News and Analysis • Volume 11 • Number 6 • October 2007

NAMA Negotiations May Make or Break Doha Round

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After a majority of developing country WTO Members made clear their continued opposition to the July draft text on market access for industrial goods, the outcome of the talks is uncertain. Meanwhile, new research offers developing countries ammunition to defend their positions.

A large coalition of developing countries presented a controversial proposal on nonagricultural market access (NAMA) to the General Council on 9 October. The sponsors’ core demands were lower percentage tariff cuts for poor countries and a level of ambition comparable to that in agriculture (see page 1).

The paper also proposed a five-year implementation period for developed country tariff reductions and ten years for developing countries. Small and vulnerable economies (SVEs) should be allowed to take on smaller commitments than other developing countries, and be granted a longer implementation period. Extra time, as well as additional flexibilities, would also be ‘appropriate’ for recently acceded Members (RAMs) subject to formula cuts, i.e. China, Croatia, Oman and Taiwan. (Earlier in the NAMA consultations, other WTO Members were largely unconvinced by the RAMs’ new offer to limit the use of flexibilities they had sought originally.)

The so-called ‘paragraph 6’ group of poor countries with binding caps on fewer than 35 percent of their tariff lines should not be required to bind more than 70 percent of them, instead of the 90 percent suggested by chair Stephenson.

Row over Customs Unions

Sharp differences emerged at the General Council meeting on the suggestion that some developing countries would need additional flexibilities to ‘preserve the common external tariff in customs unions’.

Concerns about the effect of tariff liberalisation on developing country customs unions only recently came to prominence in NAMA discussions. South Africa, for instance, shares a customs union (SACU) with four neighbours not required to apply the tariff reduction formula. They stand to be disproportionately affected by a cut in the bloc’s external tariff. Brazil argued that Mercosur countries should also be given additional flexibilities in support of regional integration efforts.

The US and the EU said that while they were prepared to consider specific and limited exemptions, granting one to Mercosur as a whole was out the question. The EU, however, recognised that special treatment could be considered for SACU, which – unlike the Latin American bloc – is a fully fledged customs union.

New Simulations Show Cuts Would Bite in Applied Tariffs

A simulation exercise carried out by the WTO Secretariat in early September sheds some light on how the proposed coefficients and other disputed elements in the NAMA talks could play out.

The simulations factored in different coefficients for developed and developing countries, as well as the flexibilities available to the latter under paragraph 8 of the NAMA annex of the July 2004 framework agreement. These comprise the possibility of (a) applying less than formula cuts to up to 10 percent tariff lines (provided that these are not less than half the formula cuts and do not exceed 10 percent of the total value of a Member’s imports); or, (b) keeping tariff lines unbound, or not applying formula cuts for up to 5 percent of tariff lines, provided they do not exceed 5 percent of the total value of a Member’s imports.

The outcomes for developed countries under coefficients of eight or nine – suggested in the July 2007draft modalities – differed only marginally. For developing countries, the simulations applied coefficients ranging from 19 to 26. Ambassador Stephenson had proposed to limit the variation to 19-23 despite calls from Brazil, India, South Africa, China and others for a developing country coefficient of at least 30 (the higher the coefficient, the higher will be new bound tariff ceiling). The Secretariat’s simulations computed the impact of the flexibilities only for the range proposed in the July modalities draft, although many developing countries hold that these should be available independently of the coefficient eventually agreed upon.

Contrary to major industrial powers’ assertion that a coefficient of 20 at the most would be necessary to ensure ‘effective’ cuts in the applied tariffs of nations such as Brazil, the simulations show that many developing countries’ current applied tariffs would be reduced even with a coefficient as high as 26. The greatest reduction for all developing countries would result from the application of a coefficient of 19 with no flexibilities.

The table below shows the highest and lowest possible post-Doha Round bound and applied tariffs that could result from the use of different coefficients and flexibilities, as well as the range of reduction percentages that some of the key Members in the NAMA negotiations would be required to undertake under the scenarios envisaged in the Secretariat’s simulations.