Bridges Weekly Trade News Digest • Volume 10 • Number 20 • 7th June 2006

New Proposals On SVEs Tabled As Members Remain Divided On NAMA

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Countries remain divided in the WTO negotiations on industrial tariffs, with only a few weeks remaining before a new end-June deadline for a framework agreement. A 2 June meeting at the end of a week’s non-agricultural market access (NAMA) talks saw several delegations repeat longstanding positions. Each claimed its own views were vindicated by a new set of ’simulations’ for the likely effects of a range of different proposals on Members’ tariff structures.

The past week has nevertheless seen a number of new proposals for the treatment to accord to small economies, one of many issues that need to be resolved in the negotiations.

NAMA Chair Ambassador Don Stephenson (Canada) is working to produce an initial draft of a potential ‘modalities’ deal the week of 19 June, in time for ministers and senior trade officials to settle remaining differences during a high-level meeting at the end of the month. Modalities for NAMA would entail specific figures that determine how much countries will have to cut industrial tariffs, how many products developing countries will be able to shield from the tariff reduction formula, and the treatment of tariff lines not currently subject to binding caps.

Simulations yield no revelations

The simulations, carried out by the WTO Secretariat, projected the effects of different proposed reductions on the bound and applied tariffs of most of the 77 Members that will have to apply the tariff reduction formula (the rest, such as least-developed countries, are exempt). They considered different values for the ‘coefficient’ associated with a ‘Swiss’ tariff reduction formula (which cuts higher tariffs more sharply) for developed and developing countries. The value of the coefficient becomes a Member’s future industrial tariff ceiling, and determines the extent to which tariffs will be cut. The simulations followed a similar exercise carried out for ten countries in March (see BRIDGES Weekly, 15 March 2006). The results were first circulated to Members on 30 May.

While delegates generally agreed that the calculations were useful because they would help Members clarify their analysis of the negotiations, several felt that the discussion of the results simply repeated past positions. One negotiator suggested that the simulations would help ground discussions of the potential effects of various proposed reductions in reality rather than doomsday predictions. Another said that "the simulations gave everyone reason to support their own position."

For example, the NAMA-11 group of developing countries took the simulations to demonstrate that the effects of letting developing countries shield some products wholly or partially from the tariff reduction formula would be quite modest. "It is clear from the simulations," South Africa said on behalf of the group, "that there should be sufficient space between the coefficients" for developed and developing countries, in order to fulfil the mandate for "less than full reciprocity in reduction commitments" for the latter. The NAMA-11 has argued that rich countries should have to make larger percentage tariff reductions than poor ones.

The US and the EU drew the precise opposite lesson from the simulations. They argued that the calculations demonstrated that their own proposal — a coefficient of 10 for developed countries and 15 for developing ones — would lead to substantial new commercial opportunities without causing undue harm to developing countries. These coefficients would require many developing countries to make steeper percentage reductions to their bound tariffs than developed countries. The US and the EU argued that this would nonetheless account for "less than full reciprocity" since it would still leave developing countries with relatively higher final tariff levels.

New approaches put forward for SVEs

The Hong Kong Declaration instructs Members to "establish ways to provide flexibilities" for small, vulnerable economies (SVEs), but "without creating a sub-category of WTO Members." Negotiators are yet to agree on how to identify SVEs, let alone the treatment to accord them (see BRIDGES Weekly, 10 May 2006).

Paragraph 8 of the NAMA mandate in Annex B of the July 2004 Framework (WT/L/579) provides for letting all developing countries make tariff cuts half as deep as those required by the overall formula to a to-be-determined percentage of products. Alternately, it would let them choose to exempt a smaller percentage of tariff lines from reduction altogether.

Uruguay and Costa Rica would have these percentages be higher for SVEs than whatever is eventually agreed for all developing countries, allowing them to shield relatively more industrial products from tariff cuts. Apart from these products, SVEs would be subject to the overall tariff reduction formula.

The NAMA-11 has reportedly expanded upon this: it would let SVEs shelter a supplemental number of tariff lines, and also grant them recourse to the two kinds of flexibilities (other developing countries will have to choose between them). In other words, the group would let SVEs subject some products to partial tariff cuts, and exempt other ones completely.

Sources report that on 7 June, Norway outlined an alternative approach that would exempt SVEs from the standard tariff reduction formula. Instead, they would be obliged to bind all of their tariff lines at a certain average level. They would also have to make a minimum, to-be-negotiated reduction to each of their individual tariff lines. Norway’s proposal is similar to what the SVEs have sought in the past. It is also comparable to the treatment mandated for developing countries that currently have binding caps on fewer than 35 percent of their industrial tariffs (the ‘Paragraph 6′ countries, after the relevant section of the July 2004 Framework).

Stephenson holding consultations, confessionals

The chair has urged Members to narrow their differences on enough issues to allow him to put together a draft text that would leave ministers with a manageable number of political decisions. One source said that Stephenson had indicated that he would observe Members’ positions until 16 June. If there were sufficient convergence by then, he would prepare a detailed draft modalities text. If not, he would simply put forward a report commenting on areas where Members remained divided, with draft text where possible.

Delegates indicate that the chair is holding a series so-called ‘confessionals’ — meetings during which he asks individual Members questions in an attempt to gauge their true (as opposed to stated) ‘red lines’ in the negotiations.

Stephenson is set to convene a ‘Room E’ consultation with about 40 delegations on 8 June, to discuss the core issues that will define the ambition of the NAMA negotiations. No modalities deal will be possible without an agreement on the tariff reduction formula, flexibilities for developing countries, and the treatment of unbound tariff lines.

ICTSD reporting.