NAMA NEGOTIATIONS: ARGENTINA, BRAZIL AND INDIA ARGUE WHY DEVELOPING COUNTRIES NEED TO USE INDUSTRIAL TARIFFS

By Goh Chien Yen (TWN),
Geneva, 8 June 2005

Negotiations on non-agricultural market access (NAMA) resumed on 6 June at the WTO over the formula that should be used for making tariff reductions, with the US advocating for a simple Swiss formula on the one hand and Argentina, Brazil, and India supporting a flexible 'Swiss type' formula on the other.

In their most detailed presentation yet on Monday under the socalled 'Room D'process (meeting in a smaller room), Argentina, Brazil and India (ABI) underscoredseveral key reasons why developing countries would need to continue to make useto their industrial tariffs. They pointed out that developing country 'economies are unstable and their industries incipient.'

Hence, tariffs are needed 'to develop [their] industries and better cope with externalshocks. This is particularly so for countries that followed the IMF policies regardingfree capital flows and liberal exchange rate regime,' they added. In addition, 'tariffs[also] provide revenue for developmental needs.'

Furthermore, they noted that 'sharp reductions in tariffs are often replaced by opaqueand arbitrary non-tariff barriers.'

ABI also pointed out in their presentation that there should be commensurate'ambition levels in the agriculture and NAMA negotiations.'

'Tariffs for agricultural products are considerably higher than those of industrialproducts [and] the DDA (Doha Development Agenda) should reduce the gap betweenagricultural products and industrials and not increase it,' they argued.

As far as developing countries are concerned, the level of ambition in NAMA ispredicated on 'the concessions offered by developed countries in Agriculture,Services and Rules; and the tariff cuts by developed countries, particularly thereduction in peaks, high tariffs and [tariff] escalation on products of export interestto developing countries.

'For developing countries, the mandate provides for less than full reciprocity inreduction commitments, therefore any modality that imposes greater cuts ondeveloping countries as compared to developed countries is against the mandate.'

They proceeded to demonstrate how a simple Swiss formula favoured by thedeveloped countries would impact disproportionately on the tariff structures ofdeveloped and developing country members. Given the higher bound tariffs of mostdeveloping countries and the lower tariff rates of developed countries, and the simpleSwiss formula that would cut higher tariffs more dramatically than lower ones, ABIshowed that no matter which coefficient is used, developing countries would end upmaking more significant cuts than the developed countries.

In their example, developed countries with an average tariff of 4% will make anaverage cut of 60%, whereas developing countries with an average tariff of 29% willmake an average cut of 89%, under a simple Swiss formula with a coefficient of 5.

Therefore, 'the simple Swiss formula reverses the principle of less than fullreciprocity by reducing the tariffs of developing countries more, and does not takeinto consideration each country's development needs' they argued.

According to ABI, a flexible 'Swiss type' formula which uses the average bound tariffof each individual as part of the coefficient would be more appropriate as this willresult in 'concessions commensurate with each Member's tariff profiles.' They wenton to show that under their proposal 'concessions are roughly the same amongdeveloping countries.'

In their example, developing countries with a higher bound tariff average of 29% willmake a reduction of 35%, and developing countries with a lower bound average tariffof 10.5% will make a cut of 39%, when a coefficient of 2 is used in the ABI flexibleSwiss formula.

In relation to unbound tariffs, ABI highlighted that these tariff lines are 'by nature'more sensitive and that this should be taken into account in deciding how they shouldbe treated. As such, the 'actual tariff line binding [of currently unbound lines] is onan average basis to address the sensitivity involved.' They pointed out that theirproposal is 'self-balancing, as each higher-than- average tariff binding will requirecommensurate lower bindings on other unbound tariff lines.'

ABI also pointed out that less than full reciprocity in reduction commitments shouldnot be linked to special and differential treatment (SDT). They are 'conceptuallydifferent' as spelt out in the Doha mandate. In their joint proposal, ABI said that lessthan full reciprocity is 'built into the formula through the use of differentiatedcoefficients.' This shall not be traded off for the SDT provisions currently containedin paragraph 8 of Annex B of the July Package, as the developed country membershave done in their recent proposals. According to ABI, 'paragraph 8 is considered thenecessary minimum for developing countries as SDT.'

During their presentation, ABI also criticized arguments made by some memberssupporting a simple Swiss formula that the tariff reduction could promoteSouth-South trade and was necessary for gaining 'real market access.'

Dispelling the contention by the developed country members that the NAMAnegotiations should result in actual cuts in the current applied tariff rates of allmembers, ABI pointed out that 'developing countries have autonomously andregularly been reducing their MFN tariffs, offering real market access.'

'Developing countries should [therefore] not be punished with deeper cuts justbecause they have been more liberal than their existing legal commitments,' theyargued.

In relation to the South-South trade issue, ABI said that this 'has been widely usedas an excuse to seek higher concessions from developing countries in relation todeveloped countries.' They pointed out that 'according to WTO studies' South-Southtrade has grown faster than North-South trade due to the 'new wave of regional tradeagreements among developing countries; improved competitiveness of developingcountry exports' and 'increased barriers in developed countries.'

The US in their presentation argued for a simple Swiss formula. According to the US,the simple Swiss formula is easy to apply 'because it contains only one element, thecoefficient, to be applied to each Member's tariff schedule.'

Under this formula, 'tariff peaks are effectively eliminated,' whereas a 'Girardformula has little effect on tariff peaks,' the US said. The US has defined tariff peaksas rates beyond 15%. However, developing country members have understood tariffpeaks in relative terms, which are tariff rates three times more than the national boundaverage rate. The Girard formula, which is a variation of the Swiss formula,incorporates the national bound average tariff of each member in calculating the rateof tariff reduction.

Looking at five hypothetical national bound average tariff rates ranging fromapproximately 3% to 30%, under a simple Swiss formula with four differentcoefficients (5, 10, 15 and 20) the US tried to show that 'members who start withhigh rates end with high rates in relation to the rest of the Membership.'

For instance, the US showed that members with low current bound rates of 3.45%would end up with 1.36% under the simple Swiss formula with a coefficient of 5,whereas members with higher bound rates of 39.61% would be left with 4.43% underthis same formula. Nonetheless, there is still a disparity in the final end rates.According to the US, this is a 'clear example of less than full reciprocity.'

In conclusion, the US said that the 'results of a formula must be measured in severaldifferent ways, including how to address peaks, reduce binding overhang and providefor less than full reciprocity.' And 'less than full reciprocity is best measured byMembers' end rates,' the US added.