TWN Info Service on WTO and Trade Issues (Apr08/08)
23 April 2008
Third World Network

Trade: North-South gaps still evident at final NAMA meeting
Published in SUNS #6457 dated 17 April 2008 

Geneva, 15 Apr (Martin Khor) -- Gaps in positions among WTO members, mainly along North-South lines, were still evident at the final meeting of the NAMA (non-agricultural market access) negotiating group before the issuing of the next modalities text.

There was some discussion on the key issue dividing the NAMA group - the coefficients in the tariff-reducing formula for developed and developing countries. Many developing countries asked for a lower coefficient for developed countries (implying deeper cuts), but this was rejected outright by the EU and the US.

Proposals that two groups of developing countries - Recently Acceded Members (RAMs) and members of the Mercosur regional grouping - be given more flexibilities in implementing tariff reductions were opposed by major developed countries.

The informal open-ended NAMA meeting was convened on 14 April by the Chair of the NAMA negotiating group Ambassador Don Stephenson of Canada as the final session with members before he issues a revised draft of NAMA modalities, expected at the end of this month.

One highlight of the meeting was the clash between China, which was reiterating its stand that RAMs like itself should be given a grace period and a lower rate of tariff reduction, and the European Union and the US, which flatly said the Chinese proposal was "unacceptable". In a rebuttal, China accused the EU of using "hard line rhetoric" instead of engaging.

Mercosur countries - Brazil, Argentina, Paraguay and Uruguay - presented a brief paper that as members of a regional agreement they should have greater flexibilities on the question of limitation by trade value of the number of tariff lines that can enjoy flexibility (either exemption from or lower cuts than the normal formula cuts). This proposal was also opposed by many developed countries.

At the start of the meeting, Stephenson briefed the group on his consultations and "confessionals" with members and groupings, according to a trade official.

On the issue of the tariff-reduction Formula and Flexibilities for developing countries, he said there is now a consensus to re-establish the structure of his text, and in particular to re-instate the numbers in paragraph 7 (of this 8 February modalities draft).

Previously, this paragraph had given (in square brackets, denoting lack of agreement) the percentages of tariff lines than can be partially (10%) or totally (5%) excluded from the formula's tariff cuts. Stephenson in his February draft had removed the figures from the square brackets.

Stephenson also briefed the meeting on responses to his more recent "options" paper on flexibilities for developing countries (in which he had provided 8 types of options). According to him, the option with the widest support was option 2 (ii). This involves a "sliding scale", with a trade-off between the coefficient and the flexibilities: the more ambitious the coefficient, the higher the level of flexibilities. He described this as "a surrender of flexibilities in return for a higher coefficient", according to an official.

[In the Chair's 27 February options paper, option 2 (ii) - a variant of the sliding scale approach - has a table with three columns on coefficient, percentage of tariff lines under para 7(a) (I) and percentage of tariff lines under para 7(a)(ii). The table also has three rows, containing coefficients (for developing countries) of 19, 21 and 24.

[For the middle 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 24, the flexibilities are 0% and 0%.

[It should be noted that in this variant, the Chair is setting coefficient 21 as the level that corresponds to the figures of 10% and 5%. This implies that the Chair is settling on 21 as the main coefficient for developing countries, with the two deviations on either side.]

On the controversial set of ranges of coefficients chosen by the Chair for the formula (8-9 for developed Members, and 19-23 for developing), Stephenson told the meeting that the majority (of members) support the numbers but many developing Members asked that developed countries accept a coefficient lower (than the 8-9 range).

This claim by the Chair that his coefficients enjoy majority support has been challenged many times, especially by the NAMA-11 group of developing countries. The NAMA-11 has said that the Chair's coefficients allows developed countries to undertake tariff cuts that are lower, in percentage terms, than developing countries, thus reversing the "less than full reciprocity for developing countries" principle mandated by the 2001 Doha Declaration.

It is widely expected that Stephenson will retain the coefficient numbers, within brackets, in his next draft, and that there will be some intense bargaining over these numbers before and at the horizontal process, when and if it takes place.

