TWN Info Service on WTO and Trade Issues (Mar06/5)

8 March 2006
 

Plenty of questions as NAMA negotiations resume

Negotiations on non agricultural market access (NAMA) took place on the week starting 27 February.  Among the topics scheduled for discussion were flexibilities for developing countries, the link between agriculture and NAMA negotiations, non-tariff barriers and sectoral initiatives.

Conspicuously absent from the schedule are the two most important and controversial aspects of the NAMA negotiations: the tariff-reduction formula, and the treatment of unbound tariffs.

It is well known to the WTO members that a group of ten members has been organising to undertake simulations of how the application of different coefficients in a Swiss formula would affect their non agricultural tariffs.

Simulations are also needed by members outside this group. However, there is no organised effort for these to be done, and some developing countries are feeling disadvantaged that they are unable to see the full picture of the implications of variations of formulae and coefficients on their tariffs.

The difficulties are compounded by the fact that the discourse on the NAMA tariff reduction exercise is carried out normally in terms of coefficients and formulae. It is very hard to quickly translate the coefficients into what they mean in terms of percentage reductions of various tariff lines.

The developed countries have projected the idea that having two coefficients would take care of the requirements of special and differential treatment for developing countries.  But merely having separate coefficients will not fulfil these two requirements, unless there is a vast difference in the coefficients.

For example, if a coefficient of 10 in a simple Swiss formula is applied to developed countries, then the EU states, which have an average bound tariff of 3.9% will only cut their tariffs approximately by 28%. With a lower coefficient of 5, the EU's cut would be by 43.8%.

Compare this with the situation of a developing country with an average bound tariff of 30%, which is about the average level for developing countries. If a coefficient of 10 is applied, the average tariff would fall from 30% to 7.5% (or a reduction of 75%, far more than the EU). A coefficient of 15 leads to a 10% final tariff (or a 66.6% reduction). A coefficient of 20 leads to a final tariff of 12% (60% reduction). A coefficient of 30 leads to a final tariff of 15% (50% reduction).

Below is a review of some of the key issues in NAMA and a list of questions that the chair of the NAMA talks had put forward.  This was published in the SUNS.

With best wishes
Martin Khor
TWN

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Plenty of questions as WTO's NAMA negotiations resume

Geneva, 27 Feb 2006:  By Martin Khor (TWN)

Negotiations on non agricultural market access (NAMA) will be taking place all this week at the WTO. Among the topics scheduled for discussion are flexibilities for developing countries, the link between agriculture and NAMA negotiations, non-tariff barriers and sectoral initiatives.

The "NAMA Week" (27 February to 3 March) is scheduled to begin with an informal plenary session Monday, for members to introduce new papers or raise any issues, followed by reporting by proponents of the various sectoral initiatives.

On Wednesday, the new Chairperson of the Negotiating Group on NAMA, Ambassador Donald Stephenson of Canada, will conduct small-group consultations on five issues: product coverage; ad valorem equivalents (AVEs); non tariff barriers; Paragraph 8 flexibilities (i.e. flexibilities for developing countries under paragraph 8 of the August 2004 NAMA framework); and Paragraph 24 of the Hong Kong Declaration (the linkage between negotiations in agriculture and NAMA).

On Friday afternoon, an informal plenary meeting will be held to hear reports on the Chair's consultations and from members of other work done in the previous days. The members are also expected to hold their own bilateral or group meetings, especially on Tuesday and Thursday.

Conspicuously absent from the schedule are the two most important and controversial aspects of the NAMA negotiations: the tariff-reduction formula, and the treatment of unbound tariffs. Perhaps these topics will nevertheless creep into the discussions and consultations.

It is well known to the WTO members that a group of ten members has been organising to undertake simulations of how the application of different coefficients in a Swiss formula would affect their non agricultural tariffs.

The ten members (the US, EU, Japan, Canada, Australia, Brazil, India, Malaysia, Egypt and Norway) had met after the Davos mini-Ministerial in January and agreed to run simulations of how tariff-reducing cuts in agriculture and NAMA would affect their tariffs under various methods, coefficients and scenarios. The first results of this exercise are expected to be available to the ten members in the next few days.

Perhaps the formula issue has not been specifically included in this week's agenda because the ten members have not had the chance yet to study the results of their simulations.

Simulations are also needed by members outside this group. However, there is no organised effort for these to be done, and some developing countries are feeling disadvantaged that they are unable to see the full picture of the implications of variations of formulae and coefficients on their tariffs. Few countries have the technical capacity to work out the national figures for themselves.

The difficulties are compounded by the fact that the discourse on the NAMA tariff reduction exercise is carried out normally in terms of coefficients and formulae. It is very hard for diplomats and policy makers (except those that are mathematically trained) to quickly translate the coefficients into what they mean in terms of percentage reductions of various tariff lines.

For instance, the US has proposed that a simple Swiss formula be applied to all relevant members, with dual coefficients (one for developed and one for developing countries), so long as they remain "within sight" of each other. The EU has floated figures like a coefficient of 10 for developed countries and 15 for developing countries (but at this 15 coefficient, the developing countries would have to forgo the use of development flexibilities).

