TWN Info Service on WTO Issues (July03/9)

Third World Network

17 July 2003

Dear friends and colleagues

DEEP NORTH-SOUTH DIVISIONS IN WTO ON MARKET ACCESS FOR NON-AGRICULTURAL PRODUCTS

After three days of meetings 9-11 July of the negotiating group on non-agriculture market access (nicknamed NAMA), it is clear that there are deep divisions, along North-South lines, on how to approach the liberalisation of industrial and other “non-agriculture” goods.

The group chairman in May put forward “draft elements of modalities”, comprising tariff cuts using a formula, rapid elimination of tariffs for seven sectors, and broadening the scope of tariff bindings to a mandatory minimum of 95 percent.

Many developing countries object to one, two or all three of these elements.  Most vocal during the recent meeting was a group of eleven African countries who complained that this set of policies would lead to further deindustrialisation of their countries.

Below is a report of the meeting.

Please check our website www.twnside.org.sg for previous issues of TWN Info Service.

With best wishes

Martin Khor

DEEP DIVISIONS IN WTO NEGOTIATIONS ON NON AGRICULTURAL MARKET ACCESS 

TWN Report by Martin Khor, Geneva 14 July 2003 

The WTO negotiating group on non-agricultural market access (NAMA) held three days of formal discussions 9-11 July, with members deeply divided on the modalities to be adopted for the negotiations.

On the table was the “draft elements of modalities” that the Group’s chairman, Swiss Ambassador Pierre-Louis Girard had proposed in May, which had gone through one round of preliminary comments at the last Group meeting.

At last week’s meeting the views of various members became clearer.  On one side, the major developed countries appear to like various elements of the Chair’s proposal, but want changes so as to achieve even deeper cuts to developing countries’ tariffs.

On the other side are many lower-încome developing countries who are opposed to most elements of the Chair’s proposal as they are concerned most of their tariffs will have to be bound, and the tariff cuts will be drastic, exposing local firms to much stiffer import competition and further deindustrialisation.

In between are developing countries which are unhappy with aspects of the Chairman’s proposals but still studying the implications of the proposed formula for tariff cuts if different values are given for the parametres.

Most developing countries are however opposed to one element of the proposal - their being asked to join an accelerated liberalisation of several sectors selected by the Chairman.

At the close of the three-day meeting, Mr. Girard gave a basically optimistic view on how his proposals had been received but said much more needs to be done and on some issues (especially the accelerated liberalisation using the sectoral approach) views are still far apart.   In fact, his view of the situation is over-optimistic, given the opposition to his basic formula and his sectoral approach, especially from developing countries.

The meetings’s discussions focused on Girard’s “draft elements of modalities”, whose main points are:

·        Tariff reductions according to a formula involving the country’s average tariff (known as “ta”); base rates (known as “to”) which are the bound tariff lines or two times the 2001 MFN applied rate for all unbound tariff lines; and the coefficient “B” that has an impact on the magnitude of the tariff cuts.  The chairman has not specified the value of “B”.  The lower the “B” coefficient, the greater the cut. 

·        Developing countries will be allowed to keep only 5 percent of their tariff lines unbound provided they do not exceed 5 percent of total import value.  This means those countries that have only bound a part of their tariff lines have to extend the scope of bindings to 95 percent of total tariff lines involving at least 95 percent of total import value.

·        A “sectoral approach”, in which seven sectrors are selected for complete tariff elimination in three equal phases.  Developed countries will eliminate tariffs in the first phase.  Others will reduce tariffs to 10 percent maximum by phase one, observe a  standstill (not requiring further cuts) in phase two, and eliminate tariffs by the end of phase 3.   The exemption allowing 5 percent of tariff lines to be unbound cannot be used for the sectors.

·        Additional modalities will be optional.  They may include zero-for-zero sector elimination, sectoral harmonisation, request and offer and eliminating low duties.

·        Non tariff barriers (NTBs).  No negotiating modality has been proposed yet by the Chair.  He proposes that as a first step, NTBs should be identified and examined and that some NTBs can be dealt with by the NAMA negotiating group and others by other related WTO bodies.

The proposed modalities, if implemented, will generally result in much deeper liberalisation for developing countries, since the proposed formula calls for higher percentage tariff reductions at higher levels of existing tariffs, and developing countries on average have significantly higher bound tariffs.

They will also greatly broaden the developing countries’ scope of liberalisation commitments, since they have previously been free to choose the scope but are required by the proposed modalities to bind almost all their tariff lines, with a mere 5 percent exemption allowed.

The modalities will also require developing countries to rapidly eliminate all protection in the seven sectors, many of which are now sensitive to import competition, or which these countries may want to choose to develop in future.  The proposed sectors are electronics and electrical goods, fish and fish products, footwear, leather goods, motor vehicle parts and components, stones, gems and precious metals; and textiles and cklothing.

Despite the proposed modalities’ already onerous obligations on developing countries, at the meeting several developed countries criticised the modalities for not going far enough to tackle high tariffs, as well as opening developing countries’ markets. 

On the tariff formula, Canada said the it leaves many high tariffs and countries have to be more ambitious.  New Zealand suggested choosing a very low B coefficient (so as to achieve steeper tariff cutrs) but said even this would fail to produce real market access in a majoritry of markets.

The US believed the formula does not deliver on real market access nor equity among members.  It does not sufficiently reduce tariff peaks and high tariffs.  Japan said an increase in binding commitments is needed to achieve tariff reductions and market access. Singapore was for a B coefficient that is as low as possible.

