News and Analysis • Volume 11 • Number 5 • August 2007
Members Still Differ on the Meaning of Balance in NAMA
The draft modalities on non-agricultural market access circulated on 17 July have angered several influential developing countries in the NAMA-11 group, which maintain that the proposed tariff cuts would require greater efforts from developing than developled countries.
For the critics, it is all a question of balance. They claim that the text does not respect the principle of ‘less than full reciprocity in reduction commitments’ within the NAMA negotiations, and that the asymmetry of the proposed concessions in agriculture and industrial market access would have a negative impact on developing countries’ competitiveness.
NAMA chair Donald Stephenson defended his draft by saying that Members had given him a mandate to “move the negotiations forward by proposing specific outcomes, not rehearsing everyone’s position, and challenging all to compromise.” Once the proposed modalities have been applied, he said, the EU and the US would have more than 90 percent of their duties below 5 percent, and their tariff peaks would be lowered to between 7 and 8.5 percent. For most of the developing countries that would apply the formula, the average bound tariff would be below 12 percent, and only ‘a handful’ would have averages above 15 percent.
Proposed Coefficients Much Closer than Sought by NAMA-11
Import duties would be cut through the ‘Swiss formula’, which reduces high tariffs more steeply than lower ones. The coefficients, which determine a Member’s future tariff cap, would be 8 or 9 for industrialised countries, and between 19 and 23 for developing countries.
A coefficient of 8 would cut the US’ average bound tariff rate from 3.3 percent to 2.3 percent. More significantly for trade flows, it would sharply reduce tariffs on the handful of politically sensitive products that Washington has protected throughout half a century of liberalisation – often the very products, such as textiles, that developing countries export competitively. For instance, the highest industrial import tariff applied by the US is 55 percent, according to recent WTO data. A Swiss formula with a coefficient of 8 would slash this to about 7 percent. The EU’s top rate would fall from 26 percent to 6.1 percent.
Developing countries would face larger percentage cuts to their bound tariff rates. Brazil’s average bound tariff would fall from 30.8 percent to 11.75 percent with a coefficient of 19, and to 13.1 percent with a coefficient of 23. Its current average applied rate is 12.6 percent. The 30 coefficient it was seeking would have yielded a 15.2 percent average bound ceiling. According to calculations carried out by the WTO Secretariat last year, a coefficient of 20 would force reductions to duties currently levied on about half of Brazil’s tariff lines; for India the figure would probably rise over 60 percent.
The US, the EU and other developed countries had pushed for coefficients of 10 and 15, arguing that this was necessary for ‘real market access’, by which they mean a substantial cut in applied tariffs rather than simply the bound ceiling rates that are the standard basis for WTO negotiations.
Brazil and India, in contrast, had sought a coefficient no lower than 30, complaining that industrialised countries’ demands would require poor countries to make disproportionately deep cuts to their industrial tariffs. The NAMA-11 bloc, to which they belong together with other developing countries such as South Africa, Indonesia, and Argentina, has argued that coefficients as far apart as 10 and 35 would cut their own bound rates by close to 50 percent, and lead to roughly equivalent 25-percent cuts to the tariffs applied both by them and by rich countries (Bridges Year 11 No.4 page 6).
The figures in the text closely mirror a late-June ‘possible middle ground solution’ proposed by eight Latin American and Asian nations, in which they called for a developed country coefficient of ‘less than 10’ and one for developing countries ‘between the upper teens and the low twenties’. The NAMA-11 gave the notion a cool response, particularly since most of paper’s sponsors – Chile, Colombia, Costa Rica, Hong Kong, Mexico, Peru, Singapore and Thailand – either have unusually low tariffs to begin with or enjoy duty-free trade with their principal trading partners due to bilateral agreements, and thus are less likely to worry about major dislocation as a result of the Doha Round.
Flexibilities
Developing countries would be allowed to shield a limited proportion of their manufactured products from increased competition from imports. One option open to them is subjecting up to 10 percent of tariff lines to only half of the regular cut, so long as this does not affect more than a tenth of total manufactured imports. Alternatively, they could exclude 5 percent of tariff lines from cuts altogether, up to a maximum of 5 percent of import volume. Countries electing not to use either flexibility would be eligible for a coefficient three points higher than that agreed to for their peers.
Only 31 developing countries will apply the overall tariff reduction formula. Leastdeveloped countries are exempt from reduction commitments. Different approaches would be used to determine the future tariff ceilings of small economies and countries with a high proportion of unbound tariff lines.
China and other recently acceded Members (RAMs) had asked to be granted a coefficient higher than other developing countries given the far-reaching liberalisation commitments they had to make in order to join the WTO. The text proposes that six RAMs be excused from further tariff reductions due to their very recent accession or economic circumstances, while those with NAMA trade accounting for less then 0.1 percent of the world total should be allowed smaller cuts. Others – including China – would only be granted extended implementation periods.
The NAMA chair said little about sectorspecific liberalisation initiatives, suggesting simply that sectoral negotiations would need to be finished in time for Members to reflect them in their commitment schedules.