TWN Info Service on WTO and Trade Issues (May08/31)
30 May 2008
Third World Network

Trade:  Developed and developing countries clash over NAMA text
Published in SUNS #6484 Thursday 29 May 2008

Geneva 28 May (Martin Khor) – The gulf in non-agricultural market access (NAMA) at the WTO between developed countries and some key developing countries remains wide and there are few signs that there can be convergence of views in the next few weeks, going by the reactions of countries to the 19 May draft modalities issued by the Chair of the NAMA negotiating group, Canadian Ambassador Don Stephenson.

The reactions to his paper were presented at an all-day informal NAMA open-ended meeting at the WTO on 27 May.  Stephenson himself said at the start of the meeting that “all issues remain unresolved”.   An agreement is doable if members are interested in it. For that, they have to remove brackets and take things in or out of the text.

By the end of the meeting, he was a disappointed man.  The criticisms of his draft from so many members, from both developing and developed countries, led him to say that he did not think there would be a consensus but he was expecting a different tone, so close as we are to a possible ministerial process.

He told the members that if they continue to follow this kind of direction the rest of the week (when small group meetings are being held), they will achieve nothing, and he himself is ready to conclude the meetings if he understands that members want to resolve matters at the ministerial process, not now. He said he would only make changes to his text, if there is to be any new text, if there is real convergence.

While Stephenson was clearly trying to throw the blame on to the members for the impasse, several of the developing-country diplomats were privately, in the corridors, blaming him for what they see as his biased manner of excluding the positions of key developing countries in the text, while taking on board a range of coefficients for developed and developing countries that did not meet the Doha mandate of less than full reciprocity (LTFR).

Speaking privately, these diplomats believe the NAMA negotiations are in a mess, and that the new text may have some positive points for some countries when compared to the previous draft, but it does not resolve the core problems and it also adds new complications.

The US and EU were critical of the new text for giving more flexibilities to developing countries, which they could not accept, while many developing countries voiced dissatisfaction that the text retained the North-South imbalances within NAMA itself, while also maintaining imbalances between what developed countries are to commit in agriculture and what developing countries are called upon to do in NAMA.     

The NAMA-11 group (Argentina, Brazil, Egypt, India, Indonesia, Namibia, Philippines, South Africa, Tunisia and Venezuela) said the text was an advance in recognizing that "one size cannot fit all".  But it criticized the text for maintaining the narrow spread of the coefficients between developed and developing members. They wanted developed countries to have a coefficient of 5 (instead of the 7 to 9 range in the text) (See later part of article for details).

Brazil said its participation was guided by some parameters, especially how the outcome affects its industry.  The outcome must adhere to the SDT and LTFR principles, as above all this is a development Round and the mandate cannot be ignored.

Brazil said it would not accept an unbalanced deal and it cannot be expected that in this game only one team scores goals. In a development round, a small victory for developing countries is expected, not a tied game. The increased flexibilities requested by Brazil are "absolutely needed" in the same way as flexibilities are expected and demanded (by developed countries) in agriculture.

Argentina said the revised text is not a basis for the final stage of the negotiations. There is still not a balance necessary for the ministers to sit and make decisions.

The approach is contrary to what it should be. For example, it is not in line with the mandates on LTFR and paragraph 24 of the Hong Kong Declaration.

Argentina added that the coefficients on the table are asking for more cuts for the developing countries than the developed countries. Applying the coefficients would lead to tariff cuts in Argentina of 53-58% while cuts for the developed countries would be between 43% and 49%.

Argentina said there is not the same comparable level of ambition between agriculture and NAMA.  The negotiations are still going against the developing countries in NAMA.

It said that countries like Korea, Japan, the EU, the US and Canada, are refraining to liberalize in agriculture, yet they are asking for heaven in NAMA. The agriculture negotiators of those countries should talk to their NAMA negotiators because the two are inconsistent. 

The so-called “middle ground countries” like Singapore, Turkey and Mexico thought that the new flexibilities can address the concerns of all developing countries, but they opposed the carve outs and special treatment for some countries in the revised text.

Mexico said that some countries had cited macroeconomic problems as a reason for more flexibilities, but said these cannot be resolved with trade measures. Turkey said that the extended flexibilities will not provide for real market access.

Hong Kong wanted the special provisions for special cases to be justified. Switzerland and Norway said that the level of ambition had decreased.

According to the United States, to achieve real market access is in the mandate. The US is asked to cut all its tariff lines, and it would not do this for nothing. Without a successful NAMA outcome there won't be any Doha outcome and hence no reduction in agricultural subsidies, no liberalization in services, no advances in trade facilitation and no development in a development round. All will be losers.

