The December 2008 NAMA modalities text made simple

The new NAMA modalities text, issued by the Chairman of the negotiation on Non-Agriculture Market Access, builds upon the previous three texts and provides further details and wider options for ministers to negotiate a balanced final package for the full modalities. The text is now almost complete.

Here are the key elements of the document:

Formula and flexibilities

Tariff reductions for industrial products would be made using a “simple Swiss” formula with separate coefficients for developed or for developing country members. But whereas the coefficient for developed members will be the same applicable to all of them, there will be a menu of options for developing members that will apply according to the scale of the flexibilities they choose to use. The lower the coefficient the higher the flexibilities and vice versa. A Swiss formula produces deeper cuts on higher tariffs. (A higher coefficient, as envisaged for developing members, means lower reductions in tariffs).

The Chair's draft modalities contain these coefficients: 8 for developed members and 20, 22 and 25 for developing. Therefore not all developing countries applying the formula would apply the same coefficient. The use of the different coefficients would depend on three new options:

  • A member choosing to apply the lowest coefficient, 20, would be entitled to make smaller or no cuts in 14 percent of its most sensitive industrial tariff lines, provided that these tariff lines do not exceed 16 percent the total value of its NAMA imports. These tariffs would be subject to cuts equal to half of the agreed formula reduction. As an alternative, the member can keep 6,5 percent of its tariff lines unbound or exclude them from tariff cuts, provided they do not exceed 7,5 percent of the total value of its NAMA imports

  • A member choosing to apply a coefficient of 22 would be entitled to make smaller or no cuts in a smaller number of products: up to 10 percent of its most sensitive industrial tariff lines from the full effect of the formula, provided that these tariff lines do not exceed 10 percent of the total value of its NAMA imports. These tariffs would be subject to cuts equal to half of the agreed formula reduction. As an alternative, the member can keep 5 percent of its tariff lines unbound or exclude them from tariff cuts, provided they do not exceed 5 percent of the total value of its NAMA imports.

  • A member choosing to apply the highest coefficient, 25, will have to apply it on all its products without exceptions.

The proposed coefficients would mean:

The maximum tariff in developed countries would be bellow 8 per cent. This would mean that developed countries would have bound tariffs at an average of well below 3 per cent, and tariff peaks below 8 per cent even on their most sensitive products.

The majority of tariff lines for developing country members applying the formula would be less than 12-14 percent, depending on the coefficient and the flexibilities used. In the developing countries applying the formula, bound tariffs would be at an average of between 11 to 12 per cent, and only a limited number of tariff lines would have levels above 15 per cent.

The difference between bound rates and those actually applied would be substantially reduced.

The tariff reductions will be implemented gradually over a period of five years for developed members and ten years for developing members, starting 1 January of the year following the entry into force of the Doha results.

Overall, the approximately 40 members applying the Swiss formula (the others have special provisions) account for close to 90 per cent of world NAMA trade. Among these, four are recently acceded members (RAMs).

The text also contains the following:

A so-called anti-concentration clause, to avoid excluding entire sectors from tariff cuts. A minimum of 20% tariff lines or 9% of the value of imports in each tariff chapter would be subject to the full formula tariff reduction

Country-specific provisions  back to top

The text includes precisions for the possible treatment of:

  • South Africa, Botswana, Lesotho, Namibia and Swaziland, members of the South African Customs Union (SACU). They would have additional flexibilities still to be negotiated

  • Argentina, Brazil, Paraguay and Uruguay, concerning the calculation of the value of trade limitation affected by the flexibilities. The total value of Brazil's non-agricultural imports would apply.

  • Oman. Because of its status of Recently Acceded Member and membership of the Gulf Cooperation Council, shall not be required to reduce any bound tariff below 5 percent after applying modalities.

Other possible country-specific provisions (Argentina and Venezuela) are still under negotiation

Sectors for deeper tariff reduction or elimination   back to top

The Chair's text notes that further work is still required in the so-called "sectoral initiative". Some members have been engaged in negotiations which would envisage undertaking deeper tariff reductions in some non-agricultural sectors. There are 14 sectors currently under consideration: Automotive and related parts; Bicycles and related parts; Chemicals; Electronics/Electrical products; Fish and Fish products; Forestry products; Gems and Jewellery products; Raw materials; Sports equipment; Healthcare, pharmaceutical and medical devices; Hand tools; Toys; Textiles, clothing and footwear; and Industrial machinery.

As a result of a successful sector initiative, tariffs in that particular sector would be reduced or even brought down to zero. The chair's text underscores the voluntary nature of the participation in this initiative but mentions that some members want commitment by others on participation in the initiative as a way to balance the overall ambition. There is still no consensus on how and when to define the commitment of members to participate in sectorals without altering the non-mandatory character of these negotiations. Such negotiations would require a "critical mass" of countries joining the initiative for it to take off. After the adoption of the modalities, members choosing to join, would have 45 days to indicate their participation in the negotiations if they have not done so by the establishment of modalities.

Recently acceded members (RAMs)  back to top

Albania, Armenia, Cape Verde, The Former Yugoslav Republic of Macedonia, the Kyrgyz Republic Moldova, Mongolia, Saudi Arabia, Tonga, Viet Nam and Ukraine shall not be required to undertake tariff reductions beyond their accession commitments.

RAMs such as China, Chinese Taipei, and Croatia subject to the formula would have an extended implementation period of three years to phase in their Doha commitments.

Modalities for other developing members (around 75)  back to top

The 32 poorest countries (Least-developed countries or LDCs) are exempt from tariff reductions; there are special provisions for approximately 31 SVEs and for 12 developing countries with low levels of binding. As a result, relatively weaker developing economies will retain higher average tariffs and greater flexibility on how they structure their tariff schedules. But they will nevertheless contribute to the negotiations by significantly increasing the number of bindings and reducing "the water" (the difference between bound rates and those actually applied) and binding a high number of their tariffs. Bolivia, Fiji and Gabon are singled out as special cases. There are also proposed solutions for members with preferential access to developed country markets who would see their preferences erode because of the overall tariff reductions. In addition, there are provisions for other developing members who do not enjoy preferential access and would be disproportionably affected by such a solution (Bangladesh, Cambodia, Nepal, Pakistan and Sri Lanka)

Non-tariff barriers (NTBs)  back to top

NTBs, restrictive measures unrelated to customs tariffs that governments take (such as technical, sanitary and other grounds), are also part of the negotiation. Proposed legal texts have been submitted by members on some of these measures, and are compiled in the Chair's text. The Chair noted that a decision on whether these proposals move forward to a text-based negotiation would need to be taken at the time of final modalities.