Market access talks run along neo-mercantilist lines

Developed countries are seeking to further pry open markets in the South while simultaneously protecting their own under ongoing WTO negotiations on freeing up import controls.

by Chakravarthi Raghavan

GENEVA: The second meeting of the WTO negotiating group on market access for non-agricultural products on 13 September was marked by more repetitive statements and papers, with no clear proposals still on the modalities for the negotiations, according to trade officials and negotiators.

The problem, perhaps, is that in an institution that talks about free trade but where the major countries in fact pursue neo-mercantilism, the industrialized countries want the developing world to open up its markets to their corporations’ exports even as they find formulae to keep their own “sensitive” sectors protected under one device or another.

The Doha mandate (paragraph 16 of the Doha Ministerial Declaration) stipulates the parameters of the negotiations on market access for non-agricultural products as follows: “We agree to negotiations which 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 provisions cited in paragraph 50 below. 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.”

In paragraph 50 of the declaration, the Ministers stipulate that “[t]he 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 [the Enabling Clause] on Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries; the Uruguay Round Decision on Measures in Favour of Least-Developed Countries; and all other relevant WTO provisions.”

At the meeting of the Trade Negotiations Committee on 18 July, it had been agreed 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.”

The major demandeurs in these negotiations have yet to formulate their clear and concrete proposals for modalities, but said at this meeting that they were in the process of doing so and would come forward with proposals by the November meeting.

However, papers have been put forward by Japan, Korea, the EC, the US and New Zealand, Singapore and Norway, outlining some ideas, while the WTO secretariat too has formulated what are claimed to be “technical papers” and mathematical formulae, information from the WTO database on non-tariff measures, and background papers on previous negotiations, but based on premises about liberalization that several recent studies have challenged.

Claims were made at the meeting about the benefits of liberalization (to the liberalizers), with the US citing a Michigan University study about a 33% cut in tariffs producing annual welfare gains of $200 billion, and elimination producing a $610 million gain!

There were similar exercises (using computable general equilibrium models), used by the World Bank and the old GATT during the Uruguay Round, which projected that a successful conclusion of the Round would generate welfare gains in the range of $200-500 billion - although, in fact, virtually all the gains from the Round have only enhanced the welfare of corporations in the North. The exercises and projections were so farcical that neither trade experts nor any serious economists and policymakers can take them seriously.

Tackling tariffs

At the 13 September meeting, the majors all had a common theme too: market access for developing countries in products of export interest to them lay in expanded South-South trade! They also wanted to increase the ‘bindings’ of developing countries, with several pushing for further tariff cuts on the basis of applied tariffs rather than the bound tariffs. Even those like Japan which conceded the bound rates as the basis sought to qualify it by focussing on applied rates.

While developing countries have been pushing for the new round of negotiations to tackle tariff peaks and tariff escalation - two methods used by the advanced countries to keep out competitive products from the developing world - the industrialized world in effect tried to shift the argument to the tariff structures of developing countries.

Japan, for example, argued that there would be “trade promotion” if developing countries reduced their high tariffs, while “the definition, and the way to measure” tariff escalation “are not so easy” - a point on which several developing countries sharply questioned and challenged Japan.

Japan also argued that while in principle, the bound tariff rates should be the basis for the negotiations, the great differences between bound and applied rates should be rectified and attention focussed in this round on applied tariffs.

Similar arguments were advanced by the US and EC too on the applied tariff rates of developing countries, but a number of them rejected such arguments, with several also underscoring the role of tariffs in their countries as a revenue-raising measure, hence their need for leeway to vary tariffs for budgetary purposes, within the bound tariff limits.

Kenya insisted that the main objective of the negotiations should be “to facilitate and enable development and industrialization processes” in developing countries, and hence liberalization of imports was only a means to this goal. For many developing countries, further liberalization, especially of products where their industries are weak, would be counter-productive to the overriding goal of development. On the other hand, liberalization by developed countries of products exported by developing countries would contribute to development. However, supply constraints too prevented developing countries from taking advantage of market access, and this problem should be at the heart of the modalities and actual negotiations and should be central in all aspects of the work programme. Developing and least developed members with a weak industrial base should be allowed to choose levels of liberalization and protection to enable their industrial base to remain viable.

Brazil said that if the Doha work programme was to be a development round, then market access should be on the basis of “less than full reciprocity” by developing countries. While declining to go into the discussions about injecting a South-South emphasis in the talks, Brazil said that attempts to reinterpret the elements of the Doha mandate would not help move the negotiations forward.

