Global Trends by Martin Khor

Monday 23 July 2007

WTO papers cause new worries

In a last effort to get talks to continue, two new papers were issued last week at the World Trade Organisation. But many developing countries are dismayed especially by the very steep cuts they are asked to undertake in industrial tariffs, which they fear will cause the collapse of some of their industries.


Draft framework agreements on agriculture and industrial tariffs were issued at the World Trade Organisation last week. 

Reactions by countries to these draft “modalities” will determine whether negotiations in the troubled Doha Round will continue, or will go into hibernation for a few years.

Modalities contain the formulae, figures and other items (including flexibilities or exemptions for some countries) that are to be translated into reductions in tariffs and subsidies as well as changes in some WTO rules.  They in fact constitute the design and extent of commitments in the Doha negotiations.

The agriculture paper was authored by New Zealand’s Ambassador Crawford Falconer, while the paper on industrial tariffs (known as NAMA or non-agricultural market access) was written by Canada’s Ambassador Don Stephenson.

The drafts have so far received a mainly negative reaction from many developing countries. Speaking privately, they expressed dissatisfaction and even dismay.

particularly about biases in the NAMA paper.

“We are shocked beyond words by the treatment given to developing countries, and cannot even comment on the NAMA paper right now,” said a WTO delegate from a small developing country.

Diplomats from the African, Caribbean and Pacific Group were also disappointed that the agriculture paper had only dealt in detail with certain issues (subsidies and tariff reduction), while not providing modalities for many issues that are of major concern to most developing countries, including special products (SP), special safeguard mechanism (SSM), tropical and diversification products, tariff escalation, preference erosion and commodities.

“The agriculture paper contains only partial modalities, and not the full modalities that we called for,” said a leading ACP Group diplomat.  “There is a danger that our issues will be dropped.”

However the biggest complaint was the perceived bias in the NAMA paper on industrial tariffs. It asks the developing countries to undertake very steep cuts in their industrial tariffs, which many fear will lead to the collapse of some of their local industries.

Moreover, the paper treats developed countries leniently.  They would have to cut their tariffs by much lower rates than the developing countries.  This is contrary to the agreement when the Doha Round was launched, that developing countries would undertake lower cuts.

The draft proposed that tariffs be cut using a “Swiss formula” in which higher tariffs are cut by a steeper rate.  It fixed coefficients in the formula of 8 or 9 for developed countries and 18-23 for developing countries.

Using for example the 8 coefficient, this translates into an average cut of only 28% for the three giant developed members of WTO – the United States, European Union and Japan.

On the other hand, if a coefficient of 20 is used, a developing country like Brazil with an average tariff of 30.8% would have to cut its tariffs to 12% on average – a reduction by a hefty 61%. 

For India, with average tariff of 34.3% the cut would be 63% (from 34.3 to 12.6%). For Indonesia, with an average tariff of 36%, the cut would be 64% (from 36 to 12.9%). 

Developing countries which have higher average tariffs would have to undertake even steeper percentage reductions.

In other words, many developing countries have to reduce their industrial tariffs by more than twice the reduction rates of the major developed countries.

Many diplomats also point to another imbalance, that the developed countries are also treated leniently in the agriculture paper.  It calls on the US to cut its trade-distorting domestic subsidies to a maximum of  $13 to 16.4 billion (to be decided upon).

This is above the present level of $11 billion for 2006, thus providing considerable space for further increases.

The EU is asked to cut its subsidies to between 16.6 and 27.6 billion euro.  But the EU has already planned to reduce its subsidies to 12 billion euro by 2014, through its own agriculture reform.  So it can be comfortable with the paper’s proposed figures.

The developed countries can also continue to shift their subsidies to the so-called Green Box (which is supposed to be less trade distorting), thus changing the nature of subsidies without eliminating or reducing them.

Meanwhile developing countries are also asked to cut their agricultural tariffs by an average of 36-40 per cent.  Many fear this will damage the livelihoods and incomes of small farmers, who will face competition from imports, some of which are artificially cheapened by the rich world’s subsidies.

This week, the WTO will hold meetings to allow an initial airing of views on the two papers.  After a summer break, negotiations will resume on 3 September.