WTO Ministerial Section • Volume 7 • Number 15 • 30th April 2003

Development Central Issue to Market Access Talks

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Convergence over how to structure negotiations on market access for industrial goods continued to elude countries as they met for a 14-16 April meeting of the WTO’s Negotiating Group on Non-agricultural Market Access last week. With a 31 May deadline looming for the group to agree on a framework for negotiations on market access for non-agricultural products, many are now sceptical that Members have enough time or political will to reach agreement on how to proceed. Differences remain over a number of areas, including: how to address the mandate of special treatment for developing and least-developed country participants, including through less than full reciprocity in reduction commitments; which type of formula to use to reduce tariffs; whether these negotiations should include reference to the complete elimination of tariffs; and how to define and address non-tariff barriers. The Chair of the Negotiating Group, Pierre-Louis Girard (Switzerland), indicated that he plans to distribute an initial draft outline of parameters for the negotiations in mid-May that will attempt to bridge these areas. Due to the packed agenda, there was no discussion of environmental goods at the 14-16 April meeting (definitional issues in this area are being addressed for the most part at special sessions of the Committee on Trade and Environment, see http://www.ictsd.org/weekly/03-02-19/story4.htm).

Developing countries express concern over tariff reduction

In its intervention at the Negotiating Group on behalf of several African and Asian countries (Egypt, India, Indonesia, Kenya, Malaysia, Mauritius, Tanzania, Uganda and Zimbabwe; TN/MA/W/31, available at http://docsonline.wto.org), Nigeria highlighted the importance of "less than full reciprocity in reduction commitments" for tariffs between developed and developing countries. Nigeria told the Group that tariffs are an "instrument of domestic industrial policy" for many developing countries, and revenue from customs duties forms a significant share of their overall revenue, which goes to meet their developmental expenditure. "Alternative forms of taxation will take long periods of time to become available and supplement and replace the loss of customs revenue," Nigeria added. "Tariffs are a tool for developing countries, maybe the only tool, and if we take them away there won’t be any protection left for us," the statement said.

Tariffs are important revenue generators for poorer states, where income and other tax collection systems are underdeveloped. According to IMF figures, import duties represented 15 percent of government revenue in developing countries in 1999-2001. In African least- developed countries, the percentage was more than twice as high, at 34 percent.

In its statement, the US countered this claim, saying that tariffs are neither an equitable nor economically efficient means for developing countries to raise revenues, as they "tend to distort resource allocation and shift the tax burden to the poorest segments of the economy". "We do not want a general nervousness about revenue consequences — or even the revenue problems associated with a particular group of countries — to limit the overall ambition of this negotiating group," the US paper said. In a 26 November 2002 paper, the US had proposed scrapping tariffs on virtually all industrial and consumer products by 2015, a perspective shared by New Zealand. At the meeting, Australia, New Zealand and the US said they wanted the option of total elimination of tariffs to be included in the Chair’s forthcoming May text.

But developing countries in the Nigerian group cautioned that they would have difficulty accepting the elimination of all tariffs as the objective of the negotiations "even in an extended timeframe". Barbados, Jamaica, and Trinidad and Tobago (TN/MA/W/30) echoed the African/Asian group, saying that the economic realities and level of development of each Member must dictate the pace at which tariff reduction takes place.

Which formula?

According to a WTO Secretariat supporting document (TN/MA/6/Rev.1), 17 of the 25 proposals submitted so far on modalities (i.e. ways to structure tariff reduction negotiations) suggest the use of a formula approach. Different formulas exist, including those that apply on a tariff-by-tariff (line-by-line) basis, sector-by-sector, zero-for-zero, the ‘Swiss’ formula with different coefficients, a reduction in the average tariff, or a combination of these. Harmonisation and request/offer processes have also been put forward by some countries as supplementary approaches.

