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Workshop onWorkshop on WTO-Related Issues for Government WTO-Related Issues for Government

Officials in the SAARC RegionOfficials in the SAARC Region2 May 2006 – New Delhi2 May 2006 – New Delhi

Presentation byMANAB MAJUMDAR

Team Leader – WTO, FTA and Foreign Trade DivisionTeam Leader – WTO, FTA and Foreign Trade Division

FEDERATION OF INDIAN CHAMBERS OF COMMERCE AND INDUSTRY

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DISCLAIMERDISCLAIMER

Strictly personal views – do NOT necessarily reflect those of FICCI

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Non-Agricultural Market Access [ NAMA ]

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Outline of Presentation Part 1 : Introduction and Basics Part 2 : From Doha to July Framework via Cancun Part 3 : Run-up to Hong Kong and Outcome of Hong Kong Ministerial Part 4 : Select Issues and Implications

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Part 1Introduction and Basics

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An Introduction Negotiations may be directed towards

Reduction of tariffs Binding of tariffs Reduction/abolition of NTBs

All member-countries did not participate in the first seven Rounds

Upto the Tokyo Round, main focus on lowering of tariffs – hence, limited progress made in the area of QRs and other NTBs

Uruguay Round marked most comprehensive negotiations, with full participation of all members

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Techniques of Negotiations How are negotiations conducted ?

Product-by-Product approach Formula approach Sectoral approach

Selective product-by-product approach until the Dillon Round (1960-61)

More comprehensive reduction formulas used in subsequent Rounds

Post-Uruguay Round, two significant sectoral initiatives

Information Technology Agreement (ITA) Pharmaceuticals

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Formula Approach for Tariff Reduction

Two types of formulas Tariff-independent reduction modalities T1 = c (T0) Tariff-dependent reduction formulas

Non-linear T1 = (B* T0) / (B + T0)

“Swiss Formula” is a function of both T0 and coefficient B

Reduction amount R =

As B R for given T0

As T0 R for given B

T0

B + T0

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Linear Cut vis-à-vis Swiss Formula Cut

100

50.0

23.1

0

10

20

30

40

50

60

70

80

90

100

per

cent

Initial Tariff Final Tariff after 50% Linear Cut Final Tariff after Swiss Formula Cut with B=30

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Tariff Reduction Formulae

Simple Swiss T1 =

Swiss Type T1= – ABI Swiss Type T1= – Caribbean Countries

For Simple Swiss formula, India would end up making more significant tariff cuts (compared to Swiss Type Formula)

B x T0

B + T0

B x Ta x T0

(B x Ta) + T0

(B + C) x Ta x T0

[(B + C) x Ta] + T0

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NAMA – Still an Unfinished Business

Even after eight rounds of negotiations, unfinished business remains in NAMA

Tariffs still constitute an important source of distortions and economic costs

Continued bias in protection against developing country-exports through

Tariff peaks Tariff escalation

To discipline incidence of tariff peaks and escalation critical for development dimension

Doha Ministerial put this issue on negotiating agenda

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Part 2 From Doha

to July Framework via Cancun

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Doha Mandate on NAMA Doha Ministerial mandated negotiations on

NAMA by modalities to be agreed Negotiations shall aim to

Reduce or as appropriate eliminate tariffs Reduction/elimination of tariff peaks, high tariffs and

tariff escalation Reduction/elimination of non-tariff barriers

…. in particular on products of export interest to developing countries

Product coverage to be comprehensive and without a priori exclusions

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S & D Provisions in Doha Mandate

Negotiations shall take fully into account special needs and interests of developing and least-developed country participants

including through less than full reciprocity in reduction commitmentsin accordance with relevant provisions of Article XXVIII bis of GATT 1994 as per paragraph 50 of the Doha Declaration

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Doha Timeline for NAMAStart : January 2002Decision on modalities was to be by 31 May 2003Target was missed – new deadline set for Hong Kong Ministerial, December 2005Even that had to be reset to 30 April 2006 – we missed it againwe missed it againNegotiations to conclude by end-2006 as part of ‘Single Undertaking’

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July Framework on NAMAFramework contains initial elements for future work

on modalities - additional negotiations required for agreement on specifics

Tariff reduction through a non-linear formula applied on a line-by-line basis

“Less than full reciprocity” for developing countries in tariff reduction commitments

Tariff reductions or elimination from “bound rates”Flexibility for developing countries (paragraph 8)Sectoral initiatives may complement the formula cutsGuidelines provided for addressing NTBs

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Part 3Run-up to

Hong Kong and Outcome of Hong Kong Ministerial

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In the Run-Up to Hong Kong-1

USA suggested a simple Swiss formula with two coefficients “within sight of each other”

