TWN Info Service on WTO Issues (August03/16)

23 August 2003

Third World Network

Dear friends and colleagues


On 19 August, two drafts on non-agriculture market access (NAMA) were circulated by the chair of the NAMA negotiating group.

These two papers, if adopted, would commit developing countries to very steep tariff cuts in their imports of industrial products.  This will threaten the viability of local industries and firms.

The NAMA issue has not been so well publicised or focused on.  Yet if the trend represented by these papers (and especially by the earlier proposal by the US and EC, released last week) is also carried on to the draft Cancun Ministerial Declaration section on NAMA, then a very serious situation will be posed for developing countries and the survival of their industries.

Since this report was written,  new drafts of the “Annex” on NAMA have been circulated and discussed at the WTO informal meetings.  We hope to send you updated reports or analyses of these drafts.

Meanwhile we hope you will read the report below and be alerted to the situation on NAMA.

With best wishes

Martin Khor

Third World Network


Developing countries’ industrial tariffs being set up for big cuts

TWN Report:  Geneva 20 August 2003 (By Martin Khor)

Draft documents on non-agriculture market access (NAMA) have been prepared by the chairman of the NAMA negotiating group which, if adopted, would place tremendous pressures on developing countries’ domestic industries.

On 19 August, the NAMA group chairman, Swiss Ambassador Pierre-Louis Girard, issued a revised version of his Draft Elements of Modalities for Negotiations on Non Agricultural Products (TN/MA/W/35/Rev.1).

He also circulated a Draft Ministerial Annex on NAMA (dated 19 August) which is meant to be the substantive part of the NAMA part of the Cancun Ministerial Text to a small group as part of the “informal consultations” or “Green Room process.”

The revised Draft Elements (or “Rev 1”) are very similar to the original draft. It has the same format, with sections on formula for tariff cuts, sectoral tariff elimination, provisions for developing countries, supplementary modalities and non tariff barriers.  

The draft contains the same “harmonization” formula, applicable to all countries. However, a significant addition is para 8, where exemption from the formula is provided to countries with a binding coverage in non agriculture products of less than 35%.  Instead they would bind 100% of their non agriculture tariff lines at an average level that does not exceed 27.5% (which according to the paper is the oevarll average bound tariff for developing countries after full implementation of current concessions).

Sectorial tariff elimination in seven sectors would still be compulsory, as in the original paper, despite protests by many developing countries that any sectorial initiative should be purely voluntary for developing countries.

Under additional provisions for developing countries, the original draft allows developing countries longer implementation periods and up to 5 percent tariff lines may remain unbound.  The latter is not a concession to developing countries, despite being portrayed as such; on the contrary, it forces them to expand the coverage of tariff bindings to 95%, whereas up to now countries are free to choose the extent of coverage.

In the revised draft, the “flexibility” of having 5% unbound tariffs is dropped.  This is replaced with developing countries “(a) being able to keep tariff lines unbound, or (b) not applying formula cuts, to up to 5% of tariff lines provided no more than 1% can be taken in one HS chapter.

Thus, developing countries are placed in a Hobson’s Choice dilemma.  If they choose to keep any of their tariff lines unbound, they would have to subject all their tariff lines to the formula cut.  Unbound tariff items are not spared, as the proposal is that they be subjected to the formula cut too, and the basis for starting the tariff reductions shall be two times the MFN applied rate.  Thus the unbound items will end up having very low bound tariffs.

Some countries can now choose to escape this by extending their tariff binding coverage to 100 percent, and bind the tariffs at a level not to exceed 27.5 percent.  This route is open only to countries that have less than 35 percent binding coverage. 

The only other small concession is that 5% of tariff lines can be exempted from the formula cut.

For most developing countries, the Chairman’s proposals will mean their industrial products will be captured under tariff bindings, subjected to high tariff reductions under the formula, and moreover in seven sectors their tariffs will have to be eliminated at an accelerated rate.

The other document, “Draft Ministerial Annex” is even more tricky and may place developing countries under more obligations, because the little “concessions” for them contained in “Rev.1” are not even guaranteed here.

This document would have the Ministers take note of the Rev. 1 document and “confirm our intention to use these draft elements as a basis for our work towards agreement on modalities.”

There is no guarantee that the few concessions to developing countries in Rev.1 will remain as the paper will only be “a basis” for future work and moreover that future work may alter the points in Rev.1

The Draft Annex however contains its own six substantive points which the Ministers agree to and would thus bind the negotiators when they return to negotiate NAMA in Geneva.

Point 1 on formula is that the Negotiating Group will continue its work on a “single, non-linear formula applied on a line-by-line basis” which acknowledges developing countries’ situation and addresses tariff peaks and escalation.

If adopted, this would tie all developing countries under the harmonization approach, with steep cuts, and especially steep on their higher tariffs.  Moreover this Annex is silent on whether there will be a single coefficient applicable to all, or whether there will be a different coefficient for developing countries which would allow them to have a lower set of reduction rates.

Point 2 encourages discussions on sectorial tariff elimination to be pursued, with adequate flexibilities “for all participants”, not just for developing countries. The sectorial elimination component is recognized to be “an integral part” of the modalities.  This implies developing countries are obliged to take part, and it cannot be on a voluntary.

Point 3 on additional provisions for developing countries and LDCs reaffirms the importance of S and D, but merely takes note of the provisions in Rev.1, asking that they be further clarified.  One provision in Rev.1 is that LDCs be exempted from tariff reduction and other commitments.  By not putting this in the Draft Annex, the LDCs cannot be sure that the exemption will remain, especially since the US-EC-Canada proposals do not include exemption for LDCs.

Point 4 recognises that newly acceded Members shall have recourse to special provisions for tariff reductions. 

Point 5 agrees that pending agreement on ore modalities, supplementary modalities such as zero-for-zero sectoral elimination and sectorial harmonization be kept open. Thus the road is open for additional pressures to further press down developing countries’ tariffs at accelerated pace.

Point 6 on non tariff barriers merely recognizes that NTBs are an integral part of negotiations and request that work on this be intensified.  Developing countries have argued that NTBs are now the main barriers to their products entering developed countries and that commitments on reducing NTBs should proceed in tandem with work on the tariff reductions.  So far this has not happened and the Annex language is vague and allows NTBs to continue on a back burner.

Some developing country diplomats who have had a quick look at the two texts have indicated that their concerns have not been taken on board and that as it stands the Annex draft cannot be accepted.

It remains to be seen whether further versions of the Draft can take their concerns on board. But with time running out, and so many meetings being held at the same time, it would be very difficult for many developing countries to know what is happening, let alone have the time to analyse what it means for their economies, and what alternatives to propose to the text’s language.