HONG KONG WTO MINISTERIAL 2005: BRIEFING NOTES
MARKET ACCESS, NON-AGRICULTURAL PRODUCTS Still sorting out ‘modalities’
Negotiators have been considering in the past months the structure of the formula to be applied for tariff reductions. The formula is the most fundamental element of the negotiations and a key modality in the tariff reduction exercise. The aim is to have an agreement on modalities by the Ministerial Conference in Hong Kong.
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The Doha mandate
At the Doha Ministerial Conference in November 2001, ministers agreed to start negotiations to further liberalize trade in non-agricultural goods. To this end, the Negotiating Group on Market Access (NAMA) was created at the first meeting of the Trade Negotiations Committee, in early 2002.
The ministers agreed to launch tariff-cutting negotiations on all non-agricultural products. The aim is “to reduce, or as appropriate eliminate tariffs, including the reduction or elimination of tariff peaks, high tariffs, and tariff escalation, as well as non-tariff barriers, in particular on products of export interest to developing countries”. The product coverage shall be comprehensive and without a priori exclusions.
These negotiations shall take fully into account the special needs and interests of developing and least-developed countries, and recognize that these countries do not need to match or reciprocate in full tariff-reduction commitments by other participants.
At the start, participants had to reach agreement on how (“modalities”) to conduct the tariff-cutting exercise. (In the Tokyo Round, the participants used an agreed mathematical formula to cut tariffs across the board; in the Uruguay Round, participants negotiated tariff cuts using a variety of methods). The agreed procedures would include studies and capacity-building measures that would help least-developed countries participate effectively in the negotiations.
While eight GATT Rounds have sharply reduced customs duties, certain tariffs continue to restrict trade, especially on exports of developing countries — for instance “tariff peaks”, which are relatively high tariffs, usually on “sensitive” products, amidst generally low tariff levels.
Another example is “tariff escalation”, in which higher import duties are applied on semi-processed products than on raw materials, and higher still on finished products. This practice protects domestic processing industries and discourages the development of processing activity in the countries where raw materials originate. The original aim of ministers was to conclude NAMA negotiations by 2005. The Sixth Ministerial Conference in Hong Kong, December 2005, will take stock of progress.
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The July 2004 “framework”, agreed by the General Council, contained the initial elements for future work on modalities and reaffirmed the mandate of the Doha Declaration with some additional clarifications and guidelines. In this framework, Members recognized that a formula approach is key to reducing tariffs, and reducing or eliminating tariff peaks, high tariffs, and tariff escalation, and agreed that the Negotiating Group should continue its work on a non-linear formula (not all tariff rates are cut by the same percentage) applied on a line-by-line basis which 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.
By September 2005 Members have submitted more than 60 papers as a contribution to the debate. These proposals deal with the “modalities” for the negotiations, covering tariff reductions, how to deal with non-tariff barriers, how to give developing countries special and differential treatment, and the possible effects of the reduction in tariffs on the development policies of some countries and on their fiscal revenues, etc. The “modalities” include the criteria to be used to define environmental goods, since the Doha Declaration includes a mandate to negotiate the reduction of tariffs in this particular sector of goods, a subject transferred from the Trade and Environment Committee to this negotiating group.
At the end of July 2005, the chairman of the Negotiating Group, ambassador Stefan Johannesson of Iceland, submitted a report to the General Council in which he reported that there was an impasse on the formula, although Members were not as far apart and the divergence was not so much about the structure as about getting the right balance between ambition and flexibilities for developing countries.
In his latest assessment of the negotiations, the chairman said he believed that Members supported the use of a Swiss Formula (that is, higher tariffs are submitted to deeper cuts) as the central tariff cutting mechanism for the NAMA negotiations. However, he also said that under this umbrella of a Swiss formula, he had identified two approaches. In general terms, one approach envisages the use of a limited number of coefficients to be negotiated and the other proposes a largely pre-determined coefficient for each Member using its tariff average as a starting point. Members that have submitted proposals for a formula are Chile, Colombia and Mexico (joint proposal); Norway; United States; European Communities; Argentina, Brazil and India (joint proposal); Antigua and Barbuda, Barbados, Jamaica and Trinidad and Tobago (joint proposal); and Pakistan.
In the July 2004 agreement on the framework for establishing modalities, members recognized that a sectorial tariff component, aiming at elimination or harmonization of tariffs in certain sectors, is another key element in achieving the objectives of the mandate. This sectorial approach would aim at products of export interest to developing countries. Some members have expressed their opinion that the participation in any sectorial initiative should be voluntary. Work has been ongoing in the following sectors : Electronics/Electrical Equipment, Bicycles and Sporting Goods, Chemicals, Fish, Footwear, Forest Products, Gems and Jewelry, Pharmaceuticals and Medical Devices and Raw Materials.
Special and differential treatment for developing countries:
There have been extensive discussions on these provisions and their relationship with the formula. Most of the points raised were about flexibility for developing countries — allowing them longer implementation periods for tariff reductions; and allowing them to keep 5% of tariff lines “unbound” (i.e. not legally committed in the WTO), provided that these do not exceed 5% of imports. Least-developed country participants would not be required to undertake reduction commitments. But as part of their contribution to this round of negotiations, they are expected to substantially increase the number of products whose maximum tariff rates are legally bound in the WTO. Furthermore, and as an exemption, participants with a binding coverage of non-agricultural tariff lines of a percentage to be agreed during the negotiation, but proposed to be 35% by the chairman of the Negotiating Group, would be exempt from making tariff reductions through the formula. Instead, members expect them to bind non-agricultural tariff lines at a percentage, proposed to be 100% by the chairman, at an average level that does not exceed the overall average of bound tariffs for all developing countries after full implementation of current concessions.
Newly acceded members:
Members have agreed to the need to further elaborate on special provisions for tariff reductions for Newly Acceded Members in recognition of the commitments undertaken by them during their accession process. This could be undertaken once there is an agreement on the formula.
Non-tariff barriers (NTB's):
NTBs are an integral and equally important part of these negotiations, and work on this component of the Negotiating Group's mandate has intensified. A considerable amount of time has been spent identifying and categorizing the notified NTB's, and now the Negotiating Group has entered a phase of examination and negotiation of such NTB's.
Other elements regarding the formula that have been discussed in the Negotiating Group are : product coverage, treatment of Unbound Tariff Lines, conversion to ad valorem equivalents, elimination of low duties, non-reciprocal preferences and tariff revenue dependency, environmental goods, etc
At Hong Kong, Ministers are expected to assess progress in the negotiations. The talks are scheduled to be completed by the end of 2006.
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