Bridges Weekly Trade News Digest • Volume 10 • Number 10 • 22nd March 2006

New Paper On Comparing AG, NAMA Ambition Stirs Controversy In Both Negotiating Groups

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A new Argentine paper on how to compare trade liberalisation in farm products and industrial goods stirred controversy in the WTO negotiating bodies on both agriculture and non-agricultural market access (NAMA) on 20 March.

Tabled in both groups (TN/MA/W/67 and TN/AG/GEN/14), the paper expands on a methodology laid out by Argentina during the ‘NAMA week’ at the beginning of March for evaluating the level of ambition of different proposals in the two negotiating areas (see BRIDGES Weekly, 8 March 2006). It emphasised that the EU was demanding far deeper cuts to industrial tariffs than it was willing to offer on farm products.

Paper outlines four bases for comparison

Paragraph 24 of the Hong Kong Ministerial Declaration instructs Members "to ensure that there is a comparably high level of ambition in market access for agriculture and NAMA… in a balanced and proportionate manner consistent with the principle of special and differential treatment (S&D)."

Argentina, which was one of a group of developing countries that pushed for this provision in Hong Kong, argues in the paper that that this stipulation is necessary "to avoid the adoption of extreme opposite stances" in the two areas, "in view of the adverse effects that this would have on the negotiating process."

The submission acknowledged that such a comparison is not straightforward, not least because farm tariffs are to be cut on the basis of a tiered reduction formula which will apply different percentage reductions to products classified into each of four bands, while tariffs on a country’s industrial products will be subject to a single mathematical formula.

Nevertheless, Argentina outlined four bases for making a numerical assessment: the depth of tariff reduction demanded by each proposal; the proportion of trade accounted for by the market access flexibilities on NAMA and agriculture; the maximum tariff levels sought by proposals in the two areas; and the extent to which farm tariffs end up bound in ‘ad valorem’ terms, i.e., as a percentage of the value of the traded commodity.

Argentina contended that the EU’s favoured NAMA approach — a simple ‘Swiss formula’ associated with a coefficient of 10 for developed and ‘advanced developing’ countries — would slash a 35 percent tariff to 7.78 percent, while its proposal for cutting farm tariffs would reduce an identical duty to only 19.25 percent. According to the paper, the EU’s agriculture proposal produces tariff reductions roughly equivalent to the effect of a Swiss formula with a coefficient of 42.78. "Such an outcome," it said, "is clearly not what ministers had in mind as a comparably high level of ambition in these two negotiating areas."

Furthermore, the EU’s agriculture proposal would reduce its maximum farm tariff of over 400 percent to 100 percent, while its NAMA proposal would slash the top rate to 9.76 percent. Its average farm tariff would decrease from 22.49 percent to 12.02 percent with the former, but to 4.82 percent with the latter.

The paper contends that Japan, too, is pushing for far deeper tariff cuts on industrial goods than it is willing to offer for farm products. Even the US’ agriculture proposal would leave its maximum farm tariff (currently at 439.87 percent) at 65.98 percent, while the NAMA coefficient of 10 that it is seeking would bring it to 9.78 percent.

With regard to exemptions from tariff reduction, Argentina argued that ’sensitive product’ and other flexibilities that the EU was seeking in its agriculture proposals would allow it to shield a far higher share of agriculture tariff lines and import value from cuts than what was available to developing countries in the NAMA negotiations. It also said that modest cuts to high agricultural tariffs in the EU and the US were unlikely to result in expanded market access since they are effectively prohibitive, and most imports of such products are only able to enter under tariff rate quotas.

"To argue that a reduction of a prohibitive applied rate to another applied rate which is also prohibitive in agriculture must be offset by a reduction in applied rates in NAMA is indefensible," the paper emphasised, stating that Paragraph 24 meant that "any tariff reduction in NAMA will require major compensation in terms of tariff quotas."

Members respond similarly in Ag, NAMA groups

Sources report that most Members reacted favourably to the Argentine paper during the meeting of the Negotiating Group on NAMA on the morning of 20 March. Brazil reiterated the importance of Paragraph 24 and said that the proposal would assist in the negotiations, a sentiment also voiced by China.

New Zealand said that the methodology made a valid point, and stressed the need for significant market access improvements in both agriculture and NAMA.

The US said that a ‘development round’ does not mean that only developed countries should be required to liberalise, acknowledging that establishing comparisons was difficult. Korea, a member of the G-10, said that numerical comparisons were biased and undeliverable, and noted that industrial tariffs had been reduced over the course of several negotiating rounds, whereas agricultural tariffs had only been through one, i.e., the Uruguay Round.

The EU argued that tariff cuts needed to be judged based on their impact on applied rates, and that a comparison of levels of ambition in different negotiating areas should include trade in services as well.

When the Committee on Agriculture Special (negotiating) Session met that afternoon, discussions were similar. The EU and the G-10 expressed opposition to the methodology, as did the group of African, Caribbean, and Pacific (ACP) countries, which expressed anxiety about its potential effects on countries that have benefited from longstanding trade preferences. Echoing the earlier discussions in the NAMA group, they argued that Paragraph 24 did not envision such numerical comparisons.

Delegations including G-20 members India, Pakistan, and Thailand, along with developed country agricultural exporters Australia and the US, said that the paper demonstrated the gap between some countries’ ambition on NAMA and that on agriculture.

Both the NAMA and agriculture negotiating groups are meeting this week, until 24 February.

ICTSD will provide coverage of ongoing discussions in the two negotiating areas in the next issue of BRIDGES Weekly.

ICTSD reporting