Views on modalities advanced at non-agricultural market access group

WTO members recently participated in the first substantive session of negotiations on reducing market-access barriers to industrial goods. While developing countries generally emphasized that the talks must take into account their fiscal, developmental and strategic needs, the proposals submitted by the developed countries envisaged wide-ranging import liberalization - which could result in the deindustrialization of Southern economies.

by Chakravarthi Raghavan

GENEVA: The WTO Negotiating Group on Market Access for non-agricultural products, which held its first substantive meeting on 2 August, formally received proposals on modalities of negotiations and some related matters from the EC, the US and Korea, and some initial comments and ideas from Canada and a few other industrialized countries as well as a range of developing countries.

The negotiating group, chaired by Switzerland’s Amb. Pierre-Louis Girard, is to hold its next meeting on 12-13 September, with further meetings set for 4-6 November and 2-3 December.

The work of the group had been held up because of an impasse over setting a deadline for agreeing on the modalities (as sought by the EC). At the meeting of the Trade Negotiations Committee on 18 July, a compromise was reached that “there would be a common understanding on a possible outline of modalities by end of March 2003, with a view to reaching an agreement by 31 May 2003.”

Judged by the proposals put forward by the major trading countries and others like Korea on modalities for negotiations to reduce tariff and non-tariff barriers, the negotiations are going to involve an attempt by them to tear down the barriers to their corporations’ market access in developing countries, and in a manner that could result in deindustrialization ala the 19th-century version of globalization.

A number of studies by non-orthodox economists over recent months have challenged several of the dogmas pushed on the developing countries about “free trade”, “open markets” and “low tariffs” promoting trade and growth and poverty reduction. Some of these studies, taking account of the transport and other costs of trade in goods in the 19th and 20th centuries as well as the levels of industrialization and the productivity in the developing countries, have noted that the so-called “high tariffs” in the developing world today are not so high after all and on average much less than what the US, Europe and Japan had deployed during their own industrialization process.

Other studies have also brought up the relevance of the infant-industry arguments and the need for flexibility for developing countries, to suggest that unless there be changes to the GATT rules (like Article XVIII, to enable tariffs to be raised to protect new industries or upgrade existing ones without having to pay compensation to the trading partners who have taken advantage of the lack of industries to dominate their markets), developing countries should make a clear distinction between low bound tariffs - which they cannot change under present rules without compensation - and high bound tariffs with much lower applied tariffs that could be raised for industrialization purposes.

In terms of paragraph 16 of the WTO’s Doha Ministerial Declaration, the negotiations on market access for non-agricultural products “shall aim, by modalities to be agreed, to reduce or as appropriate eliminate tariffs, including the reduction or elimination of tariff peaks, high tariffs and tariff escalation, as well as non-tariff barriers, in particular on products of export interest to developing countries. Product coverage shall be comprehensive and without a priori exclusions. The negotiations shall take fully into account the special needs and interests of developing and least-developed country participants, including through less than full reciprocity in reduction commitments, in accordance with the relevant provisions of Article XXVIIIbis of GATT 1994 and the provision cited in paragraph 50 below [of the Ministerial Declaration]. To this end, the modalities to be agreed will include appropriate studies and capacity-building measures to assist least-developed countries to participate effectively in the negotiations.”

Paragraph 50 of the Declaration provides an overarching commitment of the Ministers: “The negotiations and the other aspects of the Work Programme shall take fully into account the principle of special and differential treatment for developing and least-developed countries embodied in: Part IV of the GATT 1994, the Decision of 28 November 1979 on Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries [commonly referred to as the “Enabling Clause”]; the Uruguay Round Decision on Measures in Favour of Least-Developed Countries; and all other relevant WTO provisions.”

Differences over differentiation

In what was seen as a clear attempt to ‘rewrite’ the Doha Declaration and water down this commitment, Canada suggested “differentiation” among developing countries in terms of the provisions on special and differential treatment incorporated in the WTO and the Declaration. This set off a range of angry comments from a number of developing countries including India, Brazil, Malaysia, Indonesia and several others.

