Argentina-Brazil-India proposal on NAMA gets mixed reaction

By Martin Khor, Geneva, 25 April 2005
South-North Development Monitor (SUNS) 26 April 2005

A new proposal by India, Brazil and Argentina received mixed reactions when negotiations on non-agricultural market access (NAMA) resumed at the World Trade Organisation on Monday.

The proposal was presented by representatives of the three countries at the start ofweek-long meetings of the Negotiating Group on NAMA. It received varyingdegrees of support from several developing countries, while being strongly criticisedby the United States for not delivering sufficient market access.

The proposal (TN/MA/W/54, dated 15 April) deals with general principles, thetariff-reduction formula, and treatment of unbound tariffs.

In the first part, it states that the NAMA framework in Annex B of the Julyframework agreement represents the Doha Ministerial Declaration mandate, and thusaccordingly the formula shall reduce tariff peaks, high tariffs and tariff escalation andtake fully into account 'less than full reciprocity in reduction commitments' andspecial & differential treatment (SDT) for developing countries.

The proposal adds that the concepts of 'less than full reciprocity in reductioncommitments' and SDT are different. 'Less than full reciprocity' has to be anin-built component of the formula to be achieved by incorporating sufficiently highercoefficients for developing countries as compared to developed countries, resultingin higher percentage reductions for developed countries and taking into account thedifferences in tariff profile amongst Members.

On the other hand, says the proposal, SDT relates to flexibilities in the application ofthe formula, including longer implementation periods, less than formula cuts and theexclusion of some tariff lines. The present structure of the S&D provisions inparagraph 8 of Annex B is the 'minimum necessary' to meet the development goalsof the developing countries in this regard.

The proposal then comments on 'harmonisation of tariffs'. In this, the proposal isreferring to a key objective of developed countries in the negotiations, i.e. to'harmonise' tariffs (i.e. to bring down higher tariffs at steeper rates so as to be muchnearer to lower tariff rates). As the bound industrial tariffs of developing countriesare generally higher than those of developed countries, such a 'harmonisation'objective will result in significantly greater reductions in developing countries' tariffs.

The proposal stresses that 'harmonization of tariffs' is not an objective of this Round. 'It has not been envisaged in the Mandate and was not included in the JulyFramework as one of the necessary features of the formula. Harmonizing the customstariffs amongst countries with differing industrial/ economic structures and withvarying societal needs is not desirable and would not deliver the developmentobjective of the Round.'

The three countries state that after consideration of the various formulae proposed forthese negotiations, it believes that a Swiss 'type' formula incorporating each country'stariff average seems best suited to address the mandate in its entirety.

It then provides a formula in which the final bound rate of a product (after thereduction exercise) would be a function of a coefficient B to be multiplied by thecountry's current average bound rate and multiplied by the product's present boundbase rate, and then divided by B multiplied by the average bound rate plus the boundbase rate.

Analysts point out that this formula, which is similar to the so-called 'Girardformula', proposed by the Swiss Ambassador Pierre Girard who was then Chair ofthe NAMA negotiations, enables countries with a higher average bound tariff toreduce their tariffs less steeply than countries with a lower average bound tariff fromthe same starting point (i.e. the same present tariff). This is because the average tariffof a country is a key component of the formula and in a particular way.

Thus, the Girard formula, which the India-Brazil-Argentina proposal has termed'Swiss type' formula (as contrasted to the 'simple Swiss formula' proposed by majordeveloped countries, which does not contain the country's average tariff) enablescountries with higher bound tariffs to be subjected to more lenient tariff reductions.

As many developing countries have relatively high bound tariffs, the Girard formulais preferred by them over the simple Swiss formula which would require far steepercuts. Also for this reason, the developed countries had objected to the Girard formulain 2003 as they would like the developing countries to be subjected to very steep cuts. As a result of pressures from the major developed countries, the Girard formula fadedfrom sight, only to return now with the new India-Brazil-Argentina proposal.