The US said if we can salvage the Round, there must be a NAMA deal with a better coefficients range than in this paper. It was not in favour of special dispensation for some countries.  There must be new market access in advanced developing countries, and it is also essential that some developing countries take part in sectorals.

Indirectly referring to China, the US said that those who have benefited extensively from the system are expected to contribute substantially in the form of a full application of the formula. That's the least they owe the system.

The European Commission said that there is an increased imbalance in the text because of the expanding ranges in the coefficients. So much flexibility (for developing countries)  will mean no new market access and more peaks and more tariff escalation, and South-South trade will be the victim. The EC said there are a lot of flexibilities for developing countries in the text and repeated its position that some unjustifiable generous treatment for some Recently Acceded Members is unacceptable to the EC.

China welcomed the proposal for a reduced coefficient for developed countries but thought this coefficient should go even lower, as close to five as possible, for real market access in developed countries. 

India said what is crucial is the fulfilment of the-mandate of development. It reminded members of the core principles of the NAMA negotiations. First is a verifiable achievement of 'less than full reciprocity in reduction commitments'; the numbers in the paper do not lead us in the right direction.   

Second, the negotiations are about undertaking binding commitments on tariffs. For all of us, the base is our existing bound rates; contributions of members will be measured and evaluated on the basis of the reduction thereto.

Third, flexibilities for developing countries are to address their developmental concerns and needs.   There is no linkage between the flexibility provisions and coefficients. The mandate cannot be reinterpreted to suit the convenience of some; doing so runs the risk of reopening other tracts of the mandate for renegotiation.

Fourth, comparability between the outcomes of the NAMA and agriculture negotiations is a yardstick agreed to by Ministers. Levels of ambition have to be comparable for reaching closure on modalities.

On the paper, India remained concerned about the numbers which remain too far from meeting the basic requirement of the mandate, namely LTFR. India was disappointed that the revised paper continued to totally overlook the NAMA 11 position on the spread between the coefficients for developed and developing countries.

On flexibilities, India also had concerns. First, there is no basis for the linkage with coefficients. Second, some proposals which have hardly been discussed are included. Third, some proposals are non-starters. For instance, the proposal to link flexibilities with participation with sectorals is practically impossible to implement, and moreover there is no justification to link a mandated component to one that is voluntary, i.e. non-mandatory.

India said that for the SVEs the proposal is perplexing as the target average range proposed   is   clearly unachievable if the cut on the reduction commitments, as proposed by the proponents and supported by us, is to beaccepted.  A more realistic range should have been offered.

Similarly, for the Para 6 countries, while on one hand the banded approach is seemingly accepted, on the other hand the range offered for all the Para 6 countries includes the same target average and binding coverage, and this negates the banded approach.

On NTBs, there is the proposal for horizontally applicable expedited procedures for resolving NTBs, which is co-sponsored by a majority of WTO Members and on which significant engagement has already taken place. This proposal has to be considered separately for a negotiated result in this Round.

There are also the export related proposals for which we have no mandate, and it is time that these proposals are dropped, added India.

The NAMA 11, represented by South Africa, made a lengthy statement.  It welcomed the text as an advance but said it requires revision. The most positive improvement relates to the new architecture which responds to the various proposals of developing countries and that address their different development needs. But it needs to go further.

NAMA 11 said the level of ambition set for developing countries subject to the formula remains too onerous, and the spread of the coefficients still fails to meet the requirement of the LTFR mandate. The Chair had chosen yet again to maintain a narrow range of coefficients for developing countries that predetermines the level of ambition in NAMA and ignores the stated positions of the NAMA 11 on the issue of the range.

NAMA 11 said the formula chosen for tariff reduction in NAMA – the Swiss Formula, with a line by line cut – is the most drastic tariff cutting instrument ever used in all previous GATT rounds. It will bring down higher tariffs to well below any coefficient, harmonizing tariffs and removing the policy space for developing countries to promote their industrial development, in just one round. The past 8 Rounds failed to achieve this for developed countries.

The impact of the Swiss formula threatens to be considerably greater for developing countries than developed countries, as the percentage point reduction for developing countries will be much deeper, both in bound and applied rates, increasing the disproportionate burden of adjustment on developing countries. Manufacturing trade retains the largest share of world trade and developed countries are still the major exporters and thus stand to make significant gains in developing country markets.

The NAMA 11 has stated before that the legal basis of the tariff cutting formula is the bound rates. Thus the attempts by developed countries to focus on the cuts in applied rates of developing countries – by calling for real market access – runs against the mandate and is unfair. It fails to recognize and give credit for the massive unilateral liberalization undertaken by developing countries since the Uruguay Round. This effort by developing countries must be credited in this round and not pocketed with demands for more real market access.

