The WTO Negotiations on Non-Agricultural Market Access: A Development Perspective
Item
- Title
-
The WTO Negotiations on
Non-Agricultural Market Access:
A Development Perspective
- extracted text
-
TWN Trade & Development Series
The WTO Negotiations on
Non-Agricultural Market Access:
A Development Perspective
Martin Khor and Goh Chien Yen
TWN
Third World Network
29
I o Q- 53
The WTO Negotiations on Non-Agricultural Market
Access: A Development Perspective
Martin Khor and Goh Chien Yen
TWN
Third World Network
The WTO Negotiations on Non-Agricultural Market Access:
A Development Perspective
is published by
Third World Network
131 Jalan Macalister
10400 Penang, Malaysia.
Website: www.twnside.org.sg
E-mail: twnet@po.jaring.my
© Third World Network, 2006
2
Printed by Jutaprint
Solok Sungei Pinang 3, Sg. Pinang
11600 Penang, Malaysia.
ISBN: 983-2729-65-3
CONTENTS
Note
4
1
Introduction
5
2
Conceptual Framework
8
3
Recent Experiences of Liberalisation and Industrial
Performance
11
4
Desired Objectives of Negotiations
15
5
The History of and Case for a Flexible Approach
17
6
Basis and Principles of the Negotiations
20
1
The Use of Tariffs in Industrial Policy
24
8
How the July Package Was Adopted
29
9
Problems with the July Package Text on NAMA
33
10
Inappropriateness ofa Standard Formula Approach for
Developing Countries
36
11
Potential Effects of Formula Approaches on Developing
Countries
45
12
Suggested Approach to Modalities for NAMA
51
13
Conclusion
60
References
64
Annexes
65
NOTE:
This paper was presented at the Asia-Pacific Conference on Trade: Contributing to
Growth, Poverty Reduction and Human Development held in Penang, Malaysia on
22-24 November 2004. The conference was jointly organised by the Third World
Network, United Nations Development Programme (UNDP) and North-South In
stitute.
1
Introduction
LIBERALISATION of trade in industrial products is a major part of the World
Trade Organisation (WTO)’s Doha work programme.
Negotiations on “non-agricultural market access” (NAMA) are mandated under
Paragraph 16 of the Doha Ministerial Declaration (November 2001) which states:
“We agree to negotiations which shall aim, by modalities to be agreed, to reduce
or as appropriate eliminate tariffs, including the reduction or elimination of tariff
peaks, high tariffs, and tariff escalation, as well as non-tariff barriers, in particular
on products of export interest to developing countries. Product coverage shall be
comprehensive and without a priori exclusions. The negotiations shall take fully
into account the special needs and interests of developing and least-developed
country participants, including through less than fu 11 reciprocity in reduction com
mitments, in accordance with the relevant provisions of Article XXVIII bis of
GATT 1994 and the provisions cited in Paragraph 50 below. To this end, the
modalities to be agreed will include appropriate studies and capacity-building
measures to assist least-developed countries to participate effectively in the nego
tiations.”
The NAMA negotiations began in early 2002 at the WTO. The first stage in
volved agreeing on the modalities of the negotiations. However, as the Cancun
Ministerial Conference of September 2003 approached, there were significant
differences among the WTO member states, and it was clear that an agreement on
modalities would not be possible to achieve at the conference. It was thus de
cided to aim instead for a “framework on modalities”, which could comprise prin
ciples and major features, whilst the specific figures and further details could be
filled in later in the final search for modalities.
Drafts of a Ministerial Declaration for Cancun were produced, with the final one
being issued at Cancun on 12 September 2003 by the Chairperson of the confer
ence, Mexican Foreign Minister Luis Ernesto Derbez. There continued to be strong
differences of views on this text, as there were on previous drafts. As is well
known, the WTO members were ultimately unable to come to a conclusion on
many issues at Cancun, and the conference ended without any declaration.
Following Cancun, negotiations continued on NAMA at the WTO headquarters
in Geneva. The discussions continued to be divisive, with the Chairman of the
NAMA negotiating group making use of the Derbez text on NAMA as the basis
for negotiations, while many members (especially the African and Caribbean coun
tries) were very critical of the Derbez text and requested that a different approach
be used instead.
The controversy increased when the Chainnan insisted on placing the Derbez text
unchanged as the NAMA framework document in the draft of the “July Package”,
i.e., the decision of the WTO General Council's special session on 26-31 July
2004 which was tasked with finishing the work of the failed Cancun Ministerial
Conference.
Despite the strong objections of the Group of African, Caribbean and Pacific
(ACP) countries, the Derbez text ended up as Annex B of the July Package.
However, a new paragraph 1 which had been heavily negotiated was added to the
front of the Derbez text on NAMA, which provided the objecting developing
countries some space with which to continue to negotiate important elements con
tained in the Derbez text.
Several meetings of the NAMA negotiating group have been held since the July
Package was adopted. These meetings showed that many developing countries
still have strong misgivings about the approach taken in the Derbez text.
6
Since there is much at stake in the decisions to be taken on the NAMA modalities
and especially since the adoption ofAnnex B of the July Package was so contro
versially carried out, it would be useful to consider the many aspects in the Doha
mandate forNAMA, and in the negotiations.
This paper examines the link between liberalisation and industrial development in
developing countries. It analyses the Doha mandate for NAMA. It provides a
summary of various positions in the negotiations. It analyses the major elements in
the NAMA part of the July Package and their implications for developing coun
tries. It also suggests the way ahead in modalities from a development perspec
tive.
7
2
Conceptual Framework
THE issues at stake in the negotiations on market access for non-agricultural prod
ucts are very crucial to the prospects and future of the industrial sector and the
industrialisation process in developing countries. There are at least three major
aspects that need to be considered in industrial development.
The first aspect is production and employment. Developing countries need to
produce more industrial products and to employ more people in this sector in
order to contribute to overall economic growth and development. The industrial
output in developing countries can be geared towards the local market and the
export market. There has to be a medium- and long-term programme to build the
capacity of developing countries’ industrial sector to produce, and to produce
more efficiently. Without this supply capacity, developing countries will be unable
to take advantage of industrialisation. At present, many developing countries have
relatively weak supply capacities. They have to recognise this weakness, the limi
tations it places on them, and the need to correct it.
The second aspect is exports. It would be very good if developing countries can
increase their industrial exports. For this to happen, there must be better market
access, especially to the developed countries. The NAMA negotiations should
result in expanded export opportunities for developing countries. However, mar
ket access is not a panacea for many developing countries. Any improvement in
market access by itself may not have the desired positive effect since the supply
capacity in many countries is too weak, at least in the short run, to enable a signifi
cant increase in exports and production.
The third aspect is imports. Further liberalisation will enable imports to enter faster
and at lower prices. This would reduce consumer prices. However, cheaper im
ports can also cause serious disruptions in the industrial sector of developing coun
tries. Many local firms and industries are still too weak to withstand competition
from a large inflow of cheaper imports resulting from the lowering of import barri
ers. In many developing countries that have a weak and vulnerable industrial base,
rapid import liberalisation has led to reduced production or even outright closure
of local firms and labour retrenchment, whilst there has been no evidence of shift
ing of the displaced capital or labour to more efficient industries. In many develop
ing countries, there has been a weakening of the industrial sector, and even a
process of “deindustrialisation”. Moreover, the reduction in industrial tari ffs due to
liberalisation has caused significant loss ofgovernment revenue, which has created
more difficulties to the government budget situation.
What is of relatively greater importance to developing countries is the mainte
nance and development of their industrial sector, which means more industrial
output, better technology and more manufacturing jobs. They should achieve this
through product ion for the local and the export markets. The progress of the
industrialisation process is critical to overall economic and social development.
The development of the industrial sector in developing countries, especially the
countries with weak and vulnerable industrial sectors, must be the major objective
of this round of NAMA negotiations. Utmost care must be taken to avoid a situ
ation in which the negotiations lead to further inappropriate import liberalisation in
developing countries, to the detriment of local industries and the industrialisation
process. This objective as well as this danger should be uppermost in the consid
eration of the deliberations and negotiations, starting with the discussion on mo
dalities.
In this context, another veiy relevant point which must be taken into account in the
modalities is that developing countries need the policy space and flexibility to be
able to modify their tariff levels. The modalities and subsequent negotiations must
9
fully take into account and enable the developing countries to have this flexibility.
The following are two examples ofcases in which this policy flexibility is required.
Firstly, a developing country needs to be able to modulate the tariffs on various
types of products on a dynamic basis to support its upgradation of industrial pro
duction. It may need to have lower tariffs on certain products, for example ma
chines, for some time to encourage their use in the production of downstream
products. But after some time, these tariffs may need to be raised when the coun
try embarks on producing the former product, i.e.. the machines in this example, in
order to protect its newly emerging machine-building industry. If a commitment to
bind the tariffs on machines has already been made, such raising of tariffs will not
be possible without compensation. The developing country will lose the flexibility
to develop its industrial sector from manufacturing lower-technology products to
higher-technolog}' products, if it is not able to raise the tariffs on particular prod
ucts from time to time. Hence an insistence that developing countries undertake
binding commitments at lower levels of tariffs will harm their industrialisation pro
cess.
Secondly, the developing countries may need to ration out their limited foreign
exchange earnings for the import of essential products. Tariffs can be a usefill tool
to discourage the import of non-essential products and encourage the import of
products that are essential and also critical for industrial development. For this
reason too, it is important fora developing country to retain its flexibility to raise or
lower its tariffs so that imports can be made to play a useful role in industrial
development. If a commitment has already been made for binding the particular
tariffs at lower levels, this tool for development will not be available.
The above are only two examples, and there may be other reasons why it is vital
to enable developing countries to vary their tariff levels for developmental pur
poses, which the modalities should fully recognise.
10
3
Recent Experiences of Liberalisation
and Industrial Performance
ACCORDING to the orthodox approach used by the International Monetary'
Fund (IMF) and the World Bank and often assumed within the WTO, import
liberalisation necessarily has positive effects on developing countries. Consumers
benefit from cheaper imports, and local producers become more efficient under
import competition or else shift to another sector in which they have comparative
advantage. Any adjustment costs are taken as temporary. From this perspective,
the faster and deeper the liberalisation, the greater the benefits.
In the real world, there are countries that benefit from (or at least do not suffer
from) import liberalisation, where the local industries could withstand import com
petition and increase efficiency, whilst the consumers enjoy real income gains from
cheaper products. However, other countries have experienced negative effects
from liberalisation. The effects of liberalisation depend partly on the conditions
present in the liberalising country, the rate of liberalisation, the sectors chosen, the
sequencing, and so on. Countries that liberalise too fast or in the wrong sectors
may end up incurring damage to local firms and industries and labour retrench
ment. The adjustment that is assumed to take place automatically in many cases
does not take place or is of an inadequate extent. The result could be
deindustrialisation, net job loss and a worsening of the trade deficit. There is no
automatic link between liberalisation and industrial growth or income growth. When
conditions are not present for success, or when the liberalisation process is done
incorrectly, there can be significant adverse effects.
The Trade and Development Report 1999 of the United Nations Conference on
Trade and Development (UNCTAD) showed that "big bang liberalisation” con
tributed to developing countries (excluding China) increasing their average trade
deficit by 3 percentage points of GDP between the 1970s and 1990s (while the
average growth rate was lower by 2 percentage points). “It (trade liberalisation)
led to a sharp increase in their import propensity, but exports failed to keep pace,
particularly where liberalisation was a response to the failure to establish competi
tive industries behind high barriers. With the notable exception of China,
liberalisation has resulted in a general widening of the gap between the annual
growth of imports and exports in the 1990s.”
An earlier study by UNCTAD economist Mehdi Shafaeddin (1994), who sur
veyed 41 least-developed countries (LDCs). found “no clear and systematic as
sociation since the early 1980s between trade liberalisation and devaluation, on
the one hand, and the growth and diversification of output and growth of output
and exports of LDCs on the other. In fact, trade liberalisation has been accompa
nied by deindustrialisation in many LDCs, and where export expanded it was not
always accompanied by the expansion of supply capacity... .The design of trade
policy reforms has also been an important factor in performance failure.”
Recent studies by academics have also provided increasing empirical evidence of
many developing countries experiencing these negative consequences. For ex
ample, a book authored by Professor Edward Buffie and published by Cam
bridge University Press in 2001, entitled Trade Policy in Developing Countries,
has collated what he calls “the most disturbing evidence” of post-1980 liberalisation
episodes in the African region. According to information collected in the book
(pp. 190-191):
♦
Senegal experienced large job losses following a two-stage liberalisation
programme that reduced the average effective rate of protection from 165%
in 1985 to 90% in 1988. By the early nineties, employment cuts had elimi
nated one-third of all manufacturing jobs.
The chemical, textile, shoe and automobile assembly industries virtually col
lapsed in Cote d’Ivoire after tariffs were abruptly lowered by 40% in 1986.
Similar problems have plagued liberalisation attempts in Nigeria. The capac12
ity utilisation rate fell to 20-30%, and harsh adverse effects on employment
and real wages provoked partial policy reversals in 1990, 1992 and 1994.
•
In Sierra Leone, Zambia, Zaire, Uganda, Tanzania and the Sudan, liberalisation
in the eighties brought a tremendous surge in consumer imports and sharp
cutbacks in foreign exchange available for purchases of intermediate inputs
and capital goods. The effects on industrial output and employment were
devastating. In Uganda, for example, the capacity utilisation rate in the in
dustrial sector languished at 22% while consumer imports claimed 40-60%
of total foreign exchange.
•
The beverages, tobacco, textiles, sugar, leather, cement and glass products
sectors have all struggled to survive competition from imports since Kenya
initiated a major trade liberalisation programme in 1993. Contraction in these
sectors has not been offset by expansion elsewhere in manufacturing. The
period 1993-1997 saw the growth rates of output and employment in manu
facturing fall to 2.6% and 2.2%, respectively.
•
Manufacturing output and employment grew rapidly in Ghana after
liberalisation in 1983 and generous aid from the World Bank greatly in
creased access to imported inputs. But when liberalisation spread to con
sumer imports, employment plunged from 78,700 in 1987 to 28,000 in 1993.
