Bridges Weekly Trade News Digest • Volume 12 • Number 26 • 16th July 2008
Chair Says NAMA Deal is ‘Doable’, Though Divisions Remain
bridgesweekly12-26Trade ministers meeting in Geneva next week will still have to resolve wide differences if they are to strike a framework deal on cutting manufacturing tariffs, after a new draft compromise text by the chair of the WTO negotiating committee left potential provisions on some central issues largely unchanged from an earlier version.
The chair, Canadian Ambassador Don Stephenson, had said that he would only amend sections of his May draft if Members’ positions showed signs of converging.
This appears not to have been the case for two of the most contentious issues in the non-agricultural market access (NAMA) talks: the ‘coefficients’ for the formula that will determine countries’ future tariff levels, and the figures governing the extent of ‘flexibilities’ for developing nations to shield some products from full duty cuts. The new draft text, released on 10 July, included the same numbers for those as the May version: numbers that were criticised by Brazil, India, South Africa, and others for requiring them to do too much, but that drew fire from the US and the EU for not going far enough to open up developing country markets.
On the other hand, progress on several underlying matters meant that the text contained fewer issues within the square brackets that signify disagreement. Issues on which there has been convergence in recent weeks include the treatment of unbound tariff lines, the period for implementing tariff reduction commitments, particularly with regard for requests for exceptional treatment from a number of developing countries (especially the Mercosur bloc).
Speaking to reporters after issuing the text, Stephenson said that the new draft was a “simpler, cleaner” document than the previous one. “We have resolved a number of issues; [on] the outstanding issues, at least the options are clearer, and the gaps, in some instances, are very narrow,” he explained. “In respect of most of the issues, the choices before ministers… are clear.”
The fewer and simpler the matters left to ministers to thrash out, the better their prospects for agreement, trade diplomats believe.
The NAMA chair sounded more optimistic about chances of an agreement than he did in early June, when he suspended the committee’s discussions in frustration, saying that countries were not seriously negotiating.
Even after Members repeated many of their longstanding differences at a 16 July meeting of the negotiating committee, Stephenson told journalists that a deal was ‘doable’.
Sectorals: “advance indications of interest”
One contentious issue on which the text differed substantially from the May version was sector-specific liberalisation initiatives. The previous draft included a bracketed option that would reward developing countries with higher coefficients (and thus future tariff levels) if they participated in sectoral initiatives - something strongly supported by the US but vociferously opposed by several developing countries, which stressed that participation in these initiatives was supposed to be voluntary.
Instead of this explicit ‘credit’ system, the new draft included what Stephenson described as “a political linkage between the sectorals and the rest of the NAMA modalities”: it said that “advance expressions of interest” by Members in certain sector-specific initiatives would contribute to “achieving agreement on modalities.”
The countries that have been pushing for sector-specific liberalisation on products including auto parts, bicycles, chemicals, electronic products, fish products, forestry products, gems, and toys recently submitted specific proposals outlining precisely how they intended the initiatives to work. Generally, they would call for developed countries to eliminate all tariffs on the covered goods, while developing countries would be allowed to retain low duties on a small number of products.
Sectoral tariff cuts, which would go beyond the demands of the standard tariff reduction formula, would only kick in once countries accounting for a ‘critical mass’ (proposed figures ranged from 90 to 99 percent) of total international trade in the given product sign up to the initiative in question. Since participating countries would extend tariff cuts to all WTO Members, they are keen to avoid ‘free riding’ by any major economies.
US industry groups like the National Association of Manufacturers have repeatedly said that sectoral initiatives involving large developing country economies like Brazil, China, and India would be crucial for their support for the negotiations. Washington has sponsored initiatives in sectors including chemicals and industrial machinery (though not textiles, a sector in which it maintains relatively high tariffs).
Nevertheless, sources say that there have been no explicit “advance expressions of interest” in sectoral initiatives thus far. Furthermore, it is not certain what exactly these expressions might entail - countries might only agree to negotiate on an initiative’s product coverage and special treatment for developing countries.
The text calls on countries participating in sectoral initiatives to notify the WTO secretariat as well as their fellow participants within two months of the establishment of modalities. A month after that, they are supposed to incorporate sector-specific liberalisation obligations into their commitment schedules, pending a critical mass - which would require countries to work out all of the details of how initiatives would operate in the interim.
Anti-concentration compromise
The text also introduced new language for limiting the extent to which developing countries would be allowed to shelter similar categories of products from tariff reduction.
‘Flexibilities’ for developing countries - the share of tariff lines and manufacturing imports they will be allowed to shield, partially or wholly, from tariff reduction - have been one of the most contentious issues in the negotiations.
‘Anti-concentration’ - constraints on their ability to concentrate these flexibilities on particular categories of products, such as automobiles, has also emerged as controversial.
Developing countries have strongly opposed an anti-concentration clause proposed by the EU and the US, which would have introduced tariff line and import volume ceilings within each of the many ‘4-digit’ categories that make up individual HS chapters. They preferred an alternative clause that they could have met by subjecting only a single tariff line in a given HS chapter to full formula cuts, affording them more room to shield particular industries almost entirely.
“In order to ensure tariff reduction in every chapter, without substantially limiting the flexibilities provided to developing Members,” the new text’s provisions fell somewhere in between: within each HS chapter - but not the 4-digit categories within them - developing countries would have to apply standard formula treatment to either a to-be-negotiated proportion of tariff lines, or a to-be-negotiated share of import value.
