NEW NAMA TEXT URGES MEMBERS TO EXAMINE TRADEOFFS BETWEEN FORMULA, FLEXIBILITIES

Reaching a compromise in the deeply divided Doha Round talks on industrial goods trade might require granting developing countries increased latitude to shelter some products from tariff reduction, the chair of the WTO negotiating committee suggested last week.

In a new draft text that is to serve as the basis for further discussion, Canadian Ambassador Don Stephenson, who chairs the non-agricultural market access (NAMA) talks, conceded that consensus among WTO Members was entirely absent on some of the central issues in the negotiations. These include the formula that will determine the future tariff levels of developed and many developing countries, and the ‘flexibilities’ that will determine the extent to which the latter will be able to shield some sectors from the full force of global competition.

The text, issued on 8 February, succeeded the controversial potential deal that Stephenson had circulated to Members last July. That document met with a frosty reception from the NAMA-11 group of developing countries such as South Africa, Argentina, Brazil, and India, which criticised it as too demanding of poor countries, too easy on industrialised nations, and disproportionate to the farm subsidy reform provided for in a linked draft agriculture deal that was released at the same time (see BRIDGES Weekly, 1 August 2007).

Absence of consensus

While the July 2007 draft was in the form of legal text for an agreement, the new text is different: it is divided into two columns, with the left-hand side containing legal text, and the right containing Stephenson’s description of the divisions in the negotiations, along with suggestions for how Members might search for consensus.

Stephenson explained the change at a press conference following the release of the new text. The July 2007 draft, he said, was “a series of proposals from the chair” for where a deal might lie, based on “hundreds of hours” of consultations with Members.

In contrast, the new document is “more of a record of where we actually stand in the negotiations.” Although most of Stephenson’s observations reflected the (often quite wide) range of Members’ positions where consensus was absent, he said “I have taken my life in my hands here and there to offer guidance to Members on how they might consider resolving some of these issues.”

Coefficients from July 2007 text retained

The new text retained one key set of figures from the July 2007 text: ‘coefficients’ of 8 or 9 for developed countries, and 19-23 for developing countries. When fed through the ‘Swiss’ tariff formula, these numbers become Members’ tariff ceilings, with corresponding cuts across the board. Thus, developed countries would slash all industrial tariffs to below 8 or 9 percent, while the thirty or so developing countries obliged to use the formula would cut all manufacturing duties to below 19 to 23 percent, with limited – and to-be-negotiated – exceptions.

Last July, NAMA-11 members were strongly critical of these terms, pointing out that they would require developing countries to cut the bound ceiling rates on their manufacturing tariffs by deeper margins than industrialised nations. This, they argued, would reverse the Doha mandate for “less than full reciprocity in reduction commitments” by developing countries. Argentina was one of the countries that called the text an unfit basis for further negotiation.

Industrialised nations such as the US and the EU have argued that that the "less than full reciprocity" mandate would be fulfilled simply by allowing developing countries to come out of the round with a modestly higher tariff ceiling. They insist that a NAMA agreement must bite into applied tariff rates to create "new trade flows" or "real market access."

In talks last autumn, divisions on NAMA became more stark, if anything. This was in contrast to the significant (though incremental) progress in the agriculture negotiations, which had long been thought to be the most intractable issue in the struggling Doha Round talks.

Without mentioning any country by name, Stephenson’s new text faithfully reflects’ Members’ positions on the coefficients: from the EU and the US seeking coefficients of 10 for rich countries and 15 for developing nations, with a differential of no more than 5 points between the two; to the NAMA-11’s desire for a developing country coefficient of 30 or 35, with a ‘spread’ of at least 25 points. He also refers to the so-called ‘middle ground’ group of countries including Costa Rica and Chile, which proposed figures similar to those in the July draft, though they have recently been pressing for “a little less” than 8 or 9 for developed countries.

Flexibilities “most open” issue

Where the new draft broke with the July 2007 text was on the ‘flexibilities’ that will determine how many products, and what proportion of manufacturing imports, developing countries will be able to shield from the full force of tariff cuts.

The July text provided for allowing developing countries 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). These figures were in square brackets signifying the absence of agreement, but had stayed constant since the July 2004 framework agreement that revived the Doha Round after talks broke down in Cancun the year before.

Stephenson removed the ’10 and 5’ numbers altogether from his new texts, leaving the brackets empty. Why? He told the press conference that he had realised that instead of the coefficients, “it’s the flexibilities that are perhaps the issue that is most open. So my text now says in effect, Members are going to have to resolve the flexibilities before they are going to be able to resolve the coefficients.”

The text listed various requests for additional flexibilities from different developing countries, both in terms of the number of products and the share of imports covered. It also noted a joint EU-US proposal to restrict developing countries’ freedom to decide which products to shield from tariff cuts (see BRIDGES Weekly, 12 December 2007).

The formula and flexibilities are inextricably linked: it is not surprising that governments would be more comfortable with taking on lower coefficients if assured that they would be able to exempt more products from the deeper tariff cuts that these coefficients would imply. Conversely, limiting flexibilities to protect products from tariff reduction would make them push for higher coefficients.

