NAMA negotiations hit a snag as developed countries attack the Argentina-Brazil-India proposal

By Goh Chien Yen, Geneva, 2 May 2005
Published in South-North-Development Monitor 3 May 2005

The negotiations on non-agriculture market access (NAMA) hit a snag last week when a joint proposal by Argentina, Brazil and India (now termed the ABI proposal) drew strong criticisms from developed countries, supported by some Latin American countries. The ABI proposal, however, received support from some developing countries, including Kenya, Malaysia,Jamaica and Trinidad and Tobago.

The ABI proposal includes two main components: (i) a 'Swiss-type' formula to beapplied line-by-line to countries' bound tariffs, and in which the country's averagetariff rate is part of the formula; and (ii) a treatment of unbound tariffs in whichreduction from base values would be made on the average tariffs (rather thanline-by-line cuts through a formula), thus giving flexibility for countries to choose byhow much to reduce each tariff line (See SUNS #5788 of 26 April).

The battle lines had already been drawn at the plenary session on 25 April when Indiaand Brazil presented their paper, which then drew mixed reactions, with heavycriticism from the United States and support from several developing countries.

The discussion then shifted to informal mode in a smaller room (Room D) on 26-27April, with the EU, some Latin American countries and Japan joining the US inattacking the proposal.

The opponents' main points were that the ABI formula for cutting bound tariffs wasbased on a formula presented at the beginning of the negotiations in 2003 bySwitzerland's Ambassador Girard, and which they said had already been rejected.

They questioned whether this formula would meet the objectives of the mandate.Some said it was not ambitious and would create inequities and tariff dispersion.Others rejected the use of the members' average bound rates in the formula since thiswould create a situation in which 'there would be flexibilities only for some'(Mexico); protectionist countries would make smaller reductions since it would shieldproducts of some countries with high tariffs from real liberalization (Peru); and wouldforce some developing countries to make deeper cuts than others relatively richer(Norway).

Some developing countries spoke in favour of the proposal, stating that it incorporatesthe two concepts of Less than Full Reciprocity in reduction commitments bydeveloping countries and, separately, Special and Differential Treatment fordeveloping countries. Some countries also said it needed some improvements.

When introducing the proposal, India said that members' contribution to marketaccess had to be commensurate with their capabilities and level of economicdevelopment. Said India: 'Our proposal allows for a better balance and modulationof ambition levels in line with the results in other areas of negotiations as well as theparticular sensitivities of Member countries. It is a common formula approach thatdoes not employ the 'one size fits all' standard. On the contrary, it is sufficientlyflexible to be adapted to varying ambition levels while retaining sensitivity for therequirements of developing countries for more flexibility'.

Brazil said that the proposal had development very much in mind, combined withliberalization.

In a strong attack, the EU said the ABI proposal was completely unacceptable to its25 constituent countries which command a trade volume of $1.4 trillion.

The EU and other developed country members were particularly opposed to theproposal's use of each country's national bound average tariff as part of the formulafor calculating tariff cuts. This approach had been first suggested by Girard when hewas Chair of the NAMA negotiating group in 2003, before Cancun. Developedcountry members have attacked this approach, claiming it would not lead tosubstantial cuts in the tariffs of developing countries.

Australia said that the ABI proposal was not viable as the suggested formula 'doesnot bite into applied rates in the absence of less than one coefficient.' Japan said theproposal was 'not satisfactory' since it was not ambitious enough to improve realmarket access and reduce the disparities of tariffs between Members in order to fostertrade and economy of the world.

The EU stated emphatically that if the national average tariff is used in the formula,there would be no negotiations. Characterizing the proposal as 'going backwards',the EU argued that the so-called Girard or Swiss-type formula would also lead toinequity. By using the national average tariff, the EU contended that tariffs will beinsufficiently slashed and consequently there will not be new market access fordeveloping countries and the newly acceded members of the WTO.

It also said that preferential market access will be adversely affected if the developedcountries also started to use their national average tariff in the formula for makingtariff reductions.