USA offered higher coefficient for developing countries as an alternative to paragraph 8 flexibilities

USA also proposed sectoral negotiations based on a “critical mass”

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In the Run-Up to Hong Kong-2

ABI suggested ‘Swiss Type’ formula based on national average bound duty

Caribbean countries tabled a development oriented tariff reduction formula with an additional parameter of “credits”

APEC endorsement (early June 2005) + Dalian Mini Ministerial (July 2005) growing support for Simple Swiss formula with dual coefficients

Pakistan proposal : compromise formula with two coefficients – 6 for developed and 30 for developing members

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In the Run-Up to Hong Kong-3

EU proposal put forward the option of higher coefficient for developing countries through less use of paragraph 8 flexibilitiesOn 28 October 2005, EU sought cuts in applied duties of developed and more competitive developing countriesEU advocated simple Swiss formula with coefficient B=10 for developed membersFor advanced developing countries, EU proposed same coefficient along with flexibilities – tariff cap of 15%

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Why EU Proposal was Unacceptable?

INITIAL BOUND

TARIFF (%)

FINAL BOUND TARIFF (%)

UNDER SWISS FORMULA IF

B=10

% REDUCTION

USA 3.2 2.42 24.24EU 3.9 2.81 28.06

INDIA 34.3 7.74 77.43

B COEFFICIENT AT 10 IMPLIES B COEFFICIENT AT 10 IMPLIES ““MORE THAN FULL RECIPROCITY”MORE THAN FULL RECIPROCITY”

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Outcome of Hong KongReaffirmed commitment to Doha Mandate and elements of the July FrameworkAdopted Swiss formula with (multiple ??) coefficients – ABI formula still on table Provided for reduction/elimination of tariff peaks and tariff escalationRetained “less than full reciprocity” Paragraph 8 flexibilities reiterated upfrontSectoral initiatives made non-mandatoryResolve to set up modalities by 30 April 2006 - MISSED

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Part 4Select

Issues and Implications

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HKMC instructed for identifying “sectors” that could garner sufficient participation

Progress made and proposals submitted in a number of sectors

By and large sectoral discussions focused on : product coverage critical mass final target rates options for S&D

So far no clarity on “multilaterization” of sectorals’ outcome

Sectoral Approach

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HKMC reaffirmed importance of S&D treatment Less than full reciprocity Paragraph-8 flexibilities

This was welcome – even though operationalization of LTFR was not clarified controversy regarding para-8 flexibilities and coefficients in tariff reduction formula still remains

Some progress attained on flexibilities for developing members with low binding coverage (Paragraph-6 countries)

Flexibilities for small, vulnerable econimies

Flexibility and S & D Treatment-1

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LDCs are exempted from formula tariff reduction (Paragraph-9 countries)

DF-QF access for at least 97% of all products originating from LDCs by 2008, in developed and perhaps some developing members’ markets

As regards flexibilities for “other” developing members, no progress on deciding the elements of flexibilities e.g. longer implementation period, specific numbers for parameters in Paragraph- 8

Flexibility and S & D Treatment-2

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HKMC instructed to intensify work on assessment of scope of the problem of ‘preference erosion’

Positions are extremely polarized – far from any consensus Growing recognition that number of affected members and

products are limited Strong evidence of under-utilization of preferences However, the issue poses a serious problem To seek “solutions” within trade negotiation agenda may

be counter-productive Adjustment mechanism outside WTO perhaps a better

approach

Preference Erosion

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Conflicting Interests and Positions

Overall, negotiations are more difficult and tough than commonly perceived

Range of conflicting interests further complicates

• Developed vs Developing• Developing vs Developing• Developing vs LDCs• LDC vs LDC

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An Illustration of Conflict Indian industry position

on “sectoral approach to tariff reduction or elimination” is NOT uniform

Some sectors favour such an approach, while several others strongly oppose mandatory ‘zero-for-zero’ or sectorals

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Zero-for-Zero : Broad Response from Indian Industry

Textiles & ClothingGarments sector comfortable, but textiles not sure

Gems & J ewellery Welcome step

Leather & Footwear Bullish Marine Products O.K. (by and large)Auto-PartsElectronics and Electrical Goods

Strongly opposed to

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Conflict Resolution and Convergence

Key to successful conclusion of negotiations : CONFLICT RESOLUTION, CONVERGENCE OF POSITIONS

By no means, easy task

WAY OUT: Regular consultations and accommodation of each other’s concerns and interests

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Needed : a Problem-Solving Attitude and Approach

How could you contribute ?

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THANK THANK YOUYOU

Your comments are most welcome

Please e-mail at : manab.ficci@gmail.com