Explore ‘sliding scale’

Stephenson said that this “obvious relationship” between the two had been borne out in his consultations: countries seemed willing to trade the formula coefficients off against the flexibilities. This, he concluded, “strongly suggests a ‘sliding scale’ approach to achieve consensus, especially as it might provide a basis upon which to agree different outcomes for different developing countries – a persistent demand of some developing countries.”

The notion of different outcomes for different countries would not be alien to the Doha Round negotiations. The draft text released last week by the chair of the agriculture talks attempts to accommodate specific concerns about farm spending in the US as well as the EU.

“I make the [sliding scale] proposal because some Members tell me they could accept a higher coefficient for countries that agree not to use their flexibilities; some Members tell me that they could accept a lower coefficient if the flexibilities were increased; some members tell me that they could consider increased flexibilities if the coefficient was low enough,” Stephenson said. “All of those things, when you take them together, seem to suggest that these two things are linked: that when one goes up, the other could come down, and that’s what I’ve invited Members to explore in the negotiations starting next week.”

Stephenson acknowledged that the formula and the flexibilities were not likely to be resolved until traded off against agriculture concessions in a ‘horizontal’ negotiation process. Nevertheless, he urged trade diplomats to “rehearse for the horizontal negotiation” by exploring the relationship between the two in “concrete terms,” and to make the tradeoffs between the coefficient and the flexibilities more explicit. This would clarify the options before negotiators and ultimately ministers, increasing their chances of striking a compromise.

The NAMA chair denied suggestions that by removing the figures for the flexibilities from his text, he was acknowledging that they would have to be increased. “I don’t know how it will turn out, and the Members are actually going to have to negotiate that. Neither do I know for that matter that the coefficient that will finally be agreed will be in the proposed range,” he said.

Nevertheless, a bracketed provision in the new text would reward developing countries that refrain from using the flexibilities with a coefficient 3 to 5 points higher than the standard one. The July text would only have added 3 extra points to their coefficient.

Though also in brackets, the new text’s liberalisation requirements for small and vulnerable economies and countries with binding caps on fewer than 35 percent of all tariff lines were relaxed as well, compared to the July 2007 draft.

As for the four recently acceded Members of the WTO that will have to subject their tariffs to the reduction formula – China, Taiwan, Croatia, and Oman – the text provides for an implementation period two to five years longer than the eight penciled in for all developing countries. Products for which accession-related tariff cuts are still being implemented – only a handful in China, and they will be done by 2010 – will benefit from a two to three year ‘grace’ period before Doha tariff cuts start phasing in. This extra implementation time drew criticism from the US National Association of Manufacturers, which said China would have “as long as 17 years” to implement tariff cuts on some manufactured goods.

Some types of textiles and clothing were added to the lists of products for which the US and the EU would be able to take two extra years to phase in tariff cuts (making for a total of six instead of four, based on the bracketed figures), in order to ease the effects of multilateral tariff liberalisation on countries to which they have long granted unilateral trade preferences.

Initial reactions

Just before the two revised drafts were released last week, the Argentinean government issued a statement threatening to block the new NAMA text if it did not provide for a gap of 25 points between the coefficients for developed and developing countries, along with expanded flexibilities. Argentina has unfavourably contrasted the NAMA flexibilities to those in the agricultural negotiations, which are not subject to an import volume cap.

After the texts were issued, Indian Commerce Minister Kamal Nath praised the new NAMA text for “reflecting that there are other points of view held by many countries,” speaking to the press in New Delhi this week. However, he expressed anxiety that withdrawing the figures for flexibilities from the text “left room for ambiguity to creep in.” “We need greater flexibilities,” he stressed.

Indian industry groups were more critical of the Stephenson’s decision to retain the coefficients from the July 2007 draft.

Initial reactions from US Trade Representative Susan Schwab were also cool. “Not only does the new [NAMA] text offer a diminution of ambition, it raises new challenges when it comes to clarity for decision making,” she said in a speech to the Peterson Institute for International Economics, a think tank in Washington, on 13 February. Partially echoing her Indian counterpart, she claimed that the removal of the flexibility figures had created “uncertainty,” and warned that “the prospect that we must now duke it out over whether there should be more or less flexibility than in the original draft” would not speed the way to a final-stage negotiation among ministers. However, she did say that the agriculture and NAMA texts moved the negotiations forward “in general.”

After Geneva-based delegates use this week to digest the new drafts and consult their capitals, the negotiating groups on NAMA and agriculture are set to meet next week. These deliberations will includer so-called ‘Room E’ meetings involving officials from some three dozen representative delegations.

Steady progress in these consultations would pave the way for WTO Director-General Pascal Lamy to launch a ‘horizontal process’ that would involve cross-sectoral tradeoffs between NAMA and agriculture. This would – at least in the most optimistic scenario – culminate in a ministerial-level meeting in late March to hammer out the final details of a ‘modalities’ framework agreement on agriculture and industrial goods trade, setting the stage for concluding the Doha Round by the end of this year.

ICTSD reporting; “Ficci wants India’s case raised at Doha,” THE STATESMAN, 9 February 2008.