Also rejecting the Swiss-type formula, the US argued that getting rid of high tariffs,tariff peaks and escalation is expected to be done by all members, and not just thedeveloped countries. According to the US, this could not be done through the ABIproposal.

The EU was also against the proposal's concept that developing countries should haverecourse to special and differential treatment such as longer implementation periodand keeping some of their tariff lines exempt from reduction. The EU's position wasthat developing countries would not be eligible for these flexibilities if they did notembark on a substantial reduction of all their tariff lines, through a common approachfor all members to cut tariffs.

In contrast, India, Brazil and Argentina have proposed different rates of tariffreduction for developing and developed countries and that all developing countriesshould have further flexibilities, according to the principles of 'less than fullreciprocity' and special and differential treatment as stipulated in the Doha mandate.

The US argued that the 'less than full reciprocity' principle was already satisfiedthrough the NAMA Annex in the July 2004 framework, since this exempts LDCsfrom making tariff reductions, allows a small number of developing countries havinglow level of tariff bindings to undertake a modest tariff cut, and contains otherflexibilities in its paragraph 8, such as longer implementation period for developingcountries. As such, the developing countries should not expect a different rate of tariffreduction from that of developed countries. The US was insistent that 'all countriesmust contribute.'

At the previous NAMA session in March, the developed countries have set conditionsthat the extent of 'paragraph 8 flexibilities' allowed would depend on how ambitiousthe formula for tariff reductions would be for developing countries. Linking the twoaspects, they have argued that only if an aggressive formula for making tariff cuts isused, would developing countries be entitled to use these S&D provisions.

On the issue of the treatment of unbound tariffs, the ABI proposal has also incurredthe ire of the EU. Argentina, Brazil and India have proposed that an averagereduction target for unbound tariffs be determined through a formula. This reductiontarget will not be applied on the unbound tariffs on a line-by-line basis, therebyproviding some flexibility to developing countries when they determine how theirunbound tariffs would be bound into the WTO system.

However, the EU stated that it was not going to entertain this proposed method forunbound tariffs. These tariffs, according to the EU, should simply be multiplied bytwo times (to obtain base values), be reduced via an ambitious formula, and thenbound.

Brazil gave a spirited and detailed response to the barrage of criticisms. It argued thattheir joint proposal is 'balanced because besides addressing tariff peaks, high tariffsand tariff escalation, it preserves for developing countries the freedom to use tariffstructure to promote industrialisation and investment.'

Brazil added that it would not like to follow the example of some developed Membersthat, after reducing significantly their tariffs, now have resorted to highly questionabletrade defense practices.

Brazil reminded Members that the 'mandate establishes that we negotiate on the basisof bound tariff We do not think that these countries shall be rushed to reduce all theirindustrial tariffs to under the applied levels, lest their economies might go throughsevere and painful adjustments, with deep social consequences that our countries donot have the means to take on.'

Speaking also on behalf of Argentina and India, Brazil pointed out that their proposal'does not attempt to negotiate away the less than full reciprocity in reductioncommitments and the flexibilities in paragraph 8 in order to get a higher coefficientin a Swiss formula, thereby giving away the principles provided for in the mandateand in Annex B of the July Package.

'These elements are already there and are not supposed to be subjected to trade-offs,'Brazil emphasized.

Brazil also queried why those delegations that spoke so enthusiastically about the lackof equity in the proposal, would actually want to destroy or to shove the principles ofless than full reciprocity and S&D under the carpet.

Brazil explained that they 'tried to reflect in their proposal the main objective of thisRound, that is, development,' rather than how other delegations have done to 'readit according to their interests and negotiating strategies.' Brazil stressed that'ambition' should be defined in terms of 'giving concrete meaning to developmentin terms of achieving better market access to products exported by developingcountries, without impairing their capacity to continue on their industrialisation path,according to their particular economic and social situations.'

Several developing countries, including Malaysia, Jamaica, Ecuador, and Trinidadand Tobago supported the ABI proposal and its usage of national average tariff indetermining the formula for making tariff reductions. Apart from havingdifferentiated coefficients between developed and developing countries, Barbados andTrinidad and Tobago argued for multiple coefficients for developing countries.