Stephenson told the meeting that so far in this negotiation, the members have only engaged in positioning, not a real negotiation. However, he noticed that people are now getting ready for a real negotiation.

The Chair's introductory comment that several developing countries had called for a lower coefficient for developed countries led to firm rejections from major developed countries, according to a trade official. The EC said there was no question that it would accept a lower coefficient. The US also rejected the demands. But Norway said it was ready to accept a coefficient lower than 8.

Several developing countries (including China, India, Singapore, Hong Kong) spoke up to reaffirm that they wanted a lower coefficient for developed countries. India said it had heard Norway's agreement to a lower coefficient, and added that there was a clear demand to lower the developed countries' coefficient, which would put more balance in the overall contribution of members. India said that with a coefficient of 21 it would have to cut 90% of its applied rates.

Venezuela said it was reluctant to support the Chair's 2 (ii) option and therefore it is premature for the Chair to claim that there is a consensus on this.

Argentina said the main difficulty with the NAMA talks is that the coefficients were not in line with the mandate. It is up to the Ministers, when they meet, to deal with the coefficients as it is hard to have agreement because of the range of numbers.

Argentina also noted that there was a lot of opposition from developed countries to the flexibilities proposals of developing countries. It invited these developed countries to go to the agriculture negotiations. The same developed countries that demand more flexibilities for themselves in agriculture are denouncing the requests by developing countries for NAMA flexibilities.

During the meeting, several new papers were presented. China's paper (JOB 08/22 dated 27 March) said that the treatment for RAMs in the formula, in the Chair's 8 February modalities paper, is "insufficient to address our specific concerns."

It proposed changes to sub-paragraph 19(a) to the effect that a grace period of 3-5 years shall apply to those tariff lines that are still in the process of implementation of the accession commitment as of 1 January 2003 and the grace period shall begin at the date of entry into force of the DDA results. [The Chair's paper mentions 2-3 years grace period].

It also proposed a new sub-para 19 ( c), that RAMs applying the formula shall have other flexibilities including expanded para 7 (a) flexibilities and a formula coefficient higher than the developing country coefficient. The specific levels of these shall be determined when the numbers of the coefficients and flexibilities are agreed.

Speaking at the meeting, China said the flexibilities for RAMs in the Chair's paper was not sufficient and did not address its concerns. If the Chair's proposed modalities are accepted, 62% of China's tariff lines would be affected (by the formula cut).

The EC and the US spoke strongly against the proposal. The EC said that it was "completely, absolutely unacceptable". The proposed grace period was too long. The EC had very reluctantly accepted what is now in the Chair's proposal, and it won't accept China's proposal. The trade deficit with China increases by the hour. China has had a lot of time to digest its accession commitments.

The US supported the EC, saying what is in the Chair's text is barely acceptable. The China proposal was unacceptable and incompatible with what is expected from one of the biggest beneficiaries of the Doha Round.

China criticized the EC's strong words as being "hard-line rhetoric". If we want movement in these negotiations, it is necessary to engage and not to have such a negative attitude, said China.

Other countries against giving China more flexibilities were Japan, Mexico, Switzerland, Turkey and Korea. Chinese Taipei indirectly supported China's proposal by saying that RAMs should be given more lenient treatment because of the extensive commitments they already made, and their bound rates are close to the applied rates. Venezuela supported China.

Another controversial issue is the attempt by developed countries to link the flexibilities for developing countries to their participation in sectoral liberalization (i. e. the elimination of tariffs within a sector). This linkage is the subject of one of the options in the Chair's options paper, and it was earlier criticised by developing countries, notably India, as they consider participation in sectoral negotiations to be purely voluntary.

At the meeting, 6 developed countries (US, Japan, Canada, Iceland, Norway, and Switzerland) presented a room document entitled "Formula Plus Sectors." They proposed a modality in which developing countries receive a credit in the form of a higher coefficient for "significant and positive sectoral participation." Developing countries seeking credit for their participation in sectoral initiatives should make a preliminary commitment about their interest in joining such specific initiatives.

