Bridges Weekly Trade News Digest • Volume 9 • Number 4 • 9th February 2005

WTO Market Access Talks Progressing Slowly, Members Still Optimistic

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Common ground continues to elude WTO Members in talks on non-agricultural market access (NAMA). At the end of a week of informal-mode meetings from 31 January - 4 February, countries seemed little closer than before to agreement on any of the major issues being discussed. Nonetheless, Members did not dissent at session’s close when NAMA Negotiating Group Chair Stefan Johannesson of Iceland announced that future negotiations would follow the pattern of the agriculture talks, with separate meetings to discuss specific issue areas such as the tariff-reduction formula or the effects of the erosion of trade preferences.

North-South split on sequencing of formula, sectoral approaches

Developing and developed countries still broadly differ on the approach to be taken towards tariff reduction and elimination. The former continue to push for the development of a broad tariff-reduction formula; the latter, led by the US, want this process to take place in parallel with a ’sectoral’ initiative that would sharply reduce or eliminate import tariffs on certain products (see BRIDGES Weekly, 8 December 2004). At the meeting, a number of developing countries said that these ’sectorals’ should only be considered after a formula for reducing tariffs is agreed. One negotiator did say that that in a number of informal small-group meetings, delegations seemed to better understand the ‘critical mass’ idea proposed by some supporters of the sectoral approach. This would see tariffs on a product eliminated when a sufficiently high percentage of countries trading in it agree to do so. Developed countries also argued that eliminating low tariffs — below, for example, 3 percent — would be beneficial, while many developing countries said that these tariffs were important.

Members differ on product coverage, S&D

Members disagreed on virtually all of the other issues that were discussed during the ‘NAMA week,’ albeit largely not along similar North-South lines.

Countries differed on whether all products not covered by the WTO Agreement on Agriculture were to be covered by any rules that come out of the NAMA negotiations, with some confusion over how to classify fish and fish products. They also clashed on the binding of tariffs — some countries pointed out that while the NAMA negotiating mandate specified that all products were eligible for consideration, it did not say that tariffs must be bound for all products. The issue is significant because the July Package (WT/L/579) specifies that tariff reduction is to start from bound rates, i.e., the tariff rates that Members have pledged not to exceed, rather than from the rates that they actually apply, which are often much lower.

Members also clashed on how to incorporate flexibilities for developing countries into tariff-reduction rules. A number of developing countries argued that they should not have to reduce tariffs as much as developed countries, with some calling for differentiated coefficients for rich and poor countries in the final tariff reduction formula to allow for this. Other countries argued for an implementation period twice as long for developing countries as for developed ones.

US Trade Representative Robert Zoellick had said before the recent meetings that the US would be willing to consider the differentiated coefficient approach and longer transition periods — so long as Members accepted immediate liberalisation in some sectors as well as a so-called ‘Swiss formula’ for tariff cuts. Developing countries are generally opposed to the Swiss formula, which requires higher tariffs to be cut more heavily, since they tend to have higher tariffs on industrial goods than their richer counterparts.

Several Latin American countries, which have generally bound most, if not all of their tariffs, asked other developing countries to do so as well. A number of Asian and African developing country Members wanted tariffs on some sensitive products to remain unbound and thus outside the tariff reduction formula; this would allow them to impose high protective tariffs if deemed necessary. Countries debated the fairness of the longstanding suggestion to set the base rate for reducing unbound tariffs at twice the applied rate, albeit without any conclusion on the matter. Although letting certain tariffs remain unbound was specifically mentioned in the July Package, several developed countries argued that agreeing to do so would constitute a concession that would need to be paid for elsewhere in the negotiations. In particular, the US, Norway, Switzerland, and New Zealand said that they would agree to either differentiated coefficients under a Swiss formula approach or to allowing countries to retain unbound tariffs, but not both.

Costa Rica voiced its opposition to long implementation periods, arguing that they would foil the ambitions of developing countries that wish to export goods to other developing countries. It cited data indicating that 70 percent of all tariffs are paid in the course of South-South trade. Although they are willing to demand little of the poorest countries, developed countries want access to the markets of the larger developing economies. Members also seemed to be generally lukewarm to appeals for special treatment from newly acceded countries in light of the extensive liberalisation commitments they undertook as part of their accession agreements.

ACP countries to put forward proposals on preference erosion

Developing countries were even more divided among each other on the issue of trade preferences. While the African, Caribbean, and Pacific (ACP) countries most reliant on non-reciprocal market access argued that preferences were invaluable, some Latin American countries countered that they were discriminatory. The ACP countries promised to put forward papers in time for the next meeting on how to reconcile preferences with the effective erosion of special market access that would result from overall reductions in tariffs.

The US put forward a proposal (TN/MA/W/18/Add.6) calling for the reduction or elimination of non-tariff barriers (NTBs) to trade in automobiles and auto parts, including foreign equity restrictions that "restrict or distort investments in automotive production." Another US submission, made jointly with New Zealand (TN/MA/W/48), argued that construction regulations could constitute NTBs to trade in wood products, and suggested that the NAMA talks could establish parameters for modifying building codes. However, Members did not agree on how to deal with NTBs — some thought that they should be considered by other WTO fora, such as the Negotiating Group on Trade Facilitation.

Members positive about future talks

In spite of all of the differences, Members reported a feeling that the negotiations "are moving towards a new phase," with a "sense of urgency" motivated by the desire to achieve a "first approximation" of modalities for negotiations by August, as decided at the recent mini-ministerial meeting in Davos (see BRIDGES Weekly, 2 February 2005). One delegate said that Members had demonstrated a better sense of the key issues, adding "we need to intensify discussions amongst ourselves… [as well as] take advantage of meetings at the senior official and ministerial level."

Officials from key WTO countries will meet in Kenya from 2-4 March. The next meeting of the Negotiating Group on NAMA is scheduled for 14-18 March.

ICTSD reporting; "US targets barriers to world auto trade," UNITED PRESS INTERNATIONAL, 3 February 2005; "WTO Chair Urges Intensified Talks on Non-Agricultural Market Access," INTERNATIONAL TRADE DAILY, 7 February 2005.