Workshop on WTO-Related Issues for Government Officials in the SAARC Region 2 May 2006 – New Delhi

1. Workshop onWTO-Related Issues for Government Officials in the SAARC Region2 May 2006 – New Delhi Presentation by MANAB MAJUMDAR Team Leader – WTO, FTA and Foreign Trade Division FEDERATION OF INDIAN CHAMBERS OF COMMERCE AND INDUSTRY

2. DISCLAIMER • Strictly personal views – do NOT necessarily reflect those of FICCI

3. Non-Agricultural Market Access [ NAMA ]

4. Outline of Presentation • Part 1 : Introduction and Basics • Part 2 : From Doha to July Framework via Cancun • Part 3 : Run-up to Hong Kong and Outcome of Hong Kong Ministerial • Part 4 : Select Issues and Implications

5. Part 1 Introduction and Basics

6. An Introduction • Negotiations may be directed towards • Reduction of tariffs • Binding of tariffs • Reduction/abolition of NTBs • All member-countries did not participate in the first seven Rounds • Upto the Tokyo Round, main focus on lowering of tariffs – hence, limited progress made in the area of QRs and other NTBs • Uruguay Round marked most comprehensive negotiations, with full participation of all members

7. Techniques of Negotiations • How are negotiations conducted ? • Product-by-Product approach • Formula approach • Sectoral approach • Selective product-by-product approach until the Dillon Round (1960-61) • More comprehensive reduction formulas used in subsequent Rounds • Post-Uruguay Round, two significant sectoral initiatives • Information Technology Agreement (ITA) • Pharmaceuticals

8. Formula Approach for Tariff Reduction • Two types of formulas • Tariff-independent reduction modalities T1 = c (T0) • Tariff-dependent reduction formulas • Non-linearT1 = (B* T0) / (B + T0) • “Swiss Formula” is a function of both T0 and coefficient B • Reduction amount R = • As B R for given T0 • As T0 R for given B T0 B + T0

9. Linear Cut vis-à-vis Swiss Formula Cut

10. Tariff Reduction Formulae B x T0 B + T0 • Simple Swiss T1 = • Swiss Type T1=– ABI • Swiss Type T1= – Caribbean Countries For Simple Swiss formula, India would end up making more significant tariff cuts (compared to Swiss Type Formula) B x Ta x T0 (B x Ta) + T0 (B + C) x Ta x T0 [(B + C) x Ta] + T0

11. NAMA – Still an Unfinished Business • Even after eight rounds of negotiations, unfinished business remains in NAMA • Tariffs still constitute an important source of distortions and economic costs • Continued bias in protection against developing country-exports through • Tariff peaks • Tariff escalation • To discipline incidence of tariff peaks and escalation critical for development dimension • Doha Ministerial put this issue on negotiating agenda

12. Part 2 From Doha to July Framework via Cancun

13. Doha Mandate on NAMA • Doha Ministerial mandated negotiations on NAMA by modalities to be agreed • Negotiations shall aim to • Reduce or as appropriate eliminate tariffs • Reduction/elimination of tariff peaks, high tariffs and tariff escalation • Reduction/elimination of non-tariff barriers …. in particular on products of export interest to developing countries • Product coverage to be comprehensive and without a priori exclusions

14. S & D Provisions in Doha Mandate • Negotiations shall take fully into account special needs and interests of developing and least-developed country participants • including through less than full reciprocity in reduction commitments • in accordance with relevant provisions of Article XXVIII bis of GATT 1994 • as per paragraph 50 of the Doha Declaration

15. Doha Timeline for NAMA • Start : January 2002 • Decision on modalities was to be by 31 May 2003 • Target was missed – new deadline set for Hong Kong Ministerial, December 2005 • Even that had to be reset to 30 April 2006 –we missed it again • Negotiations to conclude by end-2006 as part of ‘Single Undertaking’

16. July Framework on NAMA • Framework contains initial elements for future work on modalities - additional negotiations required for agreement on specifics • Tariff reduction through a non-linear formula applied on a line-by-line basis • “Less than full reciprocity” for developing countries in tariff reduction commitments • Tariff reductions or elimination from “bound rates” • Flexibility for developing countries (paragraph 8) • Sectoral initiatives may complement the formula cuts • Guidelines provided for addressing NTBs

