Revised NAMA Text Fails to Bridge Gaps on Key Issues

31 December 2008

The latest negotiating text, released on 6 December, shows that WTO Members remain far apart on participation in sectoral liberalisation initiatives on industrial goods, as well as preference erosion and exemptions from general tariff cut disciplines.

Unlike previous drafts, which contained ranges of numbers, the new text includes specific formulae and figures for determining countries' future tariff levels (TN/MA/W/303/Rev.3). The chair of the non-agricultural market access (NAMA) negotiations, Ambassador Lucius Wasescha, said in his foreword that convergence on many issues had allowed him to present an ‘almost complete' text, but stressed that the entire text remained subject to negotiation.

Sectorals Still a Major Sticking Point

Participation in so-called sectoral trade liberalisation initiatives is probably the most divisive issue in the NAMA negotiations. So far, fourteen specific sectors of industrial products have been proposed for total tariff elimination, or at least far steeper cuts than would result from the application of the general tariff reduction formula (see table below). The proponents consider sectorals as the only way they could reap tangible market access gains for industrial goods in the Doha Round negotiations.

While the NAMA mandate clearly states that participation in these schemes is voluntary, industrialised nations (the US, Canada and Japan) have sought to secure the participation of the three major emerging markets - China, Brazil and India - in at least two such initiatives. To ensure that no significant economy would benefit from the dramatically lowered tariffs without cutting its own import duties, the US in particular has insisted that  any sectoral must cover a ‘critical mass' of world trade.

Developing countries are adamant that participation in sectorals is non-mandatory. They are willing to commit to no more than a discussion of how a sectoral might work in terms of product coverage, exceptions and future tariff levels for developed and developing countries.

Just before the new NAMA text was released, the US tried to get around this opposition by suggesting that the G-7 group, which spearheaded the failed ministerial talks in July, show leadership in the Doha Round through committing to participating in deep liberalisation of at least the chemicals sector, as well as one other sector of interest to US exporters. The G-7 includes Australia, Brazil, China, the EU, India, Japan and the US. None of the three developing countries expressed any interest in the proposal.

The 6 December NAMA text contained a long paragraph - placed within square brackets to indicate the absence of agreement - that noted the conflicting objectives. The paragraph would have countries volunteer to "negotiate the terms of sectoral tariff initiatives, with a view to making them viable." It specified, however, that "participation in the negotiation of the terms of a sectoral initiative shall not prejudge a Member's decision to participate in that sectoral initiative."

‘Self-identified' countries would be listed in an annex, for which the draft text contained two options: one, favoured by sectoral proponents, would indicate "Members having announced their readiness to participate" in any of the various initiatives; the second would have a single list of "Members that agree to participate in negotiating the terms" of sectoral initiatives, without linking countries to any individual sector.

These provisions did not satisfy the US National Association of Manufacturers. John Engler, president of the influential lobby group, said that "Brazil, China and India must participate in major sectoral agree-ments to eliminate tariffs in sectors such as industrial machinery, chemicals, and electrical/electronics. Unfortunately, the latest text shows they are not yet willing to do this."

Preference Erosion Remains Complicated

To soften the blow of the erosion of trade preferences that the EU and the US have long granted to some of the world's poorest countries, recent draft NAMA texts included provisions allowing each of the two economic giants to take ten years instead of five to phase in Doha Round tariff cuts on some tariff lines, primarily textiles and clothing (and also some fish products for the EU). The purpose of these provisions was to slow the rate at which preference beneficiaries would have to confront potential displacement by more competitive exporters of the same products.

Arguing that they would be ‘disproportionately affected', Pakistan and Sri Lanka managed to secure an exception requiring the US and the EU to phase in tariff cuts at the regular pace on their exports of some of those products. This spurred complaints from Asian least-developed countries like Bangladesh, Cambodia and Nepal, which do not receive tariff-free access to the US market - and thus stood to face higher tariffs than non-LDCs Pakistan and Sri Lanka for the products covered by the exception.

The compromise in Wasescha's text, following from his predecessor Don Stephenson's August report to Members, identified five tariff lines each for Bangladesh, Cambodia and Nepal, for which the US would phase in tariff cuts over five years instead of ten (alongside the benefits for Pakistan and Sri Lanka). Vietnam was unsuccessful in its attempt to be included in this exception-to-an-exception.

