Question of market access

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: The Draft Modalities Text (DMT) put forward by the Chair of the WTO’s Non-agricultural Market Access (Nama) negotiations ambassador Don Stephenson of Canada, on July 17, 2007, for the “consideration” of WTO members fails to take into account the concerns of most developing countries, including the Nama-11 grouping, of which India is a lead member. In many respects, it 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.

Nama negotiations have been a big bone of contention of the Doha Round. This is primarily because of the aggressive tariff liberalisation that it seeks to achieve in developing countries. It is widely apprehended that these countries risk losing their policy flexibility in using tariffs as an instrument of development. Notably, industrial tariffs in developing countries are currently much higher than those in developed countries. 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% 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.

Launched with this backdrop, the new tariff liberalisation initiative under the Doha Round, known as the Nama negotiations, calls 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”.

The Swiss Formula (with different coefficients for developed and developing countries), on the basis of which tariffs are supposed to be cut, is such that the lower the coefficient, the more drastic is the resultant tariff reduction. Moreover, it cuts higher tariffs more steeply than it cuts lower tariffs. Hence, it is hoped that it would address most of the market-access concerns of developing countries posed by “tariff peaks” and “tariff escalations” in developed countries on products of their export interest, such as textiles & 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 they are allowed to have vastly different coefficients in the formula than that for developed countries.

It is in the interest of developing countries to have as high a coefficient as possible. The coefficient range of 19-23 proposed in the DMT is too low for developing countries. Moreover, a coefficient of 19-23 for developing countries and 8-9 for developed countries, as proposed 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 would result in a reduction of the average bound tariffs of the developed countries by 45.6% (from 6.8% to 3.7%) and of India by 60% (from 34.7% to 13.8%), thereby turning the principle of LTFR on its head. While the Nama-11 called for an increase in paragraph 8 flexibilities beyond what is already on the negotiating table, the DMT 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.

In contrast, the proposal in the DMT on non-tariff barriers (NTBs), which is supposed to be an integral part of the Nama negotiations, deals only with procedural aspects and does not even include any timeline. Importantly, NTBs are a major cause of concern for developing countries when it comes to real market access in the developed countries. The DMT on Nama is too ambitious compared to the draft modalities text on agriculture, thereby disregarding Article 24 of the HKMD, which calls for “a comparably high level of ambition in market access for agriculture and Nama”.

In a significant development, many developing countries, including the Nama-11 group and the African-Caribbean & Pacific (ACP) group, had strongly criticised the DMT before the WTO went for its summer recess. Negotiations have resumed on September 3, and Nama will soon be taken up. It needs to be underscored here that Stephenson himself has clarified that the DMT contains his own proposals and is not a negotiated text. Clearly, the DMT does not have any legal standing whatsoever. Hence, all developing countries, including India, should join hands to ensure a fairer deal on Nama. The game is not over yet.