The employment losses owed mainly to the fact that “large swathes of the
manufacturing sector had been devastated by import competition”.
•
Following trade liberalisation in 1990, formal sector job growth slowed to a
trickle in Zimbabwe and the unemployment rate jumped from 10 to 20%.
Adjustment in the nineties has also been difficult for much of the manufactur
ing sector in Mozambique, Cameroon, Tanzania. Malawi and Zambia. Im
port competition precipitated sharp contractions in output and employment
in the short run, with many firms closing down operations entirely.
The book also provides some information on other developing countries outside
Africa. According to the author: “Liberalisation in the early nineties seems to have
13
resulted in large job losses in the formal sector and a substantial worsening in
underemployment in Peru. Nicaragua. Ecuador and Brazil. Noris the evidence
from other parts of Latin America particularly encouraging: ’the regional record as
it now stands suggests that the normal outcome is a sharp deterioration in income
distribution, with no clear evidence that this shift is temporary in character. '(Berry
1999, p. 4).”
Information of this type indicates that for many developing countries the effects of
import liberalisation can be negative and sometimes devastating, reducing their
prospects for industrialisation and indeed, in some cases, destroying the domestic
industrial base. It contradicts the orthodox approach that import liberalisation nec
essarily leads to growth.
Domestic industries in many developing countries are already facing problems
including closure and loss of jobs due to tariff reductions. There is an
additional problem of loss of government revenue. It is thus of the highest priority
that the outcome of the NAMA negotiations does not further worsen the basis for
industrial development in developing countries.
14
4
Desired Objectives of Negotiations
IN the context of the conceptual framework above, and cautioned by the experi
ences of deindustrialisation resulting from inappropriate liberalisation, it is impor
tant to state that the aim ofthe negotiations on NAMA is not to achieve liberalisation
in itself. It should be recognised that trade (and in this regard, import liberalisation
in particular) is only a means, to be used when appropriate and to be used care
fully, while industrial development is the goal. It is thus proposed that the following
be among the main objectives of the NAMA negotiations and thus of the modali
ties:
•
To contribute positively to the industrial development of the developing coun
tries.
•
To ensure the continued and increased viability of local industrial enterprises
in developing countries.
•
To significantly increase industrial jobs and employment in developing coun
tries.
•
To ensure that developing countries’ governments can maintain (and if needed,
increase) their revenues derived from trade (in particular imports) in indus
trial products.
•
To facilitate an increase in export opportunities and export revenues ob
tained by developing countries in non-agricultural products.
To ensure that the flow of imports and price of imports of non-agricultural
products in developing countries are commensurate with their goals of achiev
ing industrial development and the viability and growth of their local indus
tries.
To ensure that developing countries be enabled to maintain or expand the
national policy space, policy options and policy instruments so as to be able
to undertake measures that lead to successful industrial development.
To therefore ensure that developing countries will not be expected to make
commitments that are inconsistent with their development, financial and
industrialisation needs.
To recognise that developing countries need to have the flexibility and ability
to vary their tariff levels in line with developments and needs (such as a
change in priorities or circumstances, or the need for the appropriate se
quencing of their industrialisation process, or the need to rationalise imports
due to scarcity of foreign exchange), and that this should be incorporated
and be fully taken account of in the modalities and the results of the negotia
tions.
16
5
The History of and Case for a
Flexible Approach
IT is important to remember the techniques and approaches used in previous
rounds of trade negotiations on industrial products, as this has implications for the
current negotiations.
In the history of the General Agreement on Tariffs and Trade (GATT, the prede
cessor of the WTO) and the WTO up to the Uruguay Round of negotiations,
WTO members have not been subjected to a single formula approach in tariff
reduction on industrial products. There was flexibility, particularly for developing
countries, to choose: (i) the scope of then- tariff bindings (the number of products
to be bound); (ii) the level at which the bindings are to take place; and (iii) the
rate of tariff reduction in each tariff line.
In the Uruguay Round, developing countries were given an overall target of 27%
average reduction. The negotiations were conducted using the request-offer tech
nique. Within this parameter, countries could choose the rate of reduction in each
tariff line. There was thus a significant extent of flexibility for the developing coun
tries as to what rate of reduction to assign to each tariff line, as long as the overall
average reached the target.
In the earlier rounds, the developed countries also had significant flexibility. Ne
gotiations took place mainly through the request-offer approach (in which each
member requested other members to reduce their tariffs in various sectors, and
each member responded to the requests it received by making offers) and there
were no general targets or formulae. In the Tokyo and Kennedy Rounds there
was a linear formula used for the first time by developed countries and even then
there were exceptions to the application ofthis formula such that the actual reduc
tions were less than the targets. In the Uruguay Round, there were proposals for
a Swiss harmonisation formula but countries, in particular the US, objected to its
application as these countries still had high industrial tariffs. In the end, the coun
tries agreed to an average 33% reduction through a formula of their choice, whilst
the US “stuck to its approach of following the request-offer, item by item, tech
nique” (Hoda 2001, p. 36).
In other words, the developed countries, through most of the GATT’s history, had
considerable flexibility to choose their rate of liberalisation. Developing countries
had even more flexibility for most of the period, in line with their special needs.
With regard to the Uruguay Round, according to the WTO report, “Market Ac
cess: Unfinished Business” (2001): “The average tariff on developed countries’
imports of industrial products was cut by 40% on imports from all sources and by
35% on imports from developing countries. For developing countries the reduc
tions averaged 25% for industrial products imported from developed countries
and 21 % for industrial products imported from developing countries. These tariff
reductions, it should be noted, were negotiated line by line rather than through the
use of a formula approach.”
Therefore the proposed adoption of a Swiss or Swiss-type formula for tariff re
duction that is binding on all members in the current NAM A negotiations would be
an unusual and major departure for developing countries, which does not corre
spond to their level of economic development. Developed-country members have
taken a significant period of time over successive rounds of negotiations to have
their levels of tariffs reduced gradually in line with their own economic growth, and
up to now have not been subjected to a Swiss formula approach themselves. For
this reason, developing countries cannot therefore be denied the flexibility re
quired for their development.
Given the above, WTO members should not assume that a formula approach
must be adopted during the current negotiations. Developed countries enjoyed
flexibility and did not adopt a hamionisation approach even in the Uruguay Round.
It would not be appropriate to impose a general formula applicable to all countries
18
in the current negotiations. Developing countries should be allowed to choose the
rate and type of liberalisation appropriate to their needs.
19
6
Basis and Principles of the
Negotiations
IT is clear from Paragraphs 2 and 16 of tire Doha Ministerial Declaration that the
main foundations and principles underlying the negotiations on market access for
non-agricultural products are the promotion of the special needs and interests of
developing and least-developed countries.
Paragraph 2 states: “...The majority of WTO Members are developing countries.
We seek to place their needs and interests at the heart of the Work Programme
adopted in this Declaration...”
This extremely important general statement applies as much to the negotiations on
non-agricultural products as it does to everything else in the Declaration. Thus,
each aspect of the NAMA negotiations must incorporate the spirit and substance
of this statement. The needs and interests of developing countries must be at the
heart of the principles, modalities, substance and outcome of the NAMA negotia
tions.
Paragraph 16, which is specifically on NAMA, includes the following:
•
“We agree to negotiations which shall aim ... to reduce or as appropriate
eliminate tariffs, including the reduction or elimination of tariff peaks, high
tariffs, and tariff escalation, as well as non-tariff barriers, in particular on
products of export interest to developing countries.”
“The negotiations shall take fully into account the special needs and interests
of developing and least-developed country participants ...”
•
. including through less than full reciprocity in reduction commitments, in
accordance with the relevant provisions of Article XXVIII bis of GATT
1994 and the provisions cited in Paragraph 50 [of the Doha Declaration]
below.”
•
“[T]he modalities... will include appropriate studies and capacity-building
measures to assist least-developed countries to participate effectively in the
negotiations.”
On the first point, the meaning is clear: the negotiations should focus on assisting
developing countries to obtain greater market access for products of interest to
them. The negotiations should help developing countries improve their exports of
industrial products; and each developing country should be helped in this respect
in the context of promoting their needs and interests. The objective is thus centred
on the interests of developing countries and not on the needs of developed coun
tries and the latter’s interest in obtaining greater access to developing countries’
markets.
The second point is a general statement again reaffirming that the special needs
and interests of developing countries and LDCs should be fully taken into ac
count, since these are at the heart of the overall Doha work programme (as stated
in Paragraph 2).
The third point provides an example (only one example, and thus other methods
can and should be deployed as well) of how the developing countries’ needs can
be taken account of, i.e., through “less than full reciprocity.” The two provisions
cited in support of this principle of“less than full reciprocity” are the following:
•
Article XXVIII /w of GATT 1994. Paragraph 3 of this Article states that
“Negotiations shall be conducted on a basis which affords adequate oppor
tunities to take into account: (a) needs of individual contracting parties and
individual industries; (b) the needs of less-developed countries for a more
flexible use of tariff protection to assist their economic development and the
special needs of these countries to maintain tariffs for revenue purposes; and
21
(c) all other relevant circumstances, including the fiscal, developmental, stra
tegic and other needs of the contracting parties concerned.”
•
Paragraph 50 of the Doha Declaration states that the negotiations shall take
fi.il ly into account the principle of special and differential (S&D) treatment for
developing and least-developed countries embodied in Part IV of GATT
1994; the Decision of28 November 1979 on Differential and More Favourable
Treatment, Reciprocity and Fuller Participation of Developing Countries; the
Uruguay Round Decision on Measures in Favour of LDCs and other rel
evant WTO provisions.
In relation to the provisions mentioned in Paragraph 50, the following are among
the more relevant:
(a)
The non-reciprocity principle was established in Paragraph 8 of Article
XXXVI, which is in Part IV of the GATT. Paragraph 8 states that: “The
developed contracting parties do not expect reciprocity for commitments
made by them in trade negotiations to reduce or remove tariffs and other
barriers to the trade of less developed contracting parties”. An interpretative
note to this paragraph adds that the developing countries “should not be
expected, in the course of trade negotiations, to make contributions which
are inconsistent with their individual development, financial and trade needs,
taking into consideration past trade developments”. The interpretative note
also extends the applicability of the concept of non-reciprocity to renegotia
tions under Article XVIII or XXVIII.
(b)
The concept was further elaborated in the Tokyo Round Decision on “Dif
ferential and More Favourable Treatment, Reciprocity and Fuller Participa
tion of Developing Countries”, also known as the “Enabling Clause”, which
was adopted on 28 November 1979. It states: “The developed countries
do not expect reciprocity’ for commitments made by them in trade negotia
tions to reduce or remove tariffs and other barriers to the trade of developing
countries, i.e., the developed countries do not expect the developing coun
tries, in the course of trade negotiations, to make contributions which are
inconsistent with their individual development, financial and trade needs.
22
Developed contracting parties shall therefore not seek, neither shall lessdeveloped contracting parties be required to make, concessions that are
inconsistent with the latter’s development, financial and trade needs... Having
regard to the special economic difficulties and the particular development,
financial and trade needs of the least-developed countries, the developed
countries shall exercise the utmost restraint in seeking any concessions or
contributions for commitments made by them to reduce or remove tariffs
and other banders to the trade of such countries, and the least-developed
countries shall not be expected to make concessions or contributions that
are inconsistent with the recognition of their particular situation and prob
lems.” (emphasis added)
In light of the above provisions, it is very clear that within the context of the prin
ciple of“less than full reciprocity”, developing-country members should be fully
enabled to exercise their rights to make decisions on their commitments which
they consider to be consistent with their development, financial and trade needs,
and that they cannot be expected to make commitments inconsistent with their
needs, their particular situation and problems. The modalities and negotiations
should ensure that developing countries retain or enlarge the “policy space” or the
range of policy options that they require in order to improve and expand their
domestic industrial development. This central principle must be hilly reflected in
the many aspects of the modalities.
The fourth point of the Paragraph 16 mandate states that the modalities will in
clude appropriate studies and capacity-building measures to assist least-devel
oped countries to participate effectively in the negotiations. It should be recognised
that this point was included in the Doha Declaration in response to requests made
by many developing-country members. For example, a communication by Kenya,
Mozambique, Nigeria, Tanzania, Uganda and Zimbabwe (document WT/GC/W/
453 dated 2 November 2001) proposed that relevant studies be conducted prior
to tire commencement of any negotiations. Although the Declaration refers to “leastdeveloped countries”, it should be accepted in both spirit and substance that the
studies and capacity-building measures refer as well to other developing countries
that request for the studies and measures. The studies and capacity-building mea
sures must also be an integral part of the modalities.
23
7
The Use of Tariffs in Industrial
Policy
TARIFFS are an important component of development and industrial policies.
The use of tariffs in such policies is well documented and was deployed by the
advanced developed countries in their own industrialisation process. Also, the
successful East Asian economies of Taiwan, South Korea and Japan resorted to
tari fl'measures to pursue their industrial development. As part of their industrial
development policies, these countries "picked their winners” and used tariffs to
protect the products of these selected industries until they became sufficiently
efficient to compete internationally.
The importance of using tariffs as a policy tool for industrial development for
developing countries is underscored by the fact that recourse to other policies for
industrial development may be limited by lack of resources and by WTO and
other international rules and obligations.
For instance, the WTO Agreement on Trade-Related Investment Measures
(TRIMs) prohibits the usage of the local-content requirement as it is regarded to
be inconsistent with the principle of “national treatment”. In this context, tariff
measures have acquired greater importance as a means of maximising the benefits
of foreign direct investment (FD1). An effective tariff rate on an imported good
which is in competition with the same, locally produced good could be imposed
by the government in order to ensure that the investor purchases the local good.
This will allow backward linkages between the FDI and the local economy and
enhance the benefits of such investment. If the flexibility in setting tariff levels is
removed, and in the context of TRIMs, another positive synergy with FDI will be
diminished.
