TWN Info Service on Trade and WTO Issues (July08/09)
10 July 2008
Third World Network

Trade: Divisive issues throw shadow over NAMA state of play
Published in SUNS #6513 dated 9 July 2008

Geneva, 8 July (Martin Khor) -- The negotiations on non-agricultural market access have been hampered by sharp disagreements between developed and developing countries on the eve of the issuing of a new Chair's text on modalities and in the preparation of a WTO mini-Ministerial meeting in a fortnight's time.

Among the acute differences is the nature and degree of flexibilities that developing countries can have when applying tariff cuts according to a "Swiss formula". The differences, which have characterized informal small-group discussions in the last few weeks, surfaced at an open-ended NAMA meeting (to which all countries were invited) held on Tuesday (8 July) at the WTO.

The developed countries, led by the United States, European Union, Japan and Canada, are insisting that when developing countries affected by the formula choose the tariff lines that they can shield from full formula cuts (allowed by the flexibilities), they must not exclude from the full formula cuts a whole sector or a portion of the tariff lines in the sector beyond a certain percentage.

This so-called "anti-concentration" condition is insisted on so that significant parts of sectors such as motor vehicles and garments will not be shielded from the full force of the formula cuts.

Developing countries, including India, China, Malaysia, Brazil and South Africa are against the anti-concentration proposal because it would substantially take away from the policy space they have in the flexibilities which they consider to be already very limited.

Another major issue is the linkage that developed countries seek between the participation of developing countries in "sectoral initiatives" (in which countries agree to reduce their tariffs to zero or near zero in selected sectors) and the extra flexibilities (from full formula cuts) that those countries that choose to take part can have.

This sectoral-flexibilities linkage is opposed by many developing countries because their participation in the sectoral initiatives is mandated to be voluntary. By linking "rewards" in the form of extra flexibilities to sectorals, those developing countries that do not want to take part in the sectorals are being punished, and this goes against the principle of voluntary participation, according to the opposing countries.

The anti-concentration and sectoral proposals had been given a boost through their prominent inclusion in the 18 May draft modalities text of the Chair of the NAMA negotiations, Ambassador Don Stephenson of Canada.

In NAMA talks in a group of 12 convened by the United States in June, and in subsequent small-group meetings held by Stephenson, these two issues have been among the most contentious, with hardly any progress made.

They were also at the core of the evident divisions at Tuesday's NAMA meeting. Delegates from several developing countries are indignant that the US and EU are now insisting that unless they get their way on these two issues, they will not confirm their agreement on other issues on which significant progress had already been made.

The tussle is also focused on how Stephenson will treat these two issues in his revised draft, which he announced would be ready in two days (i. e. Thursday). Diplomats expect that he will be in sympathy with the developed countries' positions, and will mainly keep to his present text, with possibly some minor changes.

At the start of the Tuesday meeting, Stephenson indicated that unless there was "convergence" on an issue in the meeting, he would keep to his May text on that issue.

The demands made by the developed countries carry a "huge systemic risk" that may threaten the prospects of the mini-Ministerial, said South Africa's WTO Ambassador, Faizel Ismail, whose country also coordinates the NAMA-11 group of developing countries.

Speaking outside the meeting room where the NAMA meeting was taking place on Tuesday morning, Faizel said that the demands of the US and EU were outside the mandate of the negotiations. The proposals are said by these developed countries to be needed to cater to their business constituencies, but they "totally ignore the interests of the social sectors and constituencies of developing countries."

Faizel said that he had told the consultations and today's meeting that the proposals on the two issues negate the mandate and raises the question, in whose interests the Round is being held.

According to him, the proposal envisages that developing countries can select only up to 50% of the tariff lines in a sector (i. e. a HS or harmonized system chapter) or 40% of the volume in a sector in order to apply the flexibilities from the full formula cuts.

He also said that linkage of participation in sectorals to flexibilities is "totally unacceptable."

The two issues had not been in the previous Chair's text and had made their entrance in the May text, and were thus "new issues" brought in at a late stage.

He was particularly indignant that the US and EU had made clear in the meetings that they would not "open the brackets" on issues even in areas where there had been progress in the talks (such as extra flexibilities for South Africa in the context of SACU, and Mercosur countries, non-tariff barriers, and treatment of unbound tariffs) unless developing countries agree to their anti-concentration and sectoral linkage proposals.

By insisting on this and saying that they have to cater to their constituency, the developed countries are failing to recognize that developing countries too have constituencies, such as workers who are afraid that they will lose their jobs, and the public which require a sound industrial policy for development, said Faizel.

"By insisting that they don't want the brackets to be opened unless we agree to their demands, they are creating a huge systemic risk," commented Faizel.

At the meeting, many other developing countries including Brazil, Malaysia, India and China, also attacked the anti-concentration and sectoral linkage proposals.

In the view of the developing countries, the July 2004 framework agreement on agriculture had already affirmed that flexibilities (for developing countries) would not be used to exclude entire HS chapters from the formula cuts, and there was no need to go beyond this in the form of new modalities.

