Brazil, India Pan U.S., EU Proposals On NAMA Tariff Formula Flexibility International Trade Daily 17 March 2005
GENEVA--Brazil and India gave thumbs down March 16 to proposals from the United States and the European Union aimed at meeting developing country demands for flexibility in a formula for reducing tariffs on industrial and consumer goods. During an informal meeting in Geneva of the WTO's negotiating group on nonagricultural market access (NAMA), the two countries criticized the United States and EU for continuing to insist that any eventual tariff-reduction formula must be based on the so-called "Swiss formula" approach, according to officials who attended the meeting.
Brazil and India also criticized the United States for conditioning its "dual coefficient" formula approach on developing countries giving up some of the flexibilities promised to them under the Aug. 1 framework package for advancing the Doha Round negotiations.
Brazil and India for their part came under fire for their continued delay in presenting a promised proposal on a tariff reduction formula. The two powers are attempting to draft a text with a number of other developing countries which they hope to finalize before the negotiating group meeting ends on March 18.
Then U.S. Trade Representative Robert Zoellick proposed in late January the idea of establishing separate coefficients for developed and developing countries in an eventual tariff reduction formula with the idea of allowing developing countries to commit to less onerous reduction commitments.
However, the United States said the dual coefficients would have to be applied within the context of a Swiss formula. Used in the 1973-1979 Tokyo Round talks on industrial tariffs, the Swiss formula (so named because it was proposed by Switzerland) would require governments to make steeper tariff cuts on goods subject to higher duties, thus narrowing the gap between high-tariff and low-tariff products towards the latter group.
In a paper circulated to WTO members March 14, the United States also said the dual coefficient approach should be used as an alternative to paragraph 8 of the NAMA annex to the framework package. Paragraph 8 states that developing countries shall have more time to implement their tariff reductions and have the option of applying "less than formula" cuts up to a fixed percent of their tariff lines or excluding some tariff lines from WTO tariff binding commitments.
The United States also said the difference in the two coefficients should not be substantial. "(I)n order to provide real market access across schedules, the two coefficients would need to be 'within sight of each other,'" it argued.
Brazilian officials told the NAMA negotiating group that a Swiss formula-based approach fails to take account of the different tariff structures between developed and developing countries. According to WTO figures, developing country bound tariffs on industrial products average 29 percent, compared with 9 percent among the Quad Group (the United States, European Union, Japan, and Canada). Actual applied rates range from 5.4-6.9 percent among the Quad countries, whereas applied rates among developing countries tend to be much higher (32 percent in India, 14 percent in Brazil).
The result, Brazil argued, is that developing countries could end up making deeper tariff cuts than their developed country counterparts, which would go against the principle of "less than full reciprocity in reduction commitments" enshrined in the framework package for developing countries.
India added that the same result would apply in the case of a dual coefficient approach unless there is a "wide divergence" in the numbers used.
Under the Swiss formula approach being advocated by Washington and Brussels, the higher the coefficient, the lower the degree of tariff cuts. The United States has previously argued that the coefficient would have to be as close to zero as possible to lead to any real improvements in market access.
As an example, Brazilian officials said that if a coefficient of 10 were used for developed countries having an average tariff of 5 percent and a coefficient of 15 were used for developing countries having an average tariff of 30 percent, the result would be that developed countries would have to cut their tariffs by a third to 3.3 percent on average while developing countries would have to cut their tariffs by two thirds to 10 percent on average.
Brazil and India also blasted the United States for making a linkage between the dual coefficient and special developing country provisions under paragraph 8 and suggesting that flexibility on the formula should be matched with limitations on special treatment for poorer members. WTO members "should not negotiate flexibilities against formulas," Brazil declared.
Kenya also joined in the criticism. While noting that a separate initiative on a NAMA formula from Mexico, Chile, and Colombia unveiled Feb. 24 sought to accommodate the sensitivities of developing countries, the U.S. proposal "goes in a different direction," Kenya declared.
Brazil and India also panned proposals from the EU and Norway calling for a "credit system" in the NAMA formula approach, which would be based on the Swiss formula. Under both approaches, developing countries would earn credits in the form of adjustments to the coefficient if they agree to more trade-liberalizing commitments such as participating in the separate sectoral tariff elimination scheme, applying the formula to all tariff lines (i.e. renouncing the paragraph 8 exemption), or subjecting all tariff lines to WTO bindings.
India said it objected to Norway's linkage between credits and the sectoral initiative, arguing that the latter is a voluntary initiative and would only be addressed in the negotiations after the formula is finalized.