| Developed Countries Advocate Steep Cuts in NAMA Tariffs
TWN Info Service on WTO and Trade Issues (Mar05/6)
21 March 2005
Third World Network Several developed countries have intensified their advocacy in the World Trade Organisation for a simple Swiss or non-linear formula that would result in steep tariff reductions in imports of industrial goods in developing countries. The developed countries’ proposals were made at the Non Agriculture Market Access (NAMA) Negotiating Group which met on 14-18 March. At informal meetings under the NAMA Negotiating Group in the WTO, the US circulated a paper which stated that a “simple Swiss formula, applied on a line-by-line basis” would be most effective in reducing tariffs. Norway submitted a formal paper (TN/MA/W/7/Add.1) which has also called for a Swiss formula with two coefficients, one for developed and another for developing country members. The Africa Group meanwhile asked that measures be taken to mitigate the loss of preference margins by preference-receiving countries resulting from the current exercise to cut tariffs. Below is an article by Goh Chien Yen of TWN on some of the developed countries’ proposals. A more detailed TWN report on the week’s NAMA negotiations will be issued later. Martin Khor
TWN ---------------------- Developed Countries Advocate Steep Cuts in NAMA Tariffs
By Goh Chien Yen
Third World Network
Geneva
16 March 2005 Several developed countries have intensified their advocacy in the World Trade Organisation for a simple Swiss or non-linear formula that would result in steep tariff reductions in imports of industrial goods in developing countries. The developed countries’ proposals were made at the Non Agriculture Market Access (NAMA) Negotiating Group which is meeting this week. At informal consultations that began Monday, the US circulated a paper which stated that a “simple Swiss formula, applied on a line-by-line basis” would be most effective in reducing tariffs. In a simple Swiss formula of the type proposed by the US, there will be an equation with a coefficient. The number in the coefficient will be the maximum level of tariff after the tariff-cutting exercise. For example, a coefficient of 8 would result in tariffs below 8% after the application of the formula. Thus, the lower the coefficient, the lower will be the cap placed on tariffs. The US has proposed that there be two coefficients in the use of the non-linear formula, with one value to be applied for developed countries and a higher one for developing countries. However, the US envisages that the difference will be small. According to the US communication, “in order to provide real market access…the coefficients would need to be within sight of each other.” Norway submitted a formal paper (TN/MA/W/7/Add.1) which has also called for a Swiss formula with two coefficients, one for developed and another for developing country members. Canada supported both proposals on the ground that the two-coefficient approach allows for an ambitious outcome which would occur when bound rates are cut to levels lower than current applied rates. In addition, these developed country members also view that the having two coefficients would be adequate in addressing the principles of less than full reciprocity and special and differential treatment (SDT) for developing countries which are contained in para 16 of the Doha Declaration dealing with NAMA. Indeed, they are indicating that having a higher coefficient for developing countries not only takes care of SDT but also that this would substitute for other flexibilities that have been suggested for developing countries. In para 8 of Annex B of the “July 2003 Package” which deals with NAMA, it is proposed that developing countries have longer implementation periods for tariff reduction, as well “flexibilities” such as application of less than formula cuts up to a certain percentage of tariff lines, and keeping (as an exception) a certain percent of tariff lines unbound, or not applying formula cuts for up to a certain percent of tariff lines (with the actual percentages to be negotiated). Some of the developed countries are now proposing that the flexibilities in para 8 be removed, should the two-coefficients approach be adopted. The US sees a higher coefficient in the formula for developing countries “as an alternative to paragraph 8 of the framework.” Similarly, Canada views that building less than full reciprocity into the formula would require adjustments to other SDT elements in the modalities, particularly paragraph 8 of the July Package. Some Latin American developing countries are also calling for a “high level of ambition” in achieving steep tariff cuts. Mexico, Chile and Colombia, developing country are advocating significant tariff reductions through their joint proposal (TN/MA/W/50), by linking the extent to which developing countries could have recourse to the flexibilities currently contained in paragraph 8 of the July Package to their tariff commitments in to terms of the extent of tariff bindings and the rate of tariff reduction. Most other developing countries are against having to be subjected to a simple Swiss or non-linear formula which would drastically reduce their industrial tariffs. Many African country members are not required to make tariff reduction commitments under the formula by virtue of paragraph 6 and 9 of Annex B of the July Package, which exempts LDCs and countries with less than 35% of their tariffs bound from applying the formula to their tariffs. However, the African Group is deeply concerned with the erosion of their non-reciprocal preferences as a result of dramatic cuts in MFN tariff rates under the Swiss formula. Kenya speaking on behalf of the group, pointed out that “preferences have played a key role in strengthening some of the African countries’ weak and vulnerable industrial base by increasing export earnings, export diversification, attracting investment, facilitating the transfer of technology…additionally, these preferences have helped some African countries to penetrate global markets” “For this reason,” Kenya explained to members during the NAMA discussions “some African countries will need to continue to utilize non-reciprocal preferences in order to secure a share in the growth of world trade.” Referring to part IV of the African Group’s formal WTO submission on preferences (TN/MA/W/49), Kenya proposed the use of a correction co-efficient to improve on the preferences margins for products benefiting from preferential market access. It said that longer implementation periods will be required (for the reduction of tariffs of these products) to prepare African economies to adjust their manufacturing structures. “For products which are not zero-rated…preference giving members would have to maintain if not improve the margin of preferences by adjusting the levels of preference rates accordingly,” Kenya said. “With a view to identifying these products in an objective and scientific manner”, Mauritius speaking on behalf of the ACP group introduced the following methodology contained in their formal submission (TN/MA/W/53) to members during the NAMA consultations.” According to the Africa Group’s formal submission, a country to be considered vulnerable to preference erosion will possess the following characteristics: it must already enjoy significant preferences (for the "erosion of preferences" to take place), it depends on few export products and export markets, and it is a small exporter, relative to the world. In concrete terms, this can be calculated using three relationships: the share of the particular product of the importing country on the total exports of the exporting country; the share of the particular product of the exporting country in the importing country; the world market share of the exporting country, for the particular product. These factors can be condensed in an "index of vulnerability". In other words, said the Africa Group, the country will be more vulnerable the less diversified its export markets and export products are, and the smaller its world share is.” In addition, Kenya pointed out that “the preference giving members should improve the conditions attached to non-reciprocal preference schemes, by making them less stringent while at the time eliminating market entry barriers.” Kenya added that this will be in line with the 2005 Commission for Africa Report, which recommended “an improvement of preferential trade coverage for sub-Saharan Africa and relaxation of the rules of origin, and that developed countries should immediately extend quota and duty free access to all exports from Sub-Saharan countries.”
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