Policy options for industrial development are also curtailed by the WTO Agree
ment on Subsidies and Countervailing Measures. Large direct and indirect subsi
dies were essential to the rapid growth of many of today’s most successful devel
oping economies at the early stages of their development. In East Asia’s “tiger
economies” of Malaysia, Singapore, Taiwan and Korea, subsidies played an im
portant role in the export promotion policies used to develop new local industries.
Such policies enabled these economies to become world-class exporters of mod
em industrial products such as electronics, semiconductors and ships. This range
of policies is now circumscribed, if not prohibited, under the Agreement on Sub
sidies and Countervailing Measures.
The subsidies permitted under this agreement (defined as non-actionable subsi
dies in Article 8 of this agreement, which are subsidies of a more generalised
character such as subsidies for R&D or infrastructural development, as opposed
to directly selected industries), apart from their appropriateness, are beyond the
financial means of many developing countries.
Hence, the role of tariffs as a policy tool for industrial development acquires an
even greater significance.
Flexibility in setting tariff rates is also important to deal with an ever-changing
business environment. While an existing tariff rate may be appropriate for a coun
try at this point in its development, it may not be so in the future. Changes in
technology, for instance, could drive down significantly the price of the imported
good, so that the existing tariff rate will be insufficient in ensuring that the imported
product does not effectively eliminate local businesses producing that good. The
tariff rate for that product may then have to be augmented so that local businesses
appreciate the external challenge, and are given the room and opportunity to make
themselves more competitive, without being overwhelmed by it. The historian
Arnold Toynbee, in ascertaining how civilisations take root and flourish, came to
the conclusion that when societies are challenged they rise to the occasion, inno
vate and progress. In the absence of challenge, societies then tend to be compla
cent and advancement is not forthcoming. However, when challenges are over
whelming and cannot be overcome, societies are displaced and destroyed.
25
The flexibility in the use of tariffs is critical to ensure the appropriate level of chal
lenge so that the private sector in the developing countries can adapt, innovate and
improve without being engulfed and eliminated by overwhelming circumstances.
Finally, for many developing countries, customs revenues constitute 20 to 30% or
more of government revenue, while for developed countries this is less than 1%,
according to the IMF annual statistics yearbook. This is significant, especially
given the paucity of financial resources in developing countries. As pointed out by
the United Nations Development Programme (UNDP), cutbacks in government
revenue could result in decreased social spending, such as on health and educa
tion, in countries and situations where consumption of these essential services is
already highly limited and low.
The current negotiations have also to be seen in the context ofthe wider liberalisation
efforts ongoing at the regional and bilateral levels. If the WTO negotiations leave
tariffs significantly lower, countries involved in bilateral or regional negotiations will
have to offer even further concessions to make these negotiations attractive. This
may drive down tariffs to inappropriately low levels, resulting in the loss of the
positive roles they can play in promoting not only industrial but also human devel
opment.
Danger of Erosion or Removal of This Policy Tool under the Current WTO
Negotiations
Developing countries’ tariffs could be lowered significantly and bound under the
current negotiations. The flexibility in tariffs could thus be made marginal or inef
fectual or, worse, completely taken away through the following approaches:
•
26
Bind all - Developing countries are being pushed to have virtually all their
tariffs bound by the end of this round of trade talks. Many developing coun
tries, especially those in Africa, have not bound many of their tariffs, hence
providing some needed measure of flexibility to pursue and protect their
respective national economic interests. In Annex B of the July Package de-
veloping-country members would have most of their tariff lines bound. (LDCs
are also asked to increase their tariff bindings.)
•
Dramatic reduction of tariffs - The developed-country members such as the
US, EU and Japan have been pushing for a very dramatic reduction in the
level of tariffs generally through the use of a non-linear formula. In particular,
the US and New Zealand have stated that they would like to see tariffs
brought down to zero before 2020. In line with this ambition, the US has
submitted its drastic proposal of cutting tariffs to no more than 8% by 2010
and then subsequently to zero by 2015. Adramatic reduction of tariffs through
a non-linear formula would leave tariffs impotent as a policy tool.
•
Proposed mandatory tariff elimination in selected product sectors through
the sectoral approach. The use of tariffs as a policy tool would be lost com
pletely in these sectors.
Double Standards and Empty Promises
The proposals by developed countries along the above lines reflect double stan
dards, as they themselves during their stages of development (and in fact up to
now) have been able to determine their pace and pattern of tariff reduction.
•
Developed countries took many rounds in the GATT to reduce their tariffs.
•
Even in the last round, the US could not accept a non-linear formula ap
proach. In the end, developed countries reduced their tariffs according to
what they felt was most appropriate.
•
One of the objectives of the current round of negotiations as contained in
Paragraph 2 of the Doha Declaration is to increase the share of developing
countries in world trade. However, if the negotiations go the way envisaged
by the developed countries, it is they that will acquire greater market access
than developing countries. Given the different tariff structures between de
veloped and developing countries, the latter, which generally have higher
27
tariffs, will end up making more significant cuts in their tariffs than developed
countries. Hence, it is the developing countries making the concessions here.
This is the case even for a linear formula. For instance, cutting a 100% tariff
by 50% will reduce the tariff to 50%, and cutting a 10% tariff by 50% will
bring it down to 5%. A S1 product will now enter in the first case at S1.50 as
opposed to S2.00 before the cut. In the second case, a S1 product will now
enter at S1.05 instead of S1.10. The market access gained in the first in
stance, which sees a 50-cent difference, is more significant than in the sec
ond instance, which entails only a 5-cent difference. This disparity will be
aggravated with a non-linear formula. There will be no reciprocity and mu
tual benefit in the outcome, let alone fulfilling the principle of “less than full
reciprocity” for developing countries.
An even more punishing and stringent regime for tariff cuts for developing
countries is envisaged in the current negotiations. Developed-country mem
bers have been insisting on a compulsory approach to eliminate tariffs in
some sectors, i.e., the so-called sectoral tariff elimination approach. It is also
the intention of the developed-country members to increase the number of
these sectors to more than the seven mentioned in a WTO document. This
marks a sharp break from past practice, where the sectoral approach was
undertaken on a voluntary basis. These sectors include fish and fish prod
ucts, leather goods, motor vehicle parts, electronics and textiles and cloth
ing. While eliminating tariffs in developed countries in these sectors may ben
efit some developing countries, to subject developing countries to tariff elimi
nation in these sectors is totally inappropriate. Generally, these sectors are
protected by relatively high tariffs in many developing countries, because
they have domestic industries producing these products. However, if the
developing countries were also made to reduce dramatically their tariffs in
these areas, this would put tremendous pressure on their already weak, vul
nerable and limited industrial base.
The principles of less than full reciprocity, S&D and having to take into ac
count the special needs and interests of developing countries contained in the
Doha Declaration have in reality been ignored in the developed countries’
proposals and in the July Package.
28
8
How the July Package Was Adopted
THE main push for a new round of industrial tariff cuts (through the Doha work
programme) came from the major developed countries, which advocated a new
mandate at the Seattle Ministerial Conference and again at the Doha Ministerial
Conference. Several developing countries were against the launching of new ne
gotiations on industrial goods. A paperby several African countries just prior to
the Doha conference argued that African and other countries were suffering from
deindustrialisation induced by rapid liberalisation, and requested that there not be
a start to negotiations on further liberalising tire import of industrial products. How
ever, the appeal by the African countries went unheeded and the Doha meeting
did launch the negotiations on NAMA.
The African and Caribbean countries, individually and also through their regional
groupings, have been vocal in their demand that developing countries should be
allowed to retain the flexibilities that enable them to choose when they would like
to liberalise, the scope of tariff bindings, and at what rate.
However, the developed countries have come up with aggressive positions to
open up developing countries’ markets. Despite the clauses in the Doha Declara
tion that appear to safeguard developing countries’ interests, since the Doha Min
isterial Conference, there has been intense pressure from the developed countries
to subject the developing countries to very steep tariff reductions. The developed
countries propose a general non-linear formula that would apply to all tariff lines.
The scope of binding is also proposed to rise to almost 100%, and then the newly
bound tariffs would also be subject to reduction by the formula. And for several
selected sectors, there would be an accelerated schedule for tariff elimination.
These demands of the developed countries were basically captured in the
Chairman’s text before the Cancun Ministerial Conference, and in the revised
draft (the Derbcz text) at Cancun. During the post-Cancun consultations on NAMA
up to December 2003, the Chair of the WTO General Council proceeded on the
basis of the Derbez text. The Derbez text also eventually became the framework
for modalities on NAMA (Annex B) in the July Package.
Although Annex B of the July Package now enjoys a tremendous advantage as the
main basis of the NAMA negotiations, the extent to which some of its major
points may be subject to challenge or alternatives remains to be determined. Fun
damental differences between developing and developed countries over various
aspects of the negotiations remain unresolved. This state of affairs is captured by
Paragraph 1 ofAnnex B.
Most developing countries (especially from Africa and the Caribbean) had op
posed the Annex for many months, as it had been recycled from the Derbez text
presented at Cancun. It had been criticised at Cancun and in the post-Cancun
period. Many developing countries had submitted their own proposals for a NAMA
framework, which were radically different from the Derbez text.
In contrast, developed-country members, especially the US and EU, were very
supportive of the Derbez text, since it reflects in the main their joint proposal
submitted with Canada in August 2003.
Many developing countries insisted that at best it could be one of the main docu
ments used as a reference point in the negotiations, whilst other proposals (espe
cially those from the developing countries) should also be referred to in the nego
tiations.
The African, Caribbean and Pacific (ACP) countries and the LDC Group (in their
G90 Ministerial meeting on 12 July 2004) had criticised the Derbez text on NAMA
for its potential for causing deindustrialisation, unemployment and poverty in their
countries.
30
They also protested specifically against the decision by Ambassador Stefan
Johannesson, Chair of the N AMA negotiating group, to submit this text, unchanged,
to constitute part of the July Package. Delegates were promised, however, that
their concerns over the Derbez text would be articulated in a cover letter that
would accompany the submission of the Derbez text to the WTO Director-Gen
eral and the Chair of the General Council, who were responsible for drafting the
July Package.
Many developing countries were thus outraged that the Derbez text popped up
again unmodified in the first July Package draft of 16 July 2004. The African
Group immediately proposed amendments to Annex B of the package pertaining
to NAMA. But any amendment to the text was said to be unacceptable to the
developed countries. At one stage, it looked as if the Geneva meeting would
collapse on the NAMA issue.
The only concession the developed countries were willing to make was to create
a “vehicle” to indicate that further negotiations were required on some aspects of
the Annex.
Negotiations then focused on a “vehicle” or explanatory paragraph that would
state that more negotiations would be needed on some elements ofAnnex B.
The location and thus legal status of this “vehicle” became a subject of contro
versy, and after another big battle it was agreed to place the “vehicle” in the body
of the Annex.
In the end, the developing countl ies agreed to accept the disputed Annex with no
modification, except that it is prefaced with a first paragraph explaining that the
Annex contains “the initial elements” for future work, and that “additional negotia
tions are required to reach agreement on the specifics of some of these elements.”
These relate to the formula, treatment of unbound tariffs, flexibilities for develop
ing countries, participation in the sectoral component, and preferences.
It is incredible how such an important text as a framework for modalities on such
an important subject as N AMA could be adopted without any changes whatso
ever, when its most important elements had been opposed by so many members;
and that many members who objected to it found themselves in a situation where
they had to agree to adopt it, with only an inadequate “chapeaux” or Paragraph 1
to indicate that they can reopen some aspects of it, with no guarantee that the
reopening can be to an adequate extent.
Nonetheless, this paragraph has given the developing countries a space from which
to continue to battle for a better framework. But since the Derbez text forms the
rest ofAnnex B, and will be the basis for the negotiations, it will be an uphill task
for the developing countries to put forward their own versions of modalities that
are suited to their industrial development. The unjust process of placing a nonconsensual and contentious text as the framework, and then asking countries to
work with it as the basis, has placed the developing countries at a grave and unfair
disadvantage. It will be an uphill battle for them to limit the damage, and a more
than Herculean task to succeed in putting in place an alternative set of modalities.
It is improbable that the NAMA Annex would have been adopted if there had
been a fairer decision-making process.
The manner in which the Chairman of the NAMA negotiations put the Annex in
the text (thus placing the developing countries in an extremely vulnerable position
during the negotiations) shows in a stark way how unfairly the WTO negotiating
process functions at present. Also, the fact that the developing countries did not
reject the NAMA text outright shows their weakness in the WTO system.
32
9
Problems with the July Package
Text on NAMA
THERE are many problems in the July Package text for developing countries,
many of which have expressed their strong reservations or objections. The text
does not honour the clauses of the Doha Declaration to fully take into account the
special needs and interests of developing countries, including through less than full
reciprocity.
The following are the most serious or contentious issues contained in the July
Package’s Annex B on NAMA:
•
Paragraph 4 contains the directive that the negotiating group continue work
on a non-linear formula applied on a line-by-line basis. According to this
kind of formula, there are to be steeper percentage cuts the higher the tariff
levels. Many developing countries have relatively high bound tariffs in order
to protect their small industries. The non-linear formula will drastically re
duce the developing countries’ tariffs, which could threaten the viability of
many of their domestic industries. The high tariff reductions would also re
duce customs duties collected and thus affect the level of government rev
enue, as many developing conn tries rely heavily on import duties for a signifi
cant part of their revenues.
•
Paragraph 5 tiret 2 implies that unbound tariff lines shall also be subjected
to the non-linear approach, after they are bound at (twice) the applied rate.
This would have very serious implications for many countries. It would mean
that after the exercise: (a) the presently unbound tariff lines will be bound,
and (b) in many cases the new tariff rates would be below (and in some
cases significantly below) the present applied rates. The flexibility for raising
applied rates would be eroded or in some cases eliminated.
•
Paragraph 7 on the “sectoral tariff component” (i.e., accelerated tariff re
duction eventually to zero) contains the controversial line that “participation
by all participants will be important”, implying it will be mandatory. This is
against the demand by most developing countries that
such a scheme should only be voluntary. This could commit developing coun
tries to eliminating tariffs on seven sectors or more, many of which house
local industries whose survival would be seriously threatened. (Annex B does
not state which sectors are involved, or how many, and thus these are to be
selected during the further negotiations. An earlier draft before Cancun had
mentioned seven sectors.)
