NAMA DIVISIONS COME TO THE FORE AS NEW MODALITIES PUSH BEGINS IN EARNEST

WTO Members appear set to make their most concerted attempt yet to reach an agreement in the troubled Doha Round negotiations. Although differences on farm trade have hogged the limelight since the talks began in 2001, negotiators say that it has now become apparent that divisions on industrial tariffs are no less serious.

In fact, while there have recently been hints of rapprochement on some agriculture issues, similar shifts were pointedly absent from last week's discussions on non-agricultural market access (NAMA) at WTO headquarters in Geneva. Substantial new concessions will be necessary for Members to strike a framework deal on agriculture and NAMA by the end of July, which is widely considered necessary to conclude the round by the end of this year or early 2008.

Nevertheless, in the past week, heads of state from the Group of Eight major industrialised nations, as well as ministers from the G-20 and G-33 negotiating blocs of developing countries repeated their commitment to meeting this target, insisting that it remained possible.

The G8 in particular called on trade ministers "from leading developed countries and major emerging economies to provide in the coming weeks a solid platform for a multilateral negotiation leading to an agreement on modalities." A modalities deal would include formulae and figures for subsidy and tariff cuts, as well as the often-contentious exceptions to these.

Of course, innumerable statements of this sort have been made since the negotiations were launched. The G8 itself made a similar exhortation last July - only to have the talks break down two weeks later. Will the most recent round of declarations amount to anything? Only if negotiators are given more wiggle room to compromise.

WTO Director-General Pascal Lamy seems to think that this could happen. He told the leaders from the G8, the EU, and major developing countries including Brazil, China, and India that "an agreement is now within our reach." "Your positions have moved closer to each other," he explained. "With an added political effort from each and every one of you, we should be able to cover the remaining ground."

Lamy claimed that the additional concessions necessary - from the US on farm subsidies; the EU, Japan, and, to a lesser extent, developing countries on agricultural market access; and the emerging economies on industrial tariffs - amounted to no more than a few billion dollars. A modest price, he implied, to pay for reinforcing the international rules-based system. The WTO chief urged the heads of state "to avoid weighing out the final concessions on an apothecary's weight-balance, and to focus on the overall world economic landscape and on the enormous risks involved in failure."

Members will be presented with a potential set of terms for a Doha Round deal in the upcoming weeks; based on delegations' input, the chairs of the agriculture and NAMA negotiations are expected to issue draft modalities texts with formulae and figures during the last week of June.

Prior to this, ministers from the EU, India, Brazil, and the US - the so-called G-4 - will try to iron out their differences at a meeting in Potsdam near Berlin from 19-22 June. Senior officials from the four trading powers are meeting in Paris this week to prepare for the summit in Germany. Any agreement the G-4 manages to reach would likely contribute to the chairs' papers. Nevertheless, the draft texts will be issued even if the four fail to converge.

In the absence of clear signals from Members, the chairs will have to speculate about where an acceptable compromise might lie if they want to present delegates with comprehensive modalities texts.

NAMA: little consensus

On the basis of a last week's NAMA discussions, negotiations Chair Ambassador Don Stephenson (Canada) will have to engage in at least some speculation. He said on 8 June that there was simply no consensus on some of the critical issues in the talks.

Members remain deeply divided on the depth of industrial tariff cuts. Several developing countries complain that industrialised nations are demanding tariff cuts far deeper than those that they are willing to undertake themselves.

The US and the EU, along with several other developed countries, have called for a 'Swiss' tariff reduction formula with a 'coefficient' of 10 for themselves and 15 for developing countries. Under the 'Swiss' formula, a Member's coefficient effectively becomes its new tariff ceiling: all duties fed through the formula are slashed to below the level of the coefficient, with lower ones reduced less steeply.

Since developed countries in general have tariffs averaging about 6 percent, while the figure for developing countries is closer to 30 percent, coefficients of 10 and 15 would demand substantially more effort from the latter. Many developing countries argue that requiring them to cut bound tariffs by greater percentages than industrialised countries would violate the Doha mandate's stipulation for "less than full reciprocity in reduction commitments." Industrialised countries counter that they need "real market access" - i.e., cuts to applied tariffs - and that developing countries would in any case be left with higher overall tariff levels.

In a new paper released last week (TN/MA/W/86), the NAMA-11, which comprises ten countries including Argentina, Brazil, India, Indonesia, and South Africa, argued once again that the developing country coefficient should be at least 25 points higher than that for developed countries. Using WTO data, they calculated that a coefficient of 10 would slash rich country bound tariff ceilings by an average of 40.4 percent. In comparison, a coefficient of 15 would cut NAMA-11 countries' bound tariffs by 69.6 percent, while a coefficient of 35 would entail a 49.5-percent reduction.

As for the duties actually levied by the two groups, coefficients of 10 and 35 would require a roughly equal cut of between 25 and 26 percent. A coefficient of 15, on the other hand, would force NAMA-11 countries' average applied tariff down by 44.9 percent.

The NAMA-11 noted that developed countries apply relatively high tariffs on products such as textiles, clothing, footwear, hides, and skins - in which developing countries tend to be competitive exporters.

Earlier in the week, Brazilian Ambassador Clodoaldo Hugueney flatly rejected the notion of coefficients of 10 and 15. It "is not attainable, is not possible and it's out," he said, insisting that developing countries should not have to shoulder disproportionate adjustment costs.

In an exchange that has become almost a tradition, the US and the EU criticised the NAMA-11's demands as unreasonable.

Notably, some developing countries such as Chile, Colombia, and Uruguay suggested that greater flexibility would be necessary in order to reach an agreement at this juncture in the talks. Chile said that a coefficient of 35 was unlikely to garner consensus.

The end of the beginning

Stephenson emphasised that the draft text that he will give to Members would mark the start, not the finish, of real negotiations. He suggested that many revisions of the text would be possible, based on their responses. Agriculture negotiations Chair Ambassador Crawford Falconer (New Zealand) has also suggested that his modalities text would be open to modification.

Speaking to reporters in Geneva on 13 June, Lamy noted that even a so-called 'low-ambition' outcome on NAMA -- with cuts to bound industrial tariff rates that do not force down applied duties across the board - would be valuable for "stability and security." Years of autonomous liberalisation have left countries like India and Brazil with wide gaps between their bound and applied tariffs. Removing these gaps - thus making market-opening irrevocable - would amount to "real concessions," he said, according to the Associated Press.

Lamy has long maintained that even the more modest proposals currently on the Doha Round negotiating table would give rise to far greater new trade volumes than the previous Uruguay Round - as much as three times more.

The WTO chief also spoke to fears about the G-4's prominent role, saying that the four, which represent a wide range of interests in the negotiations, could contribute to a deal - but not determine it. "There is no such thing as a special G-4 entry key," he said, reports Agence France Presse.

Lamy also suggested that the WTO might have to cancel its traditional August holiday if Members are unable to finalise a modalities deal by the end of July.

ICTSD reporting; "WTO chief lowers trade deal ambitions," ASSOCIATED PRESS, 13 June 2007; "Four trading powers can help but not conclude WTO deal: Lamy," AGENCE FRANCE PRESSE, 13 June 2007.