DRAFT NAMA AGREEMENT TEXT CRITICISED BY MANY DEVELOPING COUNTRIES

A potential Doha Round compromise on industrial goods trade set out by the chair of the negotiating committee came under heavy fire from several developing countries last week.

Countries such as South Africa, Argentina, Brazil, India, Nigeria, and El Salvador decried the tariff cuts set out in the draft negotiating text put together by non-agricultural market access (NAMA) Chair Ambassador Don Stephenson (Canada) as unfairly deep for developing countries, too easy on industrialised nations, and out of all proportion to the farm subsidy reform provided for in a related potential deal on agriculture.

In contrast, rich countries such as the US, the EU, Canada, and New Zealand were generally more favourable in their remarks at a 25 July meeting of the NAMA negotiating committee, though they argued that the text's parameters for tariff cuts let developing countries off too gently.

Some developing nations, including Mexico, Malaysia, and Costa Rica, said that Stephenson's paper struck an appropriate balance.

At a Trade Negotiations Committee meeting on 26 July, Argentina and Venezuela went so far as to say that they could not accept the NAMA paper as a basis for talks in September, when Members are set to start intensive negotiations on both draft texts in a last-ditch attempt to salvage a multilateral trade accord. However, the issue of whether they would actually use their veto did not arise, since no formal decision was taken on the paper's status. Delegates expect the negotiations in September to start on the basis of Stephenson's text.

'Less than full reciprocity' disputed

The NAMA text prescribed a 'Swiss formula' coefficient of 8 or 9 for industrialised countries, while assigning developing nations a coefficient between 19 and 23 (see BRIDGES Weekly, 18 July 2007). Under the Swiss formula, a Member's coefficient effectively becomes its new tariff ceiling, and is the basis for across-the board cuts: for instance, a coefficient of 8 would slash all duties, irrespective of how high, to below 8 percent, with lower ones reduced more gently.

Many of the divisions in the debate hinge on the interpretation of the mandate for "less than full reciprocity in reduction commitments" by developing countries. The NAMA-11 group, which includes South Africa, Brazil, and India, takes this to mean that the average cut to developing country bound tariff rates should be lower than that for industrialised countries. This, they insist, requires a 'gap' of at least 25 points between the coefficients for developed and developing countries, for example, 10 and 35.

In contrast, developed countries like the EU and the US want coefficients of 10 and 15, arguing that the "less than full reciprocity" mandate would be fulfilled by allowing developing countries to maintain a higher future tariff ceiling through the modestly higher coefficient. They insist that a NAMA agreement must bite into applied tariff rates to create "new trade flows" or "real market access."

To take some of the examples in Stephenson's text, a coefficient of 8 would cut the US' average bound tariff rate (which largely overlaps with its applied duties) by about a third, from 3.3 percent to 2.3 percent. Developing countries would face larger percentage cuts to their bound tariff rates. Brazil's average bound tariff would fall by close to two-thirds -- from 30.8 percent to 11.75 percent with a coefficient of 19, and to 13.1 percent with a coefficient of 23. Brazil's current average applied rate is 12.6 percent.

NAMA-11: text too demanding of developing countries

Speaking on behalf of the NAMA-11, South Africa said that the chair's text, with its 10-15 point gap in coefficients for the two groups of countries, would "turn the concept of less than full reciprocity on its head" and require developing countries to contribute more to the round than industrialised ones. The text "precludes any real negotiation" instead of prompting it, the group contended, noting that its own bargaining positions had been "largely excluded." It also took issue with the chair's assertion that the provisions in the paper reflected the views of large numbers of Members, noting that the numerous members of the African Group and the group of African, Caribbean, and Pacific countries had also expressed major reservations about the paper.

Specifically, the NAMA-11 criticised the "asymmetry" with the agriculture text. Although Stephenson had acknowledged in his text that the farm trade outcome remained a "moving target," he encouraged Members dissatisfied with the level of ambition on agricultural subsidy and tariff cuts to address this in the agriculture negotiations, rather than lowering the level of 'ambition' in NAMA.

Not only was this a "tall order," said the group, it inverted the principle that the depth of reform to trade-distorting agricultural practices by developed countries should serve as the baseline for the extent of liberalisation in other areas of the negotiations, which it described as "one of the cornerstones of the development mandate."

Pointing out that several crucial issues in the agriculture talks remained unresolved, the NAMA-11 insisted that its members could not run the risk of "an unfair and disproportionate outcome" that could lead to unemployment and de-industrialisation.