The above elements in Annex B are likely to create or worsen problems for the
industrial development plans ofdeveloping countries. Existing bound tariffs would
be subjected to reduction, many of them at steep rates. The text would oblige
developing countries to bind almost all their presently unbound tariffs, and subject
the newly bound tariffs to immediate cuts through the non-linear formula. Finally,
if participation is mandatory, the sectoral approach would have tariffs eliminated in
the selected sectors, which could disrupt developing countries’ domestic indus
tries in these sectors since they would be unlikely to adjust in the short time avail
able to compete successfully in the new zero-tariff environment. For many devel
oping countries, Annex B could well lead to deindustrialisation, or further
deindustrialisation. They would find it more and more difficult to build an industrial
base for development.
The developed countries have generally much lower industrial tariffs than devel
oping countries (with the significant exception of tariff peaks and high tariffs, espe
cially on products of export interest to developing countries). The developing
countries generally have higher bound tariffs, which they require because their
local industries are less technologically equipped, and thus many of them would be
unable to be viable in the face of cheap imports. Due to these differences in tariff
profiles, the application of a non-linear formula would affect the developing coun
34
tries much more than the developed countries, as the former would be subjected
to much steeper cuts in terms of percentage points, as compared to the latter.
The result is that the developing countries would have to increase the access to
their markets much more than the developed countries. This would be counter to
the principle of less than fill 1 reciprocity and to the more general principle of spe
cial and differential treatment.
35
10
Inappropriateness of a Standard
Formula Approach for Developing
Countries
A MAJOR pail of the Doha mandate on NAMA is that “the negotiations shall
take fully into account the special needs and interests of developing and leastdeveloped country participants, including through less than full reciprocity in re
duction commitments", and this is to be in accordance with Article XXVIII bis of
GATT 1994 and Paragraph 50 of the Doha Declaration (on special and differen
tial treatment).
Paragraph 3 of Article XXVIII bis states that “Negotiations shall be conducted
on a basis which affords adequate opportunities to take into account: (a) needs of
individual contracting parties and individual industries; (b) the needs of less-devel
oped countries for a more flexible use of tariff protection to assist their economic
development and the special needs of these countries to maintain tariffs for rev
enue purposes; and (c) all other relevant circumstances, including the fiscal, devel
opmental, strategic and other needs of the contracting parties concerned.”
Thus, developing countries should be enabled by the NAMA modalities to have
the option of an approach that meets theirneeds for “a more flexible use of tariff
protection” to assist development and maintain tariffs for revenue purposes.
In order to meet these goals, developing countries should not be subjected to a
standard formula approach. Generally, the developing countries have higher tari ffs
on industrial products than developed countries. A formula approach, which re
quires all members to reduce their tariffs by a certain percentage, would affect the
tariffs of developing countries more than the tariffs of developed countries. This
would be so even if developing countries are allowed a lower percentage of tariff
reduction. In the proposals using the formula approach that have been put for
ward, the Swiss-type proposals or “compression” proposals (put forward, for
example, by the US and EU) would seriously affect developing countries as their
tariffs have to be very significantly reduced overall, and the higher tariffs would
especially be subjected to drastic cuts. This would have very serious consequences
for many industrial products and sectors and accelerate the process of
deindustrialisation, closure of local firms and job losses, as well as drastically
reduce the customs revenues that form a large pail of the government’s total rev
enue in developing countries.
However, even the linear-cut formula approach would adversely affect develop
ing countries, even if they are allowed to have a lower reduction rate than that of
the developed countries. For example, the Indian linear-cut formula asks for 50%
tariff reduction for developed countries and 33.3% reduction for developing coun
tries; and that after these reductions are made, all members should also ensure
that they do not have in any tariff lines a tariff rale more than three times above the
overall average rate. Although this linear-cut approach with differential rates for
developed and developing countries will not have as drastic an effect on develop
ing countries as the Swiss-type formula approach, it will still have adverse effects
on developing countries, and moreover it remains an inequitable system.
Paragraph 16 of the Doha Declaration mandates that the negotiations shall take
fully into account the special needs and interests of developing and least-devel
oped country participants, including through less than full reciprocity in reduction
commitments. It also states that the negotiations should take fully into account the
principle of special and differential treatment for developing and least-developed
countries. The formula approaches do not reflect the Doha mandate in that they
do not fully take into account the needs of developing countries, nor do they
constitute special and differential treatment.
The central drawback of the formula approaches put forward is that they ask
members to make reduction commitments by a certain percentage. Basing a
formula on the basis of percentage reduction may seem equitable, but in fact it is
not so. This is because those countries that in general have higher tariffs would
37
have to reduce their tariffs by more, in terms ofpercentage points, even if all
countries reduce their tariffs by the same percentage. In effect, the countries with
higher tariffs would be undertaking a higher commitment. This may be so even if
they are allowed a lower percentage reduction. Since developing countries have
in general much higher tariffs than developed countries, the developing countries
would be making far higher commitments than the developed countries.
Let us take an example to illustrate this point. Developed country A has an aver
age industrial tariff of4% while developing country B has an average tariff of40%.
If both are asked to reduce their tariffs by the same percentage of 50%, then the
tariff ofA would be reduced from 4 to 2%, while the tariff of B would drop from
40 to 20%. A’s tariff falls by only 2 percentage points whilst B’s tariff falls very
significantly by 20 percentage points. The differences in the effects of this are vast.
In the example, let us say that B is exporting a product to A at the price of S100,
and A is selling a product to B also at SI 00. The situation is thus as follows:
•
Country A imports the product at S100 and used to sell it at $ 104; after the
tariffreduction the price falls to S102. Although the tariff is reduced by 50%,
it is reduced by only 2 percentage points, and the sale price falls only slightly
by 1.9%, from SI 04 to SI 02. Country A loses only a small amount of cus
toms revenue. Also, the increase in market access in A for the product of B
will be very small, as the price has fallen by only 1.9%.
•
Country B imports the product at SI00 and used to sell it at SI40; after the
tariff reduction the price falls to S120. Due to the tariff reduction of 50%,
the tariff is reduced by 20 percentage points, and the sale price falls signifi
cantly by 14.3% from SI40 to SI20. This would mean that market access
to B for the product ofA would increase significantly as a 14% fall in price
can be expected to increase the demand for the imported product. The local
producer would also face stiff competition from the import.
Even if the developing country is allowed a lower rate of reduction (33% instead
of 50%, as in the India model), its reduction commitment would still be steeper
38
than the developed country’s. In the example above, B would reduce its tariff
from 40% to 26.8%, or by 13.2 percentage points. The sale price of its imported
product would fall from SI 40 to SI 26.80, or by 9.4%.
The effects of the different tariff-cut scenarios illustrated above are shown in the
following table.
Import
Import
Price of Price of
$100
$100
Good
Good
After
After
Initial
New
Tariff
Tariff
Change Percentage
in Price Change in
Price
2%
S104
S102
S2
1.9%
40%
20%
S140
S120
$20
14.3%
40%
26.8%
$140
$126.80
SI 3.20
9.4%
Average
Tariff
After
Percentage
Reduction
of 50% (for
Countries A and
B) and 33% (for
Country C)
Developed
Country A
4%
Developing
Country B
Developing
Country C
Thus, even the linear-cut approach would leave developing countries at a disad
vantage.
If the Swiss-type formula approach is used, in which tariffs at the higher end are
cut by a larger percentage than tariffs at the lower end, the disadvantage to and
serious effects on developing countries will be even more serious, as can be ex
pected.
Taking our example again, developed country A with a current average tariff of
4% would have the tariff reduced under the different proposed formulae to about
1.7% (China formula), 2.2% (EU formula), 1.9% (India formula), 2.9% (Korea
formula) or 1.4% (US formula). Meanwhile, developing country B with a current
average tariff of 40% would have the tariff reduced to about 21.2% (China for
39
mula), 12.9% (EU formula), 26.8% (India formula), 21.5% (Korea formula) or
6.7% (US formula). It should be noted that the effects on country B (in terms of
tariff reduction in percentage points, customs revenue loss, and drop in import
price) would be especially drastic under the US and EU formula approaches,
compared to the India formula.
[The estimates in the above paragraph are based on Table 1 of document JOB(03)/
67 dated 4 April 2003, i.e., the Secretariat’s Note on Formula Approaches to
TariffNegotiations. The lines for the EU, with an actual average tariff of 3.9%,
and for Fiji, with a tariff of40.0%, were chosen to illustrate the situation of country
A and country B respectively.]
The conclusion that can be drawn from this example is that the present proposed
formula approaches would result in much larger tariff cuts by developing countries
in terms of percentage points. This would be so even under a proposal that allows
for lower percentage reductions for developing countries.
Under the formula approaches, developing countries would be at a disadvantage
and would suffer losses in the following ways:
(a)
Generally, most developing countries have higher tariffs than developed coun
tries, and would thus have to make greater commitments in terms of tariff
reductions in percentage points.
(b)
In general, market access to developed countries would be increased only
marginally for the products of developing countries, due to the generally
existing low tariffs in developed countries. In contrast, market access to
developing countries would be increased very significantly. There would
thus be an imbalance in the increase in market access between developed
and developing countries.
(c)
40
Developing countries will suffer a significant decline in customs revenue. This
will have serious adverse consequences for the fiscal situation in many devel
oping countries which are heavily dependent on import duties for govem-
ment revenue. According to the IMF Yearbook of Statistics on government
finance, for more than 50 developing countries, tariff revenue comprises over
20% of total government revenue. In comparison, tariff revenue makes up
only 1% of government revenue in OECD countries.
(d)
In developing countries, the very significant decline in tariffs in percentage
points would lead to very significant price declines for imported products.
These cheaper imports can be expected to compete effectively with local
products, leading to loss of market share or closure of local industries and
significant loss ofjobs.
(e)
Since there would be a much higher rate of opening up their markets to
imports in developing countries, whilst the access to developed countries’
markets would only increase slightly in comparison, it can be expected that
developing countries’ imports would increase more than their exports of in
dustrial products. This would have an adverse effect on their trade balance.
Defining Reciprocity and “Less than Full Reciprocity”
In view of this, we need to carefully consider the appropriate meaning of "tak[ing]
fully into account the special needs and interests of developing and least-devel
oped country participants, including through less than frill reciprocity in reduction
commitments”, as stated in Paragraph 16 of the Doha Declaration. It is important
that this is operationalised. In particular, the meaning of “less than full reciprocity”
should be properly defined and operationalised.
Some of the formula approaches do not seem to make accommodation for devel
oping countries. In some cases, “less than frill reciprocity” may only mean a longer
time frame for developing countries to implement their commitments. Some pro
posals do provide lower percentage reduction rates for developing countries visa-vis developed countries (e.g., 33% instead of 50%). However, as explained
earlier, these are all inadequate. The basic flaw in the formula approaches is that
they use percentage reductions as the basis of their calculations. Even if develop
ing countries are allowed a lower percentage reduction, the result is that most of
41
them have to make more drastic reductions in terms of percentage points than
developed countries. These higher percentage-point reductions translate into higher
loss of customs revenue as well as steeper rates of reductions in the prices of the
imported products, which in turn means a higher increase in the demand for the
products, a higher volume of imports, and a higher import bill - higher not only in
absolute terms but also relative to the developed countries.
In fact, if we take the meaning of “less than full reciprocity” to be only a lower
percentage reduction in tariff commitments, the result will be that developing coun
tries will make relatively heavier commitments than developed countries, i.e., they
will make “more than fully reciprocal” commitments. Therefore percentage reduc
tions in tariffs should not be the basis for calculating the relative commitments of
developing and developed countries.
A definition of “reciprocity” which is closer to our meaning can be found in the
traditional product-by-product “request-offer” negotiating method that was a com
mon practice in previous GATT rounds of industrial tariff negotiations. As de
scribed by the international trade expert Bhagirath Lal Das in his book,/!/? Intro
duction to the WTO Agreements (1998, pp. 22-23): “In this type of negotiation
(request-offer approach), generally two countries get together to negotiate. Country
A has an interest in the export of product P to country B; and country B has an
interest in the export of product Q to country A. A will then ask B to reduce its
tariff on product P; similarly, B will ask Ato reduce its tariffon product Q. In the
final agreement between the two countries, an attempt will be made to achieve
reciprocity as far as possible. Reciprocity is generally achieved by equalising the
reduction of total customs duty on each side. The average value of the export of
product P from A to B is multiplied by the percentage point of the reduction of
tariffon this product by B. This is a measure of the concession which A gets from
B.”
Using the same example, with numerical figures, in another book, The World
Trade Organisation: A Guide to the Framework for International Trade
(1999, pp. 61 -62), Das continues: “The loss of customs revenue to B is calcu
lated by multiplying: (i) the average value of the export of product P from A to B
42
by (ii) the reduction of tariff. I f the average value of the export is USS200,000
and the tariff is proposed to be reduced by 3%, the loss of revenue is USS200,000
x 0.03, i.e., USS6,000. This is a measure of the concession which A gets from B.
The quantum of concession which B gets from Aon the export of product Q will
be calculated in a similar manner. An effort will be made to match the two. In this
manner, A and B will agree to their mutual new tariffs on products P and Q. Then,
these two new tariff levels will get included in their respective schedules [of
commitments],. ..they will be applied to all Members of the WTO according to
the MFN principle.”
In this method of achieving reciprocity, the tariff reduction in percentage points
rather than in percentages is used in the calculation. Reciprocity means an equalising
of loss of customs revenue. It is proposed that this definition of reciprocity be
explored as part of a more useful and appropriate method in the NAMA modali
ties. In this sense, “less than full reciprocity” means that developing countries
should be expected to have less reduction in customs revenue as compared to
developed countries.
As a central part of the modalities, developing countries should be allowed to
apply the product-by-product request-offer method if they choose to do so, rather
than abide by a standard formula approach.