The paper also states that the formula would apply to bound tariff lines. B is acoefficient whose value or values are to be determined by the participants. Moreover,the coefficient 'B' will be modulated to reflect the ambition in other areas relevant tomarket access agreed to for this Round.

This part of the paper can be interpreted as opening the possibility that the coefficientB can have more than one value, depending on the type of country or thecircumstances of countries. The statement that the coefficient B can be modulated isinterpreted by many to mean that the 'level of ambition' or the steepness of thereduction agreed to would partly depend on the results of negotiations in other areas,especially agriculture.

Commenting on its own proposal, the paper states: 'This is an equitable formula asit takes into account the present tariff commitments of Members. It improves thetariff profiles by compressing the dispersion of tariffs within each Member. It istransparent as it uses a well known factor, each Member's tariff average, as the basis. It seeks to match the ambition level in all areas of market access negotiations in theWTO, with the inclusion of a 'B' factor.

'The overall reduction commitment it imposes in percentage terms is proportionalamongst developed and developing countries, removing the shortcoming in the simpleSwiss formula that imposes much greater reduction requirements on the participatingdeveloping countries.

'The impact of any tariff reduction formula depends on the numbers which are theessence of the formula. At this stage the important consideration is whether theformula by its nature complies with the mandate, i.e. whether it reduces or eliminatestariff peaks, high tariffs, and tariff escalation taking fully into account the specialneeds and interests of developing and least-developed country participants, includingthrough less than full reciprocity in reduction commitments.'

The paper states that its formula is the most appropriate because it is based on thecurrent tariff profile; it has an element of progressivity in national tariffs; it allows forless than full reciprocity in reduction commitments; and its liberalizing effect can beadjusted by variations in the coefficient 'B'.

The proposal then deals with the mandate on SDT in applying the formula on currentbound tariffs. It states that the particular sensitivities of developing countries wouldbe attended by longer implementation periods, less than formula cuts for some tarifflines and the exclusion of some tariff lines from any formula cut. The figures relatedto those flexibilities would have to be negotiated after an agreement on the formulaitself.

The paper then deals with the treatment of unbound tariff lines. It concedes that'increasing the binding coverage to 100 per cent is a desirable objective for thisRound' but also says that however appropriate flexibilities are required by developingcountries to achieve this objective.

Its proposal is that the average as on the base date of presently unbound lines will bemarked up by x times, which shall be negotiated as indicated in the frameworkagreement.

Thereafter, the marked up unbound tariff lines could be bound at an average levelafter the application of the formula. Developing country Members would then havethe flexibility to fix individual tariff lines around this average. The formula forunbound tariff lines will be slightly modified i.e., the formula would apply only onthe tariff average and not on a line by line basis.

In the paper, the modified formula for unbound tariff lines is that the average tarifffor newly bound tariff lines shall be a function of a B coefficient (to be determinedduring negotiations) multiplied by the marked up tariff average of MFN applied rates(as on the base date) and multiplied by the tariff average of MFN applied rates (as onthe base date) and then divided by the B coefficient multiplied by the marked up tariffaverage of MFN applied rates plus the tariff average of MFN applied rates.

An examination of the paper shows that the major difference between this approachto unbound tariffs is that there is greater flexibility in that only the average tariff willbe reduced (thus enabling the country to choose the rates at which different tariff linesare to be cut, so long as the result of the exercise is that the targeted average rate forthe newly bound tariffs is met). In contrast, for those tariff lines that are alreadybound, the formula will apply on a 'line-by-line' basis, in that all tariff lines will beaffected (excepting those that are excluded through the SDT provision).

The India-Brazil-Argentina proposal also states that Members covered by paragraphs6 and 9 of Annex B of the framework shall not undertake tariff reductions in thisRound. Members should also recognize liberalisation recently undergone by newlyacceded Members. Paragraph 6 refers to countries with a binding coverage ofindustrial tariffs of less than 35% (this figure is still to be confirmed in negotiations)and paragraph 9 refers to LDCs.

