Bridges Weekly Trade News Digest • Volume 10 • Number 23 • 28th June 2006

Industrial Goods Dependent On Agriculture Breakthrough, Says Nama Chair


Ministers and top trade officials meeting in Geneva this week have a great deal to do in order to strike a framework deal on industrial goods trade by the beginning of July. Much of it will relate to farm subsidies and tariffs, according to the chair of the WTO talks on non-agricultural market access (NAMA).

Chair Ambassador Don Stephenson (Canada) released a document on 22 June that will serve as the basis for ministers’ discussions. However, it contained draft text only for some sections of a potential ‘modalities’ deal on tariff cuts and exceptions. On some of the most central issues in the negotiations — including the tariff reduction formula — he did little more than make observations about Members’ positions, explaining that the persistent absence of convergence made it impossible to come up with language for an agreement.

"There are an awful lot of issues for ministers to grapple with," admitted Stephenson at a press conference after issuing the paper. However, he suggested that if Members could agree on the core ambition-defining areas — principally, the numbers that would determine the depth of tariff cuts required by the formula, exceptions for developing countries, and the treatment of unbound tariff lines — they would greatly simplify the resolution of others.

Given sufficient political will, ministers would be able to bridge their gaps, Stephenson suggested. "You could probably deal with the issues fairly quickly if you could make the political decision… about the level of ambition."

At a ‘green room’ meeting on 26-27 June, representatives from some 30-odd delegations decided to address the different areas in the talks in two rounds. The first would focus on the ‘core issues’ of the tariff reduction formula, the treatment of unbound tariffs, and flexibilities for developing countries that will be subject to the formula. Once these issues are more or less resolved, the subsequent set of discussions would address issues including preference erosion, the treatment of small and vulnerable economies (SVEs) and recently-acceded Members (RAMs), and how to accord duty- and quota-free access to exports from least-developed countries (LDCs). Lamy discussed this two-stage approach with all Member delegations during an informal session of the Trade Negotiations Committee (TNC) on 28 June.

Ag talks ‘brackets on entire NAMA negotiations’

Members’ decisions in the NAMA talks will depend on what happens in the tortuous farm trade negotiations, the chair acknowledged in the preface to his paper (JOB(06)/200/Rev.1). "The simple fact is that progress in the NAMA negotiations has, at all times, been both constrained by and conditional upon progress in the agriculture negotiations," he said (see related story, this issue).

Sources report that some senior negotiators believe that if Members were to reach an agreement on agriculture, a NAMA deal could come together quite quickly — in less than a day, according to one.

However, another trade diplomat suggested that in light of the sheer number of issues that ministers need to address on both industrial goods and agriculture, it is "increasingly difficult" to believe that they will be able to resolve all of them with a ‘full modalities’ deal. What might be more likely, the negotiator said, would be for ministers to try to lock in agreement on the key aspects of both areas — on NAMA, for instance, the ambition-defining areas the chair had pointed to — in order to ensure that they can finalise a comprehensive deal by the end of July, before the WTO’s August holiday.

Notably, during a 23 June meeting to discuss the report, the NAMA-11 group of developing countries* praised Stephenson for placing the whole text "within an agriculture bracket." In contrast, the EU and Switzerland, which have highly protected farm sectors but offensive interests in industrial trade, criticised that same notion.

Chair not given enough to produce comprehensive text

Stephenson had originally hoped to present ministers with a text that would have required a limited number of decisions — principally on the numbers that will determine the extent of tariff cuts, and exceptions for developing countries.

Instead, he put together a three-columned table examining each issue in the NAMA negotiations. The first column set out the relevant sections of the negotiating mandate from the July 2004 Framework (WT/L/579) and the Hong Kong Ministerial Declaration. In the third column, the chair briefly commented on Members’ broad negotiating positions, and provided "some guidance for future discussions."

The middle column contained "possible modalities language" for areas where Members are in agreement — it was blank for several issues. In this section, Stephenson also put forward some text on his own responsibility "only in those cases where [he] felt that the points of divergence were not that entrenched and could be bridged at this time." He italicised the segments that he had proposed to distinguish themselves from agreed language, in response to comments from some Members, notably the NAMA-11.

In order to account for the entire spectrum of Members’ proposals, Stephenson’s report also contains an annex of several text-based proposals on which he deemed the disagreements unbridgeable at present.