Finally, in the context of “taking frilly into account the special needs and interests of
developing and least-developed country participants”, the meaning of “less than
frill reciprocity in reduction commitments” should be taken to mean the following:
(a)
Developing countries should not be obliged to make equal commitments as
developed countries, and in fact should be entitled to make less reduction
commitments.
(b)
These lower commitments should also translate into higher benefits for de
veloping countries, in comparison to the developed countries.
43
(c)
As Paragraph 2 of the Doha Declaration states that “we shall continue to
make positive efforts designed to ensure that developing countries, and es
pecially the least-developed among them, secure a share in the growth of
world trade commensurate with the needs of their economic development”,
the higher benefits to developing countries should also translate into an in
creased share in global exports of non-agricultural products.
(d)
At the least, higher benefits to developing countries should mean that the
modalities should result in a positive effect on the trade balance (exports
minus imports) of these countries. The modalities would be inappropriate if
they lead to a worsening of the trade balances of developing countries.
In other words, “taking fully into account the developing countries’ special needs
and interests” and their being enabled to enjoy “less than full reciprocity in com
mitments” must be operationalised in having the appropriate modalities. The test
of the appropriateness of otherwise of the modalities is whether they lead to tan
gible benefits for developing countries. Therefore “less than full reciprocity in com
mitments” must be operationalised to become “more than reciprocal or more than
average trade benefits for developing countries” in results and in practice.
One of the best estimates of benefits and costs is the effect that a proposed mo
dality will have on a country’s exports and imports. The modalities should lead to
developing countries having a more positive trade balance.
The WTO Secretariat and other organisations, including UNCTAD, should carry
out studies to determine the implications of each of the formula approaches and
other approaches in terms of the effect on each member’s exports and imports
(volume and value). Until these studies are carried out and their implications ex
plored fully, it would be difficult or impossible to assess whether a proposed for
mula or modality would meet the Doha mandate of less than ftilly reciprocal com
mitments, and of fully taking account of the needs of developing countries.
44
11
Potential Effects of Formula
Approaches on Developing
Countries
(a) Projected effects on tariffs
THE use offormulae will erode the flexibility which until now has been available to
WTO members, especially developing countries.
There are two major types of formulae considered in the NAMA discussions: the
linear formula, in which tariffs are cut by the same percentage, whatever the tariff
level; and the non-linear formula, in which the higher the tariff level, the higher the
percentage cut. There can be and are many variations of the non-linear formula.
In the NAMA discussions, there have been explanations of and proposals for:
•
A simple linear formula, for example, all tariffs are cut by a certain percent
age (for example, by 10 or 25 or 50%).
•
The Indian linear formula, in which (a) developed countries cut their tariffs by
50% and (b) developing countries cut their tariffs by 33%. Also, members
shall not impose a tariff on any product in excess of three times their average
tariff (the average is calculated after the tariff reduction).
•
The US non-linear formula. (1) In phase 1 of2005-2010: (a) tariffs of 5% or
below are reduced to zero; (b) tariffs above 5% are subject to a Swiss
formula with a target of tariffs falling to a maximum of 8%; (c) for some
sectors, tariffs are reduced to zero. (2) In phase 2 of2010-2015, tariffs are
brought to zero by a linear cut in five years.
•
The EU proposal of a "compression mechanism”, to reduce all tariffs and
their dispersion by compressing them into a range. For initial tariffs above a
certain level (50%), the new reduced rates will have a cap at 15% (i.e., no
tariffs can exceed 15%).
•
The China version of the non-linear formula.
•
The Japan and Korea formulae.
Calculations have been made using these formulae to show the effect of each on
various tariff rates or profiles. For example, a developing country having a tariffof
60% for a product would have to reduce it to 45% under a linear formula (with a
cut of 25%); 40.2% under the India linear formula; 20.4% under the China for
mula (using a certain coefficient); 23.5% under the Korea formula (using a certain
coefficient); 15% under the EU formula and 7.1% under the US formula (“For
mula approaches to tariff negotiations”. Note by the WTO Secretariat, WTO
document TN/MA/S/3/Rev.2 dated 11 April 2003). (See Annexes A-C for the
impact on different tariff rates of the various tariff-cut formulae.)
Using WTO secretariat data, India (in a paper to the WTO) has estimated the
simple averages of final bound duties before and after the application of various
formulae for certain countries. An extract of this is reproduced in the table on the
next page (for a fuller list of countries, see Annex D).
It can be seen that the developed countries have lower initial average tariffs and
the tariff reductions are negligible for them in terms of the impact on market open
ing or competition to their local industry. Developing countries have higher aver
age tariffs, and the cuts are significant under ail the formulae, but especially under
the non-linear formulae of the US and EU. The choice of formula will affect the
depth of the cuts.
46
Country
Initial simple
average (%)
New averages by proposal (%)
Bangladesh
35.7
23 (India), 11.1 (EU),5.8(US)
Indonesia
35.6
23.8 (India), 11.8 (EU), 6.3 (US)
Malaysia
14.9
10 (India), 6.2 (EU), 3.2 (US)
Sri Lanka
19.3
12.9 (India), 7.4 (EU), 4 (US)
Thailand
24.2
16.2 (India), 9.1 (EU),5.5(US)
EU
3.9
1.9 (India), 2.2 (EU), 1.4 (US)
US
3.2
1.4 (India), 1.7 (EU), 1 (US)
Japan
2.3
1.1 (India), 1.3 (EU), 0.7 (US)
Kenya
54.8
36.7 (India), 13.9 (EU), 6.9 (US)
(b)
Projected effects on tariff revenue
A major effect of proposed tariff cuts will be reductions in government revenue
derived from import duties. Obviously, the deeper the tan If cuts, the greater the
fall in revenue. Many developing countries depend to a significant extent on tariff
revenue, so the non-linear formulae in particular will impact seriously on overall
government revenue.
De Cordoba, Laird and Vanzetti (2004) of UNCTAD estimated the loss of im
port duty under four scenarios: (1) free trade (tariffs are cut to zero), (2) “WTO
hard” (Swiss non-linear formula with higher cuts for developing countries), (3)
“WTO soft” (Swiss non-linear formula with milder cuts), (4) “simple mix” (linear
formula with a cap for tariff peaks).
47
The results for some developing countries and regions are as follows (see Annex E
for the full list of projections):
(a)
In South-East Asia (excluding Indonesia), tariffrevenueofS13.3 billion is
28% of total government revenue of S47.9 billion. The estimates are that
import duty revenue in the region will be cut by 85% under scenario 1; by
45% under scenario 2; and by 10% under scenarios 3 and 4. (Under sce
nario 1 of “free trade”, revenues are not cut by 100% because tariffs outside
the industrial sector will still remain.)
(b)
In China, tariff revenue of S24.9 billion is 21 % of government revenue of
S118.8 billion. The tariff revenue will be cut by 82,72,54 and 51% for the
respective scenarios.
(c)
For India, with S11.9 billion tariff revenue, or 24% of government revenue of
S50.3 billion, the loss of revenue will be 87,58, 13 and 12%.
(d)
For the rest of South Asia, tariff revenue of S3.9 billion is 37% of govern
ment revenue of $ 10.5 billion and the loss of revenue will be 84,26,5 and
7% respectively.
In contrast, tariff revenue is only 2% of government revenue in the EU and 5% in
Japan, and thus a cut in tariff revenue will have an insignificant effect on overall
government revenue.
The overall figures for the world as a whole are also important. The tariff revenue
worldwide is S248 billion, and tariff reduction would reduce the total by as much
as 76,55,35 and 27% under the four scenarios respectively.
(c)
Projected effects on imports and exports
Simulations by UNCTAD staff [ De Cordoba, Laird and Vanzetti (2004) ] show
that generally there will be significant increases in the value of imports due to
liberalisation under the four scenarios mentioned in the previous section. For
48
developing countries, these increases in imports are generally larger than the in
creases in export earnings. The projections for some Asian countries are given
below:
Under the four scenarios (scenarios 1,2,3,4) mentioned above, China’s imports
are projected to increase by 12.1, 11.7, 9.1 and 6.8% respectively, whilst its
exports would increase by 9.8, 10, 7.7 and 5.5%.
For India, imports would increase by 29.2, 20.9, 6.4 and 4.6% whilst exports
would increase by 20.5, 14.9, 5.3 and 3.9%.
For other South Asian countries, imports would increase by 15.6, 7.4,4.6 and
2.4%, whilst exports would increase by 12,6.3,4.5 and 2.7%.
For Indonesia, imports would increase by 5.6,4.4,2.8 and 1.1% whilst exports
would rise by 5.2,4.3,2.8 and 1.3%.
For other South-East Asian countries, imports would increase 4.4,2.7, 1.0 and
0.5%, whilst exports would rise by 3.3,2.1,0.9 and 0.5%.
(See Annexes F and G for the full list of projected changes in imports and exports
respectively.)
As the projected imports grow faster than exports, there would be a negative
effect on the balance of trade.
(d) Projected effects on output
The same UNCTAD paper also projected changes in output resulting from the
four scenarios (see Annex H). The results are mixed according to sector. For
most Asian countries or sub-regions, there would be output increases in textiles
and wearing apparel. However, there would be serious losses of output in the
motor vehicles sector, and some losses in the leather sector.
49
For example, under scenario 1 (“free trade"). India would increase its output in
textiles (3%) and wearing apparel (15%) but suffer declines in motor vehicles
(-6%), chemicals, rubber and plastics (-2%) and other transport (-1%).
For other South Asian countries, there would be gains in textiles (1 %) and wear
ing apparel (23%) but losses in motor vehicles (-47%), other transport (-19%)
and chemicals, rubber and plastics (-5%).
For China, there would be gains in textiles (2%). wearing apparel (7%) and leather
(11 %) but losses in motor vehicles (-18%) and chemicals, rubber and plastics
(-3%).
For Indonesia and other South-East Asian countries, there would be gains in tex
tiles, wearing apparel and leather, but losses in motor vehicles (-11% for
Indonesia and -12% for other South-East Asian countries).
About the same sectoral pattern of gains and losses would apply under the “WTO
hard” scenario 2 and the “WTO soft” scenario 3.
50
12
Suggested Approach to Modalities
for NAMA
THE following are preliminary views on the modalities of the NAMA negotiations.
It should be recognised that: (1) the modalities form an extremely vital part of the
negotiations as they are the set of guidelines that in fact influence the course of the
rest of the negotiations; (2) extreme care must be taken to ensure that the modali
ties, being so important, must be derived from and frilly reflect the objectives and
the principles of the negotiations.
It has been argued above that the central objective of the negotiations is the
promotion of the needs and interests of the developing countries (specifically,
promotion of their industrial development), and that the main principles are that
the modalities and outcome of the negotiations should be such as to:
assist developing countries to gain a greater share of industrial output and
exports through providing greater market opportunities (especially to devel
oped countries’ markets); and
ensure that they have sufficient “policy space” or the range ofpolicy options
required for their industrial development.
In view of this, the following suggestions are made on various aspects of the mo
dalities.
(a)
Different capacities of and differential treatment of developed- and
developing-country members
(i)
Recognition of differences in capacities and thus differential treat
ment.
It should be recognised that developed and developing countries have different
levels of economic development in general and industrial capacity in particular.
This difference in development and industrial capacity should be fully taken ac
count of in the modalities and negotiations. One way of taking this into account is
to establish differential treatment for developed and developing countries. This is
especially important as the objective of and principles in the negotiations are to
promote and take account of the needs and interests of developing countries.
(ii)
Developed countries should increase their market access in ways that
significantly benefit developing countries.
The developed countries should clearly commit to increasing access to their mar
kets forthe industrial products of developing countries, and this commitment should
be reflected as a major positive aspect in the modalities. The modalities should
contain commitments by developed countries to greatly reduce or eliminate tariff
peaks and tariff escalation in relation to products of export interest to developing
countries. Given the high level of development, the high productivity and the very
well-diversified range of industries and economic sectors that tire developed coun
tries possess, there should be little or no difficulty for them to increase their market
access for developing countries’ industrial products.
(iii) Developing countries must be given the right and space to determine
their own policies.
In comparison, developing countries generally have a weaker and more vulner
able industrial sector, as their domestic firms do not have the technology, high
productivity, management systems and marketing outreach of the larger enter
prises of the developed countries. Almost all developing countries have to rely on
52
their domestic firms for industrial development. Foreign firms can play a valuable
contributory role; however, much of the investment and production in most devel
oping countries is made by local firms. Since these local firms are still at the devel
opment and learning stage, they require significant assistance and a long time frame
in order to be more efficient and competitive vis-a-vis imported products. Gov
ernments also require customs duties as a major source of revenue. For these
reasons, the modalities must recognise that developing countries are allowed the
freedom and space to choose the overall rate of liberalisation, and the sectors or
products for liberalisation at rates that are suitable for these sectors and products.
In short, developing countries should not be expected (or be subjected to pres
sure) to reduce their tariffs beyond the rates they choose.
(iv) Developing countries that have suffered adverse effects from previ
ous liberalisation should be allowed to increase their tariffs beyond
the bound levels without paying compensation.
In many developing countries, previous reductions in tariffs have led to the wide
spread closure of firms and industries and the retrenchment of workers. The capi
tal, management or labour resources that were dislocated could not be relocated
to alternative or more efficient sectors, at least not in frill. The modalities should
take into account these difficulties faced by developing-country members from
previous tariff reductions, and allow these affected countries to increase their tar
iffs beyond the bound levels in respect of specific products/product areas for a
specified period, in line with the provisions of Article XVIlIAand XVII1C of
GATT 1994. These affected developing countries should not be called upon to
give any compensation for these measures.
(b)
Special problems potentially faced by developing countries from
reduced preferential trading margins
The modalities should recognise that reduction of high tariffs and tariff peaks by
developed countries can adversely affect the preferential margins of developing
countries that have preferences under the Generalised System of Preferences (GSP)
or that are parties to regional trading arrangements with a developed country or
53
developed trading entity. The modalities should include a procedure for establish
ing measures and mechanisms to deal with this issue, with the aim of avoiding or
offsetting this problem or compensating the relevant parties.
