Study process, no negotiations on industrial tariffs, says Africa

by Martin Khor

Geneva 26 October 2001 - - Seven African countries have proposed that the WTO Doha Ministerial meeting should not launch negotiations on industrial tariffs (or market access in non-agricultural products). Instead they propose a study process be initiated to draw lessons from past experiences, especially on how reductions on tariffs in industrial products have affected developing countries.

This proposal from Kenya, Mozambique, Nigeria, Tanzania, Uganda, Zimbabwe and Zambia, is in response to the first draft Ministerial declaration (dated 26 September) which in para 13 states that Ministers agree to negotiations to reduce or eliminate tariffs of non-agricultural products, and that product coverage shall be comprehensive and without a priori exclusions.

The African proposal, as amendments/changes to his draft ministerial declaration was submitted to the Chairman of the General Council (Stuart Harbinson of Hong Kong China) on 19 October. Earlier this week, at a meeting of the heads of delegations at WTO, the Kenya Ambassador spoke on the subject and introduced a summary of the proposal. Her statement was supported by several developing countries, including Egypt, India and Brazil.

In their proposal, the African countries stated that many developing countries had already liberalised their imports of industrial products (as a result of structural adjustment) and this had led to serious problems, such as local industries losing market share and closing down, causing unemployment, and governments losing revenue.

The proposal provided many examples of African countries that had suffered de-industrialisation, closure of local industries and serious loss of manufacturing jobs. The countries cited included Senegal, Cote d’Ivoire, Nigeria, Sierra Leone, Zambia, Zaire, Uganda, Tanzania, Sudan, Kenya, Ghana, Zimbabwe, Mozambique, Cameroon, Malawi. The experience of Latin American countries such as Peru, Nicaragua, Ecuador and Brazil was also mentioned.

The proposal stated that a study process should be initiated to take into account the needs of developing countries, including the effects of previous liberalisation on domestic firms, employment and government revenue; the effects of tariff peaks and escalation in developed countries on trade prospects of developing countries; and the implications of these for future policies.

The study process should focus on reducing/eliminating tariff peaks and escalation of developed countries; clarify that LDCs and developing countries with a weak industrial base should be exempted from further liberalisation commitments; and allow non-reciprocity for developing countries and their ability to increase their tariff beyond bound rates for specific products and periods, without having to pay compensation.

The proposal is significant because it spells out in detail the problems faced by many developing countries as a result of import liberalisation in industrial products, which has traditionally been the central aspect of the GATT/WTO system. The proposals are aimed at redressing the serious problems of de-industrialisation that have resulted from over-rapid cuts in import tariffs in many developing countries.

The proposal pointed out that any decision to undertake further reduction on tariffs in this sector would require an explicit decision, and the consensus of all Members. To make an informed decision on whether to engage in negotiations, the WTO Membership needed to conduct a stocktaking exercise on the relationship between liberalization on industrial products and development concerns. This need arises from adverse effects arising from past liberalization on industrial products.

“A study process will assist the WTO membership to draw lessons from the experience of the past. Such an educative process is needed to examine the positive and negative experiences of different Members, so that each Member can draw from the lessons of these experiences and devise appropriate policies that would avoid negative effects whilst achieving positive effects in their industrialization process.

“The educative process may also provide valuable inputs to the evolution of appropriate policies, guidelines and modalities for the future work of the multilateral trading system in this area. It would be premature to begin a process of negotiations before the study process is completed. Therefore, negotiations in this area should not be launched at the 4th Ministerial, but should await the conclusions drawn from the study process.”

The proposal stated that liberalization has taken place at a significant rate in many developing countries. Whilst some developing countries managed to tailor their liberalization on their capacity to compete, many other countries were unable to do so.

“The latter group of countries had an over-ambitious liberalization programme, in some cases as a result of structural adjustment reform policies. As a result, many local industries lost their market share arising from uncontrolled imports and subsequently closed down rendering many people out of employment.  Governments that substantially reduced their customs tariffs also experienced significant loss of revenue, which has added to pressures on the government budget deficit, a problem made worse by the decline in aid flows, the fall in commodity prices, and the continuation of debt servicing.”

The proposal pointed out that recent studies by international agencies and academics have provided increasing empirical evidence of many developing and least developed countries experiencing these negative consequences.

For example, a new publication by Cambridge University Press authored by Professor Edward Buffie (2001), entitled “Trade Policy in Developing Countries” has collated what he calls “the most disturbing evidence” of post-1980 liberalization episodes in the African region.

“Information of this type indicates that for many developing countries the effects of import liberalization can be negative and sometimes devastating, reducing their prospects for industrialization and indeed in some cases destroying the domestic industrial base. There is thus a need for the WTO to review the basis of its policies, rules and guidelines in relation to industrial tariffs.

“Developing countries have an interest in obtaining more access to the markets of developed countries, especially in product areas where developing countries are able to benefit in. Thus, the study process will identify area where further liberalization should begin and which products should be targeted.

“Should the study show that because of their limited productive capacity and weak industrial base developing and least developed countries are unlikely to benefit from further liberalization, then they should be exempted from further tariff reduction.

“While this measure may be necessary, it may also not be sufficient for the purpose of giving an opportunity for the affected countries to rebuild domestic industrial capacity in view of the closure of local firms and industries.

“In order to take full account of this extremely serious situation, action should be taken as soon as possible, even when the study process is progressing.  We propose that the rules of GATT 1994 be revisited to take this serious situation into account. Developing countries, which have been adversely affected, should be allowed to re-evaluate tariffs beyond their allowed threshold levels in respect of specific products and product areas, in order to enable them to rebuild the domestic capacity that had endured a decline, or to prevent a decline in such domestic capacity.”

The African countries proposed that the paragraph in the draft declaration dealing with market access for non-agricultural products be replaced by the following:

“We agree to initiate a study process to be conducted in a working group to examine the issue of market access for non-agricultural products. The study process shall take into account the special needs and interests of developing and least-developed country Members, including: (1) the effects that previous liberalization and tariff reductions have had, including on domestic firms, employment and government revenue; (2) the effects that tariff peaks and tariff escalation in developed countries have had on the trade prospects of developing and least developed countries; and (3) the implications of these for future policies.

“The study process shall focus on the reduction or elimination of tariff peaks and escalation in developed countries in sectors and products of export interest to developing countries. It should also clarify that, exemptions from further liberalization commitments shall be given to least developed countries and to developing countries that have been and would be adversely affected by such liberalization.

“It should also clarify the appropriate framework, guidelines and rules that can cater to the different conditions and needs of Members, including non-reciprocity for developing countries, and the ability of developing countries to increase their tariff beyond bound rates in certain cases. The study process, based on an examination of these elements, may make recommendations for guidelines and modalities for any future negotiations.

“While the study process is proceeding, the following action shall be taken:

1.   Developed countries shall eliminate/substantially reduce their tariffs in product of export interest to developing countries.

2.   In the course of their developmental efforts, the developing countries may enhance their tariffs beyond the bound levels in respect of specific products/product areas for a specified period in pursuance of the provisions of Article XVIIIA and XVIIIC of GATT 1994. They shall not be called upon to give any compensation for these measures.

3.   The developed countries shall remove their specific tariffs and convert them into ad valorem tariffs within the next two years. Care must be taken to avoid effective increase in the tariff levels as a result of such conversion.” – SUNS4997

About the writer: Martin Khor is Director of the Third World Network.

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