Jamaica, and some other countries, also supported the ABI proposal for separatelytreating the principle of less than full reciprocity and the principle of S&D treatment,rather than merging the two, which some other proposals had sought to do.

In his conclusion on the debate on the ABI proposal, Ambassador StefanJohananesson of Iceland, Chairman of the NAMA negotiating group, said that 'on theform of the formula, members are all focusing on the Swiss type formula, what is tobe done now is to work out the details.'

He added that there are enormous differences, for example, on the question of thecoefficient, how many coefficients there would be, how the coefficient is to bedetermined, and whether the coefficient is independent of the flexibilities. There arealso differences over the level of ambition and objectives of the negotiations, he said.

He noted that there were further divergences over the treatment of unbound tariffssuch as differences in methodology, whether binding should be considered asconcessions, and whether newly bound tariffs should be subjected to cuts.

Besides the ABI proposal, the NAMA informal meeting also discussed otherproposals regarding the formula, the sectoral approach and the erosion of preferences. In addition, non-tariff barriers were discussed in informal bilateral meetings.

Norway explained the major objectives of their proposed formula, i.e. a Swissformula using dual coefficients with credits (to be able to apply a more lenientcoefficient) for members that choose not to make use of 'flexibilities' contained inpara 8 of the NAMA framework, i.e. those that choose to bind all tariffs, applyformula cuts to all tariff lines and participate in sectors of export interest todeveloping countries.

Two papers were tabled on the 'sectoral component', i.e. that for selected sectorsthere be accelerated liberalization, including that tariffs be reduced to zero. A revisedproposal by the United Arab Emirates (TN/MA/W/37.add2) contained a list of products (raw materials) which could be included for a zero-for-zero elimination ofduties.

The US explained their joint proposal with Canada (TN/MA/W/55) on a 'criticalmass' approach to the sectoral component. It said that in the last few weeks therewere meetings to explore different proposals relating to chemicals, wood products,fish, pharmaceuticals, jewels, electronics, environmental goods, etc.

Critical mass could be achieved when a number of countries decide to participate ina sectoral initiative when their collective volume of trade accounts for 80 or 90percent of the total. So what counts is the value of trade more than number ofcountries, said the US.

There was also a debate on non-reciprocal preferences based on two submissionsfrom the African Group (TN/MA/W/49) and the ACP Group of States(TN/MA/W/53), with parties taking their old positions. The ACP countries putforward their case that continuation of preferences are needed by their small andvulnerable economies for them to participate in world trade. Many countries (mostlyLatin-American) continued their opposition to the perpetuation of preferences at theWTO, which they consider unfair, discriminatory and against the MFN principle.

Old positions were also maintained in a debate on the elimination of low duties, i.e.duties below 5%. The discussion was based on a Canada-Norway paper(TN/MA/W/52) proposing that Members should bind to zero, at the conclusion of theround, base rate duties that are below a figure to be agreed but which they propose tobe 5%. Several countries said they need to maintain low tariffs including for revenuepurposes while others consider they are effective to protect industries, and entailedunnecessary administrative costs.

At a formal session on Friday afternoon, several members reported on small groupmeetings they held on non-tariff barriers and the sectoral component. The USreported on two meetings it had sponsored on NTBs in the auto and footwearindustries. Korea reported on its meeting on the electronic industry, Canada onforestry products, the EC on export taxes as an NTB, New Zealand on wood products,and Switzerland on pharmaceutical and medical equipment, and on chemicals.

In his concluding remarks, the Chairman of the NAMA negotiating group said thatMembers had accepted the use of a non-linear formula and more particularly a Swissor Swiss type formula. He added that there is wide divergence of views on thetreatment of unbound tariff lines, and that the guidance of Ministers would beneeded.

He also said the small group discussions he had held on the formula, unbound tarifflines and NTB's were 'better than expected' but he encouraged members to workharder on the first two issues since there are only 35 workings days before the July 'approximation'. The next NAMA negotiating group meeting will be on 6-8 June.