Divergences over modalities for tariff reduction in NAMA talks

By Goh Chien Yen (TWN),
Geneva, 8 June 2005

A joint proposal by Argentina, Brazil and India (referred to as the ABI proposal) drew strong reactions when weeklong negotiations (6-10 June) on non-agricultural market access (NAMA) resumed at the WTO on 6 June.

Developed countries including the US, the EU, Norway, Australia, New Zealand andJapan reacted emphatically against the ABI proposal, which deals with the formulafor tariff reduction, the treatment of unbound tariff lines and special and differentialtreatment (SDT) for developing countries.

During discussions Tuesday under the socalled 'Room D' process (meeting in a smallroom)over the formula for tariff reduction, Japan criticized the ABI proposal (seearticle above) of using the average bound rate in the formula as being 'not equitable',as this does not 'redress the tariff disparities among Members.'

'A formula with average bound rate will not create for some Members new tradeflows for development which the DDA (Doha Development Agenda) aims for,' Japansaid.

Joining in this line of argument, Norway said that 'Japan's presentation of the ABIproposal pinpointed why after so many years of negotiations, a Girard-type formulacannot be accepted.'

Norway added that the ABI proposal would lead to 'arbitrary discrimination amongdeveloping countries.' Hence, it is necessary to 'get rid of the ABI proposal and geta formula which requires poor developing countries to reduce less than the richerdeveloping countries,' Norway said.

According to trade diplomats following the talks, New Zealand echoed the sentimentsaying that the ABI proposal would have inequitable impact on developing countries,with developing countries with low tariff rates having to undertake deeper cuts.

The US and the EC more candidly stated their opposition to using average boundtariff in the formula as the ABI proposal has done. 'Nothing is to be gained in termsof real market access if we do not cut into applied rates,' the US stressed. 'End ratesare of primary importance for EC companies,' the EC said.

As far as the EC was concerned, any formula which does not lead to real marketaccess will not be supported by them. 'Lack of ambition is not for the EC,' it said.

Developed country members are also concerned that the ABI proposal would notreduce the existing applied tariff, given the difference between bound and appliedtariff rates.

India pointed out that if some members insisted on going beyond the applied rates,developing countries could raise their existing applied rates to bound levels.

Australia and Canada supported a simple Swiss formula over the ABI proposal on thegrounds of transparency, predictability and simplifying the negotiations. Canada saidthat this is a 'complex negotiations and therefore we would need a simple formulaand not the ABI.'

On the other hand, many developing country members reiterated the importantfunction of tariffs in their economies and development efforts. They urged a moreflexible approach towards the reduction of their tariffs that would retain their policyspace.

Guyana said that members should not refer to inequities and reminded them thatunder the previous round of tariff negotiations, many present here 'did not want toadopt a Swiss formula.'

Guyana pointed out that 'bound tariffs play an important role for the Caribbeancountries and the only reason why we can sustain low applied tariffs is because wehave higher bound tariffs.'

'We should be conscious of progressive liberalization and cannot undermine thepurpose of bound rates,' Guyana added.

Jamaica said that the 'formula should allow small, open economies policy space.Maintaining flexibility in their tariff structures is very important for these developingcountries, which have fledging and vulnerable manufacturing sectors.'

Antigua and Barbuda, speaking on behalf of St. Kitts and Nevis, St. Lucia, Grenadaand Dominica, highlighted the importance of tariffs to small developing countries.They pointed out that small industries require protection and tariffs are also neededfor public revenue generation and building resilience to external shocks. For thesecountries, Antigua and Barbuda said that the 'formula that takes into account theaverage bound tariff operationalises the principle of less than full reciprocity.'

Trinidad and Tobago said that 'there must be different coefficients if the formula isto deliver on less than full reciprocity and at this juncture, the use of average boundtariff is a useful starting point.'

Barbados added that the formula for tariff reduction should 'take into account I) tradeprofiles of members, ii) ability to offer further concessions and iii) ability toaccommodate differences between trading partners. Therefore, in the context of lessthan full reciprocity, the formula should take into account the average bound tariff andsubstantially varied coefficients.' In this respect, Barbados said that 'a simple Swissformula would not conform to our expectations and requirements of less than fullreciprocity.'