It is clear that the major industrialized countries would not abandon their attempts in this regard, and the Canadian intervention is just the opening shot.

The way Canada presented it, several others appear not to have caught its thrust at first, and came back to make clear their opposition.

In a sharp comment, in a speech whose text was made available to the media, India said the Canadian suggestion would lead the WTO into “very dangerous territory” and ultimately fragment the WTO. On what parameters could there be differentiation among developing countries, asked the Indian ambassador KM Chandrasekhar? Who would set the parameters and would it be acceptable to all developing countries?

And if there is to be differentiation among developing countries, why not differentiation between the developed countries and differentiation “between MFN tariffs and other terms of trade of these countries?” he asked, wondering whether it was the intention during the work programme to fragment the WTO. The negotiations were already complicated and difficult, and there should be an effort to avoid divisive issues that would further complicate them, he said.

The negotiations should closely follow the clear mandate set out in the Doha Declaration (paras 16 and 50) and the overarching provisions in Article XXVIII bis of GATT, as well as the objectives set out in para 2 of the Declaration in which the Ministers underlined that the majority of the WTO members were developing countries and said “We seek to place their needs and interests at the heart of the Work Programme adopted in this Declaration.”

The guiding principles had been clearly set out - elimination of tariff peaks, high tariffs and tariff escalation and non-tariff barriers on products of export interest to developing countries, comprehensive product coverage and without a priori exclusions, taking fully into account the special needs and interests of developing and least developed countries, and observing the principle of less than full reciprocity. In this regard, the provisions of Part IV of GATT and the Enabling Clause “shall be taken into account”, and taking account of the needs of developing countries for a “more flexible use of tariff protection to assist economic development” and the need to maintain tariffs for revenue purposes. There should be a genuine attempt by industrialized countries to bring down and eliminate substantially tariff peaks, high tariff and tariff escalation.

“At the end of the day, we must not face a situation in which tariff reductions have not taken place in sectors of particular interest to developing countries.” And, while “no a priori exclusion” may be the starting point, “the final coverage will be determined by the developmental needs of members.” The negotiations must be conducted in such a manner as to take into account “the fiscal, developmental, strategic and other needs of developing countries.” During the Uruguay Round, certain tariffs were not bound by developing countries because of their particular “economic sensitivity” and the issues of coverage and determination of base levels had to be handled with equal sensitivity.

India supported the call, made in the earlier meetings of the group by a number of African and least developed countries, for a study. The terms of reference of the study should take into account the particular requirements of developing and least developed countries and for this a process of consultation was essential.

The WTO secretariat, he said, should prepare a paper on all elements relevant to modalities - with particular reference to guiding principles, base year, staging of reduction, autonomous liberalization principles and the manner in which the special needs of developing countries had been addressed in the past, as also the impact of trade liberalization on the economies of developing and least developed countries. There has also to be an assessment of overall welfare implications, since an increase in global trade or even in GDP need not necessarily and automatically reflect itself in an increase in human welfare in developing countries and least developed countries (LDCs), particularly if it led to skewed distribution of production capacity globally, displacement of labour-intensive technologies without compensation elsewhere in terms of increased employment and income generation at all levels, and greater vulnerability to external shocks.

And unless developing countries take care in their own statements, there could be a repeat of what happened in the Uruguay Round - resulting in the kind of language adopted in the family of WTO agreements, under which the LDCs who were used to split the other developing countries in fact ended up with no benefits either.

No “one-size-fits-all” approach

In a statement on behalf of the group of African states, Kenya said that the discussions had to take account of three aspects:

  *  production and employment - the ability of developing countries to produce more industrial goods and employ more people in the sector, with the production geared to the local and export markets;

   *  for exports from developing countries, there must be better market access, especially in the developed countries and in products of export interest to the developing countries;

   *  on imports, further liberalization would enable imports to come in faster and at cheaper prices and reduce consumer prices, but “such imports also cause serious disruptions” in African industrial production and lead to deindustrialization.

The modalities must recognize the need for “appropriate levels of import tariffs” in developing countries, taking into account the level or weakness of local industries that could be affected by too rapid a rate of import liberalization. There could be no “one-size-fits-all” approach or formula. Developing countries with a weak industrial base should be able to choose levels of liberalization and protection that would enable their weak industrial sectors to remain viable.

