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By
Prabhash Ranjan
(This article was first published in Financial
Express. The author is with Centad) The weeklong negotiations
on Non-Agricultural Market Access (NAMA) in Geneva once again witnessed sharp
divisions on various issues between member countries. One significant issue on
which countries are stridently divided is the tariff reduction formula. Different
countries have submitted different proposals for tariff reduction. One such proposal,
popularly known as the ABI proposal, was recently submitted by Argentina, Brazil
and India. This proposal revived the Girard tariff reduction formula proposed
in 2003 by the then NAMA Chair, Pierre Louis Girard. This is a non-linear Swiss-type
formula that takes into cognisance the average tariff of each country while calculating
the new bound tariff rates. The average tariff in the formula is like a balancing
factor, which ensures that tariffs are not cut too steeply and hence safeguard
the interests of developing countries. The proposal signifies a noteworthy
development as, for the first time, India is willing to follow a non-linear formula
approach for tariff reduction. Though several developing countries like Malaysia,
Jamaica and Ecuador supported the ABI proposal, it drew flak from developed countries
and a few Latin American and East Asian countries. It is pertinent to understand
the reasoning behind the opposition. Developed countries like the EU, US and Canada
have always advocated a pure Swiss formula approach to tariff reduction allegedly
because it would lead to meaningful market access. Any other approach, such as
a ‘Swiss-type' approach characterised by the Girard formula, would not lead to
meaningful market access. Similarly, some developing countries argue that the
Girard formula will only benefit countries like India that stand on a lower step
of the tariff liberalisation ladder. This opposition is significantly feeble,
as it is not supported by empirical facts. It is important to understand that
mere adoption of the Girard formula does not mean that there will be a steep or
gentle reduction in tariff rates. The magnitude by which the Girard formula will
cut individual tariff rates, apart from the average tariff of a country, also
depends on the coefficient ‘B' in the formula. The greater the coefficient value,
the less the reduction and vice-versa. According to a study done by the Centre
for Trade & Development (Centad), an Oxfam GB initiative, when the value of
‘B' is 2 in the Girard formula, the bound rate of ‘textiles and clothing' in India
comes down to 23.2% from 35.2%. However, when the value of ‘B' reduces to 0.5
in the same formula, the same bound rate steeply declines to 11.5%. Similarly,
the application of the Swiss formula on the same bound rate will have different
outcomes depending on the value of the Swiss coefficient in the formula. For instance,
if the coefficient is 12, the bound tariff rate of ‘textiles and clothing' in
India will decline to 9% from the present 35.2%. However, if the value of the
Swiss coefficient increases to 25, then the same bound tariff rate will come down
to 14.6% instead of 9%. If the coefficient increases to 50, then the bound tariff
rate will reduce from 35.2% to 20.6%. Hence, as the value of the coefficient in
the Swiss formula increases, the tariff reduces at a declining rate. The
above example demonstrates that even the Girard formula could lead to a steep
reduction in tariff rates. Conversely, how effective the Swiss formula is in reducing
tariff rates will depend on the value of the coefficient. Hence, one wonders why
developed countries are opposing the Girard formula without even negotiating on
the coefficient. One could have understood the opposition if the ABI proposal
had said that the coefficient in the Girard formula would have a very high value,
such as 10 or 20. The ABI proposal is absolutely silent on the issue of coefficient
value. Some countries like Costa Rica and Chile attacked the ABI tariff
reduction proposal by arguing that only those countries that have high bound rates
would benefit. The Girard formula will not help the cause of countries with low
bound rates. This opposition is oblivious to the basic mandate of the July text,
and also of Article XXXVIII bis of GATT, which explicitly state that negotiations
on industrial tariffs should take into account the developmental concerns of developing
countries. One significant way to take on board the developmental concerns of
individual countries is to incorporate their average tariffs, which are a fair
indicator of its industrial and development imperatives, in the tariff reduction
process. Even for developing countries with low average tariff rates, use
of the Girard formula over the Swiss formula would ensure relatively minimal tariff
reductions. It is evident that opposition to the Girard formula is not
supported by facts. Hence the reasons for opposing it should be looked at elsewhere.
Opposition to the ABI proposal is perhaps linked to the way unbound tariff lines
are proposed to be dealt with. In fact, some have argued that had it not been
for the complicated issue of unbound tariffs, the ABI proposal could have garnered
much more support. Argentina, Brazil and India should explore the possibilities
of selling the Girard formula by forging alliances and, perhaps, by revisiting
their proposal on unbound tariffs.
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