(c)
Choice of techniques for tariff negotiation
(i)
Introduction
There are various methods of negotiation, the main ones (previously and also
being suggested for the current negotiations) being: (a) request-offer on a prod
uct-by-product basis; (b) the tariff-independent formula approach, often called
the linear-cut approach (where all tariffs are covered for reduction by a standard
or similar rate); (c) the tariff-dependent formula approach, often called
harmonisation approach (where there are higher rates of reduction for tariffs at
higher levels); and (d) the “zero-for-zero" approach (in which participating parties
agree to eliminate tariffs for a particular product).
(ii)
Developing countries
In all the previous rounds of tariff reduction, developing countries have partici
pated in negotiations on a request-offer basis. This method has allowed develop
ing countries to be more flexible in being able to choose the sectors or products in
which they are more comfortable liberalising, and also the rate of tariff reduction,
and thus also to decide on the sectors and products in which the bound tariffs are
to be maintained. If they are subjected to the other approaches, developing coun
tries would be under pressure to reduce their tariffs across the board (or generally,
with perhaps a few exceptions) and at a standard rate. Since developing coun
tries presently have higher industrial tariffs than developed countries, the other
approaches would result in the developing countries having to make larger tariff
reductions. The harmonisation approach would cause pressure to be put espe
cially on those products or sectors in which the developing countries have high
tariffs and which they have chosen to protect, perhaps as part of industrial policy
to develop specific industries. The zero-for-zero approach would be even more
disadvantageous to developing countries as they generally have higher tariffs than
54
the developed countries and thus the latter can be expected to make much smaller
tariff reductions. Finally, the formula approaches would also lead to greater loss of
tax revenues as tariffs could be cut across the board, and with even more rounds
of reduction in future on the same basis, import duties would no longer be relied
on to raise revenue for the government, and this would have serious fiscal conse
quences for many developing countries. Loss of revenue would of course be even
more serious in the zero-for-zero approach.
Therefore, the modalities should allow developing countries to make use of the
request-offer approach on a product-by-product basis, as they have done in all
previous rounds. They should not be subjected to pressure to make use of the
other methods if they do not choose to.
Developing countries should be given the flexibility to determine their own rate of
tariff reduction. This could be similar to the Uruguay Round approach, in which
developing countries were given an average overall reduction target of 27%, with
the flexibility to choose the rates of each tariff line. Moreover, products and indus
tries that are sensitive or important need not be subjected to any tariff reduction.
Developing countries that consider themselves to have a relatively weak or vul
nerable industrial sector should not be subjected to pressures to commit to a
general reduction rate in the modalities, nor to pressures during the negotiations.
This proposal would establish a modality on tariff negotiation techniques that re
flects the principle of “less than full reciprocity”. As explained earlier, this principle
means that developing-country members should be fully enabled to exercise their
rights to make decisions on their commitments which they consider to be consis
tent with their development, financial and trade needs, and that they cannot be
expected to make commitments inconsistent with their needs, their particular situ
ation and problems. The modalities and negotiations should ensure that develop
ing countries retain or enlarge the “policy space” or the range of policy options
that they require in order to improve and expand their domestic industrial devel
opment.
55
(iii) Developed countries
The developed countries should be committed to assisting the developing coun
tries. Since many of their products that are covered by high tariffs and tariff peaks
are products of export interest to developing countries, the developed countries
could make use of the hamionisation formula approach which is aimed primarily at
reducing the tariff peaks and high tariffs. However, in the past when the linear
formula or the harmonisation approaches were used, the developed countries
made exceptions, and many of the exceptions were for products of export interest
to developing countries. In the present exercise, the developed countries should
not exclude developing countries’ products from the formula approaches that may
be used; this should be included in the modalities. Even if the product-by-product
approach is used by a developed country, the modalities should spell out that
tariffs on products of export interest to developing countries should especially be
reduced at a higher rate.
(d)
Credit to developing countries for autonomous liberalisation
Many developing countries have significantly reduced their tariffs unilaterally out
side the WTO framework, either as part of their own strategy or as part of struc
tural adjustment policies under loan conditionalities. These lower tariff rates have
benefited the trade of other countries. Credit should be given to those developing
countries that have liberalised unilaterally. The modalities should recognise this
principle of credit for autonomous liberalisation and establish methods forgiving
the credit.
(e)
The scope of tariff bindings and the choice of rates to use and the
relation between bound and applied rates
The negotiations should take place on the basis of the bound rates of tariffs.
Generally the developing countries have a higher difference between their bound
and applied tariff rates. This “buffer” between bound and applied rates has a
useful function for developing countries, as they can first reduce the applied rates
56
and note the effects and consequences. If problems occur, they will still have the
flexibility to enhance the applied tariff up to the bound rate. I f, after an adequate
period, there are no problems, then the country may decide to reduce the bound
rate.
In the G ATT/WTO trading system previously and up to now, developing coun
tries have had the flexibility to choose which tariffs and how many to bind. More
over, when binding is undertaken, the rate at which to bind the tariff was chosen
by the country concerned. This flexibility has been an important instrument for the
planning of industrial development, and it should be retained.
However, the July Package has proposed to remove or severely erode these
flexibilities by making it mandatory for developing countries (except LDCs) to
bind all their tariffs (except 5% of tariff lines provided they do not exceed 5% of
total import value). Moreover the presently unbound tariffs would be bound at
(twice) the applied rates, and then subjected to the formula tariff cut. The removal
of such flexibilities would be a major loss and blow to the developing countries.
The modalities should recognise the importance in serving developing countries’
needs and interests of maintaining differences between bound and applied rates,
and of not binding some product lines. Developing countries should continue to
have the flexibility to choose to increase the number ofbound tariff lines according
to their own circumstances, needs and timing. In doing so, they should choose the
rates at which to bind their products.
Furthermore, in the calculation of tariff-reduction commitments, tire presently bound
rates should be used and not the applied rates.
(f)
Staging of tariff reductions
Developing countries should be given a significantly longer time frame to imple
ment the commitments made, as compared to developed countries. However, this
longer implementation period should not be taken to be the main or even a major
S&D concession.
57
(g)
Studies and capacity-building
Several developing countries (Kenya. Mozambique, Nigeria, Tanzania, Uganda
and Zimbabwe) in document WT/GC/W/453 dated 2 November 2001 had stated
their concerns that previous and present import liberalisation of industrial products
has had serious and adverse effects on domestic industries, jobs and government
revenue in many countries in Africa and other regions. They had therefore ex
pressed serious reservations about starting negotiations in this area and called for
a study process to be completed first before negotiations.
Paragraph 16 of the Doha Declaration does make a reference to including appro
priate studies and capacity-building measures to assist LDCs to participate effec
tively in the negotiations. It is proposed that the studies should take into account
other developing countries besides LDCs, as many non-LDC developing coun
tries share the same industrial-sector characteristics and the same problems as
LDCs, as can be seen in the examples provided above.
It is also proposed that the preparation and consideration of studies be the first
order of business.
Regarding the studies that are mandated by Paragraph 16, the following proposal
contained in the communication of Kenya etal (in WT/GC/W/453, p. 3) should
be adopted as part of the modalities:
“The study process shall take into account the special needs and interests of de
veloping and least-developed country Members, including: (1) the effects that
previous import liberalisation and tariff reductions have had, including on domestic
firms, employment and government revenue; (2) the effects that tariff peaks and
tariff escalation in developed countries have had on the trade prospects of devel
oping countries; and (3) the implications of these for future policies. The study
process shall focus on the reduction or elimination of tariffpeaks and escalation in
developed countries in sectors and products of export interest to developing coun
tries. It should also clarify that exemptions from further liberalisation commitments
shall be given to least developed countries and to developing countries that have
58
been and would be adversely affected by such liberalisation. It should also clarify
the appropriate framework, guidelines and rules that can cater to the different
conditions and needs of Members, including non-reciprocity for developing coun
tries, and the ability of developing countries to increase their tariff beyond bound
rates in certain cases. The study process, based on an examination of these ele
ments, may make recommendations for guidelines and modalities for any future
negotiations.”
The studies should be conducted and discussed along the above lines as the first
item of discussion in the NAM A negotiating group, and the appropriate conclu
sions should be drawn from the discussions on the studies. This sequencing of the
agenda should be part of the modalities.
59
13
Conclusion
THE NAM A negotiations are at an important phase as the discussion is on the
modalities, which will influence the course ofthe whole negotiations.
The July Package annex on NAMA has many elements that are not conducive to
attaining the objectives or to operationalising the principles of special and differen
tial treatment and "less than full reciprocity." It should be re-examined and a fresh
start made, based on development principles as has been mandated in the Doha
Declaration.
The modalities must take into account the needs and interests of developing coun
tries: to have greater access to developed countries' markets, and to be able to set
their own appropriate levels of import tariffs.
Appropriateness must first and foremost take into account the level of strength or
weakness of local industries that can be affected by too rapid or too steep a rate
of import liberalisation. Thus the modalities must not be in the nature of a one-sizefits-al 1 approach or formula. The modalities must recognise that there are different
categories of members with different levels of industrial capacity.
There must therefore be a differential approach to fully take into account these
differences. The level and rate of liberalisation or protection that is appropriate for
one group of countries may be inappropriate or even totally inappropriate for
another group of countries.
Developing countries, especially those with a weak industrial base, should be
allowed to choose levels of liberalisation and protection that enable their weak
industrial sectors to remain viable and to develop in future with greater efficiency,
with the assistance of complementary measures mentioned above.
It is absolutely essential that the modalities and the negotiations that follow recognise
the need and right of the developing-country members to have the flexibility and
option to choose the rates of import duties that are required for the survival and
development of their domestic industries.
In summary, it is proposed that the modalities should be based on two
principles:
(1)
Developed countries should provide improved market access to de
veloping countries by eliminating or at least significantly reducing
their tariff peaks, high tariffs and tariff escalation. They should adopt
a harmonisation formula which should be designed to eliminate tariff
peaks, high tariffs and tariff escalation on products of export interest
to developing countries. No tariff line should be at a level more than
three times the average industrial tariff of the country. They should
also remove or significantly reduce their non-tariff barriers.
(2) Taking into account the adverse effects that many developing coun
tries have suffered due to liberalisation measures taken earlier, de
veloping countries should be left to determine for themselves any
further liberalisation measures, including tariff-reduction commit
ments. Developing countries should be provided the flexibility to ne
gotiate on a line-by-line basis through a request-offer technique. The
reduction rates are to be chosen or negotiated in line with each devel
oping country’s level of development and national policy. Those de
veloping countries that wish to, can make use of a formula of their
choice. This flexibility in choosing techniques and formula was made
use of by developed countries during the Uruguay Round and some
previous rounds.
61
To further elaborate on point (2):
(a)
Developing countries should be given the flexibility to determine their own
rate of tariff reduction. This could be similar to the Uruguay Round ap
proach, in which developing countries were given an average overall reduc
tion target of 27%, with the flexibility to choose the rates of each tariff line.
Moreover, products and industries that are sensitive or important need not
be subjected to any tariff reduction.
(b)
Developing countries also had the option in the Uruguay Round of choosing
the scope of tariff binding. This flexibility' should also be retained, as was the
case in all previous rounds.
(c)
In any tariff-reduction approach, the bound rates should form the basis. Ap
plied rates should not be used in any calculation or formula.
(d)
The sectoral approach should not be applied to developing countries.
(e)
LDCs should be exempted from further tariff-reduction obligations.
(f)
There are, however, many developing countries that are not LDCs but have
characteristics similar to LDCs in relation to the weak and vulnerable state of
their domestic industries. Thus flexibility should be given to developing coun
tries in general, and not only to LDCs. Those developing countries that
believe they are able to liberalise more can do so.
(g)
Newly acceded members of the WTO shall have recourse to lower levels of
commitment in tariff reduction, to take account of the commitments under
taken in their accession process.
(h)
A mechanism should be established to deal with the erosion of preferences,
aimed at either avoiding or offsetting the problem or compensating the af
fected members.
62
This two-pronged approach to modalities is justified because of the differences in
industrial capacity between developed and developing countries. This is recognised
by the Doha Declaration when it calls for reduction and elimination of tariffpeaks
etc. in products of export interest to developing countries. There can thus be a
significant reduction in the tariffs across the board for developed countries (using
a linear or Swiss-type formula), with the additional commitment that after tariff
reduction, no presently bound tariff line shall exceed three times the average ofthe
reduced bound tariffs of the developed-country member.
In relation to the developing countries, a different approach should be taken. They
should be allowed to choose forthemselves the rate and timing of liberalisation, so
that they can tailor their commitments to the situation and needs in their industrial
sector and sub-sectors. Developing countries should not be subjected to a for
mula approach, either of the Swiss type or the linear-cut model. Their commit
ments can be made through the request-offer approach. This was the approach
and process that developing countries used in the previous rounds of negotiations.
They have not been mandatorily subjected to a formula approach before, and this
should not be applied to them in the present negotiations, especially since the
Doha Declaration has stated that the interests and needs of developing countries
should be at the heart of the Doha work programme. Ofcourse developing coun
tries that themselves choose to make use of a formula approach can do so, but
those that prefer the request-offer approach should be allowed to opt for it.
63
References
De Cordoba, Santiago Fernandez; Sam Laird and David Vanzetti (2004). “Trick
or treat? Development opportunities and challenges in the WTO negotiations
on industrial tariffs.” Unpublished paper.
Goh Chien Yen (2004). “Development threatened by NAMA.” Statement at
seminar on WTO, New Delhi, November 2004.
Hoda, A (2001). Tariff Negotiations and Renegotiations under the GATT
and the WTO. Geneva: World Trade Organisation.
Khor, Martin and Goh Chien Yen (2003). Market Accessfor Non-Agricultural
Products: A Development View ofthe Principles and Modalities. Penang:
Third World Network.
Shafaeddin, SM (1994). “The impact of trade liberalisation on export and GDP
growth in least developed countries.” Discussion Paper No. 85. Geneva:
UNCTAD.
