Bridges Weekly Trade News Digest • Volume 12 • Number 42 • 10th December 2008
New NAMA Text Released Amidst Doha Gloom
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Despite dimming prospects that ministers from around the world will meet in mid-December to try to strike a framework deal in the Doha Round of trade talks, the chair of the WTO industrial goods negotiations has issued an updated draft agreement setting out possible terms that would govern how governments cut tariffs on manufactured merchandise.
The draft text, dated 6 December, is to serve as a basis for further negotiations. How to address proposals to eliminate or deeply cut tariffs on entire industrial sectors continues to divide WTO Members, wrote the chair, Swiss Ambassador Luzius Wasescha, in a foreword. Preference erosion and individual countries’ requests for special treatment were also proving contentious.
Unlike previous drafts, which contained ranges of numbers, the new text includes specific formulae and figures for determining countries’ future tariff levels. Wasescha said that convergence on many issues had allowed him “to present a text which is almost complete.” But he stressed that the entire text remained subject to negotiation.
If the financial crisis motivated many governments to call for concluding the long-running trade talks as a boost to economic confidence, it has not been sufficient to push them to resolve differences on some crucial issues within the negotiations.
Earlier this week, Pascal Lamy, the WTO’s director-general, had to drop tentative plans to summon ministers to Geneva from 13-15 December, when it became clear that some key countries, notably the US, had little appetite for a summit, given the divisions. A ministerial meeting might still take place, from 17 December. But Lamy said that this would only happen if consultations this week demonstrate that an agreement “is more likely to fall into place than not” (see related story, this issue).
Sectorals major sticking point
The NAMA issue on which the WTO chief will be looking for “positive results” will be “sectorals,” the term used by trade negotiators to refer to proposed initiatives under which participating countries would deeply cut tariffs on entire industrial sectors, such as chemicals, forest products, or industrial machinery.
To compensate for what they see as weak levels of overall tariff reduction for developing countries, industrialised nations like the US, Canada, and Japan want to be sure that major markets like China, Brazil, and India will participate in some sectoral liberalisation initiatives.
The developing countries counter that the negotiating mandate specifies that participation in such initiatives is non-mandatory. They are willing to commit to no more than a discussion of how a sectoral might work in terms of product coverage, exceptions, and future tariff levels for developed and developing countries.
Proponents of sectoral initiatives are eager to secure the participation of larger developing countries, especially for China, for two reasons. First, countries that together account for a high proportion of total world trade would need to sign on for the extra tariff cuts to kick in. Second, if a sectoral initiative managed to get off the ground without China, for example, Chinese exporters would benefit from low tariffs elsewhere without being comparably exposed to international competition.
In the foreword to the NAMA text, Wasescha wrote that “how and when to define the commitment of Members to participate in sectorals without altering the non-mandatory character of these negotiations” was an issue on which further work is required. “We are far from a consensus” on sectorals, he stressed.
The text itself contained a long paragraph, placed within square brackets to indicate the absence of agreement, that noted the conflicting objectives. The paragraph would have countries volunteer to “negotiate the terms of sectoral tariff initiatives, with a view to making them viable.” It specified, though, that “participation in the negotiation of the terms of a sectoral initiatve shall not prejudge a Member’s decision to participate in that sectoral initiative.”
The “self-identified” countries would be listed in an annex, for which the draft text contained two options: one, favoured by sectoral proponents, would indicate “Members having announced their readiness to participate” in each of the various initiatives; the second would have one single list of “Members that agree to participate in negotiating the terms” of sectoral initiatives, without linking countries to any individual sector.
The text’s provisions on sectorals did not go far enough for the US National Association of Manufacturers, which expressed opposition to calling a ministerial meeting. John Engler, president of the influential lobby group, said that “Brazil, China, and India must participate in major sectoral agreements to eliminate tariffs in sectors such as industrial machinery, chemicals, and electrical/electronics. Unfortunately, the latest text shows they are not yet willing to do this.”
In the event that Members managed to agree on modalities, the text set out a schedule for how the sectoral initiatives would function, with a timeline for the negotiation of terms and a deadline for incorporating sectoral liberalisation into product-specific liberalisation commitments.
Preference erosion still complicated
On another thorny issue, preference erosion, Wasescha’s text incorporated the compromise outlined by the previous NAMA chair in his report to WTO Members on the failure of a mini-ministerial meeting in July.
To soften the blow of the erosion of trade preferences that the EU and the US have long granted to some of the world’s poorest countries, recent draft NAMA texts included provisions allowing each of the two economic giants to take ten years instead of five to phase in Doha Round tariff cuts on some tariff lines, primarily textiles and clothing (and also some fish products for the EU). This would at least slow the rate at which preference beneficiaries would have to confront potential displacement by more competitive exporters of the same products.
