Bridges Weekly Trade News Digest • Volume 10 • Number 21 • 14th June 2006

NAMA: Members Appear No Closer To Convergence


Developing countries including Brazil, India, and South Africa have vehemently rejected a new proposal aiming to ensure that Doha Round liberalisation leaves them with industrial tariff ceilings no more than 5 percent higher than those of industrialised nations.

WTO Members appear no closer to consensus on industrial tariff cuts, with little over two weeks to go before an end-June deadline for a framework deal. Indeed, some delegates suggest that positions have become even more entrenched and might even be drifting further apart.

Tabled last week by Canada, Hong Kong, New Zealand, Switzerland, Taiwan, and the US, the new paper called for the coefficient associated with the non-agricultural market access (NAMA) tariff reduction formula to be no more than five points higher for developing countries than for developed ones. Furthermore, it suggested that the coefficient for developed countries should no higher than ten.

The value of the coefficient becomes a Member’s future bound industrial tariff ceiling, and determines the extent to which tariffs will be reduced. In effect, the proposal would set a maximum tariff ceiling of 10 percent for developed countries, and 15 percent for developing ones. Coefficients of 10 and 15 would cut an 8 percent tariff to 4.4 and 5.2 percent respectively.

In discussions first at an informal 8 June meeting of 40-odd delegations and then at a larger gathering the following day, trade diplomats from many developing countries slammed the proposal as unfair. They argued that it would require developing countries to cut their industrial tariffs more deeply, in percentage terms, than developed countries.

Brazil argued that limiting the difference between the two coefficients to 5 would effectively invert the July 2004 Framework mandate for ‘less than full reciprocity in reduction commitments’ by developing countries. Speaking on behalf of the NAMA-11 group, South Africa suggested that the sort of deep tariff cuts it would imply could potentially lead to immense adjustment costs and de-industrialisation in developing countries.

According to recent calculations by the WTO Secretariat, a coefficient of 15 would require Brazil to cut its average bound tariff by between 61.7-65.2 percent, depending on how many products it is permitted to shield from the full force of tariff cuts. The same coefficient would require India to do so by 63.5-70.4 percent. A coefficient of 30, in contrast, would cut both countries’ bound tariff levels by around 45-55 percent.

Argentina and Brazil also said that the proposal’s demands were out of proportion to what was currently in offer in the agriculture negotiations. Brazilian Ambassador Clodoaldo Hugueney criticised recalcitrant farm tariff liberalisers for demanding heavy cuts to duties on industrial goods. He appeared to implicitly target Members such as Switzerland, which sponsored the new paper, and the EU, which expressed support for it. The EU has formally offered farm tariff cuts of 46 percent, though many Members believe that its proposal would amount to a 39 percent reduction. Argentina noted that cuts of this magnitude would be equivalent to a coefficient of almost 45 in the NAMA negotiations (see BRIDGES Weekly, 22 March 2006).

The US, too, linked the agriculture and the NAMA negotiations, saying that a Doha Round deal which cut its own farm tariffs but did not reduce other countries’ applied industrial tariff rates would be politically unsaleable.

Korea, a member of the relatively protectionist G-10 group in the farm trade negotiations, called for the two coefficients to be as close as possible.

Paragraph 8 flexibilities still undetermined

Paragraph 8 of the NAMA mandate in the July 2004 Framework (WT/L/579) contained provisional figures — in square brackets to signify the absence of agreement — that would allow developing countries to make cuts half as deep as those demanded by the formula to 10 percent of tariff lines, or to completely exempt 5 percent of tariff lines from cuts (or to keep them unbound), so long as they did not account for more than 10 or 5 percent of total import value respectively.

Members have been unable to agree on whether to accept these figures — some want to bump them higher up, while others want them reduced. Sources report that they remained unable to do so at the June 9 meeting when Chair Ambassador Don Stephenson (Canada) asked if the brackets could be removed.

Chinese proposal for RAMs creates stir

At a meeting on 13 June, several delegations gave a cold welcome to a new informal paper from China seeking to grant it and other recently-acceded WTO Members a higher formula coefficient and the ability to shield more products from tariff reduction than other developing countries.

Countries that joined the WTO following its establishment in 1995 generally had to agree to stringent liberalisation commitments as the price of admission. They have asked for leniency with regard to tariff cuts under the Doha Round. The July Framework and the Hong Kong Declaration both direct countries to address recently-acceded Members’ (RAMs’) concerns.

Discussions on treatment for RAMs have been complicated by the fact that China and Taiwan would qualify for any such treatment, along with countries including Croatia, Ecuador, Georgia, Jordan, the Kyrgyz Republic, Moldova, Mongolia, Oman, Panama, and Saudi Arabia.

China has called for the RAMs’ coefficient to be one-and-a-half times higher than that agreed for all developing countries — e.g., 45 if the standard coefficient were 30. It also called for RAMs to be allowed to shield a higher percentage of products from tariff cuts than other developing countries: China asked for RAMs to be able to make cuts half of those demanded by the formula on 15 percent of tariff lines if other developing countries are able to similarly shield 10 percent, or to completely exempt up to 10 percent from reductions if other developing countries could do so to 5 percent. The paper also provided for giving RAMs three more years than other developing countries to implement their liberalisation commitments, as well as a three-year grace period before having to start doing so.

One negotiator suggested that many developed and developing countries are uncomfortable about granting substantially different treatment to a major trader like China. This appeared to be borne out during the meeting, when the US said that not all RAMs should receive the same treatment since some had taken "extensive advantage" of the trading system. Norway expressed discomfort with one of the world’s biggest exporters asking for a coefficient 50 percent higher than that for other developing countries, as did Costa Rica. Brazil questioned whether all RAMs should receive expanded flexibilities to protect products from tariff reduction.

Several other delegations also found China’s demands excessive, including Canada, Switzerland, New Zealand, and the EU. Fellow RAM Croatia expressed support for the Chinese proposal.

Turkey and Mexico indicated that they were open to granting RAMs an extended implementation period, but not a higher coefficient.

As a result of its accession commitments, China has an average bound tariff level of 9 percent, which is roughly equal to its applied rate. The WTO Secretariat estimates that a coefficient of 20 would slash this bound rate by 25.5-28.3 percent, bringing it to 5.6-6.4 percent. A coefficient of 30 — one-and-a-half times higher — would engender a reduction of around 20 percent, producing a bound rate of 6.4-7 percent. Applying a Swiss formula with a coefficient of 45 to a 9 percent tariff would reduce it to 7.5 percent, implying a 16.7 percent cut.

The chair is expected to produce an initial draft modalities text the week of 19 June. One negotiator told Bridges that in light of Members’ differences at this stage, Stephenson appears only to be in a position to summarise the different proposals currently on the negotiating table. This delegate suggested that he may follow the lead of the agriculture chair and offer a few informal personal observations of his own about where consensus might ultimately be possible (see related story, this issue).

Sources report that Stephenson has been holding consultations with small groups and individual countries on a variety of issues in the negotiations. A meeting of all Member delegations is scheduled for 15 June.

ICTSD reporting.