The Hindu Business Line : `Case for differential tariff treatment for developing nations

`Countries that followed a gradual and sequenced approach to trade liberalisation such as China, Vietnam and India have had a much greater success in expediting growth and reducing poverty, in contrast to those that adopted indiscriminate liberalisation.'

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New Delhi Feb. 25 Close on the heels of the Commerce Ministry criticising the tariff reduction formula for non-agricultural market access (NAMA) floated by the developed countries, the Research & Information System (RIS) for Developing Countries has argued that "the use of formulae and coefficients tends to make the negotiations and their impact non-transparent".

In its world trade and development report, the New-Delhi-based policy think-tank said the way out would be to agree to the extent of reduction by developed and developing countries and work backwards to find a coefficient that would deliver the same outcome.

One way of achieving less than full reciprocity is for developing countries to effect lesser reduction in their absolute tariff numbers than the developed countries would cut (e.g., by 5 and 10, respectively) or by adopting a differential percentage reduction in tariffs; for instance, the developed and developing countries reduce their tariff respectively (e.g., by 60 per cent and 40 per cent).

Hence, it said, the primary target should not be the coefficients in the Swiss formula, rather it should be the percentage reduction in tariff. Then appropriate coefficients should be worked out in order to have such tariff reduction.

Beefing up SDT

Stating that the Doha mandate specifically provided for taking care of the special needs and interests of developing and least developed countries, besides the less than full reciprocity in reduction commitments, the report urged the developing countries to ensure that the core objective of the tariff escalation and tariff peaks prevailing in developed countries for their products was addressed properly. This could be through the choice of appropriate tariff reduction modality such as a Swiss formula with lower coefficient for developed countries or limiting the tariff peaks to a maximum of twice of average tariffs.

In this context, the 130-page analysis of the state of play in WTO also plumps for beefing up the Special & Differential Treatment (SDT) for developing countries so as to make it "precise, operational and effective" and thereby retrieve the development policy space to them that has been "squeezed by different WTO agreements and proposals". It contends that SDT is needed to neutralise the adverse impact on development of distortions in global markets triggered by the protectionist policies of the rich.

Sequenced approach

According to the report, countries that followed a gradual and sequenced approach to trade liberalisation such as China, Vietnam and India have had a much greater success in expediting growth and reducing poverty, in contrast to those that adopted indiscriminate liberalisation. Hence, developing countries should strive to retrieve and preserve this policy space for autonomous action to address asymmetries.

In this context, the report urged the coalition of developing world to seek a negotiation of a Framework Agreement to accord a legally binding status to SDT provisions, which, among others, could confer policy flexibility on developing countries.

This could be based on objective criteria such as a threshold of per capita manufacturing value added (MVA) for flexibility from commitments under NAMA, trade-related intellectual property rights and trade-related investment measures.

Infant industry

The report finds a compelling case for continued relevance for infant industry protection. Explaining this, the Director-General, RIS, Dr Nagesh Kumar, who led the report team, said that all the developed countries of today have extensively employed protection in the process of their industrialisation and development, with the US being the most protected and also the fastest growing economy until the Second World War.

Developed countries have also used soft patent laws and various industrial subventions widely in their process of development.

The report has argued that the extant impasse in the global trade talks under the umbrella of the WTO provides a good opportunity to reflect and resolve the broader issues about the processes of agenda-setting and decision-making in multilateral trade talks so as to make them meaningfully inclusive and democratic.

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