Non-tariff barriers, in Brazil’s view, were the principal obstacles to expansion of world trade. However, tackling them was extremely difficult due to the diffuse and multifaceted nature of such measures. It would be difficult to proceed on this without an exercise in identifying the measures to be dealt with, perhaps through a system of notifications and counter-notifications.

As for “environmental goods”, there was no universally accepted definition, and conflicting views were already perceptible. There would be need to reflect on this.

In Brazil’s view, the base rate for negotiations should be the consolidated tariffs, representing as they did the commitments of members within the WTO. To propose other ideas (the US has been arguing for applied tariffs as the base) would be to undermine the development dimension of the round and impose a unilateral tariff reduction at the outset, essentially upon developing countries.

A number of Latin American countries took a line similar to that of Brazil on the question of the base to be used for tariff negotiations.

Brazil indicated that the Mercosur (Southern Cone Common Market) members would be formulating and presenting a paper on modalities.

Needs of developing countries

India quoted the Doha mandate to insist that the modalities should take fully into account the needs and concerns of developing countries in the negotiations. In real terms, the concessions granted by developing countries in the Uruguay Round were “much larger and contributed more significantly” to growth of world trade than the concessions of developed countries. India cited in this connection a study by Michael Finger and Julio Nogues bringing out that the tariff cuts of developing countries, measured by how they will affect the expenditure of importers, were deeper than those of the developed, while tariff reductions on items of particular export interest to them got less attention.

As for the various approaches and formulae being suggested for modalities, any particular approach had to fully factor in the fiscal, developmental, strategic and other needs of the developing countries. On the Japanese idea of a target tariff rate (for cuts) and taking account of the level of development of countries and their current trade-weighted average rate, India said that the reference in singular to a target rate was unclear.

India also asked the industrial world to set out in their proposals how they planned to achieve the Doha mandate of eliminating tariff peaks and escalation on products of export interest to the developing countries. This was important to ensure substantive tariff-reduction contributions by the developed countries in products of particular export interest to developing countries.

The secretariat’s papers and analysis, particularly the modalities paper, while providing factual information, had not indicated how the concerns of the developing and least developed countries could be dealt with. The outcome of the Swiss formula, for example, would depend on the coefficients agreed upon. The secretariat paper took no account of the circumstances obtaining in developing and least developed countries, with respect to their developmental and fiscal needs.

As for the proposals for a sectoral approach, and some for a zero-to-zero approach, it had to be borne in mind that developing countries had higher tariffs both for their revenue needs as well as to constitute some measure of protection to their industry, which, while providing employment, is handicapped for lack of resources, older technology and high interest rates, as well as infrastructural and other costs.

On “environmental goods”, India wanted products of export interest to developing countries included in this category. However, India (as several other developing countries in some subsequent statements) made clear its opposition to the inclusion of products on grounds of “production and process methods” (PPMs).

Indonesia said that the modalities should enable members, particularly members at different levels of development, to exclude from product coverage selected products sensitive to the domestic industries. The Japanese intervention, Indonesia said, showed a similar consideration.

As for the formula approach for tariff cuts, and the Japanese idea of target, Indonesia said that it was not sure about the “relevance of introducing the concept of competitiveness.” The zero-for-zero approach could only be used by members at the same level of development, and only among interested parties.

As for tariff peaks, high tariffs and tariff escalation, these terms should have the same meaning for all, and it was hence necessary to tackle the definitional issue first. Providing different implementation periods was not a sufficient way to tackle the development aspects.

In regard to environmental goods, given the high level of technology that may be involved, Indonesia was afraid that developing and least developed countries would end up as net importers. Hence the definition issue should be addressed up front, and PPMs should not be used as a characteristic.

Indonesia also rejected the Japanese suggestion that export duties should be viewed as non-tariff barriers, and said the mandate related to market access into another member, and any restriction on exports is not a market-access issue.

Hong Kong China said that low and nuisance tariffs should be eliminated for they merely created an administrative burden to businesses as well as to the customs administrations.

Commenting on the Japanese paper, Australia sought clarifications, in the light of the mandate against any a priori exclusions, on what Japan meant about “situation surrounding individual products.” It also requested further information on the Japanese remarks about eliminating or reducing tariff peaks having “serious trade-distorting effects”, since it implied some tariff peaks might be trade-distorting and others not. Australia also sought clarifications on the meaning of “environmental goods” used in the Japanese and Korean submissions.

China repeated its position that newly acceding countries to the WTO like itself had made considerable market-access concessions and should not be called upon to make more such concessions. (SUNS5192)                                  

From Third World Economics No. 289 (16-30 September 2002)