Bridges Weekly Trade News Digest • Volume 11 • Number 43 • 12th December 2007

Eu-Us Bid To Restrict NAMA Flexibilities Sparks New Row In Divided Talks

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A new proposal by the EU and the US to constrain developing nations’ freedom to choose which industrial products to shield from Doha Round tariff cuts met strong opposition last week from countries such as Brazil, China and India, further polarising the troubled negotiations.

The extent of ‘flexibilities’ for developing countries to make lower-than-normal tariff cuts on some industrial products - or fully exempt a smaller number of goods from liberalisation - has been a divisive issue. The informal EU-US proposal, dated 5 December, would prohibit developing countries from concentrating these exceptions on single categories of products such as automobiles. This would run counter to recent demands for greater flexibilities by other WTO Members.

According to the terms of a draft agreement text issued in July by the chair of the WTO negotiating committee, developing countries would be allowed to subject 10 percent of tariff lines to reductions half as steep as those ordinarily required (so long as this does not cover more than a tenth of manufacturing import value). Alternately, they would be allowed to exclude 5 percent of tariff lines from reduction altogether (albeit limited to only 5 percent of total import value).

Flexibilities would be capped within HS headings

Canadian Ambassador Don Stephenson’s text contained one ‘anti-concentration’ measure: it prohibited developing countries from using the flexibilities to cover entire chapters of products based on their categorisation in the Harmonized Commodity Description and Coding System (HS), the standardised system of names and numbers that most countries use to classify traded products for tariff purposes. Delegates say that the letter of this rule could have been met simply by excluding a single tariff line from the dozens or hundreds in a given HS chapter dealing with, for instance, aircraft or ships.

Instead, the EU and the US have proposed using a tighter restriction. Under the HS system, each chapter is classified into different headings denoted by 4-digit numbers, which in turn contain 6- and then 8-digit subheadings that describe goods with increasing specificity. The EU-US proposal would place a cap on how much countries could shield within a given 4-digit heading: either half the number of 6-digit product types, or any combination of tariff lines that would make up half the import volume in that heading.

Trade negotiators say that the EU and the US are principally motivated by concerns about diminished market access opportunities in automotive trade. One source explained that all non-rail vehicles and components, from bicycles and tractors to motor cars, trucks, and auto parts, come under a single HS chapter, number 87, and are classified into a relatively modest number of total tariff lines (as compared to the multiple chapters and hundreds of tariff lines used for textiles and clothing). Stephenson’s text only limits the share of total imports that can be covered by the flexibilities. The EU-US proposal, by capping import value within each 4-digit HS heading - for example, motorcycles, auto parts, and motor cars - would prevent countries from using their allotment of flexibilities to shield large swathes of automotive trade from the full force of liberalisation.

China slammed the proposal as "distasteful and disgusting" at a 5 December meeting of the negotiating committee, sources said. Brazil and India also rejected it. These and several other developing countries have been calling for more extensive flexibilities than the terms set out in Stephenson’s text (see BRIDGES Weekly, 10 October 2007). Even Chile, one of a group of developing countries that have said that the figures in the text suffice, reportedly expressed disapproval of the proposed anti-concentration measures.

One source said that the paper was inappropriate at this stage in the talks, since it sought to substantially restructure how tariff flexibilities would operate.

Although industrialised countries have generally opposed calls for flexibilities beyond those in Stephenson’s text, none backed the EU-US paper at the meeting.

Tariff flexibilities have also been a controversial issue in the agriculture negotiations. The Brazilian government has noted that there is no import volume cap for the ’sensitive’ farm products that developed (and developing) countries will be able to shield from the full force of tariff cuts (see BRIDGES Weekly, 31 October 2007). However, countries will have to expand import quotas for these commodities.

Eight industrialised Members reiterate position

A separate paper from Canada, the EU, Iceland, Japan, New Zealand, Norway, Switzerland, and the US served to highlight the main fault lines in the negotiations. It restated support for an agreement based on the terms for tariff cuts and flexibilities set out in Stephenson’s July text.

That text, however, had been criticised by members of the NAMA-11 group such as Argentina, Brazil, India, and South Africa, for being too demanding of developing countries, too easy on industrialised countries, and out of proportion to the farm subsidy reform provided for in the accompanying draft agriculture text.

The disagreement hinges on different interpretations on the meaning of "less than full reciprocity" in reduction commitments. Stephenson’s text provided for developed country tariffs to be capped at 8-9 percent, and those of developing countries between 19-23 percent, with duties reduced correspondingly across the board. The NAMA-11 points out that these figures would require developing countries to slash their bound maximum permissible tariff levels by half — a far deeper percentage than industrialised countries. Developed countries counter that developing countries would have to make relatively modest cuts to their applied tariffs, and would emerge from the Doha Round with substantially higher tariff ceilings.

"There are no prescriptions for assessing the outcome of the negotiations," said the joint paper, indicating that its eight sponsors would consider a range of criteria including the elimination of tariff peaks, cuts to applied tariffs and the number of products on which applied rates are forced down, reductions in bound duties, and participation in sectoral liberalisation initiatives.

"Calls to expand flexibilities on a generalised basis are not sustainable," the document continued, noting that the flexibilities "cause a high degree of uncertainty" and allow high tariffs to be shielded. "Proposals by some Members to expand flexibility on the basis of their membership in customs unions have raised serious systemic concerns," the eight sponsors of the paper added, in response to recent requests from Mercosur and South Africa. "Such proposals would imply that regional agreements have priority over the multilateral system," an approach that they "strongly reject."

Argentina and Brazil have argued that they need to be able to shelter 16 percent of products from standard tariff cuts, with no import value cap, to preserve the Mercosur customs union’s common external tariff. South Africa too has asked for greater latitude to prevent exposing its poorer customs union partners to sharp tariff cuts. Countries have been somewhat more receptive to South Africa’s requests on behalf of the longstanding Southern African Customs Union, the existence of which predates the EU.

The new paper included a cryptic hint about addressing particular developing countries’ needs, saying that that "focused and specific solutions can be accommodated as long as, where necessary to preserve the balance struck by the figures contained in the chair’s text, there are transparent trade-offs."

The NAMA-11 group criticised the paper, pointing out that there was nothing new in the arguments it made. The group called on Stephenson to take all views into consideration when producing a revised version of his text, now expected around late January.

Costa Rica noted that some developing countries were also opposed to expanded flexibilities and laxer tariff cuts.

ICTSD reporting.