NAMA CHAIR: MEMBERS FINALLY GETTING READY FOR "A REAL NEGOTIATION"

WTO Members are still far from agreement on how to cut tariffs on manufactured goods, the chair of the Doha Round negotiations on non-agricultural market access acknowledged this week.

Key countries remain divided on the figures that will determine future manufacturing tariff levels for industrialised and developing nations. However, there is increasing convergence on the 'structure' for the formulae and exceptions into which those numbers would be plugged. Chair Ambassador Don Stephenson (Canada) said at a 14 April session of the negotiating committee that countries were getting ready for a "real negotiation" - after no less than "two years of positioning."

Stephenson was reporting on what he had heard in recent one-on-one 'confessional' meetings with most of the countries due to apply the standard tariff reduction formula: all industrialised nations and roughly 30 of the larger developing economies.

In order to support the real negotiation's chances of culminating in an agreement, Stephenson is expected to come up with a revised draft text outlining where a deal might lie by the end of April or early May. This text, along with a companion draft from the chair of the agricultural committee, would serve as the basis for a 'horizontal' negotiating process of cross-sectoral tradeoffs. If enough of the remaining differences can be resolved, ministers from many WTO Members would gather to hammer out a framework deal on agriculture and industrial trade.
Delegates say that a 'mini-ministerial' meeting is tentatively being aimed for during the week starting 19 May, but that this might be overly optimistic.
Wide support for limited sliding scale.

The NAMA chair was not exaggerating about how long Members have been jockeying for position. Unlike the agriculture negotiations, only a handful of figures are at play in the NAMA talks. These parameters will determine where countries are likely to gain market access or see domestic manufacturing displaced by imports. On two of the most crucial ones - the formula 'coefficients' that will determine future tariff levels for developed and developing countries, and the 'flexibilities' for the latter to shield some products from tariff reduction - countries have long been deeply divided.

In an earlier draft agreement text circulated in February, Stephenson suggested that in search of a deal, Members might explore tradeoffs between the formula and the flexibilities. The link between the formula and the flexibilities is straightforward: countries might accept deeper tariff cuts if assured greater latitude to protect sensitive sectors from those very tariff reduction obligations, and vice versa.

Stephenson subsequently outlined different potential ways to trade ambition against flexibility (see BRIDGES Weekly, 5 March 2008, http://www.ictsd.org/weekly/08-03-05/story3.htm). The one that has received the widest support is a limited 'sliding scale' approach with three options for future developing country coefficients, each paired to different figures for the proportion of products eligible to be shielded either partially or fully from tariff reduction.

Precisely what these coefficients will be, as well as the 'pivot' around which they will vary against the flexibility figures, can only be decided by ministers, "or at least at a later stage in the negotiations," Stephenson said.

Nevertheless, in addition to the limited sliding scale approach, some signs have begun to emerge about the potential content of Stephenson's future text.

For instance, he told Members that his consultations had revealed a "clear consensus" to bring back the figures for flexibilities that were present in the first text that he issued, in July 2007. These 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). Alternatively, they would be allowed to exclude 5 percent of tariff lines from reduction altogether (albeit limited to only 5 percent of total import value). Stephenson had entirely removed these figures from his February text in his attempt to stimulate discussion of the relationship between the formula and the flexibilities.

On the coefficients, however, there is little convergence even on where the discussion should start. Stephenson said that a few countries suggested that his new text should contain no figures at all. However, "most Members" preferred ranges of numbers on which ministers could negotiate.

Stephenson's February text, like its July 2007 predecessor, called for coefficients of 8 or 9 for developed countries, and 19-23 for developing countries. A country's coefficient becomes its tariff ceiling after the formula is applied, with all tariffs cut to below that level (except those subject to flexibilities).

These ranges were sharply criticised by members of the NAMA-11 group such as Argentina, Brazil, and India, which argue that they demand far more of developing nations than of industrialised countries, and are disproportionate to the farm reforms on offer in the agriculture negotiations. Meanwhile, developed countries, notably the EU and the US, said that the figures for developing countries were at the very upper limit of what they might accept.

For his upcoming text, Stephenson said that while a majority of countries could live with the figures in his February text, "many Members" would support a range that included lower coefficients for developed countries. However, the EU and the US insisted that they could not accept coefficients lower than 8. Norway, on the other hand, suggested that it could consider doing so.

One negotiator suggested that the "very strong demand" from many developing countries for a rich country coefficient of below 8, if not met, could also serve as diplomatic positioning: if the US and the EU are unwilling to go further, it might strengthen developing countries' own pursuit of a coefficient higher than 23.

Like most industrialised countries, the US and the EU have binding caps on their manufacturing tariffs at an average of well below 8 or 9 percent. However, a handful of politically sensitive sectors - often those, such as textiles, in which poor countries are competitive exporters - have been shielded to a significant extent from half a century of liberalisation. A coefficient of 5 or 6, say, might not make a substantial difference to duties already at 2 or 3 percent, but would mean even sharper cuts for these higher tariffs, prompting opposition.