A preliminary analysis is that the India-Brazil-Argentina proposal would most likelyresult in developing countries generally being subjected to less draconian tariffreductions, due to: (I) the choice of a Girard Swiss-type formula; (ii) the treatmentof unbound tariffs through an approach using the average tariff rather than aline-by-line tariff cut, and (iii) recognition of the need for flexibilities under the SDTprinciple.

However, the fact that the Girard formula is to apply on a line-by-line basis topresently bound tariffs reduces the degree of flexibility and policy space fordeveloping countries. Also, the suggestion that increasing the tariff bindings to 100%in this Round is desirable is a major concession compared to the wide flexibility inthe present system, in which countries are free to choose how many tariffs to bind andat what rates. However, the paper also advocates flexibilities including exceptionsto this 'desirable objective' under the SDT principle.

The India-Brazil-Argentina proposal is especially less draconian in comparison to theother proposals on the table from the US, the EC, Norway, Mexico-Chile-Colombia(See SUNS #5765, 22 March 2005), which had been presented at the last NAMAsession on 14-18 March.

These other proposals aim at 'high ambition' in tariff cuts, based on a simple Swissformula, a draconian treatment of unbound tariffs (i.e. that the current applied ratesbe each multiplied by two and then subjected to the formula cut line-by-line), andwith very restricted use (or no use at all) of flexibilities regarding exceptions toformula cut or tariff binding.

At Monday's NAMA meeting, the three countries presented their proposal. India saidthe proposal had two prongs, dealing with presently bound tariffs and treatment ofunbound tariffs. It stressed that the paragraph 8 (of the Annex B) flexibilities are abedrock and not a bargaining chip. It added that the value of coefficient B in theproposed formula would be used to indicate the level of ambition.

Brazil said that the proposal was rooted in the Doha mandate for NAMA and balancesambition with flexibility. It is also a departure from more defensive approaches of thepast. It added that development concerns are at the core of the liberalisation aspects,and that both components (development and liberalisation) have to be addressedtogether to take into account developing countries' concerns.

Egypt said that the proposal is a good basis for negotiations, supporting the need totake account of the SDT principle. It agreed with the proponents of the paper thatharmonisation of tariffs is not in the mandate.

Kenya, on behalf of the African Group, said the proposal meets three tests of SDT,less than full reciprocity and the special needs of developing countries. It saidhowever that 'we need to see the impact of the formula on preferences.' It supportedthe paper's proposal to exempt LDCs and countries with less than 35% tariff bindingsfrom tariff reduction in this Round.

The Philippines agreed that the Swiss-type formula being proposed was equitable andhad flexibility, meeting the principles of SDT and less than full reciprocity. It wantedto know on what basis the coefficient B would be selected. The Philippines howeverdid not support the proposal's treatment of unbound tariff, as the presently unboundtariffs should not be subject to formula cuts. It added that the India-Brazil-Argentinaformula (to be used for unbound tariffs) was only suitable for countries with highunbound tariff rates and not for countries with low applied and unbound rates. Itinstead supported the proposal on treatment of unbound tariffs by Malaysia.

(The Malaysian proposal, presented at the March meeting, is that unbound tariffs bebound at a maximum of 40% and at an average 25% rate, and that they should not besubjected to a formula cut).

Malaysia endorsed Philippines' statement on treatment of unbound tariffs.

Indonesia stated that the Doha mandate should be the guiding principle in thenegotiations, and that the 'Swiss type' formula (instead of the simple Swiss formula)is more appropriate for developing countries and for meeting development concerns.

The United States strongly criticised the proposal, saying it was unacceptable, did notcontain new ideas and was 'Girard minus minus' and did not provide market accessor equity. It had concern that the treatment of unbound tariffs made use of reductionson an average basis and not on a line-by-line basis. Politically it could not makeprogress in agriculture if it did not see progress in NAMA.

The NAMA negotiations continue the rest of this week and will end on 29 April witha warp-up plenary session. The topics being discussed include non-tariff barriers, thetariff-reduction formula, sectoral initiatives, non-reciprocal preferences, eliminationof low tariffs and data availability.