At the 16 July meeting of the negotiating group, China said that the anti-concentration clause ran counter to the purpose of the flexibilities. India said the clause was unacceptable.
Argentina, a competitive farm exporter that has been resisting deeper cuts to its industrial tariffs, said that a similar anti-concentration measure should apply to the agriculture negotiations. Developed countries will not face import value or HS-based caps on the limited number of ’sensitive’ farm products they slate for gentler-than-normal tariff cuts.
The EU, which is expected to focus its sensitive farm products on a few key commodities, said that the NAMA anti-concentration clause was essential to ensure meaningful access across all industrial sectors.
New provisions for Mercosur, RAMs
The July draft also included - without brackets - a recent potential compromise on special treatment for Mercosur, the South American customs union comprised of Argentina, Brazil, Paraguay, and Uruguay. Each of the four Mercosur nations, which will slate an identical list of products for reduced duty cuts, would be allowed to use the import volume of Brazil, the bloc’s biggest trader, as the basis for limits on their use of flexibilities. Argentina, Paraguay, and Uruguay would effectively be allowed to shield higher proportions of imports from standard liberalisation requirements than other developing countries, since their import volume calculation would be linked to Brazil’s higher import levels.
Argentina has been especially vocal in demanding extra flexibilities for Mercosur, so that each member could protect its respective sensitive industrial sectors without compromising their identical external tariff structures. Although he did not point to the Mercosur provisions in particular, Jorge Taiana, the country’s minister for external affairs, said that the new text was not “satisfactory” to Argentina, and that “much work remains to be done” on it, according to a statement on the ministry’s website.
Options for Venezuela to receive more lenient tariff treatment than it would normally have been eligible for remained within brackets, signifying disagreement. However, the text did have un-bracketed provisions allowing Bolivia, Fiji, and Gabon to cut duties by lower margins than what would otherwise have been required.
The new text also removed brackets around the figures for the implementation period for standard tariff cuts: five years for industrialised nations, and ten for the 30-odd larger developing countries that are required to use the formula (the rest will have to make milder reductions, with least-developed countries exempt).
The extended potential time period for China, Croatia, Oman and Taiwan to implement Doha Round tariff cuts was shortened somewhat from the previous draft, to a total of 13 or 14 years. These countries, which recently acceded to the WTO, were slated for special treatment, in return for the far-reaching liberalisation commitments they had to undertake as the price of admission to the global trade body.
Formula, flexibility figures remain
The figures for the ‘coefficients’ and flexibilities - all bracketed - remain unchanged from the previous text. (When fed through the so-called ‘Swiss’ reduction formula, all of a country’s tariffs are slashed to below the value of its ‘coefficient’, with lower tariffs cut less sharply across the board.)
The range for industrialised country coefficients is between 7 and 9.
For developing countries, there is a ’sliding scale’ between lower coefficients and higher flexibilities.
If they choose coefficients of between 19 and 21, they would be allowed to subject 12 to 14 percent of tariff lines to cuts half those required by the formula, covering somewhere between 12 and 19 percent of manufacturing imports by value. Alternatively, they would be allowed to exempt 6 to 7 percent of tariff lines from cuts altogether, accounting for somewhere between 6 and 9 percent of import value.
Coefficients between 21 and 23 would involve ‘half-formula cuts’ for 10 percent of tariff lines and import value, or full exemptions for 5 percent of both.
Finally, developing countries choosing not to use the flexibilities would receive a coefficient between 23 and 26.
Argentina, Brazil, India, South Africa and other members of the NAMA-11 group of developing countries say that these figures would still require developing countries to cut their manufacturing tariffs by deeper margins than industrialised nations. This, they say, would violate the Doha mandate for “less than full reciprocity” in tariff reduction commitments. Meanwhile, the US and the EU have complained that the text would not do very much to reduce the duties that developing countries actually levy.
Sources report that at this week’s committee meeting the NAMA-11 repeated its position that the coefficient for developed countries should be 5.
China said that the developed country coefficient should be between 4 and 6. It also drew attention to the fact that the EU and the US would be allowed to take a decade to fully implement tariff cuts on a range of products of interest to developing countries, such as textiles and clothing, in the name of easing the blow of eroding trade preferences that they have long granted to some of the world’s poorest nations. China said that the value of trade thus sheltered from liberalisation was some USD 100 billion, and asked for “adequate compensation.”
The US insisted that any agreement must come from within the brackets in the text. It called the NAMA-11’s intervention “disturbing” and rejected China’s comment on compensation as a “poison pill.”
It is not clear to what degree these differences represent genuine red lines, or are merely political posturing ahead of next week’s summit.
The fact that the key numbers for coefficients and flexibilities are falling to ministers to decide is unsurprising, since they alone are empowered to make concessions on these high-profile issues, and the final contours of an agriculture accord have not taken shape.
Reuters reports that Stephenson reminded journalists of this after the committee meeting, saying that “everyone’s known” that ministers would have to debate certain issues for a solution to be found.
“It would be resolved only at the level of ministers and only when agriculture was resolved simultaneously,” he said.
ICTSD reporting; “Industry talks edge forward before WTO meeting,” REUTERS, 16 July 2008.