Said the statement:  “It is for these reasons that the NAMA 11 insists that the spread of the coefficients between developed and developing countries be widened. The current spread is still too narrow. The burden of adjustment – that is, the loss of jobs and production – will thus be borne mainly by the developing countries.

“In a development round, developing countries are being asked to bear a greater burden of adjustment than developed countries. This cannot be acceptable. The NAMA 11 reiterates its call for a wider spread between the coefficients of the developed and developing countries to fulfill the requirement of the mandate for less than full reciprocity in reduction commitments between developed and developing countries.

“We also recall that the majority of members that are to undertake formula cuts called for a coefficient of 5 for developed countries. This proposal is not reflected in your text. A few developed countries have resisted this as they are unwilling to make greater efforts. While their concerns have been heeded in the chairs text, the concerns of the NAMA 11, for a higher coefficient, and wider spread between the coefficients of developed and developing countries have gone unheeded. This is not fair.”

The NAMA 11 added that the text, in again narrowing the range of the coefficients for developing countries has sought to define the level of ambition in NAMA, reducing the space for negotiating the ambition in NAMA in a manner that would ensure comparability with the level of ambition in Agriculture, during the horizontal process.

The NAMA text will need to retain sufficient space in the coefficients for a real negotiation on the level of ambition in NAMA that is comparable with Agriculture.

Referring to Paragraph 24 of the Hong Kong Declaration requiring a comparable level of ambition between Agriculture and NAMA, the NAMA 11 said the level of ambition in the current agriculture text is still uncertain.

The NAMA 11 said it had argued that the flexibilities are a stand alone element of the modalities and cannot be traded off against the coefficients nor made conditional.

In subsequent proposals NAMA 11 members have argued for additional flexibilities to that already provided for in Paragraph 8 of the July Framework Agreement. NAMA 11 members have vastly different tariff structures, development situations and needs for flexibilities that they have set out in various proposals.

These include: low applied rates and low unbound tariffs, as a result of very significant unilateral liberalization; concentration of trade in a few tariff lines; similar bound and applied rates in their most sensitive sectors, resulting in little water and deeper tariff cuts in these sectors; Customs Unions that will need to share the flexibilities provided in paragraph 8 among members at different levels of development, including SVEs and an LDC; low UR bindings as a result of being classified as a developed country in the UR; and low share of world trade and volatile commodity markets.

“It is for these reasons that the NAMA 11 proposed that the flexibilities provided in paragraph 8, be extended to accommodate the development needs of the NAMA 11 countries,” said the statement.

“We recognize that this second revised text of the chair has provided an architecture for the modalities that could accommodate the different needs of developing countries in the NAMA 11.

“The options provided in 7a, 7b and 7c and the specific flexibilities provided in 7d, 7e, 7g, and 7h do create more space for developing countries to accommodate their particular situations. However, these flexibilities fall short of responding to the proposals of developing countries for additional flexibilities. In addition, this architecture is constrained by the new demands in the text that could negate these flexibilities. Consequently, we still believe that flexibilities should be extended to accommodate the development needs of the NAMA 11 countries.

“These flexibilities are also still unduly constrained by the limited number of additional tariff lines provided and the trade volume. The NAMA 11 has called for the trade volume constraint, that is an anomaly in NAMA as it does not exist in Agriculture, to be removed or substantially relaxed. The second revised text has not adequately addressed this.

“In addition, the additional flexibilities provided to address the particular situations of some members are still in brackets and yet to be clarified. Developing countries will need their different tariff structures, and development needs to be accommodated in the flexibilities provided in the architecture of the modalities to enable them to negotiate an appropriate level of ambition in the co-efficient.”

The NAMA-11 re-stated the fundamental principles on which the outcome of the NAMA negotiations should be based on:

-- the legal basis of the negotiations are from bound rates;

-- the range of coefficients for developing countries must take into account the views of the developing country members that will make the bulk of the contribution in NAMA, due to the size of their markets, the diversification of their imports and their tariff structures (members of the NAMA 11 group of developing countries);

-- the spread between the coefficients for developing and developed countries must effectively reflect the principle of Less Than Full Reciprocity, provided for in the Doha mandate;

-- the numbers for flexibilities contained in the July Framework Agreement are the barest minimum required by developing countries applying the formula;

-- the flexibilities provided in paragraph 8a and 8b of the July Framework Agreement of 10 and 5 percent are a stand alone and cannot be traded off with the coefficients or made conditional;

--  there must be comparability between the levels of ambition in Agriculture and NAMA, as mandated by paragraph 24 of the Hong Kong Declaration.