Latin American Countries Propose Flexible Formula For WTO NAMA Talks

2 March, 2005
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Latin American Countries Propose Flexible Formula for WTO NAMA Talks
March 3, 2005

GENEVA--Three Latin American countries have put forward a proposal for the Doha Round negotiations on nonagricultural market access (NAMA) that would offer developing countries a "menu of options" for achieving ambitious cuts in tariffs on consumer and industrial goods while allowing them to protect certain sensitive product sectors.

In a joint proposal circulated Feb. 24, Mexico, Chile, and Colombia proposed that World Trade Organization members adopt a formula approach that would allow developing countries to make lower cuts in their tariffs if they agreed to submit all their tariffs to "binding" WTO caps, subject all their tariff lines to the reduction formula, and/or agree to shorter periods for implementing the agreed cuts.

The flexibility would be achieved through the use of three different "coefficients" in the formula, which, by earlier agreement of WTO members, will incorporate a nonlinear approach requiring bigger cuts on higher tariffs.

Proposal as Compromise

"The result of the negotiations should provide developing countries with the alternatives to address their differences in sensitivities, without undermining the overall level of ambition," the three Latin American countries said. "In our view, providing options to accommodate specific concerns of developing countries would allow us to avoid a least common denominator outcome."

Fernando de Mateo, Mexico's ambassador to the WTO, said the proposal was an attempt to serve as a "compromise" to the initiatives offered by the United States and the European Union on the NAMA tariff-cutting formula. "If we don't allow these additional flexibilities, countries won't be as ambitious," he declared.

"If a country wants to exempt products [from the formula cuts], they will have to pay either with bigger tariff reductions in other sectors or shorter time periods to implement," he explained

Mateo said the precise figures for the implementation time frames and coefficients would be decided later in the negotiations. The Mexican ambassador said he expected more countries to sign on to the joint proposal before it is formally presented for discussion at a March 2-4 WTO "mini-ministerial" in Kenya.

Former U.S. Trade Representative Robert Zoellick said in late January that the United States was prepared to accept the idea of different coefficients for developed and developing countries under a "Swiss" or harmonizing formula, thus implying less onerous reduction commitments for developing countries. The EU for its part has proposed that developing countries be given "credits" in the form of lower tariff reduction commitments in return for binding more of their tariff lines or reducing the difference between their bound tariff caps and the rates actually applied.

U.S. Advocates Sectoral Initiative

Mateo said that if the approach put forward by the three Latin American countries is accepted, there may be no need for the separate NAMA sectoral initiative being pushed mainly by developed countries.

"The sectoral is there because some believe the formula approach may not be enough," he said. "But if we show enough ambition under the formula, there's no need for sectoral reductions."

The United States in particular has been a strong advocate for the sectoral initiative, which would result in the elimination of import tariffs on a certain number of select products of export interest to developing countries. Major developing countries such as China, India, Mexico and Brazil, however, have rejected the notion of mandatory participation in the initiative and argue that members' efforts should be focused instead on developing the formula.

The Latin American proposal sets out four parameters under which developing countries would make tariff reduction commitments. Under the most ambitious option, countries agreeing to bind all their tariffs under WTO caps and to subject all tariff lines to the agreed formula would be given a higher coefficient (and thus make lower reduction commitments) under the formula framework along with a "medium" time frame for implementing the eventual reduction commitments. Countries that agree to full binding coverage but seek exemptions to the formula for some products would have to accept a lower coefficient (and thus a higher reduction commitment) but be given a "longer" time frame to implement.

Countries that agree to less than full binding coverage but no exemptions to the formula would also apply the lower coefficient but be given a "medium" time frame for implementing the reductions. For those countries that maintain lower tariff binding commitments (defined as less than 95 percent of total tariff lines) and no exceptions, the lowest of the three coefficients would apply with a "short" time frame for implementing the reduction commitments.

Under the proposal, countries which refuse to commit to full binding coverage would have to submit all their existing bound tariff lines to the reduction formula.

"[G]reater flexibility in one of the elements would have to be offset by an equivalent tightening of one or more of the other elements," the three proponents said. "In other words, greater flexibility in one of the elements would have to be offset by an equivalent tightening of one or more of the other elements."

By Daniel Pruzin
International Trade Reporter
Volume 22 Number 9
Thursday, March 3, 2005 Page 330