Developing countries are pushing for modalities that provide spaces for less than full reciprocity. According to the submission from Barbados et. al, negotiating modalities must not require unreasonable tariff reductions that result in serious economic and social dislocations in small domestic markets. Other important considerations in the formulation of modalities, they said, include the percentage rates for tariff reductions, special and differential treatment for sensitive products and sectors, and relevant time periods for implementation in terms of the overall negotiations.

The group including Nigeria said it preferred a linear percentage reduction in tariffs, wherein lower percentage average reductions could be used for developing countries, and higher ones for industrialised Members. They argued against Swiss-type formula approaches, saying these impact more heavily on tariff structures of developing countries. In a separate submission (TN/MA/W/10/Add.2), India proposed a formula under which the target for reductions would be 50 percent for developed countries and 33 percent for developing countries. Australia said that a linear based formula would not address the mandate to eliminate tariff peaks, high tariffs and tariff escalation, and said it preferred a harmonisation formula, which it indicated would tackle these issues.

In another document discussed at the Group, (TN/MA/W/15/Add.2), Japan elaborated on its proposal for ‘zero-for-zero’ and harmonisation formulas. Japan’s approach was opposed by a number of Members, who noted that it excluded fisheries and forestry. Malaysia and the Philippines pointed out that the two excluded sectors are heavily protected in Japan and that the proposal was "extremely self-serving". New Zealand warned against flexibility and exclusion of products, as they might constitute a "slippery slope", and said "it would be difficult to stop even developed countries from asking for sensitive selective products’ exclusion".

For its part, the EC elaborated on its proposal to compress tariffs above 50 percent and below to a range of 15 to zero percent. The EC approach also aims to eliminate all so-called ‘nuisance’ tariffs (those two percent and below), and reduce tariff peaks and tariff escalation. While most developing countries agree with reducing tariff peaks and escalation — which often discriminate against products of higher value- added — they caution that eliminating nuisance tariffs should not be considered as a concession equivalent to reduction of higher tariffs.

Lack of progress on agriculture holding up MA talks

Chile noted that while the EC seemed to support free trade in non- agricultural products, its perspective on agriculture left much to be desired. "If the EC had the same ambition in agriculture as it shows here it would help a lot the Doha Round," Chile said. Other Latin American countries, including Brazil, intimated that the continuing stalemate in agriculture talks at the WTO (see BRIDGES Weekly, 2 April 2003) could have ramifications in the non-agricultural market access negotiations. According to one Latin American trade source, "It is totally unrealistic to agree to modalities on non-agricultural market access without agreement on agriculture [modalities]".

Non-tariff barriers

Members continue to grapple with how to address non-tariff barriers (NTBs). These are referred to in the Doha Declaration, but it is not clear how negotiations are meant to proceed. Fifteen submissions were made by developing and developed countries on NTBs (see Secretariat overview of proposals submitted, TN/MA/9), providing a variety of different approaches for dealing with this issue. Many included detailed information on what the scope of NTB negotiations should be in the Negotiating Group and elsewhere. Since many NTBs relate to existing bodies in the WTO (i.e. Customs Valuation Committee, Committee on Technical Barriers to Trade, etc.), many submissions note that the matter should be taken up in the relevant committees. Many proposals also note that other NTB issues related to negotiations (i.e. Services, Trade Facilitation, etc.) should be addressed by other negotiating bodies. Only one submission states that NTBs should be identified and negotiated in the Negotiating Group on Non-agricultural Market Access. Like in the tariff negotiations, a range of modalities have also been proposed, though thus far there is little convergence on scope or formulas to tackle NTBs.

The next meeting of the Negotiating Group on Market Access is scheduled for 28-28 May.

ICTSD reporting; "Impact of WTO Tariff Reductions on Budgets for Developing Countries Downplayed by U.S.," WTO REPORTER, 14 April 2003; "WTO Members Divided Over Industrial Tariffs," AFP, 17 April 2003; WTO Negotiating Group On Mkt Access For Non-agri Goods Accepts India’s Idea," THE FINANCIAL EXPRESS (INDIA), 18 April 2003.