NAMA

1. NAMA Aradhna Aggarwal

2. 1. The negotiations are to be conducted within a framework that does not represent the position of developing countries • The framework is provided by the Debez Text • Derbez formula was largely based on the Canada-EU-US proposal of August 2003. • The Derbez text was presented to the WTO’s Cancún Ministerial Conference on 13 September 2003, and was subsequently rejected • The Derbez annex when presented to the Members in July , 2004 was strongly criticised for having excluded developing country concerns from the text, • After considerable debate, developing countries agreed to the inclusion of Annex B within the July package with Paragraph 1 of the annex. This states that the key elements within the annex are still not agreed and thus remain to be negotiated. • In developed countries it was hailed as a big victory for business. • Contrary to the spirit of the Development Round.

3. Key Elements • the formula for tariff reduction, • treatment of unbound tariffs, • flexibilities for developing countries, • the sectoral component and, • preference erosion issues

4. The central principle • The central principle as mandated by paragraph 16 of the Doha Ministerial Declaration reads: • The negotiations shall take fully into account the special needs and interests of developing and least-developed country participants, including through less than full reciprocity in reduction commitments, • What is implication of the July framework in practice?

5. 2. Negotiations on tariff reduction : More than reciprocity • a non-linear formula on a line-by-line basis • Non linearity means : Greater cut in higher tariffs and Harmonisation which means more than reciprocity for developing countries. • The ultimate reduction will be based on the coefficient but in all scenarios drastic cuts for the developing countries with no flexibilities. • Swiss formula : T1 = (B*T0)/(B+T0) if B= T0 Then cut is 50%, if B> T0 then cut is less than 50% and vice versa.\

6. The proposals & implications • Single B for both developed and developing countries • Different coefficients for B for developed and developing countries. Higher B for developing countries. Higher the coefficient B, smaller the cut. US also proposes it but with no flexibilities for developing countries. • ABI proposal : Weight B by average tariff rates • T1 = (B*T0*Ta)/(B* Ta + T0) • In any case, due to the lower initial rates, developed countries will not be affected much. But drastic change in developing country rates • Mehta : even by ABI formula : base rate of 33.2 will come down to 15.8% • Countries will experience particularly drastic reductions in those lines which they have tried to protect through tariffs which are higher than the average

7. Line by line basis : No policy space for protecting the sensitive items • Developing countries need policy space which will be badly hurt by line-by-line tariff cuts. • Pattern in Optimal tariff structure there is a pattern of optimal tariffs in different sectors (at different phases of a country’s industrial development. • It should be applied on average tariff rates as it happened in the Uruguay round on agriculture tariff reduction. These countries need to demand such flexibility for developing countries. • Tariff reductions should not be allowed on line by line basis

8. Tariff cuts and S&DT • Flexibilities to developing countries in the framework: • longer time frame, • Less than formula cut by 10%-15% • 5% concession in tariff line bindings • These proposals also opposed if less than reciprocity is offered

9. Is is justified in the development round • In the Uruguay Round, US opposition to the use of a single non-linear formula ensured that countries were able to determine their own approach to tariff reduction. • Developing countries adopted a request-offer approach to the negotiations allowing proper flexibility in the liberalisation undertaken. • Doha round is billed as development round yet such flexibilities are denied to developing countries.

10. 3. Treatment of unbound rates : double concession by developing countries • Provision: countries which have left particular tariff lines unbound will be required to implement tariff reductions on those lines via the same formula as bound tariffs, • Base rate : Twice the MFN applied rate as at 14 November 2001. • The implication : developing countries should both bind and apply the tariff reduction formula to unbound tariff lines. • Furthermore, since there is a large difference between bound and applied rates in developing countries, it is criticised strongly. • Developing countries are advocating that bound and unbound tariffs should be treated differently. • developing countries should not make a double concession of both binding and cutting tariffs via the formula in the same round

11. Proposalsfocus on base rates • ABI : Multiply base rate by a number ( to be negotiated and bind them at an average • Canada, HK, Newzealand, China, Norway : Add 5% to the base rate • Pakistan : add 30% to the base rate • Mexico : Non linear mark up • Malaysia : Average of 25% with ceiling of 40% • Most proposals on the base rates and seek to correct the gap between bound and applied rates but the basic issue of substantial concession remains.

12. 4. Binding of tariff lines: Substantial concession by developing countries • Unwritten assumption : countries should bind 100% tariff lines. • Flexibility to developing countries : they will be required to raise their binding coverage to a minimum of 95% of non-agricultural tariff lines. Thus the concession is that 5% tariff lines may be unbound. • Implication for developing countries: substantial concession by many countries which have substantial unbound rates. • LDCs : exempt both from applying the tariff reduction formula and from participation in the sectoral initiative (Para 9). Yet, “as part of their contribution to this round of negotiations, they are expected to substantially increase their level of binding commitments.” • developing countries with less than 35% of non-agricultural tariff lines bound : would be exempt from the tariff reduction formula. But they are expected to bind 100% tariff lines at an average level not higher than the average of all developing countries’ bound tariffs. They would also be required to participate in the sectoral initiative. This implies : tariff reduction and bindings. Criteria of 35% should be discussed and overrun.

