Considering the fact that industrial and consumer products still account for more than 75 per cent of global trade, negotiations on industrial goods or NAMA assume importance, more so, as in the recent WTO talks, agricultural market access hogged the limelight.
Of the three issues said to hold the key to the stalemate in the World Trade Organisation negotiations, two agricultural market access and agriculture subsidies have hogged the limelight. The issuerelating to industrial goods has, however, not received its fair share ofattention.
Negotiations on industrial goods, or NAMA (non-agriculture market access), cover liberalisation of all manufacturing and industrial trade in sectors such as machinery, electronic goods, chemicals, textiles, wood and fish products. It is important to underscore that industrial and consumer products still account for more than 75 per cent of global trade, with the World Trade Report 2004 noting that trade in goods is growing faster than world commercial services trade.
Importance of NAMA negotiations
In this light, the recent developments in Geneva relating to NAMA and their long-term implications on the survival and growth of Indian industry, merit stocktaking. A reiteration of the NAMA negotiations' importance and what is at stakeare pertinent to such an analysis. For countries such as the US, where consumer and industrial goods production supports 12 million high-paying jobs and exports account for an estimated $670 billion per year, NAMA negotiations are prioritised high.
Projections indicate that reducing tariffs by one-third can lead to a more than $267-billion increase in `global economic welfare'. No wonder the outgoing US Trade Representative, Mr Rob Portman, recently chose his handing-over meeting in Geneva to make yet another fervent pitch for ambitious market access in NAMA and a marker for the successful completion of the Doha Round. A strong push by developed countries led by the US and the EU for reciprocal offers of zero tariffs in sectoral arrangements among a critical mass of countries also needs to be seen in this light.
The centrepiece of the onslaught for increased market access has been a long-drawn wrangleover the differential scale of tariff reduction through a mathematical model known as the `pure' Swiss formula and its variants. While developed countries preferred the Swiss formula, known to cut the developing country's tariffs steeply, Argentina, Brazil and India (ABI) sought to wound less with their own variant, known as the ABI formula.
The Hong Kong Declaration adopted a `Swiss formula with coefficients'. In other words, at Hong Kong, despite the deadlock, hopes of adopting the ABI formula to achieve tariff reduction were kept alive and carried forward for further negotiations at Geneva. However, as the WTO pundits never fail to remind us, compromise and cross-sectoral trade-offs in agriculture and NAMA are necessary.
Champions of the ABI formula now seem to be getting into a compromise mode, with news trickling in from Geneva that Brazil has signalled a shift in stance over the ABI formula. Therefore, one wonders: Is the NAMA lamb up for sacrifice at the WTO in lieu of what could be at best `contested' gains in agriculture?
The Brazilian approach
Recent statements made by Mr Celso Amorin, Brazilian Foreign Minister, in Geneva to the effect that rather steep tariff cuts (with a coefficient of 30 in the pure Swiss formula) would be acceptable, amounts to no less than an abandonment of the ABI tariff reduction formula.
The rider, of course, is a trade-off in terms of a more liberalised trading regime in agriculture. India's studied silence on this new development craftily conceals the extent to which it supports Brazil's position. However, given that Brazil and India have been negotiating jointly on NAMA, it is not impractical to assume that the shift in stance has India's support.
If this is indeed the case, it is worth considering a few scenarios and the likely implications of the Brazilian approach in select sectors. Calculations show that if a `coefficient of 30' is applied, the new bound rate of fish and fish products in India would come down from the present 100.7 per cent to 23 per cent a reduction of an astounding 77 per cent. It is easy to see that the new bound tariff rate would be even lower than the present applied rate (30 per cent) on fish and fish products. Similarly, in the motor vehicles parts and equipment, bound tariff rates of 105 per cent in certain tariff lines would come down to 23 per cent. In stones, gems and precious metals, electronics and electrical goods and textile and clothing, the bound tariff rates of 35 per centwould be more than halved to 16 per cent in bulk of the cases.
What gains can the Indian industry then look forward to under these circumstances? The US-EC NAMA proposal on the table would hardly lead to any reduction in tariff peaks and tariff escalations, leave alone address the ticklish issue of non-tariff barriers. Even with the end game in progress at Geneva, the US stance continues to be as unreasonable as ever, with Mr Portman pitching for even steeper tariff cuts on applied rates (to be achieved through a `coefficient of 15' in the pure Swiss formula for developing countries).
Outcome of US approach
It is worth noting that if the US approach is acceded to, a bound tariff rate of 100 per cent would come down to a mere 13 per cent,a reduction by a whopping 87 per cent! Not only does this amount to a slap on the face of the `developmental' headline of the present round but it also goes against the agreed mandate to cut tariffs from bound and not applied levels. Needless to say, the principle of less than full reciprocity, an intrinsic part of the negotiations, has not been conceded in the least.
A lot is being made out of the protections that would be available in such a liberalised trade scenario in the form of `flexibilities', whereby certain tariff lines may not be subjected to similar reductions. Following the Hong Kong text, India would be able to protect, at best, roughly 500 tariff lines.
The inadequacy of the protective net is best understood by noting that in fisheries, and textile and clothing alone, there are close to 1,400 tariff lines! Moreover, it is worth remembering that given the overall steep reduction in tariff rates, even the so called protected tariff lines would have to undergo a relatively steep reduction.
In the given scheme of things, it is the ABI formula alone that can relatively cushion the likely impact of tariff reductions to the Indian industry and provide a semblance of domestic policy space. Our negotiators and political leadership should not lose sight of the importance of the need to protect this policy space for the long-term welfare of the economy.
(The authors are with the Centre for Trade and Development (Centad), an independent think tank on trade and development, New Delhi. The views are personal.)