US: "whole lot" of less than full reciprocity

US Ambassador Peter Allgeier, on the other hand, said that there was "a whole lot of less than full reciprocity" in Stephenson's text. The 19 to 23 coefficients for developing countries did not provide the "magnitude of real new market access" Washington was seeking, he said. "We think that has to come down."

Speaking to journalists on the sidelines of the negotiating committee meeting, he noted that developing countries would be allowed to "maintain very high tariffs including tariffs as high as 60 percent," under the paper's terms for so-called 'Paragraph 8' flexibilities allowing them to subject up to 10 percent of tariff lines to only half of the regular reduction, or to exclude 5 percent of tariff lines from cuts altogether. Allgeier did not acknowledge that these flexibilities were limited, respectively allowed to cover no more than a tenth or 5 percent of a developing country's manufactured imports.

The senior US negotiator downplayed the NAMA-11's concerns about de-industrialisation, saying that for countries like Brazil and Argentina, the gap between bound and applied tariffs would combine with extended implementation periods to leave applied rates untouched until about 2016 or 2017. "You've got eight, nine years to work out adjustments," he said.

Other developed countries also weighed in on the coefficients in Stephenson's paper. The EU, like the NAMA-11, claimed that the text lacked balance, except it claimed that the bias was in favour of the 30-odd developing countries that would have to apply the standard tariff reduction formula.

New Zealand said that a coefficient of 8 or 9 would be difficult. Although industrialised countries generally have average manufacturing tariff levels well below this level, most have protected a handful of politically sensitive products -- often those, such as textiles, that developing countries export competitively -- throughout half a century of liberalisation. These tariffs face being cut sharply to below 8 percent.

SVEs complain cuts too deep

El Salvador, speaking on behalf of the group of small and vulnerable economies (SVEs), criticised the text's provisions for demanding unacceptably deep liberalisation from non-LDC developing countries that account for less than 0.1 percent of world manufactures trade.

As per the terms of the compromise outlined by Stephenson, SVEs with a bound NAMA tariff average above 50 percent would reduce this average to 22 percent (unlike the Swiss formula, they would be able to maintain high tariffs on some products and make up the difference elsewhere). Those with a bound average of 30 to 50 percent would have to cut it to 18 percent; those with an average below 30 percent would have to slash it to 14 percent. Furthermore, 95 percent of all NAMA tariff lines would be subject to a reduction of at least 10 percent.

Recipients of a separate form of special treatment for non-LDC developing countries were also unsatisfied. Nigeria, one of the 12 non-LDC developing countries which have bound fewer than 35 percent of their industrial tariff lines, said that the text's requirement for them to bind 90 percent of tariff lines at an average of 28.5 percent covered an unacceptably high proportion of products.

China: gap between coefficients too narrow

China too was critical of the coefficients, suggesting that 8 or 9 was too high for developed countries. It noted that a requirement for both developed and developing countries to halve their bound tariff levels would entail coefficients of 5 and 35.

Like other recently-acceded Members, China had been seeking a higher coefficient than other developing countries, to compensate for the wide-ranging tariff cuts it had to make as the price of joining the WTO. Although Stephenson's paper called for exempting some RAMs from further tariff reduction, it only granted China, Taiwan, and others extra-long implementation periods, not special coefficients. China said that additional flexibilities were necessary.

China has been the unmentioned elephant in the room during the NAMA negotiations. Officials from some developing countries privately confess that they are wary of agreeing to deeper tariff cuts not only out of anxiety about competition from goods manufactured in industrialised countries, but also because they fear a flood of Chinese imports.

Some developing countries may be willing to soften their positions on NAMA if more of their objectives are met in the agriculture negotiations. However, this may not hold true for others.

Argentina, a NAMA-11 member, was particularly vocal in its opposition to the coefficients in Stephenson's text, stressing that they would be unacceptable both now and at any point in the Doha Round negotiations. According to WTO data, although Argentina's average applied tariff rate is 12.2 percent, it levies duties of above 15 percent on more than a third of its tariff lines. These would be forced down by a significant margin by a coefficient between 19 and 23.

South Africa has relatively little space between its bound tariff rates and those it applies, as a result of liberalisation carried out in order to accede to the WTO. Stephenson asked Members to consider giving the country special treatment on the grounds that it would be disproportionately affected by the tariff reduction formula.

Stephenson reminded delegations that no accord would be possible unless they budged from their negotiating positions. He suggested that he would be surprised if they managed to find consensus on a set of numbers very far from those he had proposed.

The NAMA chair has announced that consultations and bilateral meetings on the text would start on 10 September, with sessions of the entire Membership to start the following week.

ICTSD reporting.