities for developing countries to deviate from the formula cuts has puzzled many delegations at the WTO.

On one hand, the NAMA negotiating group chair, Ambassador Don Stephenson of Canada, has been stressing that time is running out for the negotiations and that the group’s process is coming to an end.  He clearly has in mind the call at the Davos meeting by some Ministers to hold a Ministerial around Easter, and the corridor talk that a “horizontal process” involving senior officials would start on 17 March.

On the other hand, the NAMA text that he issued on 8 February does not seem to have narrowed differences among WTO members, and in the past two weeks the small-group talks on NAMA have also failed to make progress.

The most contentious issues revolve around the formula (and the coefficients to be applied to developed and developing countries) and the flexibilities (the percentage of tariff lines that are allowed to deviate from the full extent of the formula cuts or to be exempt from these).  (See Note at end of article on the relevant paragraph 7 of his text on flexibilities).

It is in this area of formula and flexibilities that Stephenson has chosen to produce the 8 ideas, which he has put in a paper dated 28 February.

At a NAMA open-ended meeting (to which all delegations are invited) on 3 March, the Venezuelan Ambassador pointed out that there seemed to be a contradiction in what Stephenson was saying and doing – on one hand stressing that the NAMA group’s process was coming to an end, and on the other hand introducing new ideas which require time to consider.

Countries such as China have already indicated that they want simulations to be undertaken on the implications for them of each of the options.  It will take weeks for such studies to be done, and presumably more weeks for a proper discussion to take place.

But where will these discussions take place, if the work of the NAMA group is to be superseded by a Green Room process (also known as a horizontal process) that is scheduled to be chaired by the WTO Director-General Pascal Lamy (in his capacity as chair of the Trade Negotiations Committee).

An examination of the new Stephenson paper (entitled “List of possible ideas on formula/flexibilities referred to by the Chairman at the Room E session held on Wednesday, 27 February 2008”) shows that some of the ideas are closely related to one another, but others are very different and at opposite ends.

Delegates and analysts have many questions on the paper.  For example, are the members expected to make a decision to choose one of them, and discard the other seven?  Or is this a full menu to be put on the table, from which a developing country can decide to pick any one or two and implement?

Will another series of NAMA Group meetings be held to discuss this paper (and if so, when?), or is it going to be tabled at the “horizontal process” meeting for senior officials to look at?   

 

Diplomats and trade officials who were asked these rather obvious questions by journalists appeared to be in the dark about the answers.

The “new ideas” seem to come in 5 categories:

·        Those that introduce more options within an existing flexibility (Proposal 1, 4, 5).

·        Those that link the extent of use of flexibility with having additional or lesser points in the coefficient (Proposals 2, 6).

·        Those that allow a country to choose a combination of existing flexibilities (Proposal 3).

·        A proposal that puts additional cuts on top of the formula cuts (Proposal 7)

·        A proposal that does away with the Swiss formula and replaces it with a Uruguay Round-like approach (Proposal 8).

Of the 8 proposals, the most “radical” could be said to be Proposal 8.  Entitled “Uruguay Round-like Agricultural Modality”, it merely says that “This approach combines an average cut with a tariff ceiling and a minimum line-by-line cut.”

The clear implication is that the controversial Swiss formula and its coefficients be set aside, and in its place is something like the Uruguay Round approach.  For industrial products, the Uruguay Round’s modalities is that developed countries had to cut their tariffs by an average of 40% and developing countries by 30%, and countries were free to choose by how much each tariff line would be reduced, as long as the average cut is adhered to.

For agriculture products, the Uruguay Round modalities were that developed countries had to cut their tariffs on average by 36% (with a minimum cut of 15% on each line) and developing countries by an average of 24% (with a minimum cut of 10% on each line).  Within these parameters, countries were free to choose by how much each tariff line would be cut.

Stephenson at this late stage seems to be suggesting that if the Swiss formula and all its complexities is such a stumbling block, then a return to the simplicity of the Uruguay Round approach can be considered.

The developed countries are likely to be outraged by this “idea”, since they had fought hard for what they must consider perhaps their greatest victory of the Doha Round, i.e. that developing countries would be subjected to this Swiss formula, in which higher tariffs would have to be cut by a higher percentage.

Proposal 1 is what Stephenson calls “flexibilities within flexibilities.”  He says that “the idea under this approach is to calibrate the lines sheltered from full formula cuts with the percentage of formula cuts.  So, the working principle is as follows: the more number of tariff lines are sheltered from full formula cuts, the higher is the percentage of the formula cut on those lines.”