The December revision also specified that the products slated to receive special treatment for preference erosion would be temporarily carved out of any sectoral liberalisation initiative for the ten-year period, after which sectoral participants would have to negotiate additional tariff cuts with preference-receiving countries. China has unfavourably contrasted the US and the EU's obtainment of protection for certain textiles and clothing products with the demands it is facing for sectoral liberalisation.

Firm Figures Suggested for Formula and Flexibilities

The latest NAMA text was the first to include specific figures, rather than ranges, for the ‘coefficients' linked to the formula that will determine the future tariff levels of most major economies, and the figures governing the extent of ‘flexibilities' for developing nations to shield some products from full duty cuts. The figures corresponded to those suggested by Lamy during the July mini-ministerial, which had in turn been drawn from the ranges in the earlier draft agreements put together by the previous NAMA chair.

The depth of industrial tariff cuts will be determined by a ‘coefficient' to be inserted in the ‘Swiss' tariff reduction formula. When fed through the formula, all of a country's tariffs are slashed to below the value of its ‘coefficient', with lower tariffs cut less sharply across the board. Thus, the higher the coefficient, the higher will be the final post-Doha tariff.

The December text proposed a coefficient of 8 for industrialised countries. For the 30-odd developing countries that would have to apply the tariff reduction formula, there is a three-option ‘sliding scale': the higher the coefficient they choose, the less freedom they have to shelter products from tariff reduction (see table above).

An ‘anti-concentration' clause, designed to constrain developing countries from focusing their tariff-reduction ‘flexibilities' on a limited number of industrial sectors, would require them to apply full tariff cuts to either 20 percent of tariff lines or 9 percent of import value within each chapter of the HS harmonised system used to classify products for customs purposes.

Progress on SVEs, ‘Paragraph 6'

Delegates said that the new text indicated the near-consensus that had been achieved on gentler tariff treatment for two de facto sub-groups of developing countries, that is, small and vulnerable economies (SVEs) and the non-LDC developing countries with binding caps on fewer than 35 percent of their industrial tariff lines (dubbed ‘Paragraph 6' countries, after the relevant portion of the negotiating mandate).

Chair Wasescha's text set out four tiers of treatment for SVEs, depending on their existing tariff levels.

Countries accounting for less than 0.1 percent of world manufacturing trade, with a current average bound maximum allowable NAMA tariff of 50 percent or more, would be required to bind all of their non-agricultural tariff lines at an average of no more than 30 percent. SVEs with an average bound rate between 30 and 50 percent would have to bind them at an average of not more than 27 percent; those with an average between 20 to 30 percent, at no more than 18 percent. SVEs with a bound average industrial tariff of less than 20 percent would have to make 5 percent reductions to 95 percent of tariff lines (or bind NAMA tariffs at the average that would have resulted from those reductions).

SVEs include countries such as Antigua and Barbuda, Jamaica, Mongolia, and Papua New Guinea. Binding tariffs at a certain average instead of applying the standard ‘Swiss' tariff reduction formula is supposed to give SVEs greater freedom to preserve protections for sectors in which they have defensive trade interests, since they can concentrate deeper tariff cuts on other products.

As for the Paragraph 6 countries, which include Cameroon, Cote d'Ivoire, Ghana, Kenya, Mauritius and Nigeria, those with binding caps on fewer than 15 percent of industrial tariff lines would have to bind 75 percent of them at an average of 30 percent. Those with binding caps on more than 15 percent of tariff lines (but less than 35 percent), would be asked to bind 80 percent of them at the same level.

Recently acceded Members would get three extra years to implement Doha Round tariff reductions (for instance, China would have to phase in tariff cuts over thirteen years instead of ten). Wasescha's text, unlike the July 2008 revision, does not include a footnote saying that RAMs' proposals for additional flexibilities could be discussed later.

The text also noted that negotiations were not finalised on flexibilities requested by the South African Customs Union, Argentina and Venezuela. Argentina said in late November that it could accept a coefficient of 35 provided that it could apply half-formula cuts to 16 percent of tariff lines without a trade volume limitation, or a coefficient between 25 and 35, plus half-formula cuts to 16 percent of tariff lines and 8 percent of tariff lines exempt of cuts altogether.

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