Bridges Weekly Trade News Digest • Volume 10 • Number 9 • 15th March 2006
Tariff Simulation Results Reveal Nothing New, Say Delegates
The results of an informal simulation exercise to assess how the main proposals on the table in the Doha Round agriculture and non-agricultural market access (NAMA) talks would affect ten WTO Members with a wide range of economic profiles "do not show us anything we did not already know," according a Geneva-based trade diplomat.
The data on how implementing the different proposed reduction formulae would impact the bound and applied tariffs of the G-6 (the EU, the US, Australia, Brazil, India, and Japan), Canada, Egypt, Malaysia, and Norway were circulated to the ten delegations prior to a 7-9 March set of senior officials’ meetings in Geneva, and are expected to soon be sent to the wider Membership. They served as a basis for discussion both there and at the subsequent 10-11 March G-6 ministerial meeting in London (see related story, this issue).
NAMA date makes flexibilities, applied rates clearer
In spite of the fact that none of the proposals turned out to be unexpectedly palatable to everyone concerned, one official said that the NAMA simulation was helpful for demonstrating how different proposals would affect the tariff rates that Members apply (as opposed to the bound ceiling rates that will be plugged into the reduction formula). Another said that some methodological questions about how the formulae would be applied had been resolved in the course of the complex mathematical exercise, leaving countries free to focus on arguing about numbers.
One of the sticking points in the NAMA negotiations has been the flexibilities outlined in Paragraph 8 of the NAMA mandate in Annex B of the July 2004 Framework (WT/L/579), which provide for letting developing countries retain some unbound tariffs or apply tariff cuts smaller than those required by the formula to a to-be-determined percentage of products (or even exempt some altogether). The text contained provisional (bracketed) figures that would allow them to make cuts half as big 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. Some countries argue that developing countries should give up recourse to the flexibilities in exchange for a formula coefficient that would leave them with tariff levels higher than those of developed countries after reduction (this would not necessarily entail a smaller percentage reduction than industrialised countries, since their NAMA tariffs are generally much higher).
Sources report that the NAMA simulation indicated that granting these ‘Paragraph 8′ flexibilities to developing countries would have a fairly mild effect on the final average tariff rates after the application of the reduction formula — of the order of a couple of percentage points, and likely to be even lower. At the senior officials’ meeting as well as in London, developing countries reportedly made the case that these flexibilities could thus help protect sensitive sectors crucial to employment without compromising overall liberalisation. Developed countries countered that they could potentially be used to exempt from tariff cuts precisely those sectors in which they were seeking greater market access.
The argument was reversed over the issue of how much the reduction formula should cut into Members’ applied tariff rates. Developed countries reportedly used the simulation to contend that a ‘Swiss formula’ with a coefficient of 30 informally put forward by Brazil — which would slash all developing country tariffs to below 30, and reduce lower tariffs by progressively smaller percentages — would only result in a 2 to 3 percent cut to the duties currently levied by Brazil and India (see BRIDGES Weekly, 7 December 2005). Brazil reportedly countered that this ‘Swiss 30′ would force reductions in the tariffs applied to a third of all products and trade volume, thus providing the "real market access" its trading partners seek. Brazil’s formal negotiating position, along with India and Argentina, would link Members’ post-reduction tariff levels to their current tariff average.
Sources indicate that the simulation appeared to demonstrate that a coefficient of 30 would slash Brazilian and Indian bound tariffs by between 45 to 55 percent, depending on the extent of the flexibilities, and that coefficient of 15 that the US and the EU continued to push for would do so by 60-65 percent and 65-70 percent respectively. The ‘Swiss 15,’ it is estimated, would cut the tariffs applied by Brazil and India by over 20 percent.
The simulations in both negotiating areas made separate calculations for the different proposals’ effects on all tariff lines and those for ‘dutiable’ product categories, i.e., the lines for which tariffs are not bound at zero. With regard to NAMA, this is notable because it makes the tariff cutting ‘effort’ seem greater for countries with several such lines - for instance, the simulation indicated that a ‘Swiss 5′ would lead to a 30 percent reduction in all bound tariff levels in the US, but a 50 percent cut to ‘dutiable’ tariff lines, according to one source. This could potentially fuel calls for industrialised countries, which tend to have more duty-free lines, to essentially receive what would amount to ‘credit’ for past liberalisation, while developing countries’ own ‘autonomous’ liberalisation initiatives go relatively unrewarded.
With regard to unbound tariff lines, the simulation made clear that the value of the ‘mark-up’ — the number of percentage points added to the rate currently levied before it is subjected to the overall tariff reduction formula — made little difference to the final tariff level; what mattered was the value of the coefficient associated with the formula.
Agriculture pillars discussed; simulation less useful
A number of officials suggested that the simulations on agriculture were considerably less useful than those on NAMA, since the precise treatment to be enjoyed by ’sensitive products’ (which developed and developing countries alike will be able to slate for tariff cuts less than those required by the reduction formula, so long as they provide increased market access through a combination of tariff cuts and tariff-rate quota expansion) remains far from determined, thus making it hard to evaluate the real effects of the different proposals on the table. The calculation assumed that sensitive product tariffs would be cut by half as much as other ones. Furthermore, for the purpose of the mathematical exercise, countries simply designated products with relatively high tariffs as sensitive, which would not be how they would do it in reality.
The EU has maintained that its October 2005 proposal would cut its own average farm tariff by 46 percent. Several of its trading partners, on the other hand, have said that the various flexibilities the EU was seeking brought the real figure down closer to 39 percent. According to the simulation, the EU’s proposed formula would, if 8 percent of all products were eligible for sensitive product status, cut its own average tariff from 22.78 percent to 13.29 percent — a 41.65 percent reduction. A scenario based on the US’ proposal would cut EU tariffs by between 55.21 to 74.82 percent, depending on the number of sensitive products. For a 1 percent limit on the number of sensitive products, the G-20 formula would slash EU tariffs by 58.88 percent and US tariffs by 52.16 percent. For an identical number of sensitive products, the G-20’s lower proposed cuts for developing countries would see a 37.05 percent reduction in India’s average farm tariff level, and a 29.44 percent cut in Brazil’s.
At a 14 March ‘green room’ meeting that WTO Director-General Pascal Lamy convened to tell ambassadors from 25-30 Member countries about the meeting in London, some delegates called for the WTO Secretariat to make the simulation data public.
NAMA and agriculture weeks are set to kick off on 20 March.
ICTSD reporting.