For example, if only 5% of tariff lines and trade volumes are selected for this flexibility, then there would be no tariff cut.  If 10% of tariff lines and trade volumes are selected, then the tariff lines would be subjected to 50% of the normal formula cuts;  and if 12.5% of tariff lines are selected, they would have 75% of the formula cut.  A second variant provides for more permutations of the same idea described above.

In his Proposal 2, termed “Sliding Scale”, there is a trade-off not within the flexibilities themselves as in the previous approach, but between the coefficient and the flexibilities.  The aim is “to calibrate the levels of coefficient and flexibilities in a manner that yields the same level of ambition whatever the scenario.” 

The working principle of this approach is “the more ambitious the coefficient, the higher the level of flexibilities; the less ambitious the coefficient, the lower the level of flexibilities.”  

For example, for a coefficient of 21, the corresponding flexibilities under paragraph 7(a) (i) and (ii) are 10% and 5%, respectively.  For a coefficient of 19, the flexibilities are 14% and 7%.  For a coefficient of 25, the flexibilities are 2% and 1%.

“In terms of presenting this option to Ministers, one idea is to have either the coefficients or the flexibilities expressed in a range,” says the paper. “So, for example, for each coefficient, a corresponding range of flexibilities would be proposed for final negotiation.  It could also be done the other way, with the different levels of flexibilities set out, and a corresponding range of coefficients proposed for final negotiation.” 

Under his Option 3, called “Combining Flexibilities”, there is a “linear trade-off” between the flexibilities in para 7(a)(i) and (ii).   For example, in one sub-option, the country can choose to have 5% of tariff lines under para 7(a)(i) and 2.5% of tariff lines covered under para 7(a)(ii). It could have no tariff lines under (i) and 5% of tariff lines under (ii).  It could have 10% of tariff lines under (i) and no tariffs under (ii).

In Option 4, called “Reducing the impact of the trade volume cap”, the Chair proposes that “In those cases where the trade volume prevents a Member from using the full benefit of paragraph 7(a)(i) or (ii) flexibilities, this approach envisages that the Member would have access to a  limited number of additional lines which would then be cut by 75%.”

In Option 5, called “Additional Flexibilities”, developing members would have a higher number of tariff lines under the flexibilities, for example 12%.  On these 12%, they can choose between the following listed options provided that no more than 5% of lines are covered by any one of the options.  The options are: (a) no cut; (b) 50% of formula cut; and (c) 75% of formula cut.

For example: 5% of tariff lines at no cut; 5% of tariff lines at 50% of the formula cut; and  2% of tariff lines at 75% of the formula cut      

In Option 6, “Formula Plus Sectorals” the Chair proposes that “this approach would envisage the use of the formula plus sectoral(s).  It would work in the following manner, a developing Member's participation in a sectoral(s) would allow it to have higher coefficient as a form of credit.”

In Option 7, called “Formula plus average percentage cut”, the Chair explains it as follows:  “The Swiss formula with the current flexibilities would apply to the tariff schedule, followed by an additional average percentage cut. 

“As an example, assuming that a coefficient of 30 is applied on a line-by-line basis to a tariff schedule, with the result that the average tariff in that schedule is reduced from 30% to 15%.  If the agreed average percentage cut is 20%, then the average would come down by a further 3% (i.e. 20% of 15%).  The resulting tariff average of that Member's schedule following application of this modality would be 12%.”

And the final option 8, on the Uruguay Round-like agriculture modality, has been explained above.

NOTE:   The relevant Para 7 (on flexibilities) of the Chair’s 8 February modalities text states as follows:

(a) Developing members subject to the formula shall be given the following flexibility:

(i) applying less than the formula cuts for up to [ ] percent of non-agricultural national tariff lines provided that the cuts are no less than half the formula cuts and these tariff lines do not exceed [ ] percent of the total value of a Members's non-agricultural imports, or

(ii) keeping, as an exception, tariff lines unbound, or not applying formula cuts for up to [ ] percent of non-agricultural national tariff lines provided they do not exceed [ ] percent of the total value of a Member's non-agricultural imports.

(b) [Developing Members subject to the formula who do not use the flexibility in paragraph 7 (a) above shall apply a coefficient of (b+[3-5] in the formula].

In his previous July 2007 draft, the Chair had placed the figure 10 between the two sets of brackets in para 7 (a) (i) above, and the figure 5 between the two sets of brackets in para 7 (a) (ii). These were the same figures, also between brackets, in the July 2004 framework agreement on NAMA.

 


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