13. Sectoral approach • Paragraph 7 of Annex B as it stands at present would require all WTO members except LDCs to enter into negotiations aiming at the elimination or harmonisation of non-agricultural tariffs in sectors to be decided during the process of negotiations. • Mandatory participation by all countries was a central requirement of the joint Canada-EU-US paper submitted to the WTO in August 2003, and hence it is retained in the current draft. • developing countries have consistently maintained that they should participate in any sectoral NAMA negotiations on a voluntary basis only.They should not give any concession here

14. Erosion of generalised preference • Margins of preferential access which LDCs exports currently enjoy will be eroded. • Sectoral initiatives : would include sectors of export interest of developing countries. Such drastic liberalisation would effectively wipe out existing preferences enjoyed by them in their most important export sectors. • paragraph 16 of Annex B does no more than instruct the NAMA negotiating group to “take into consideration” the needs of those WTO members which stand to lose as a result of preference erosion under the Doha Round. • The IMF has intervened in the context of preference erosion through its Trade Integration Mechanism (TIM), introduced in April 2004. The TIM is designed to pave the way for more ambitious trade liberalisation at the WTO by providing finance to meet balance of payments shortfalls arising from preference erosion or other losses caused by global trade liberalisation. • The IMF has made clear that it is not offering new financing through the TIM but rather a repackaging of loans already available through existing IMF lending instruments. • This would increase their debt burden. • the African Group proposed a correction coefficient in order to maintain or improve the margins for products which currently enjoy preferential access but which are threatened by NAMA negotiations at the WTO.

15. NTBs • paragraph 14 of Annex B undertakes to examine NTBs in the context of the NAMA negotiations. • No substantial progress. • More than 2000 NTBs identified. • Substantial proportion of trade under NTBs in developed countries . For India estimates have been made : over 44% of trade with Us is subject to such NTBs • Tendency to refer them to other committees within the WTO to discuss, with the NAMA negotiating group overseeing progress. • A number of developing countries expressed concern at the move. It could remove some NTBs from the compass of the NAMA negotiating group altogether.

16. Are NAMA negotiations really directed to benefit developing countries • The NAMA negotiations threaten to open up developing countries’ markets not for their own benefit but for the benefit of export interests of other economies. • It has been stated explicitly by developed countries negotiators such as the EU’s Trade Commissioner Peter Mandelson that developing countries must be made to ‘pay’ for the possible future abolition of rich country agricultural subsidies (even as these are being ruled illegal by the WTO) by opening up their own industrial and services sectors to multinational corporations based in the North.

17. Will tariff reduction promote growth • Yilmaz Akyuz : Developed countries during their development phase had tariffs that were far higher than the current tariffs in developing countries.  For example, the United States had average applied tariffs of 40-50 %  for much of the century 1820-1920.  Even in 1950, its average tariff was 14%.  In comparison, the average rate in 2001 in developing countries as a whole was 8.1%. • An UNCTAD study on 50 developing countries showed that only 20 that liberalised their imports had managed to expand their manufacturing exports to any significant extent, and of these only 10 expanded their manufacturing value-added as well.  Half of the countries surveyed experienced deindustrialisation.  There was little evidence they could upgrade their industries.

18. Some examples • cote d’Ivoire witnessed the virtual collapse of its chemicals, textiles, shoe and automobile assembly sectors when tariffs were cut by 40% in 1986. • • Following its major trade liberalisation programme in 1993, Kenya’s beverages, tobacco, textiles, sugar, leather, cement and glass products sectors have all struggled to survive import competition. • Structural adjustment in the 1990s also led to the closure of large numbers of manufacturing firms in Cameroon, Malawi, Mozambique, Tanzania, Zambia and Zimbabwe, to name a few. • Hungary : closure of thousands of SMEs • While more powerful developing country economies may be able to benefit from the new opportunities, the majority will be excluded from the welfare gains.

19. Employment • World Bank’s survey of studies into the relationship between globalisation and unemployment rate concluded: “During periods of trade liberalization, and more generally of economic reform, job destruction rates can be expected to proceed at a much faster pace than job creation. Globalization could therefore be associated with higher unemployment rates.” • Several developing countries including Latin America have experienced dramatic rise in unemployment/underemployment

20. Tariff revenue as % of total tax revenue India 18.5 Bangla Desh 22.6 Pakistan 12.2 Nepal 27.2 Sri lanka 11.3 Fiscal stability Loss of revenue may be substantial for these countries: two options : raise other taxes, cut down of expenditures : affect expenditures on education, health care and such asset building programmes.

21. Trade off between present and future • Developing countries may be sacrificing their future for a bit of market access for the present.  Even if developing countries get access to developed countries’ markets, that may be of benefit to products they presently make, but it hurt their future prospects of promoting to high value added products that they can potentially make (as the developing countries’ tariffs on these would have been lowered). • UNCTAD senior economist, Mehdi Shaffaeddin, warned developing countries against hoping to get some benefit for their labour-intensive industry,  and in return giving up their possibility for high value-added industry.   This would be the end of their industrialisation. • Developing countries need strive hard to obtain flexibilities to address their developmental sensitivities.