The date for completing the negotiations on market access, Kenya insisted, was 1 January 2005, and the 5th Ministerial Conference (September 2003) should not be made into a deadline for the exercise.

Kenya’s statement cited some recent studies which provide increasing empirical evidence of the negative consequences of liberalization on industrialization in many developing countries and LDCs.

Zambia, for the LDCs, associated itself with the Kenya statement and supported India’s stand, in particular its call for a secretariat study.

While appreciating the EC’s “Everything But Arms” approach, Zambia insisted that all industrial products from LDCs should be given tariff-free and quota-free market access. LDCs should be exempt from further obligations. Measures must be taken, inside and outside the WTO, to boost the productive capacity of LDCs and other developing countries to enable them to take advantage of improved terms of trade for market access. The modalities should reflect fully, as a priority, these three points.

An EC communication addressed both the objectives and modalities of the negotiations. Under objectives, it stressed that there be no a priori exclusions in product coverage, and insisted that the reduction or elimination of tariff and non-tariff barriers in products of export interest to developing countries would require improved market access not only in developed countries but in other developing countries as well. [The principle of most-favoured-nation (MFN) treatment would in fact result in such market-openings in other developing countries accruing also to the industrialized-country corporations and exporters.]

The EC also made a major pitch for reduction of barriers to “environmental goods”, whose “improved market access will be positive not only for trade, but also for environmental objectives worldwide.”

However, some trade officials said that the environment issue was also covered in other parts of the Doha mandate and, judged by initial comments from Malaysia, the EC’s approach would inject one more very controversial issue into the negotiations. Malaysia made clear that it would not accept the definition of other countries on “environmental goods.”

In terms of modalities, the EC wanted a modality to be chosen to bring about “the greatest possible reductions across the board for all Members”, remove tariff peaks, reduce and compress high tariffs “in an economically meaningful way”, and seriously tackle problems brought about by tariff escalation, avoiding approaches that could result in “the continued sheltering from liberalization” of particular sectors of interest to many participants.

In its own pitch at differentiating and dividing the developing world, the EC also said in its paper that the chosen modality could be “calibrated” to different members’ levels of economic development taking into account actual tariff structures. It also wanted significant increasing in bindings, and to aim for all tariff items to be bound.

The US too had a paper on “environmental goods”, and called for an agreement on a common list of such goods. Echoing the views in a separate paper by New Zealand, the US argued that substantial work on identifying the scope of these goods had been done in the Asia-Pacific Economic Cooperation (APEC) forum, and this should be used to develop the scope of WTO negotiations. The APEC definition, the US said, was on the basis of end use (goods used to clear the environment or prevent pollution).

A New Zealand paper also focussed on non-tariff barriers (based on New Zealand’s experience) and identified seven categories: standards and certification, customs procedures, food safety and health requirements, import quotas and import prohibitions, cargo handling and port procedures, high internal taxes and charges, and non-scientific basis to quarantine restrictions.

Korea, having itself industrialized through use of a range of tariff and non-tariff barriers and protections to its domestic industry and subsidies for their exports, claimed that “lower trade barriers have by and large rendered economic benefits to all Members via enhanced competition, increased economic efficiency and economic growth.”

Canada said a number of high-income and middle-income developing countries  had become  successful and the negotiations  need to provide for strategies to ensure reduction of market barriers in these countries. The negotiations should address not only North-North and North-South trade, but also South-South trade. The modalities should also eliminate “nuisance tariffs” and maximize use of ad valorem rates (by converting all specific duties to ad valorem ones).

The EC’s remarks suggested that it had some differences on this.

China underscored the need for industrial countries to reduce their barriers, and called for special and differential treatment to be made available to developing countries and the LDCs. Referring to the enormous market access commitments that acceding countries to the WTO like China have already made, China insisted these have to be taken into account by other members, who should not make unrealistic demands on these new members. (SUNS5175)                

From Third World Economics No. 286 (1-15 August 2002)