WTO (2002). “WTO Members’ tariff profiles.” Note by secretariat. Document
TN/MA/S/4 dated 11 September 2002.
WTO (2003). “Formula approaches to tariff negotiations.” Note by secretariat.
Document TN/MA/S/3/Rev.2 dated 11 April 2003.
WTO (2004). “Doha work programme.” Decision adopted by the WTO Gen
eral Council on 1 August 2004.
64
Annex A: Impact of a linear formula cut on a hypothetical tariff profile for
various coefficients
Tariff line
Initial
tariff rate
Final tariff rate after reduction
Reduction in percent
c=.9O
c=,75
c=.5
c=.9O
c=.75
0.0
25.0
c=.5
0.0
50.0
50.0
Line 1
0.0
0.0
0.0
0.0
0.0
Line 2
2.5
5.0
2.3
4.5
1.9
1.3
10.0
7.5
6.8
3.8
5.6
2.5
3.8
25.0
25.0
10.0
9.0
50.0
50.0
11.3
5.0
6.3
25.0
12.5
7.5
9.4
10.0
10.0
10.0
15.0
17.5
13.5
15.8
11.3
10.0
10.0
25.0
25.0
50.0
50.0
10.0
20.0
18.0
15.0
7.5
8.8
10.0
10.0
25.0
25.0
Line 10
Line 11
22.5
20.3
22.5
16.9
18.8
25.0
Line 12
Line 13
27.5
30.0
24.8
27.0
20.6
11.3
12.5
13.8
10.0
25.0
10.0
10.0
50.0
50.0
22.5
15.0
Line 14
32.5
35.0
24.4
16.3
10.0
10.0
25.0
25.0
25.0
26.3
17.5
10.0
25.0
25.0
50.0
50.0
Line 3
Line 4
Line 5
Line 6
Line 7
Line 8
Line 9
13.1
50.0
50.0
50.0
50.0
37.5
29.3
31.5
33.8
28.1
18.8
Line 17
40.0
36.0
30.0
20.0
10.0
10.0
25.0
25.0
50.0
50.0
Line 18
42.5
38.3
45.0
47.5
40.5
42.8
31.9
33.8
21.3
22.5
10.0
10.0
25.0
25.0
50.0
Line 19
25.0
50.0
50.0
45.0
23.8
25.0
10.0
50.0
52.5
35.6
37.5
39.4
10.0
10.0
25.0
25.0
50.0
50.0
413
27.5
28.8
10.0
43.1
10.0
25.0
25.0
30.0
15,0
10.0
25.0
50.0
50.0
50.0
9,6
24,0
48,0
Line 15
Line 16
Line 20
Line 21
Line 22
Line 23
Line 24
Line 25
Average
Maximum
Std. Dev1
CoefT. Var.2
Escalation3
55.0
47.3
49.5
57.5
60.0
51.8
54.0
30.0
60.0
18.4
27,0
45.0
22,5
4,6
16,6
12.0
13,8
61.3
3.0
613
3,00
61,3
3,00
26.3
(line 13/linc5)
Note: Linear tariff-cut formula: t, = c x t . where t, = final tariff rate
0
r-r- ■
c = constant coefficient
t o = initial tariff rate
1
2
5
Standard deviation, a measure of absolute dispersion of the tariff profile.
Coefficient of variation, a measure of relative dispersion. Defined as the standard deviation
divided by the tariff average, and presented in percent.
Tariff escalation, measured here as an arbitrary ratio of two tariff lines in the lower and upper
spectrum of the tariff profile, in this case lines 5 and 13.
Source: WTO (2003).
65
Annex B: Impact of Swiss formula on a hypothetical tariff profile for
various coefficients
Tariff line
Line 1
Line 2
Line 3
Line 4
Line 5
Line 6
Line 7
Line 8
Line 9
Line 10
Line 11
Line 12
Line 13
Line 14
Line 15
Line 16
Line 17
Line 18
Line 19
Line 20
Line 21
Line 22
Line 23
Line 24
Line 25
Average
Maximum
Std. Dev1
CoefT. Var.2
Escalation3
(line 13/1 ine5)
Initial
tariff
rate
0.0
2.5
5.0
7.5
10.0
12.5
15.0
17.5
20.0
22.5
25.0
27.5
30.0
32.5
35.0
37.5
40.0
42.5
45.0
47.5
50.0
52.5
55.0
57.5
60.0
30.0
60.0
18.4
61.3
3.0
Final tariff rate after reduction
a=15
a=50
a=5
a=15
a=50
0.0
1.7
2.5
3.0
3.3
3.6
3.8
3.9
4.0
4.1
42
42
4.3
4.3
4.4
4.4
4.4
4.5
4.5
4.5
4.6
4.6
4.6
4.6
4.6
3,9
4,6
1.1
28.1
0.0
2.1
3.8
5.0
6.0
6.8
7.5
8.1
8.6
9.0
9.4
9.7
10.0
103
10.5
10.7
10.9
11.1
113
11.4
11.5
11.7
11.8
11.9
12.0
8,8
12.0
33
36,8
1,7
0.0
2.4
4.6
6.5
83
10.0
11.5
13.0
143
15.5
16.7
17.7
18.8
19.7
20.6
21.4
222
23.0
23.7
24.4
25.0
25.6
262
26.7
27.3
17,00
273
8,1
47,7
23
0.0
333
50.0
60.0
66.7
71.4
75.0
77.8
80.0
81.8
83.3
84.6
85.7
86.7
87.5
88.2
88.9
89.5
90.0
90.5
90.9
91.3
91.7
92.0
92.3
772
0.0
14.3
25.0
33.3
40.0
45.5
50.0
53.9
57.1
60.0
62.5
64.7
66.7
68.4
70.0
71.4
72.7
73.9
75.0
76.0
76.9
77.8
78.6
79.3
80.0
58,9
0.0
4.8
9.1
13.0
16.7
20.0
23.1
25.9
28.6
31.0
33.3
35.5
37.5
39.4
412
42.9
44.4
46.0
47.4
48.7
50.0
51.2
52.4
53.5
54.6
34,0
13
Note: Swiss tariff-cut formula: t, = (a x to)/(a + tj, where
1
2
3
Reduction in percent
a=5
t, = final tariff rate
a = coefficient
to = initial tariff rate
Standard deviation, a measure of absolute dispersion of the tariff profile.
Coefficient of variation, a measure of relative dispersion. Defined as the standard
deviation divided by the tariff average, and presented in percent.
Tariff escalation, measured here as an arbitrary ratio of two tariff lines in the lower
and upper spectrum of the tariff profile, in this case lines 5 and 13.
Source: WTO (2003).
66
Annex C: Impact of various line by line formula proposals on a
hypothetical tariff profile
Tariff line
Line 1
Line 2
Line 3
Line 4
Line 5
Line 6
Line 7
Line 8
Line 9
Line 10
Line 11
Line 12
Line 13
Line 14
Line 15
Line 16
Line 17
Line 18
Line 19
Line 20
Line 21
Line 22
Line 23
Line 24
Line 25
Average
Maximum
Std. Dev4
Coeff. Var?
Escalation'1
(Iinel3/line5)
1
Initial
China1 China1
tariff rate ra=30, r=30,
B=3
B=1
0.0
2.5
5.0
7.5
10.0
12.5
0.0
2.3
4.3
6.0
7.6
8.9
15.0
17.5
20.0
22.5
10.1
11.2
12.2
13.0
13.8
14.6
15.2
15.9
16.4
25.0
27.5
30.0
32.5
35.0
37.5
40.0
42.5
45.0
47.5
50.0
52.5
55.0
57.5
60.0
30.0
60.0
18.4
61.3
3.0
17.0
17.5
17.9
18.3
18.8
19.1
19.5
19.8
20.1
20.4
13.6
20.4
5.9
43.5
2.0
0.0
2.3
4.4
6.1
7.7
9.2
10.4
11.6
12.7
13.7
14.6
15.4
16.2
17.0
17.7
18.3
18.9
19.5
20.1
20.6
21.1
21.6
22.1
22.5
23.0
14.7
23.0
6.7
45.5
2.1
European
Communities
India2
50%
0.0
1.8
3.0
4.1
0.0
1.3
2.5
3.8
5.0
6.3
7.5
8.8
10.0
II 3
12.5
13.8
15.0
16.3
5.2
6.4
7.5
8.0
8.6
9.1
9.6
10.2
10.7
11.2
11.8
12.3
12.9
13.4
13.9
14.5
15.0
15.0
15.0
15.0
15.0
10.0
15
4.5
45.4
2.1
17.5
18.8
20.0
21.3
22.5
23.8
25.0
26.3
27.5
28.8
30.0
15.0
30
9.2
61.2
3.0
India5
Korea
33%
Za=30
0.0
1.7
3.4
5.0
6.7
8.4
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
10.1
11.7
13.4
15.1
16.8
18.4
20.1
21.8
23.5
25.1
26.8
28.5
30.2
31.8
33.5
35.2
36.9
38.5
40.2
20.1
40.2
12.3
61.3
3.0
16.0
18.0
20.0
20.3
20.5
20.8
21.0
21.3
21 5
21.8
22 0
22.3
22.5
22.8
23.0
23.3
23.5
16.7
23.5
7.4
44.6
2.6
USA
0.0
0.0
0.0
3.9
4.4
4.9
5.2
5.5
5.7
5.9
6.1
6.2
6.3
6.4
6.5
6.6
6.7
6.7
6.8
6.8
6.9
6.9
7.0
7.0
7.1
5.4
7.1
2.2
40.7
1.4
ta and B are parameters in the Chinese formula. ta = initial tarifl average - 30 in this tariff
profile; B = an adjusting coefficient for the year of implementation (B= I for 2015 or B=3 for
2
3
4
5
2010).
Applicable to developed countries.
Applicable to developing countries.
Standard deviation, a measure of absolute dispersion of the tariff profile.
Coefficient of variation, a measure of relative dispersion. Defined as the standard deviation
6
divided by the tariff average, and presented in percent.
Tariff escalation, measured here as an arbitrary ratio of two tariff lines in the lower and upper
spectrum of the tariff profile, in this case lines 5 and 13.
Source: WTO (2003).
67
Annex D: Simple averages of final bound duties before and after applica
tion of various proposed tariff-reduction formulae
Name
Non ad
Binding valorem
coverage duties
New averages by proposal
Simple
average
(percent) (percent)
China
China
European
B = 1
B =3
Communities
India Korea USA
Argentina
100.0
0.0
31.8
15.6
16.7
11.1
21.3
19.9
6.3
Australia
96.5
0.1
11.0
4.5
5.5
4.8
5.1
7.6
3.1
Bangladesh
3.0
0.0
35.7
16.1
17.2
11.1
23.0
18.6
5.8
Barbados
97.6
0.0
73.0
36.8
37.8
15.0
48.8
24.8
7.2
Botswana
96.0
0.0
16.1
7.5
8.5
6.7
10.8
1 1.5
4.3
Brazil
100.0
0.0
30.8
15.1
16.2
10.8
20.6
19.6
6.2
Canada
99.7
0.4
5.3
2.1
3.1
2.8
2.6
3.7
2.3
Communities
100.0
0.7
3.9
1.7
2.6
2.2
1.9
2.9
1.4
Guinea
29.6
0.0
10.0
4.7
5.7
4.9
6.7
7.7
2.7
Indonesia
96.1
0.0
35.6
17.6
18.6
11.8
23.8
20.2
6.3
Jamaica
100.0
0.0
42.5
20.6
21.6
13.1
28.5
19.7
6.2
Japan
99.6
3.6
2.3
0.9
1.5
1.3
1.1
1.5
0.7
Kenya
1.6
0.0
54.8
26.8
27.8
13.9
36.7
22.6
6.9
Malaysia
81.2
0.2
14.9
7.0
7.9
6.2
10.0
11.1
3.2
Nigeria
6.9
0.0
48.8
24.3
25.3
13.9
32.7
22.4
6.8
Norway
100.0
2.6
3.1
1.1
2.0
1.8
1.4
2.0
1.0
Sri Lanka
28.3
1.1
19.3
8.4
9.5
7.4
12.9
11.6
4.0
Thailand
70.9
21.1
24.2
11.5
12.6
9.1
16.2
17.0
5.5
United States
100.0
5.0
3.2
1.1
2.0
1.7
1.4
2.0
1.0
Venezuela
100.0
0.0
33.1
16.7
17.7
11.4
22.2
20.5
6.4
Zambia
4.1
0.0
42.7
21.3
22.3
13.1
28.6
21.8
6.7
European
Source: Secretariat calculations based on CTS data
Extract from paper by India on NAMA to the WTO in 2003 (Paper TN/MA/W/10/Add.3)
68
Annex E: Projected effects of tariff cuts on tariff revenues
Initial
government
revenues
Initial
Ratio of
tariff
tariff to
revenues total
revenue
Change in tariff revenue
under different tariff-cut
scenarios
Free
trade*
Hard1
23 Soft’
%
%
%
%
Simple4
$m
Sm
Andean Pact
32738
5024
0.15
-86
-41
-7
-6
Central America
48424
15367
0.32
-86
-42
-5
-4
125694
4332
0.03
-57
-50
-47
-30
63922
15004
0.23
-76
-64
-51
-49
118821
24872
0.21
-82
-72
-54
-51
-29
-8
& Caribbean
Canada
Central and Eastern
Europe
China
European Union 15
1479046
27858
0.02
-57
-50
-47
Indonesia
14619
2666
0.18
-80
-31
-7
India
50341
11936
0.24
-87
-58
-13
-12
Japan
407959
21679
0.05
-61
-59
-59
-50
Middle East
142323
12341
0.09
-80
-54
-30
-29
Mercosur
174578
16576
0.09
-83
-51
-16
-15
-11
North Africa
27693
10020
0.36
-84
-55
-15
Oceania
79515
3031
0.04
-92
-56
-43
-8
Other West Europe
67423
5550
0.08
-41
-40
-40
-38
Rest of Asia
87896
12978
0.15
-78
-60
-30
-26
Rest of World
110574
11923
0.11
-66
-34
-17
-16
South Asia
10532
3887
0.37
-84
-26
-5
-7
South East Asia
47877
13271
0.28
-85
-45
-10
-10
Sub-Saharan Africa
24943
6733
0.27
-85
-33
-7
-7
United States
1201779
20866
0.02
-S3
-74
-70
-40
South Africa
28979
2128
0.07
-84
-59
-18
-10
Total
4345675
248043
0.06
-76
-55
-35
-27
Source: GTAP database and simulations
1
2
3
4
Tariffs are cut to zero (revenues are maintained from tariffs outside the non-agriculniral
sector).