However, developed countries want further detailed disciplines to be agreed to, such as that the formula must apply to at least 20 to 50 per cent of the tariff lines in a HS chapter (with the actual number within the range to be negotiated).

At the 8 July meeting, both the US and EU said that the flexibilities for developing countries had expanded a lot in recent months, and thus they needed their proposed anti-concentration measure to offset the resulting reduction of market access in some products.

Japan also defended the anti-concentration clause on the ground that new flexibilities for developing countries had been added. It mentioned that 50% of tariff lines (in a HS chapter) should not be excluded by using flexibilities.

The US also said that sectorals are important to it, and the EU added that there are also developing countries taking part in sectorals, so it should not be viewed as a North-South issue.

Brazil, on behalf of Mercosur, said that the percentages in paragraph 7(a) of the Chair's May text (detailing the flexibilities for certain percentages of products to deviate from full formula cuts) are "unbearably insufficient and overly restrictive."

On the anti-concentration proposal, it said that the effect might be "brutal" as developing countries do not know what flexibilities they would have and now there are demands for portions of these flexibilities to be taken away. Referring to para 7 (f) of the Chair's May text (that deals with anti-concentration), Brazil asked that there should not be any figures, even in brackets, in the next draft.

Malaysia said that it did not understand what the US and EU meant when they claimed that there had been an expansion of flexibilities (which they had used as a reason for their anti-concentration proposal). It did not want more clarification to the mandate regarding anti-concentration (beyond what is stated in the July 2004 framework agreement).

China wanted the developed countries to take on a coefficient of below 9. On anti-concentration, it also said that there is already a mandate (in the July framework) and we do not want more than that. It also did not want any link between sectorals and flexibilities.

India also said that there was no requirement for any elaboration of the July framework mandate that entire HS chapters should not be excluded by flexibilities. On the sectoral linkage, it said that there was no place for this as developing countries' participation in sectorals is completely voluntary and there is no link to any reward for participation. It called for the deletion of para 7 (i) of the May text (on giving additional points to developing countries as "credit" for sectorals participation).

Cuba said that listening to the developed countries, it wondered whether some of them had one country but two governments. This is because of the different things they said in agriculture and in NAMA negotiations. It elaborated that the same countries that argued strongly for the anti-concentration principle in NAMA did not advocate this to offset flexibilities for sensitive products in agriculture.

Cuba also compared the flexibilities for developing countries in NAMA, where for 10% of tariff lines, they have to cut tariffs by 50% or more of the formula cut, whereas in agriculture, developed countries can have up to a two-thirds deviation, i. e. they can cut their tariffs by only one-third of the formula cut. The developed countries thus enjoy greater flexibility.

It added that the US has provisions in the "blue box" in agriculture domestic support just to cater for its concerns, but the US, on the other hand, was opposed to flexibilities for individual developing countries in NAMA.

Another major issue at the 8 July meeting was the extra flexibilities suggested for South Africa (as a member of SACU), Mercosur countries (as members of a customs union) and Venezuela. These had been included in the Chair's May text and had been the subject of informal negotiations in recent weeks.

Brazil, on behalf of Mercosur countries, said that a solution was very important for them to maintain a common external tariff and this would be damaged if there was to be a common list of flexibilities as the volume of trade of small countries in Mercosur would hit the trade volume limitation of flexibilities very quickly.

(Brazil had proposed instead that the value of trade of the biggest trading nation in Mercosur, i. e. Brazil, be used as the basis in calculating the flexibilities and the trade-value limitation that is to be applied to Mercosur countries).

The US, referring to the suggested flexibility for South Africa, said that it did not know South Africa's intent regarding the coefficient and flexibilities and thus it did not want to remove the bracket in para 7 (d) in the May text [which proposes an additional 1 to 6 percentage points in flexibility to South Africa].

It also said that Venezuela's case for extra flexibility is not compelling, and it did not support it as there are 12 developing countries closer to SVE status than Venezuela.

It also said that it was disturbed to hear some countries wanting to expand the numbers in flexibilities (making a reference to Brazil's statement). The EU also said it was "puzzled" by the way Mercosur was trying to expand the ranges of figures on flexibilities in the text, adding that it won't work.

At the start of the meeting, Stephenson said that the recent weeks' informal meetings had seen progress in some areas, but "we have too many issues still unresolved." He proposed to use the meeting to discuss issues by the paragraphs of his May text.

If there is convergence, it will be reflected in his new text and if not, he indicated that his old text would be repeated.

He commented that the most problematic area was anti-concentration in para (f). He said that proponents of anti-concentration wanted further disciplines (beyond the July 2004 framework), but there was disagreement on how much elaboration should be accepted. If a number is to be fixed, how much should it be? He said that the ideas for a number ranged from 1 to 50 percent (of tariff lines in a HS chapter that shall not be excluded from a full formula cut because of flexibilities).

On Tuesday afternoon, the NAMA meeting continued, with discussions focusing on issues including the treatment to be given to small economies, LDCs and recently acceded members. +