Arguing that they would be “disproportionately affected,” Pakistan and Sri Lanka managed to secure an exception requiring the US and the EU to phase in tariff cuts at the regular pace on their exports of some of those products. This spurred complaints from Asian least-developed countries like Bangladesh, Cambodia, and Nepal, which do not receive tariff-free access to the US market – and thus stood to face higher tariffs than non-LDCs Pakistan and Sri Lanka for the products covered by the exception.
The compromise in Wasescha’s text, following from his predecessor Don Stephenson’s August report to Members, identified five tariff lines each for Bangladesh, Cambodia, and Nepal, for which the US would phase in tariff cuts over five years instead of ten (alongside the benefits for Pakistan and Sri Lanka). Vietnam was unsuccessful in its attempt to be included in this exception-to-an-exception.
Wasescha’s text specified that the products slated to receive special treatment for preference erosion would be temporarily carved out of any sectoral liberalisation initiative for the ten-year period, after which sectoral participants would have to negotiate additional tariff cuts with preference-receiving countries. China has unfavourably contrasted the US and the EU’s obtainment of protection for certain textiles and clothing products with the demands it is facing for sectoral liberalisation.
Figures, not ranges, for formula and flexibilities
The recent NAMA text was the first to include specific figures, rather than ranges, for the ‘coefficients’ linked to the formula that will determine the future tariff levels of most major economies, and the figures governing the extent of ‘flexibilities’ for developing nations to shield some products from full duty cuts. The figures corresponded to those suggested by Lamy during the July mini-ministerial, which had in turn been drawn from the ranges in the earlier draft agreements put together by the previous NAMA chair.
As per the terms of the text, the industrialised country coefficient would be 8. (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.)
For the 30-odd developing countries that would have to apply the tariff reduction formula, there is a three-option ‘sliding scale’: the higher the coefficient they choose, the less freedom they have to shelter products from tariff reduction.
Developing countries opting for a coefficient of 20 would be allowed to subject 14 percent of tariff lines to cuts that are half as high as those required by the formula, covering 16 percent of manufacturing imports by value. Alternatively, they would be allowed to exempt 6.5 percent of tariff lines from cuts altogether, accounting for 7.5 percent of import value.
A coefficient of 22 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 of 25.
An ‘anti-concentration’ clause, designed to constrain developing countries from focusing their tariff-reduction ‘flexibilities’ on a limited number of industrial sectors, would require them to apply full tariff cuts to either 20 percent of tariff lines or 9 percent of import value within each chapter of the HS harmonized system used to classify products for customs purposes.
Progress on SVEs, ‘Paragraph 6’
Delegates said that the text indicated the near-consensus that had been achieved on gentler tariff treatment for two de facto sub-groups of developing countries, that is, small and vulnerable economies (SVEs) and the non-LDC developing countries with binding caps on fewer than 35 percent of their industrial tariff lines (dubbed ‘Paragraph 6’ countries, after the relevant portion of the negotiating mandate).
Wasescha’s text sets out four tiers of treatment for SVEs, depending on their existing tariff levels.
Countries accounting for less than 0.1 percent of world manufacturing trade, with a current average bound maximum allowable NAMA tariff of 50 percent or more, would be required to bind all of their non-agricultural tariff lines at an average of no more than 30 percent. SVEs with an average bound rate between 30 and 50 percent would have to bind them at an average of not more than 27 percent; those with an average between 20 to 30 percent, at no more than 18 percent. SVEs with a bound average industrial tariff of less than 20 percent would have to make 5 percent reductions to 95 percent of tariff lines (or bind NAMA tariffs at the average that would have resulted from those reductions).
SVEs include countries such as Antigua and Barbuda, Jamaica, Mongolia, and Papua New Guinea. Binding tariffs at a certain average instead of applying the standard ‘Swiss’ tariff reduction formula is supposed to give SVEs greater freedom to preserve protections for sectors in which they have defensive trade interests, since they can concentrate deeper tariff cuts on other products.
As for the Paragraph 6 countries, which include Cameroon, Cote d’Ivoire, Ghana, Kenya, Mauritius, and Nigeria, those with binding caps on fewer than 15 percent of industrial tariff lines would have to bind 75 percent of them at an average of 30 percent. Those with binding caps on more than 15 percent of tariff lines (but less than 35 percent), would be asked to bind 80 percent of them at the same level.
Recently-acceded Members would get three extra years to implement Doha Round tariff reductions (for instance, China would have to phase in tariff cuts over thirteen years instead of ten). Wasescha’s text, unlike the July 2008 revision, does not include a footnote saying that RAMs’ proposals for additional flexibilities could be discussed later.
At time of writing, it remains unclear whether the new NAMA text will be seriously discussed in the foreseeable future. Lamy has not ruled out a mini-ministerial meeting next week, and is believed to be consulting with different Member governments. But many Geneva-based trade diplomats believe that a meeting before the end of the year is increasingly unlikely.
ICTSD reporting.
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