Many Members including Ecuador, Japan, Singapore, and Sri Lanka praised the report for being a fair representation of the circumstances. The NAMA-11, however, suggested that the paper’s structure prevented it from reflecting certain "complexities and nuances" in the negotiations, thus compromising its ability to contribute to modalities.

No consensus on formula, flexibilities

In his paper, Stephenson reported that there was "no consensus" on the structure of the tariff reduction formula. However, he noted that his conversations with Members had led him to "believe that there is broader and stronger support for the simple Swiss formula with two coefficients and that the discussions should focus on this structure as the more likely to attract a consensus." He added that Member’s positions did not "provide a basis on which to establish the coefficients, or even to propose a range of numbers within which to focus the discussion." The value of the coefficient becomes a Member’s future bound industrial tariff ceiling, and determines the extent to which tariffs will be reduced.

Negotiators’ discussion of the paper only served to highlight their differences. While the NAMA-11 said that the text did not adequately reflect the views of Members seeking a particularly wide gap between the coefficients, the US expressed "unease" about its failure to do the precise opposite. In a controversial recent proposal, the US and some other countries proposed limiting this gap to no more than five points (see BRIDGES Weekly, 14 June 2006).

Similarly, the chair said there was no consensus on the number of tariff lines that developing countries would be able to shield from the full force of tariff reduction. Paragraph 8 of the NAMA mandate in the July Framework 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 from cuts, so long as they did not account for more than 10 or 5 percent of total non-agricultural import value respectively.

Pointing to the fact that some countries want these numbers raised, while others want them reduced, Stephenson wrote that "my sense is that Members could agree to the numbers already in the brackets provided the coefficients in the formula are satisfactory." He advised Members to treat the 10 and 5 figures as "a working hypothesis," and use them as a basis for determining the value of the coefficients.

The NAMA-11 emphasised that it considered the two bracketed figures to be "a bare minimum," and that some of its members might require higher numbers. It called on Stephenson to amend his commentary to reflect this.

With regard to the third ‘core issue’ in the NAMA talks, Members are debating the number of percentage points they will add to their unbound tariffs before subjecting them to the tariff reduction formula. Stephenson said that they are considering figures between 5 and 30.

Turkey reiterates call for textiles carve-out

The potential modalities Stephenson proposed for sectoral liberalisation initiatives specified that sector-specific tariff reduction would have to come "over and above that which would be achieved by the formula." Nevertheless, Turkey reiterated its controversial call for the modalities to include its proposal for textiles to effectively be carved out of the tariff reduction formula and subject to ‘harmonisation.’ Under this approach, Members would establish a common range of tariffs for textiles and clothing — requiring reductions on some types of textiles that are lower than those demanded by the formula (see BRIDGES Weekly, 29 March 2006).

Although US trade officials recently suggested that textiles merited "special consideration," they have stopped well short of formally endorsing the Turkish approach. Stephenson had noted in his paper that many Members "firmly opposed" Turkey’s proposal. This was reflected at the meeting, when China and the EU dismissed it yet again.

Little consensus on other issues

The chair noted that there was little agreement on how to treat small and vulnerable economies and recently acceded Members, or on how to address preference erosion.

As for the expedited liberalisation of environmental goods, Stephenson suggested that given the absence of consensus, Members could simply agree to effectively postpone a decision to a later stage in the negotiations. The US expressed disappointment with this, contending that the disagreements were not as wide as he had implied. It also pointed to the specific mandate on environmental goods in Doha Declaration Paragraph 31 (iii). Along with Canada, the EU, New Zealand, Singapore, and Switzerland, the US has called for all Members to eliminate tariffs on environmental goods as soon as possible (see BRIDGES Weekly, 17 May 2006).

Ministers will try to fill in the blanks in Stephenson’s text in a series of informal meetings of the Trade Negotiations Committee (TNC) scheduled to start from 30 June. Lamy is likely to convene ‘green room’ meetings with a group of 30-35 ministers throughout this period, as well as smaller gatherings on particular issues. A formal TNC session has been scheduled to start 1 July. Depending on how the negotiations proceed, they may continue through 3 July.

*The NAMA-11 group is comprised of Argentina, Brazil, Egypt, India, Indonesia, Namibia, the Philippines, South Africa, Tunisia, and Venezuela.

ICTSD reporting; "Trade talks hit by US-EU split on textiles," FINANCIAL EXPRESS (BANGLADESH), 23 June 2006.