17. Part 3 Run-up to Hong Kong and Outcome of Hong Kong Ministerial

18. In the Run-Up to Hong Kong-1 • USA suggested a simple Swiss formula with two coefficients “within sight of each other” • USA offered higher coefficient for developing countries as an alternative to paragraph 8 flexibilities • USA also proposed sectoral negotiations based on a “critical mass”

19. In the Run-Up to Hong Kong-2 • ABI suggested ‘Swiss Type’ formula based on national average bound duty • Caribbean countries tabled a development oriented tariff reduction formula with an additional parameter of “credits” • APEC endorsement (early June 2005) + Dalian Mini Ministerial (July 2005) growing support for Simple Swiss formula with dual coefficients • Pakistan proposal : compromise formula with two coefficients – 6 for developed and 30 for developing members

20. In the Run-Up to Hong Kong-3 • EU proposal put forward the option of higher coefficient for developing countries through less use of paragraph 8 flexibilities • On 28 October 2005, EU sought cuts in applied duties of developed and more competitive developing countries • EU advocated simple Swiss formula with coefficient B=10 for developed members • For advanced developing countries, EU proposed same coefficient along with flexibilities – tariff cap of 15%

21. Why EU Proposal was Unacceptable? B COEFFICIENT AT 10 IMPLIES “MORE THAN FULL RECIPROCITY”

22. Outcome of Hong Kong • Reaffirmed commitment to Doha Mandate and elements of the July Framework • Adopted Swiss formula with (multiple ??) coefficients – ABI formula still on table • Provided for reduction/elimination of tariff peaks and tariff escalation • Retained “less than full reciprocity” • Paragraph 8 flexibilities reiterated upfront • Sectoral initiatives made non-mandatory • Resolve to set up modalities by 30 April 2006 - MISSED

23. Part 4 Select Issues and Implications

24. Sectoral Approach • HKMC instructed for identifying “sectors” that could garner sufficient participation • Progress made and proposals submitted in a number of sectors • By and large sectoral discussions focused on : • product coverage • critical mass • final target rates • options for S&D • So far no clarity on “multilaterization” of sectorals’ outcome

25. Flexibility and S & D Treatment-1 • HKMC reaffirmed importance of • S&D treatment • Less than full reciprocity • Paragraph-8 flexibilities • This was welcome – even though • operationalization of LTFR was not clarified • controversy regarding para-8 flexibilities and coefficients in tariff reduction formula still remains • Some progress attained on flexibilities for developing members with low binding coverage (Paragraph-6 countries) • Flexibilities for small, vulnerable econimies

26. Flexibility and S & D Treatment-2 • LDCs are exempted from formula tariff reduction (Paragraph-9 countries) • DF-QF access for at least 97% of all products originating from LDCs by 2008, in developed and perhaps some developing members’ markets • As regards flexibilities for “other” developing members, no progress on deciding the elements of flexibilities e.g. longer implementation period, specific numbers for parameters in Paragraph- 8

27. Preference Erosion • HKMC instructed to intensify work on assessment of scope of the problem of ‘preference erosion’ • Positions are extremely polarized – far from any consensus • Growing recognition that number of affected members and products are limited • Strong evidence of under-utilization of preferences • However, the issue poses a serious problem • To seek “solutions” within trade negotiation agenda may be counter-productive • Adjustment mechanism outside WTO perhaps a better approach

28. Conflicting Interests and Positions • Overall, negotiations are more difficult and tough than commonly perceived • Range of conflicting interests further complicates • Developed vs Developing • Developing vs Developing • Developing vs LDCs • LDC vs LDC

29. An Illustration of Conflict • Indian industry position on “sectoral approach to tariff reduction or elimination” is NOT uniform • Some sectors favour such an approach, while several others strongly oppose mandatory ‘zero-for-zero’ or sectorals

30. Zero-for-Zero : Broad Response from Indian Industry

31. Conflict Resolutionand Convergence • Key to successful conclusion of negotiations : CONFLICT RESOLUTION, CONVERGENCE OF POSITIONS • By no means, easy task • WAY OUT: Regular consultations and accommodation of each other’s concerns and interests

32. Needed : a Problem-Solving Attitude and ApproachHow could you contribute ?

33. THANK YOU Your comments are most welcome Please e-mail at :manab.ficci@gmail.com