According to the Washington-based Progressive Policy Institute, a narrow range of household goods such as clothes, shoes, luggage, linens, and plates and cutlery account for three-fifths of US customs revenue, although only 7 percent of imports. Exports from the poorest countries face the highest tariffs of all. Thus, Cambodia's exports - principally clothing - face an average tariff of 17 percent in the US market, while Britain, with its different export base, faces duties of only 0.7 percent.

Also contentious was the connection between developing country coefficients and their participation in optional 'sectoral' liberalisation initiatives. Stephenson said that while many Members admit that there is a "notional link" between the two, they disagree on the strength and relevance of this connection.

Many sectoral liberalisation initiatives have been proposed, most involving the elimination or very significant reduction of tariffs once enough countries sign on to account for a 'critical mass' of world trade. Countries such as the US, Canada, Switzerland, and Thailand expressed support for granting developing countries a higher coefficient if they participate in sectoral initiatives. India, Pakistan, Brazil, and others spoke against the idea, sources said.

Stephenson described sectorals as a "deal-maker", though not necessarily a deal-breaker. US business groups are particularly keen to see major developing country markets participate in sectoral liberalisation initiatives for goods such as chemicals and electrical products.

The US auto industry is pushing for an agreement on non-tariff barriers related to auto trade. However, Stephenson said this week that a recent meeting on non-tariff barriers was "a complete waste of time," with some countries still questioning the need for sector-specific interpretations of WTO rules aimed at ensuring that regulations, standards, testing and certification procedures do not create unnecessary obstacles to trade.

China makes new RAMs proposal

Recent weeks have also seen some new proposals in the NAMA negotiations.

For instance, China called for the four recently acceded WTO Members (RAMs) that will have to apply the tariff reduction formula (itself, Taiwan, Croatia, and Oman) to receive a three to five year 'grace period' before having to implement Doha Round tariff cuts for which they were still implementing far-reaching accession-related tariff cuts at the start of 2003. It also called for these RAMs to be granted a higher coefficient than that agreed for developing countries, as well as for allowing them to make 'half-formula' cuts to a greater number of tariff lines. The proposal did not mention one of China's earlier demands, for a coefficient 1.5 times higher than that for other developing countries.

The EU and the US each called China's proposal "unacceptable," sources say. The US described it as "incompatible with what is expected from one of the biggest beneficiaries of the Doha Round." Japan, Mexico, Korea, Switzerland, and Turkey were among other countries reluctant to countenance extra flexibilities for China.

A new paper from Mercosur called for allowing the share of manufacturing imports eligible for coverage by the flexibilities to be expanded, sources say. Mercosur, which includes Argentina, Brazil, Paraguay, and Uruguay, has previously argued that members of customs unions should be allowed to shelter a higher number of tariff lines from the full force of tariff reduction, since maintaining their common external tariff would require them to have a common list of sensitive products.

The African, Caribbean, and Pacific (ACP) group of countries identified some additional products for which they would like the US and the EU to be granted longer time periods to phase in tariff cuts, so as to slow the effects of preference erosion.

Senior officials' involvement needed

In his concluding remarks, Stephenson said that if Members do indeed end up trying to strike a modalities deal in May, some sort of negotiation process among senior officials would be necessary to set the stage for ministerial discussions.

Comparing the industrial goods talks to the agriculture talks, in which senior officials from key countries have been meeting on and off for months, he told delegates that "in NAMA, you desperately need a senior officials-level process, because you're not real close [to an agreement] yet." Implicitly referring to the farm trade negotiations, where small groups of countries have met on their own to try to thrash out various issues, he said that "these [NAMA] discussions are not moving forward elsewhere."

Stephenson has not scheduled any meetings before the end of the month, around which time he is expected to issue a new draft text.

Meanwhile, other preparations are underway for a modalities push in May. At a 15 April 'green room' meeting with WTO Director-General Pascal Lamy, ambassadors from some delegations discussed how a "signalling conference" on services trade might work, so that countries could provide some indication of the sort of market opening commitments they might offer if a deal were imminent on agriculture and NAMA.

However, some trade diplomats think that May is too soon, and that July would be more realistic. June may not be practical for a mini-ministerial meeting in Geneva for reasons quite unrelated to the minutiae of the Doha Round negotiations: the European football championship, held that month in Switzerland and Austria, will make both security and hotel rooms hard to come by.

As for whether a deal on NAMA is even achievable, despite the longstanding divisions, Stephenson said "It still seems to me to be possible that for those of you who want an outcome, it's within your reach. And those of you who don't, there's not really much I can do for you."

ICTSD reporting.