NAMA

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NAMA

• Aradhna Aggarwal

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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 WTOs 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.

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Key Elements

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

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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?

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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 (BT0)/(BT0) if B T0
  Then cut is 50, if Bgt T0 then cut is less than
  50 and vice versa.\

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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 (BT0Ta)/(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

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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 countrys 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

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Tariff cuts and SDT

• 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

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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.

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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

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Proposals focus 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.

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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.

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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

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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.

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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.

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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 EUs 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.

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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.

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Some examples

• cote dIvoire 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, Kenyas 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.

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Employment

• World Banks 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

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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.
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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.