Given the fact that industrial tariffs are an important policy tool and also a major source of revenue for many developing and least developed countries (LDCs), will negotiations on Non Agricultural Market Access (NAMA) be detrimental to the developmental needs of these countries?
NAMA could certainly become a major threat to development. To begin with, it is worth recalling that the bulk of developing countries did not wish to start new negotiations for the reduction of their industrial tariffs. They agreed to these negotiations in the belief that the mandate contained in Paragraph 16 of the Doha Ministerial Declaration provided them with enough flexibility to accommodate their specific developmental needs and concerns. The fact now is that the mandate is indeed explicit in recognising these concerns, but developing countries are under enormous pressure to reduce tariffs.
Given the fact that a number of WTO agreements already restrict the use of certain policy tools that could be useful to promote industrial development in poor countries (such as the prohibition of certain subsidies and restrictions on performance requirements and investment measures), tariffs play an increasingly important role as a policy instrument. Tariffs are very easy to implement, hence they are particularly attractive for poor countries with limited administrative capacity. Moreover, for most developing countries, tariff is the only instrument available to implement industrial policies.
The industrialisation of developing countries has strategic importance; it stems from the urgency to generate employment and diversify their economies away from the production of primary commodities and low value-added goods. Therefore, industrialisation of developing countries would contribute considerably to poverty alleviation.
Last but not least, tariffs also play a fundamental role as a source of revenue for the government in many developing countries. The share of import duties out of total government tax revenue can be as high as 53% in developing countries. Even in countries where this share is much lower, say 10%, governments may find it extremely difficult to impose other taxes and replace this revenue.
Is the issue of tariff reduction formula the most ticklish of all the issues in the NAMA negotiations? Is there a possibility of having a common meeting ground on the formula issue especially after the flak that the tariff reduction proposal from Argentina, Brazil and India (ABI) drew from developed countries and some developing countries?
The modalities that will determine the approach to tariff reductions are obviously a very sensitive and fundamental issue in the NAMA negotiations. In the July framework, members agreed that they would use a formula to reduce tariffs. The members also agreed on some elements of such a formula. However, differences around the formula have increased over the past months, indicating that developing countries are definitely not comfortable with a formula that does not reflect their developmental concerns, including the right to use tariffs selectively.
In addition to the recent ABI proposal, two other proposals by developing countries were submitted. The first was submitted by a group of Caribbean states, and the second by Pakistan. Although both proposals use different approaches, what they reflect is a strong convergence among most developing countries that a simple Swiss formula with an arbitrary, low coefficient would be detrimental to their development. In fact, several developing countries have repeatedly said that special and differential treatment has to permeate all areas of NAMA negotiations.
Negotiations around the structure of the formula (that is, the type and approach of the formula) and the actual figures (the figures used in the coefficient that determines the steepness of the reductions) will continue to attract enormous attention in NAMA over the coming weeks. However, unless special and differential treatment and development are truly incorporated in the discussions, it is hard to see how the divergences will be bridged in the near future.
What kind of flexibilities do developing countries need to mitigate the harsh effects of the tariff reduction process? Are flexibilities such as having a longer implementation period and applying less than formula cuts to 10% of tariff lines, as given in paragraph eight of Annex B of the July package, sufficient for developing countries?
First of all, it is difficult to strike a balance between the formula and the flexibilities. However, the flexibilities alone (paragraph eight of Annex B) are unlikely to capture specific developmental concerns of all developing countries.
Industries in developing countries are very uneven. While some sectors in a few countries have reached a relative level of competitiveness, many industries are still incipient. This is not to mention the fact that several developing countries still rely largely on primary, unprocessed exports. Therefore, the formula and the flexibilities need to grant developing countries the right to protect specific sectors.
Whether the 10% exception in paragraph eight is enough or not is a question whose answer may vary from country to country. In any case, it is worthwhile mentioning that, in addition to limiting the number of tariff lines to be exempted from the formula to 10% of all tariff lines, the paragraph also says that the exempted lines must not exceed 10% of members’ imports. Finally, the paragraph also says that at least half of the formula cuts will have to be applied to the exempted lines, which may be difficult for countries where low tariffs already apply to the sensitive sectors to be protected.
Finally, once the modalities are adopted, significant implementation periods, related to the administrative and economic realities of developing countries, will also be extremely important.
How just is the demand of developed countries that developing countries should increase their tariff-binding coverage on industrial goods to 100%? Should any proposal on tariff-binding coverage not take into account the existing coverage of different countries?
Although exempting developing countries whose binding coverage is less than 35% from applying the formula is certainly fair, the effort that is being required from these countries is disproportionate.