Guatemala, speaking on behalf of Honduras and El Salvador, pointed out that noneof the coefficients used in the developed country members' proposals addressed theirneeds. 'As small developing country economies, they would face great challenges inabsorbing tariff cuts and any formula adopted must take into account the tariffstructures of members,' Guatemala argued.

Indonesia, in commenting on the US proposal for a simple Swiss formula, said thatthe US proposal 'needs to further accommodate developing countries' concerns andthe principle of less than full reciprocity should be substantially incorporated into theformula and there should be substantially different coefficients' in this regard.

China informed members that it had joined the consensus on a Swiss formula at theAPEC Ministerial meeting (held in Korea on 1-2 June) on the understanding that asufficient gap be left between the coefficients for developed and developing countriesand that attention be paid to the needs of newly acceded Members. From its point ofview, China said that the formula must take into account market access and policyspace for developing countries.

Mauritius pointed out that the proposals so far have not captured all elements ofAnnex B of the July Package, and that 'preference erosion cannot be treated as astand-alone issue.'

'It must be factored into the formula,' Mauritius said, adding that 'adequatelydifferentiated coefficients for developing countries should provide sufficient policyspace.'

'We cannot be guided by market access considerations alone if development is to beour goal.'

With respect to a system of credits to be considered in relation to tariff reductioncommitments, Jamaica proposed that 'i) credits could be built into the formula inrespect of tariff revenue dependency, ii) existing level of trade openness as measuredby trade to GDP or import to GDP ratio, iii) macroeconomic vulnerability, and iv)autonomous liberalization measures, though not bound, undertaken in the context ofregional trading arrangements as well as through structural adjustment efforts.'

Jamaica stressed that this system of credit 'should not be a substitute for less than fullreciprocity.'

With respect to the issue of special and differential treatment (SDT) and flexibilitiesfor developing countries, Members disagreed on whether the current flexibilities fordeveloping countries contained in paragraph 8 of Annex B should be linked to howambitious the formula for making tariff reduction would be. Developed countrymembers have tried to narrow developing countries' recourse to SDT contained inparagraph 8 in their proposals.

During the informal open-ended meeting, Trinidad and Tobago said that theflexibilities contained in paragraph 8 is 'sacrosanct and represents the core elementsof special and differential treatment,' especially when it is not a least developedcountry or a paragraph 6 country. (Paragraph 6 of Annex B exempts countries withless than 35% of their tariff lines unbound from making tariff reduction commitmentsunder the eventual formula.)

This was supported by most developing countries including Indonesia, Bolivia,Guatemala, Barbados, Jamaica, and the Philippines.

Barbados made clear that 'with regards to SDT, paragraph 8 is an absolute minimumand cannot be made conditional.' Guatemala in sharing this view, said that 'these areminimum flexibilities and developing countries might forward others.'

The US, however, was far more circumspect on this issue of SDT. The US said that'we need to evaluate relevant equivalents of paragraph 8 to the formula.' The US isconcerned that if some members put their highest tariff rates in paragraph 8, thiswould mitigate the level of ambition they would like to see with the simple Swissformula. From their point of view, 'paragraph 8 is not insignificant.'

On the treatment of unbound tariffs, several countries including Korea, the US, NewZealand, Switzerland and Australia want to see all unbound tariff lines bound andthen be subjected to formula cuts. According to Korea, 'binding per se is not aconcession and unbound tariffs must be cut.'

In relation to how these tariff lines are to be cut, India reiterated the ABI proposal thatit should not be done on a line-by-line basis, but as an overall target reduction.Switzerland and Japan, however, voiced their opposition to the ABI proposal. The USand Australia insisted that the formula for cutting unbound tariffs should apply on aline-by-line basis. The US added that they are willing to support a substantial markup of low unbound tariffs.

Pakistan supported Malaysia's proposal on unbound tariffs. According to theMalaysian proposal, unbound tariff lines are to be bound at an average of 25% witha maximum of no more than 40% for each of these tariff lines. Furthermore, 'no tariffreductions in this round' are to be made 'for new tariff bindings.'

Despite the disparity of views, some developed country members were quick to seea convergence of opinions. Japan felt that members 'were achieving consensus on theSwiss formula' and all were in agreement that 'cuts would result in adequate marketaccess.' Japan also concluded that 'all agreed that we want the shape of the formulabefore summer break.' Japan's list of commonalities was also shared by the EC.