Swiss non-linear formula with higher cuts for developing countries.
Swiss non-linear formula with milder cuts.
Linear formula with a cap for tariff peaks.
Source: De Cordoba, Laird and Vanzetti (2004)
69
Annex F: Change in imports under different tariff-cut scenarios
Free trade1
Hard2
Soft3
Simple4
%
%
%
%
Andean Pact
5.0
2.8
0.8
0.5
Central America & Caribbean
11.1
6.0
0.7
0.8
Canada
0.1
0.5
0.8
0.4
Central and Eastern Europe
8.5
6.9
5.2
5.4
China
12.1
11.7
9.1
6.8
European Union 15
0.6
0.5
0.4
0.4
Indonesia
5.6
4.4
2.8
1.1
India
292
20.9
6.4
4.6
Japan
6.5
6.6
5.6
4.1
Middle East
55
35
1.6
1.8
Mercosur
14.4
9.1
3.4
2.8
North Africa
182
132
2.7
2.4
Oceania
4.7
3.4
2.9
1.2
Other West Europe
2.1
2.3
22
2.0
Rest of Asia
10.6
9.0
5.7
4.4
Rest of World
8.1
5.5
4.0
3.4
South Asia
15.6
7.4
4.6
2.4
South East Asia
4.4
2.7
1.0
0.5
Sub-Saharan Africa
7.6
3.1
0.1
0.3
United States
2.5
2.4
2.0
1.2
South Africa
9.9
6.8
2.6
1.0
Total
4.4
35
22
1.7
Source: GTAP simulations
1
2
3
4
Tariffs are cut to zero.
Swiss non-linear formula with higher cuts for developing countries.
Swiss non-linear formula with milder cuts.
Linear formula with a cap for tariff peaks.
Source: De Cordoba. Laird and Vanzetti (2004)
70
Annex G: Change in export revenue under different tariff-cut
scenarios
Andean Pact
Free trade1
Hard2
Soft’
Simple4
%
%
%
%
4.1
2.7
13
1.1
Central America & Caribbean
8.3
5.0
1.0
1.0
Canada
0.8
0.9
0.9
0.6
Central & Eastern Europe
5.6
4.5
32
3.4
China
9.8
10.0
7.7
5.5
0.7
European Union 15
1.6
1.1
0.7
Indonesia
52
43
2.8
13
India
20.5
14.9
5.3
3.9
Japan
6.5
5.4
3.6
2.4
Middle East
2.9
2.2
0.9
1.0
Mercosur
15.0
9.6
4.4
3.7
North America
10.0
8.3
2.1
2.0
Oceania
4.7
3.6
2.9
1.5
Other West Europe
1.8
1.8
1.5
1.4
Rest of Asia
8.9
7.5
4.9
3.7
Rest of World
6.4
5.3
3.7
3.1
12.0
6.3
4.5
2.7
South East Asia
3.3
2.1
0.9
0.5
Sub-Saharan Africa
4.8
2.5
0.8
0.9
United States
5.6
4.5
3.5
2.4
South Africa
5.7
4.3
2.1
12
Total
4.4
3.5
2.2
1.7
South Asia
Source: GTAP simulations
1
2
3
■’
Tariffs are cut to zero.
Swiss non-linear formula with higher cuts for developing countries.
Swiss non-linear formula with milder cuts.
Linear formula with a cap for tariff peaks.
Source: De Cordoba. Laird and Vanzetti (2004)
71
Annex H: Change in output under
USA
Canada
Textiles
-1
4
3
Wearing apparel
-2
-6
0
Leather
-1
-5
-3
4
Chemicals, rubber and plastics
0
0
-2
-2
Motor vehicles
0
0
7
■23
1
0
0
2
Transport other than motor vehicles
-1
0
6
0
0
-2
4
-1
Textiles
-3
-10
3
-3
-2
-2
-5
-7
Wearing apparel
-6
-19
1
2
-2
•8
-10
-8
Leather
-7
-22
-6
-7
0
-1
-6
-1
Chemicals, rubber and plastics
0
-1
0
0
0
0
0
■2
Motor vehicles
0
0
2
-21
-1
0
0
5
Transport other than motor vehicles
-1
1
4
0
0
-2
-6
1
Textiles
-4
-10
9
2
0
-3
-3
-6
Wearing apparel
-8
-18
9
4
0
-7
-6
-6
Leather
-9
-22
1
-1
0
-2
■3
2
Chemicals, rubber and plastics
0
-1
0
0
0
0
0
-2
Motor vehicles
1
1
4
-9
0
0
0
2
Transport other than motor vehicles
1
2
-1
-1
-2
0
-3
1
-2
-5
8
0
0
-1
-1
4
1
0
Central
and
Eastern
Europe
Mercosur
European
Union
Other
West
Europe
-1
-1
-1
-2
4
4
-1
-3
-2
-3
1
1
0
0
-1
0
0
-2
Central Andean
America Pact
Free trade1
Hard2
Soft3
Simple4
Textiles
Wearing apparel
4
-8
11
-3
-3
0
Leather
-5
-10
3
-1
-1
1
0
3
Chemicals, rubber and plastics
0
-1
0
0
0
0
1
-2
Motor vehicles
0
0
4
-5
0
1
0
2
Transport other than motor vehicles
0
2
-2
-1
-1
0
-2
0
'
Tariffs are cut to zero.
2 Swiss non-linear formula with higher cuts for developing countries.
Source: De Cordoba, Laird and Vanzetti (2004)
72
different tariff-cut scenarios (%)
Other Indonesia
South
Asia
2
21
14
5
2
-3
1.86
0
0
-1
-1
0.13
3
-5
-11
0.05
2
0
-1
0.30
India
-4
-6
-7
-1
2
3
3
1
-3
2
7
-2
15
23
-13
-5
10
11
-13
-2
-5
0
-6
-47
-11
-12
0
-4
-5
-1
-3
•4
-25
21
-10
-18
5
0.58
2
Japan
4
0.36
6
15
China
-7
1
3
3
12
South
Africa
-14
-3
-7
5
Sub
Saharan
Africa
11
World
Rest
of
Asia
North
Africa
-6
All
other
regions
Oceania
Other
South
East
Asia
vMiddle
ELast
20
1
2
6
-1
-19
4
1
-6
-8
-2
4
4
4
3
6
7
13
-8
3
0.61
7
-9
30
18
-5
23
15
19
25
6
-15
10
-0.12
-19
-11
-22
-24
17
-32
10
-8
49
18
16
3
-8
1.50
0
-1
-1
-1
•4
5
-1
-2
-1
-1
0
0
0
0.12
-4
-32
12
-16
-24
7
-7
-55
-8
-9
2
-5
-14
0.07
2
11
33
4
1
7
0
-10
-1
-2
1
-2
0
009
0
1
-5
-5
-4
-4
-2
0
4
2
3
3
6
9
9
-8
5
0.62
-7
-4
-1
17
16
-6
16
14
16
18
10
-16
14
-0.34
-9
-2
-8
-14
14
-31
4
-11
45
11
12
-3
0
1 66
0
0
0
-1
-3
4
-1
-1
-1
0
0
-1
0
0 09
0
-15
1
-4
-20
5
0
-15
-1
-1
1
-3
-12
0.05
0
7
3
2
0
0
-1
-5
■4
-2
-2
-2
-1
0 08
-2
-1
-1
-1
0
3
1
1
0
1
4
-3
2
0.09
-4
-1
-1
3
7
-2
6
6
1
2
2
-1
1
-015
-7
-1
-3
-10
8
-24
6
-5
29
■4
6
-3
-2
0.89
0
0
0
-1
-2
4
0
-1
0
0
0
-1
0
0.10
0
-7
-1
0
-16
3
0
-13
0
-1
0
-2
-12
-0.01
2
1
1
0
-3
-2
0
-2
-3
0
0.07
1
3
3
3 Swiss non-linear formula with milder cuts.
4
Linear formula with a cap for tariff peaks.
73
Titles in the TWN Trade & Development Series
No. 1
From Marrakesh to Singapore: The WTO and Developing Countries
by Magda Shah in (48 pages)
No. 2
The WTO and the Proposed Multilateral Investment Agreement: Implications for
Developing Countries and Proposed Positions by Martin Khor (40 pages)
No. 3
Some Key Issues Relating to the WT0 by Bhagirath Lal Das (40 pages)
No. 4
The New Issues and Developing Countries by Chakravarthi Raghavan (48 pages)
No. 5
Trade and Environment in the WTO: A Review of its Initial Work and Future
Prospects by Magda Shahin (68 pages)
No. 6
Globalisation: The Past in our Present by Deepak Nayyar (40 pages)
No. 7
The Implementation of the WTO Multilateral Trade Agreements, the ‘Built-In’
Agenda, New Issues, and the Developing Countries byXiaobing Tang (68 pages)
No. 8
Strengthening Developing Countries in the WT0 by Bhagirath Lal Das (48 pages)
No. 9
The World Trade Organization and its Dispute Settlement System: Tilting the Balance
Against the South by Chakravarthi Raghavan (48 pages)
No. 10
Negotiations on Agriculture and Services in the WTO: Suggestions for
Modalities/Guidelines by Bhagirath Lal Das (24 pages)
No. 11
The Implications of the New Issues in the WTO by Bhagirath Lal Das (20 pages)
No. 12
Developing Countries, the WTO and a New Round: A Perspective
by RansfordSmith (40 pages)
No. 13
Review of the TRI PS Agreement: Fostering die Transfer of Technology to Developing
Countries by Carlos Coma (48 pages)
No. 14
The Proposed New Issues in the WTO and the Interests of Developing
Countries by Martin Khor (32 pages)
No. 15
WTO: Challenges for Developing Countries in the Near Future
by Bhagirath Lal Das (24 pages)
No. 16
Dangers ofNegotiating Investment and Competition Rules in the WTO
by Bhagirath Lal Das (32 pages)
No. 17
WTO Agreement on Agriculture: Deficiencies and Proposals for Change
by Bhagirath Lal Das (28 pages)
No. 18
Some Suggestions for Modalities in Agriculture Negotiations
by Bhagirath Lal Das (24 page)
No. 19
The WTO Agriculture Agreement: Features, Effects, Negotiations, and
Suggested Changes by Martin Khor (48 pages)
No. 20
Market Access for Non-Agricultural Products: A Development View of the
Principles and Modalities by Martin Khor & Goh Chien Yen (32 pages)
No. 21
Financial Effects of Foreign Direct Investment in the Context of a Possible
WTO Agreement on Investment by David Woodward (28 pages)
No. 22
Implementation Issues Again Off WTO Radar Screens?
by Chakravarthi Raghavan (28 pages)
No. 23
Effects ofAgricultural Liberalisation: Experiences of Rural Producers in
Developing Countries by Meenakshi Raman (40 pages)
No. 24
The WTO Negotiations on Industrial Tariffs: What is at Stake for Developing Countries
by YilmazAkyilz (68 pages)
No. 25
The Commodities Crisis and the Global Trade in Agriculture: Problems and Proposals
by Martin Khor (44 pages)
No. 26
Implications of Some WTO Rules on the Realisation of the MDGs
Zip Martin Khor (48 pages)
No. 27
Development Issues in the WTO in the Post-July Package Period: Myth or Reality?
by Bonapas Onguglo (72 pages)
No. 28
Trade, Growth and Industrialisation: Issues, Experience and Policy Challenges
by YilmazAkyiiz (52 pages)
No. 29
The WTO Negotiations on Non-Agricultural Market Access: A Development
Perspective by Martin Khor and Goh Chien Yen (76 pages)
THE WTO NEGOTIATIONS ON NON
AG RICULTURAL MARKET ACCESS: A
DEVELOPMENT PERSPECTIVE
Negotiations on “non-agricultural market access” (NAMA) constitute a key part
of the World Trade Organisation (WTO)’s ongoing Doha work programme. In
pursuing the task of drawing up new rules to liberalise international trade in
manufactured goods, these talks have been mandated to take fully into account the
needs and interests of developing countries.
However, the proposals put forward by the major developed countries in the
negotiations could undermine this objective by calling for sharp reductions in developing
countries’ tariffs on industrial imports. Such steep cuts will not only threaten the
development of domestic industries in the South but also cause substantial declines
in government revenues that can-otherwise be channelled towards essential social
spending.
This paper examines the link between liberalisation and industrial development in
developing countries within the context of the NAMA negotiations. It finds that the
drastic liberalisation being pushed by the developed countries can jeopardise the
development interests of developing economies. In light ofthis, the authors propose
that the NAMA talks be based instead on modalities which will both enhance
developing countries’ prospects of exporting to the North as well as safeguard their
freedom to adopt policies aimed at promoting domestic industrial development.
MARTIN KHOR is the Director of the Third World Network. An economist
trained in Cambridge Universit)’, he is the author of several books and articles
on trade, development and environment issues.
GOH CHIEN YEN is a Legal Advisor and Researcher with the Third World
Network. He graduated with an LLB from the University of Nottingham, UK
and also holds an LLMfrom the National University of Singapore.
TWN TRADE & DEVELOPMENT SERIES
is a series of papers published by Third World Network on trade and develop
ment issues that are of public concern, particularly in the South. The series is
aimed at generating discussion and contributing to the advancement of appro
priate development policies oriented towards fulfilling human needs, social equity
and environmental sustainability.
TWN Third World Network
ISBN: 983-2729-65-3
- Media
10433.pdf
Position: 998 (8 views)