The Draft Modalities Text (DMT) put forward by the Chair of the WTO's Non-agricultural Market Access (NAMA) negotiations, Ambassador Don Stephenson of Canada, on July 17, 2007 for the consideration of the WTO members fails to take into account the concerns and views of most of the developing countries, including the NAMA-11 grouping of which India is a leading member. In many respects, it also fails to abide by the NAMA mandate as enshrined in Article 16 of the Doha Ministerial Declaration (2001) and subsequently in the July (2004) Framework Agreement, and the Hong Kong Ministerial Declaration (HKMD), 2005.
It needs to be mentioned at the outset that NAMA has always been a bone of contention of the Doha Round. This is mainly because of the aggressive tariff liberalisation for non-agricultural products targeted in this negotiation without paying adequate attention to the development concerns of developing countries and taking away the much-needed policy space.
Notably, tariff liberalisation is not a new phenomenon in the context of multilateral trade negotiations under the GATT /WTO Framework. It has for long been argued by the advocates of free trade that tariff often acts as an impediment to free flow of goods across borders and hence should be substantially reduced or eliminated. In view of this, lowering tariffs, especially industrial tariffs, has always been the key goal of GATT ever since its establishment in 1947.
Successive rounds of negotiations upto the formation of the WTO in 1995 led to substantial reduction in industrial tariffs worldwide. Subsequent to the formation of the WTO, yet another attempt to reduce industrial tariffs was flagged off at the Doha Ministerial Conference in 2001 as a part of the Doha Work Programme (DWP).
This new round of tariff reduction initiative, which subsequently came to be known as the NAMA negotiations, was launched in the backdrop of industrial tariffs in the developing countries being much higher than those in the developed countries.
There are two main reasons underlying the relatively higher tariffs in the developing countries: first, tariff acts as a protective shield for the domestic industries of these countries in face of import competition to some extent, thereby facilitating development of these industries – in line with what economists call ‘the infant industry argument for protection'. Second, tariff acts as a means of collecting government revenue. For the same reasons the developed countries of today had maintained high tariff walls during their earlier phases of industrialisation and development. It is indeed ironical that now that they have climbed up the development ladder, the same countries are advocating drastic tariff liberalisation for the developing countries!
Another striking feature of the tariff structures of the developed countries is that despite having a relatively lower average tariffs compared to those in the developing countries, the developed countries still retain high tariffs (the so-called ‘tariff-peaks') in products of export interest to the developing countries, such as textiles and clothing, footwear, leather goods, etc.
Importantly, the new round of industrial tariff reduction initiative under the NAMA negotiations is qualitatively different from the earlier rounds of industrial tariff reduction in terms of its impact on the industry and economy of developing countries for a number of reasons.
In the Uruguay Round that culminated in the formation of the WTO, the developing countries had to cut their tariffs by an overall target of 30%. However, they were free to choose the rate of tariff reduction for different tariff lines. This flexibility is not there any longer in the ongoing NAMA negotiations, which calls for a line-by-line tariff reduction for almost all tariff lines, as well as full binding coverage for nearly all tariff lines, excepting a few flexibilities as enshrined in Paragraph 8 of the July 2004 Framework – the so-called ‘Paragraph 8 Flexibilities'. The full binding coverage is crucial for the developing countries, because, while most developed countries have almost full binding coverage, this is not the case for the majority of developing countries.
Most importantly, for the first time, the tariff reduction exercise in non-agricultural products is supposed to follow a formula approach. The Swiss Formula (with separate coefficients for the developed and developing countries), on the basis of which tariffs are supposed to be cut as per the ongoing NAMA negotiations, is such that the lower the coefficient, the more drastic is the resultant tariff reduction. Moreover, it cuts higher tariffs more steeply than it cuts lower tariffs. Given that industrial tariffs in the developing countries are much higher than those in developed countries, the Swiss Formula could result in a much steeper reduction of industrial tariffs for the developing countries compared to that for the developed countries, unless the developing countries are allowed to have vastly different coefficients in the formula than that for the developed countries.
Clearly, it is in the interest of the developing countries to have as high a coefficient as possible. However, the coefficient range of 19-23 proposed for the developing countries in the Draft Modalities Text (DMT) is very low and would result in drastic cuts in their average bound tariff rates. This not only would expose the domestic industries of these countries to competition from cheap imports, but would also take away the much-needed policy space, which is extremely important for them to climb up the industrialisation ladder.
Moreover, a coefficient of 19-23 for the developing countries and 8-9 for developed countries, as proposed in the DMT, fails to respect the mandate of “less than full reciprocity (LTFR) in reduction commitments” on the part of the developing countries, as enshrined in the NAMA mandate. It does not even come anywhere close to the NAMA-11 proposal (of June 8, 2007) of a gap of at least 25 points between the coefficients for developed countries vis-à-vis that for the developing countries. Notably, even a 25 point difference would be too little to honour the mandate of LTFR, but would at least result in a relatively balanced outcome compared to the present proposal of the DMT.
Applying a coefficient of 8 for the developed countries and 23 for the developing countries, that is the best permutation possible as per the DMT proposal, would result in reduction of the bound tariffs of developed and developing countries of around 45% and 60% respectively, thereby turning the principle of LTFR on its head. While the NAMA-11 called for an increase in the Paragraph 8 flexibilities than what is already there on the negotiating table, the DMT has attempted to dilute even that limited flexibility by proposing to link it up with the value of the coefficient, rather than treating it as a stand-alone provision as enshrined in the NAMA mandate. It proposes that those developing countries that opt not to use the Paragraph 8 flexibilities be allowed to apply a relatively lineant coefficient. This not only amounts to redefining the NAMA mandate, but also is not commensurate with the purported ‘Development Agenda' of the Doha Round.
Although it states that Sectoral negotiations will remain non-mandatory in respect of participation, it adds that these negotiations remain a key element in meeting the mandate in the NAMA Framework and that the outcomes will, unavoidably, be taken into consideration by members in assessing the balance of concessions in the Round. This ‘add-on' indirectly underscores the importance of participation in the sectorals. The DMT also proposes time-lines for the sectorals.
In contrast to sectorals, the proposal in the DMT on non-tariff barriers (NTBs), which is supposed to be an integral part of the NAMA negotiations, deals only with procedural aspects and does not even include any time-line. Importantly, NTBs are a major cause of concern for the developing countries when it comes to real market access in the developed countries.
The DMT on NAMA is too ambitious compared to the draft modalities on agriculture put forward by the Agriculture Chair Crawford Falconer, thereby disregarding Article 24 of the HKMD, which calls for a comparably high level of ambition in market access for agriculture and NAMA.
In a significant development, many developing countries and country groupings, such as the NAMA-1, the African Groups, the African-Caribbean & Pacific (ACP) group, etc had strongly criticised the DMT before the WTO went for the summer recess. Negotiations have resumed on September 3, 2007. However, the initial focus is on agriculture and NAMA and is supposed to come up for negotiations in a fortnight's time or so.
It needs to be underscored here that the NAMA Chair, Stephenson, himself has clarified that the DMT contains his own proposals and is not a negotiated text. So, clearly, the DMT does not have any legal standing whatsoever. Hence, the developing countries including India may very well refuse to accept it as the basis of future negotiations on NAMA. Thus developing countries, including India, should join hands to stop any attempt to treat the DMT as the basis for further negotiations on NAMA. |