The US said it considers this proposal "a deal maker." Several developed countries and a few developing countries spoke in support. However, India spoke in very strong terms against the proposal, stressing that there should not be such a link between flexibilities and sectorals.

The paper by Mercosur members (Brazil, Argentina, Paraguay and Uruguay) asked for a new formula to be established in calculating the limitation to the volume of trade allowed for developing countries making use of flexibilities in paragraph 7 of the Chair's text.

It proposed that for members taking the flexibility of 50% deviation (from the formula cut), the volume of trade percentage is higher than the percentage of number of tariff lines eligible for flexibilities.

It also proposed that in calculating the value of trade limitation, a member may choose between (a) the 1999-2001 reference period specified in para 6(e) of the Chair's draft, or (b) the most recent three year period for which data is available. Mercosur members said part of the data is almost a decade old and may no longer reflect current trade patterns for several members.

It also proposed that as the customs union will submit a single flexibilities list, Mercosur would then (in order not to be disproportionately affected) calculate its percentage for the value of trade limitation by the following formula: sum of total Mercosur NAMA imports under flexibilities divided by sum of total Mercosur NAMA imports.

The paper also proposed that intra-Customs Union trade values are to be excluded (in the calculation of trade limitation).

According to a trade official, several countries spoke against the proposal, some of them (US, Japan, Mexico, Korea, Switzerland, etc) citing "systemic" concerns. Many said that no special treatment should be given to customs unions or regional arrangements.

Another paper presented was a proposal by the small, vulnerable economies (SVEs) dated 11 April to amend the Chair's 8 February draft's treatment of SVEs regarding the rates of tariff cuts in the tariff reduction tiered formula to be applied by SVEs.

The SVE paper proposes treatment in the following three tiers:

(i) SVEs with a bound NAMA tariff average at or above 50% shall bind all their NAMA tariff lines at an average level not exceeding 32% (instead of the Chair's 22%).

(ii) SVEs with average tariff of 30% up to 50% shall bind all tariffs at an overall average not exceeding 28% (instead of the Chair's 18%).

(iii) SVEs with average tariff below 30% shall bind their tariffs at an overall average of [14-20] per cent and shall apply a minimum line by line reduction of [5-10] per cent on [90-95] per cent of all NAMA tariffs.

The SVE paper also proposes that countries that fall under (I) shall not undertake reduction commitments above 40% and those that fall under (ii) shall not undertake commitments above 30%.

Other papers that were presented at the meeting include:

-- Two papers by the ACP Group (proposals to amend para 28 of the Chair's 8 February paper; and to add another 7 tariff lines inn the EC market and 8 in the US market, to the ACP's proposed list of preference-related products).

-- Proposal on tariff liberalization in the forest products sector (by Canada, Hong Kong, New Zealand, Singapore, Switzerland, Thailand, US).

-- Proposal on liberalization in trade in fish and fish products (by Canada, Hong Kong, Iceland, New Zealand, Norway, Oman, Singapore, Thailand, Uruguay).

-- Proposal on trade liberalization in the industrial machinery sector (by Canada, Japan, Norway, Taiwan, Singapore, Switzerland, US).

-- Paper on enhanced transparency on export licensing (US, Japan).

-- Negotiating text on liberalizing trade in re-manufactured goods (US, Japan, Switzerland).

-- Negotiating text on non tariff barriers pertaining to electrical safety and electromagnetic compatibility of electronic goods (US).

At the end of the meeting, the Chair said that on the process he would be guided by the Trade Negotiations Committee. He said that the NAMA negotiations desperately need a Senior Official level discussion before there is a meeting of Ministers.

He regretted that on the issue of numbers the discussion at this meeting did not help. "We are where we were, and that's a real concern". He concluded by saying: "If you want an outcome, it is between reach. If you don't want it, there is not much I can do for you".

The Chair has indicated that there will not be further consultations or meetings until the issuing of the new text, expected at the end of the month. He also indicated that he will give an opportunity and time for reaction to his paper in the NAMA group before the "horizontal process" begins. +