The countries concerned by this option (paragraph six of the Annex) are very poor, mostly African, developing countries. Some of these countries have bound as little as 0.1% of their tariff lines in the WTO and increasing their binding coverage to 100% would mean increasing their commitments by a huge proportion.
Even more worrisome is the fact that a maximum ceiling has been established for their new tariff bindings (at 27.5%), which means that these countries will not be free to bind tariffs at any level. Moreover, this ceiling could also require tariff reductions where a tariff is currently set above that level.
Many LDCs are concerned over the erosion of preferences because of tariff liberalisation. What could be the possible methodologies for LDCs to deal with the issue of eroding preferences?
LDCs were exempted from undertaking mandatory reductions through the formula but are also affected by reductions in two ways. The first is that the modalities agreed to in the current round are likely to create a precedent that will be used in the future. The second serious implication for LDCs is that when other countries that grant LDCs more favourable tariff treatment reduce their tariffs, they reduce the difference between the tariffs applied to preference-receiver LDCs and those applied to all other countries. The reduction of that tariff gap will ‘erode’ the competitiveness of goods from LDCs vis-à-vis goods produced elsewhere.
The erosion of preferences is a serious threat because many LDCs rely largely on preferential treatment for their exports. Many African and Asian countries took advantage of preferences to start diversifying and industrialising their economies. There is no doubt that these countries will face higher adjustment costs as a result of the NAMA negotiations.
To mitigate these costs in these countries, a panoply of measures will be needed. These include targeted technical and financial assistance to help modernise sectors, to convert redundant capital into productive capital and to take advantage of new market access opportunities. These countries may also face an increase in unemployment, and will need the financial resources to, for instance, retrain their workers. Moreover, countries that currently do not grant preferential access to LDCs may wish to improve market access conditions for LDC exports so as to compensate, at least partly, for the erosion of preferences in other markets.
The notifications stage in Non Tariff Barriers (NTBs) negotiations in NAMA is over. However, there is no consensus on the direction or modalities for future negotiations; request/offer, multilateral/ plurilateral, vertical/horizontal, etc. Further, a well-directed proposal is yet to be submitted. What strategy should developing countries adopt in NTB negotiations to ensure optimum gains?
Developing countries are very interested in negotiating the reduction or removal of non-tariff measures that hinder their exports, particularly to the developed countries. Although each WTO member applies standards, in principle, for legitimate reasons such as human health and safety, sometimes these standards are overly stringent and clearly used for protectionist purposes. Such measures include abuse of anti-dumping and safeguard measures, abusive use of technical barriers and sanitary and phyto-sanitary measures and abuse of administrative requirements (such as licensing).
Nonetheless, non-tariff barriers are very difficult to negotiate. Only a total harmonisation, or mutual recognition, of all standards of all members could actually avoid these difficulties. That is unlikely to happen and would not even be desirable given the WTO trade mandate.
Developing countries can continue with the identification of the hurdles they face so that the scope and measurement of the costs of NTBs are better known. Developing countries can also seek an improvement of the relevant WTO agreements, to avoid too much discretion where that is leading to abuses. Finally, developing countries can also use the mandate to negotiate NTBs to establish funds for compliance with specific NTBs.
Developing countries have been able to form effective coalitions in agriculture such as the G20 and G33. Why have they been unable to do this in NAMA negotiations? What strategy should developing countries follow in NAMA negotiations in the coming months before the Hong Kong ministerial meeting?
NAMA negotiations have been very atypical in the sense that no major coalition of developing countries has emerged. The African, the Caribbean and some Latin American countries have adopted common positions and the G90 countries are also united in some respects. However, there is indeed no cross-cutting, all-encompassing coalition of developing countries.
One of the reasons for this is that developing countries’ interests in NAMA are very diverse. While some seek to remove the tariffs peaks and escalation that their exports face in developed countries, others struggle to maintain their trade preferences. While some are seeking greater market access not just in developed countries but also in developing countries, some wish to protect sensitive industries and their right to develop.
Another reason is that the modalities are structured in a way that has divided developing countries into many groups. They grant flexibilities to some, even greater flexibilities to a few, and none to the rest of the developing countries. The developed countries are well aware of the divisions among developing countries and have been exploring them very efficiently to avoid their uniting behind common positions.
Despite this, more developing countries do realise the benefits of strategising and adopting common positions. As can be seen in the differences around the choice of a formula, developmental concerns are surfacing more strongly. Developing countries are realising that despite their differences, the current direction of NAMA negotiations is not really good for any of them. |
