Bridges Weekly Trade News Digest • Volume 9 • Number 13 • 20th April 2005
Argentina, Brazil, India Put Forward Proposal On NAMA
Argentina, Brazil, and India have put forward a long-awaited proposal (TN/MA/W/54) for liberalising trade in non-agricultural products in the ongoing round of WTO talks, calling on Members to entrench favourable treatment for developing countries in both the structure and implementation of the formula for cutting tariffs.
Describing the proposal as a significant political move, Darlan Fonseca-Marti, a trade and development researcher at the Geneva-based international organisation South Centre, said that it put the Non-Agricultural Market Access (NAMA) discussions back "in the right direction, when they had been going in a totally inappropriate direction, particularly regarding the developmental concerns of poor countries."
Brazil and India had slammed recent EU and US submissions in the NAMA Negotiating Group for demanding more from poor countries than from rich ones, thus contravening the NAMA mandate in Annex B of the July Package (WT/L/579), which provided for various kinds of favourable treatment for developing countries (see BRIDGES Weekly, 23 March 2005). The two countries had been under pressure from other Members as well as from the NAMA Chair, Ambassador Stefan Johannesson of Iceland, to come up with proposals of their own and not just critiques of other countries’ submissions.
Proposal revives May 2003 tariff reduction formula
The three-country proposal expands on the July Package’s NAMA framework, saying that the "less than full reciprocity in reduction commitments" that it refers to must be "an in-built component of the [tariff reduction] formula." Specifically, they argue that the formula should reflect a country’s overall tariff profile, and that coefficients incorporated into the formula for developing countries should be "sufficiently higher" than those associated with developed countries, "resulting in higher percentage reductions for developed countries." Furthermore, the paper says that references in the July Package to special and differential treatment (S&D) for developing countries refer to "flexibilities in the application of the formula, including longer implementation periods, less than formula cuts and the exclusion of some tariff lines."
Argentina, Brazil, and India’s attitude towards favourable treatment for developing countries thus rejects the US and the EU’s insistence that Members must choose between a differentiated tariff reduction formula and flexibilities in applying it. It is consistent with a widely-held view among developing countries that S&D should permeate all elements of any modalities eventually agreed.
The three developing countries also rejected as too onerous the ‘Swiss’ formula approach to tariff reduction favoured by the US and the EU, which would see steeper reductions to higher tariffs aimed at ‘harmonising’ the tariffs of all WTO Members at a particular level. Instead, they revived a modified version of the Swiss formula first put forward in May 2003 by then-NAMA Chair Ambassador Pierre-Louis Girard of Switzerland in the run-up to the Cancun Ministerial Conference later that year (see BRIDGES Weekly, 21 May 2003).
The ‘Girard formula’ links a country’s item-specific tariff cuts to its overall level of tariff protection — the higher a country’s average tariff rate, the higher its tariffs will remain even after the formula is applied on an item-by-item basis. The proposal would have Members apply this formula, in association with differentiated coefficients (to be negotiated) for developing and developed countries, to reduce all of their ‘bound’ tariff lines, i.e., products for which they have agreed to a tariff ceiling. Developing countries, which in general have higher average tariffs than their developed counterparts, would retain relatively higher tariff levels even after reduction — a 50 percent tariff in the US would be reduced more than a 50 percent tariff in India, which has a much higher average tariff.
The paper declared that the overall tariff reduction this formula would impose would be, in percentage terms, "proportional amongst developed and developing countries," unlike the "simple Swiss formula." It went on to say that once the formula was agreed upon, Members could address other developing country needs through S&D measures such as "longer implementation periods, less than formula cuts for some tariff line and the exclusion of some tariff lines from any formula cut."
Notably, neither developed nor developing countries seemed enamoured of the Girard formula in 2003. Developed countries opposed it for not cutting high tariffs steeply enough. Some developing countries, on the other hand, felt that it was going too far, too quickly (see BRIDGES Weekly, 17 July 2003).
Methodology for unbound tariffs
Unbound tariff lines have posed a problem in negotiations, since they have no specific tariff ceilings that can be plugged into a tariff reduction formula. To address developing country concerns about having to bind and reduce tariffs in sensitive sectors, the paper proposes first multiplying the average tariff applied to unbound tariff lines by a to-be-negotiated factor of ‘x,’ and then using this newly marked-up figure as a basis for tariff reduction. This too is based on the Girard formula, although that called for a factor of only two.
Furthermore, it specifies that the tariff reduction formula would not be applied to unbound tariffs on an item-by-item basis, but only to the marked-up average. This would allow countries to maintain high tariffs in sectors of particular interest to them, so long as they ensure that the average tariff does not pass the permissible level.
In any case, the July Package exempts least-developed countries and countries with fewer than 35 percent of their tariffs bound (these tend to be among the poorest) from having to apply the tariff-reduction formula altogether.
A reorientation of NAMA discussions
The South Centre’s Fonseca-Marti observed that it spoke volumes about the nature of the NAMA talks thus far that developing countries were now turning to the very Girard formula that they had rejected two years ago, "since it offers them more flexibility than the other proposals currently on the table." He welcomed the proposal’s incorporation of existing tariff levels and rejection of demands for tariff harmonisation, stressing that "tariff cuts should depend on a country’s ability to absorb them."
Fonseca-Marti added that if other developing countries "choose to work with this proposal," it could potentially mark the start of meaningful cooperation among developing countries to pursue developmental concerns in the NAMA negotiations.
NAMA discussions will continue at the WTO from 25-29 April.
ICTSD reporting.