The EC said the formula is creative but it does not guarantee dealing with tariff peaks.  The formula should be amended otherwise there will be a status quo situation, and more taruiff harmonisation is needed. We don’t want to impose anything or hurt anyone but we need more tariff bindings, added the EC.

Many developing countries countered that the Chairman’s modalities would hurt or damage their industrial sectors.

Morocco, on behalf of the Africa Group, said the formula was actually a harmonisation approach.  The modalities do not take into account specific aspects of developing countries’ fragile economies.  They were too ambitious and penalised African countries’ development strategies.

Kenya presented a paper on behalf of itself and Ghana, Madagsacar, Mauritius, Nigeria, Rwanda, Tanzania, Tunisia, Uganda, Zambia and Zimbabwe. It said the negotiations should support and not destroy industrial growth in Africa that has so far not gained from previous liberalisation. Incorrectly designed modalities would presrrise countries with a weak industrial base to liberalise further, a negative situation to be avoided by all costs.

The African countries said that Doha mandated taking account of developing countries’ needs,  including less than full reciprocity in reduction commitments. This implies developing countries should be allowed to make lesser cuts so that they can use tariffs as a policy instrument for industrial development purposes.

They said the formula proposed is a variation of the Swiss formula having a harmonising effect and do address the special needs and interests of developing and least developed countries other than peaks and escalations.

“Although the formula takes into consideration the different tariff profiles, it would exert a similar effect on them. The formula does not contain any special and differential component for developing countries, as countries (both developed and developing) with the same average tariffs would make the same percentage reduction.

“Since cuts will impact more on high tariffs than on low tariffs, the outcome of the formula will be a significant decline in prices on imported products into developing countries, where tariffs are currently high, while it will be only marginal in the case of developed countries.

“This imbalance in market access between developed and developing countries will lead to a worsening balance of trade in developing countries with its attendant consequences, such as fall in Government Revenue, foreign exchange and balance of payment related problems as well as the adverse effects on development initiatives, among others.”

The African countries also criticised the proposal for extending tariff baindings. They said many developing countries have not bound all their tariffs because they have used this flexibility to pursue their industrial and trade goals. However, the same countries have through structural adjustment reduced their tariffs to very low levels.

“The proposal to calculate the base rates from the 2001 MFN applied rates for all unbound tariffs and increasing the scope of binding coverage to at least 95% would be expecting too much from developing countries. In short the proposal goes too far too fast.  Even when the 2001 MFN tariffs are doubled, they still fall far below bound rates of some countries that have been very vocal on this issue.

“That is why we have maintained that the scope of coverage should be left to each developing country to decide. If the proposed formulation is used, most of the developing countries of Africa may be forced to reduce their tariffs to levels below their applied tariffs, which would eliminate the tariff flexibility they have to use to achieve their industrial and trade development goals. We strongly recommend that any core modality on tariff reductions should be confined to bound rates. There should be no stipulation as to the extent to which developing countries would have their tariff bound. It should be left to individual countries to decide.”

Brazil proposed the countries be given incentives if they are to bind more of their tariffs.  It could work with the formula.  It said the base rate should be based on bound rates and applied rates should not be used.  India said that there are conflicting interests and views reflected in the Chairman’s formula and to say that some countries must make concessions to get benefits is illusory.

On the sectoral approach, there was opposition from many developing countries, especially on its manfdatory nature.  They could only consider voluntary participation.

Thailand voiced serious concerns about the sectoral approach generally and asked why most of the selected sectors were of export interest to developed rather than developing countries.   Indonesia said it was not ready for the sectoral approach.  Malaysia expresseds serious concern, it could not participate in it and it should be completely voluntary.  India also said it should be voluntary.

Similar concerns came from Latin American countries. Colombia, Chile Venezuela, and Mexico said it was difficult to accept a compulsory approach and Cuba and Costa Rica said it should be voluntary.

Kenya, speaking for the 11 African countries, said African countries would not benefit from tariff elimination in the sectors, particularly those enjoying preferential market access.  On the other hand, their phasing out tariffs in the same sectors in which they have not become internationally competitive will put tremendous pressure on their weak, vulnerable and limited industrial base.   In addition, trade statistics reveal that developed countries have significant interests as well in almost all the identified sectors.  The sectoral approach should be voluntary.

There was opposition from Korea, Japan, Chinese Taipeh on the inclusion of fisheries.

Many developed countries supported a mandatrory approach.  For example, the EC said tariff elimination was part of the Doha mandate and the mandatory approach was essential.  Norway agreed it should be mandatory. So did HongKong. 

On non tariff barriers, some countries wanted this topic to be dealt with in other related WTO bodies but several developing countries, including Kenya, felt it should remain in the NAMA group where there is a negotiating mandate.

In his summing up, Ambassador Girard said he felt there was general agreement on how to deal with tariff reductions.  On his formula, he said some countries felt it was too wqeak while others thought it too ambitious.

On the sectoral approach, views were far apart, he said.  The majority felt that unless consensus is reached on the cpore modality, it was hard to focus on the sectoral approach and he noted quite a number of members wanted it to be voluntary.

On NTBs, he noted there was no agreement how to deal with them.  Not all NTBs can be discussed under the NAMA group but there was no agreement how these could be handled.  He noted that some countries wanted to send these topics to other bodies such as those dealing with rules, TBT and SPS but other countries said asuch regular bodies do not have negotoiating mandate and should remain in the NAMA group to be dealt with together with tariff issues.