The Hindu Business Line : Development concerns remain neglected

NAMA negotiations have always been a big bone of contention in the Doha Round. This is primarily attributable to the aggressive tariff liberalisation that it seeks to achieve in developing countries.

Kasturi Das

On February 8, the Chair of the Non-Agricultural Market Access (NAMA) negotiations, Ambassador Don Stephenson of Canada, came up with the latest ‘Draft’ Modalities Text (DMT) on NAMA, which is a revised version of the ‘draft’ circulated by him on July 17 last year.

Endorsing both the DMTs on NAMA and the one on agriculture that was released by WTO on the same day, the WTO Director-General, Mr Pascal Lamy, commented that they “reflect the progress that has arisen from the intensive negotiations involving all 151 WTO members since July of last year”. He added: “These documents paved the way for the launch of an important new stage in the Doha Round of global trade talks.” A closer look at the DMT on NAMA, however, reveals that there is hardly anything “new” in it when compared with the July 17 text that attracted much criticism from a large section of developing countries, including the NAMA-11 grouping, of which India is a leading member.

Except for a few insignificant changes here and there, what is noteworthy in the latest text vis-À-vis the earlier one is the introduction of a large number of square brackets, indicating a lack of convergence.

In fact, Mr Lamy’s assertion on “intensive negotiations” since July hardly finds credence from the sheer number of square brackets. If anything, they reflect an official acceptance by the WTO of the gross lack of convergence on substantial parts of the NAMA negotiations.

The DMT not only disregards the key concerns of developing countries, but also fails to abide by the NAMA Mandate, as enshrined in Article 16 of the Doha Ministerial Declaration (2001) and subsequently in the July (2004) Framework Agreement and the Hong Kong Ministerial Declaration (HKMD), 2005.

Bone of contention

NAMA negotiations have always been a big bone of contention in the Doha Round. This is primarily attributable to the aggressive tariff liberalisation that it seeks to achieve in developing countries. It is widely apprehended that these countries risk losing much of their policy flexibility in using tariffs as an instrument of development.

Notably, industrial tariffs in developing countries at present are much higher than those in developed countries. This is because, first, tariffs act as a protective shield for domestic industries against import competition, in line with ‘the infant industry argument’ for protection; and, second, tariffs contribute towards government revenue.

In India, for instance, tariffs account for over 23 per cent of net tax revenue. Interestingly, for similar reasons, the developed countries of today had maintained high tariff walls during their earlier phases of development. It is ironical that once they have climbed up the development ladder, the same countries are now advocating drastic tariff liberalisation for developing countries. The NAMA negotiations call for a line-by-line tariff reduction, as well as full binding coverage for nearly all tariff lines, except a few flexibilities for developing countries — the so-called ‘Paragraph 8 flexibilities’.

Swiss formula

The Swiss Formula (with different coefficients for developed and developing countries), on the basis of which tariff-cuts are supposed to be undertaken, is such that the lower the coefficient, the more drastic is the resultant tariff reduction. Understandably, it is in the interest of developing countries to have as high a coefficient as possible. Another striking feature of the Swiss Formula is that it cuts higher tariffs more steeply than it cuts lower tariffs.

Hence, it is expected that it would go at least some way in addressing the market-access concerns of developing countries, particularly the problems posed by ‘tariff peaks’ and ‘tariff escalations’ in developed countries on products of their export interest, such as textiles and clothing, footwear and leather goods.

However, the flip-side is that since industrial tariffs in developing countries are, in general, much higher than those in developed countries, the Swiss Formula would also result in a much steeper reduction of industrial tariffs for the former, unless developing countries are allowed to have vastly different coefficients in the formula than those for developed countries.

The coefficient range of 19-23, mentioned in the DMT within square brackets, is too low for developing countries. Moreover, a coefficient of 19-23 for developing countries and 8-9 for developed countries, as included in the DMT, fails to respect the mandate of “less than full reciprocity (LTFR) in reduction commitments” on the part of developing countries, as enshrined in the NAMA Mandate. It does not even come anywhere close to the NAMA-11 proposal (of June 8, 2007) of a gap of at least 25 points.

Applying a coefficient of 8 for developed countries and 23 for India, for instance, would cut the average bound tariffs of developed countries by 45.6 per cent (from 6.8 per cent to 3.7 per cent) and those of India by 60 per cent (from 34.7 per cent to 13.8 per cent), thereby turning the principle of LTFR on its head.

While NAMA-11 called for an increase in Paragraph 8 flexibilities beyond what was already on the negotiating table last June, the DMT, in line with the July 17 text, has attempted to dilute even that limited flexibility by proposing to link it up with the value of the coefficient, rather than treating it as a standalone provision, as enshrined in the NAMA Mandate.

However, unlike the July 17 text, the latest DMT has removed the key numbers pertaining to the flexibility issue altogether, inserting only blank square brackets instead. As for non-tariff barriers (NTBs), supposedly an integral and equally important part of the NAMA negotiations, the text hardly reflects any sense of urgency. Importantly, NTBs are a major market access concern for developing countries.

India’s stand

In a statement released shortly before the circulation of the DMT, the Commerce Minster, Mr Kamal Nath, reaffirmed his long-standing position that “it is the content and not artificial timelines that are important” as far as the Doha Round is concerned. India, along with other like-minded countries, should stick to this position to ensure a fairer deal in NAMA, in particular and the Doha Round, in general.

(The author is Research Officer, Centre for Trade & Development (Centad), New Delhi. The views are personal.)