The developed countries have projected the idea that having two coefficients would take care of the requirements of special and differential treatment for developing countries, and even of the "less than full reciprocity in commitments" principle that was mandated by the Doha Declaration.

But merely having separate coefficients will not fulfil these two requirements, unless there is a vast difference in the coefficients. For example, if a coefficient of 10 in a simple Swiss formula is applied to developed countries, then the EU states, which have an average bound tariff of 3.9% will only cut their tariffs approximately by 28%. With a lower coefficient of 5, the EU's cut would be by 43.8%.

Compare this with the situation of a developing country with an average bound tariff of 30%, which is about the average level for developing countries. If a coefficient of 10 is applied, the average tariff would fall from 30% to 7.5% (or a reduction of 75%, far more than the EU). A coefficient of 15 leads to a 10% final tariff (or a 66.6% reduction). A coefficient of 20 leads to a final tariff of 12% (60% reduction). A coefficient of 30 leads to a final tariff of 15% (50% reduction).

In these cases (coefficients 10 to 30), the developing country would have to undertake far deeper cuts than the EU.

Only at much higher coefficients will this developing country undertake similar percentage reductions as the developed countries.

For example, with a coefficient of 70, the developing country will cut its tariff from 30% to 21%, a reduction of 30%. This is still more than the 28% reduction by the EU if it applies coefficient 10.

However, the developing countries are not required to undertake the same level of commitments as the developed countries since the Doha Declaration says they are to undertake "less than full reciprocity in reduction commitments". They can cut their tariffs by less than the percentage rates of developed countries.

If the EU were to cut its tariffs by an average 28%, then the developing countries should be required to cut by only a fraction of that. If that fraction is half, then their required reduction is 14%. If the fraction is two-thirds, the required reduction is 18.5%.

Taking the two-thirds fraction, the developing country in our example would have to reduce its average tariff by 18.5%, or from 30% to 24.5%. It would require a coefficient of 120 to cut the tariff from 30% to 24% (or by 20%).

Thus, a coefficient of 10 for the EU would mean that the developing country would need a coefficient of at least 120 in order that the less-than-full-reciprocity principle is met.

This fact is not so immediately evident because most of the discussions are in terms of formulae and coefficients, when it should be in terms of percentage cuts, as happens in the agriculture negotiations.

There is ground for concern that many developing countries that are affected by the formula are finding it more difficult to follow the negotiations. This may remain so unless it is made transparently clear to them what percentage reductions are involved with each coefficient and formula.

The danger is that with the confusion engendered by discussions focusing on coefficients, developing countries will be put under greater pressure to give in to the demands of the developed countries to accept a low coefficient, which would require their tariffs to be slashed by very high percentages.

As a result, the local industries in many sectors and many countries would not be able to withstand competition from imports that suddenly become much cheaper. Governments would also lose a significant part of their revenue, as tariffs are brought down sharply and suddenly. The prospects of future industrialisation of the affected developing countries would also be darkened.

With regard to the consultations on Wednesday on various issues, the Chairperson, Ambassador Stephenson, has sent a fax to members listing a number of questions for each issue to be taken up.

On the issue of product coverage, he said there are 17 outstanding issues listed in document JOB(05)/226/Rev.2 which need to be resolved. The question is: How can Members accelerate the technical work on these 17 issues to comply with the HK Ministerial Declaration?

On the issue of converting non ad valorem (NAV) duties on non agricultural products into ad valorem equivalents (AVEs), the Chair's questions are: (1) Can those Members who have not submitted their AVE data give an indication of when this information will be forthcoming? (2) What are the difficulties encountered in submitting such information? (3) Are there any questions concerning the AVEs already submitted by Members? If not, can these AVEs be considered verified and approved?

On the issue of Non-Tariff Barriers, the questions are:

1. With respect to the bilateral approach, would Members agree that it is time to table bilateral requests to Members? If so, how should this process be undertaken?

2. The transparency on the vertical approach has improved because of the reports being submitted by Members involved in these initiatives. When would these Members be in position to provide final details on the specific solution being pursued?

3. With respect to the horizontal approach, when will Members be in position to submit specific proposals? Would Members concerned be in a position to provide any further details?

4. Several Members have indicated the damaging effects that NTBs have on their exports, but have not notified these measures. Could Members clarify whether they still intend to notify the NTBs affecting their exports? If not, what type of solution is envisaged to achieve results in this area?

5. What else is required to achieve meaningful results in this area?

On Paragraph 8 flexibilities (i.e. dealing with some aspects of special and differential treatment for developing countries in the August 2004 NAMA framework), the questions are: (1) Are there any issues contained in Paragraph 8 that require further clarification in order to make it operational? (2) What is required to obtain a further meeting of the minds on the numbers within square brackets in Paragraph 8?

Finally, is the issue of "Paragraph 24" of the Hong Kong Ministerial Declaration. In this paragraph, Ministers instructed negotiators to ensure that there is a comparably high level of ambition in market access for Agriculture and NAMA. This ambition is to be achieved in a balanced and proportionate manner consistent with the principle of special and differential treatment.

The questions are: (1) How can "a comparably high level of ambition in market access for Agriculture and NAMA" be assessed? When?; and (2) How can ambition be achieved in a balanced and proportionate manner consistent with the principle of special and differential treatment?