INTERNATIONAL TRADE POLICY 1

Module 2 NON AGRICULTURAL MARKET ACCESS (NAMA) TARIFF NEGOTIATIONS

Outline 1. Nature of tariff Negotiations 2. Request – Offer Negotiations 3. Formula Negotiations 4. Sectoral Negotiations, including zero for zero 5. Regional Agreements 6. The Doha Development Agenda (DDA)

1. Nature of Tariff Negotiations

Nature of Tariff Negotiations Domestic Priorities Export interests and import sensitivities Support of domestic Economic and Social Policy – Economic development, national or regional – Social development, including employment of women – Political

2. Request – Offer Negotiations

Request – Offer Negotiation Each Participant (Country) makes specific requests of other countries, and they respond with offers. Success is when the balance is perceived as equal or approximate. Can have a target overall percentage reduction or simply continue to exchange until offers are exhausted and perceived balance is reached. These bilateral negotiations are kept secret until agreement is reached.

Request – Offer Negotiation Benefits: Focused tariff reduction on areas of greatest interest with level of reduction dependant on interest. Potential for exclusion or minimization of tariffs of greatest sensitivity. Potential for smaller economies to be free riders (under the radar) as all benefits are MFN.

Request – Offer Negotiation Negative Aspects: May result in narrowly-focused results with relatively poor coverage across the range of tariffs. Very time consuming and resource intensive. Depending on transparency, there may be significant domestic resistance. Smaller economies may have little to say in the overall shape of the agreement.

3. Formula Negotiations

Formula Approach A formula for “across the board” reduction of tariffs can be negotiated to be applied to an agreed base tariff. There are 2 main types of formula: – A tariff independent formula is not dependent, in any way, on the initial tariff rate. Simple example: just reduce every tariff by a fixed rate. – A tariff dependent formula is dependent upon the initial tariff rate. Usually such a formula aims to have greater reductions for high tariff rates and smaller reductions for low rates.

Formula Negotiations Negotiations of a formula also involves an agreement on the phasing period of the reductions

4. Sectoral Negotiations

The Harmonized System The fundamental principle is that goods are classified by what they are, not by where they were made or other similar designations – The system is logically structured by economic activity or component material.

Sectoral Negotiations Sector Negotiations lead to agreement to reduce or eliminate tariffs for a specific group of goods (sector or sub-sector) or for a specific industry. Participants negotiate the definitions of the sector then agree upon a timeframe for the reduction or elimination of tariffs.

Sectoral Negotiations May require specific member participation. Many informal sectoral agreements have been negotiated through sector focused request – offer negotiations.

Examples of Sectoral Negotiations The zero-for-zero sectoral negotiations in the Uruguay Round. –Products included pulp and paper, agricultural equipment, beer, construction equipment, medical equipment, steel products, pharmaceutical products and brown spirits. Another UR sectoral agreement was on chemical products, where it was agreed to harmonize tariffs at a number of levels.

Benefits of Sectoral Approach After agreement on sectoral definitions, negotiation is relatively simple and not time consuming. Negotiations are focused on products or industries of greatest interest.

Problem with Sectoral Approach May require significant time and resources in negotiation of sectoral definitions, as well as in domestic consultations before discussions of tariff reduction can begin. Necessity for results to be applied on MFN basis may result in free riders benefiting from improved access without reciprocating. Provides a very focused target for private sector resistance.

5. Regional Agreements

Regional Agreement Regional Agreements are permitted under Article XXIV “A Free Trade Area (FTA) means a group of two or more customs territories in which duties and other restrictive regulations of commerce are eliminated on substantially all of the trade between the territories in products originating in such territories.”

Regional Agreement “A Customs Union exists where a single customs territory is substituted for two or more customs territories and where not only the requirements of a free trade area are met, but the members of the union apply substantially the same duties and other regulations to the trade of territories not included in the union.”

FTA Characteristics In a FTA substantially all tariffs are eliminated rather than being reduced as in multilateral (WTO) negotiations. In a FTA the base rate from which tariffs are eliminated is usually the applied rate in an agreed year, whereas in a MTN the base rate is usually the WTO bound rate.

Regional Agreements Each FTA or RTA is negotiated within the rules of the GATT 1994 and parties maintain all WTO rights and obligations. Parties within the FTA may also negotiate greater mutual obligations than among the general WTO membership

6. Doha Development Agenda

The Doha mandate for Non Agricultural Tariffs is found in paragraph 16 “We agree to negotiations which shall aim by modalities, to be agreed, to reduce or as appropriate eliminate tariffs, including the reduction or elimination of tariff peaks, high tariffs and tariff escalation, as well as non tariff barriers, in particular on products of export interest to developing countries.”

The Doha mandate called for special treatment of developing countries in paragraph 16 : “The negotiations shall take fully into account the special needs and interests of developing and least- developed country participants, including through less than full reciprocity and reduction commitments …”

The Hong Kong Ministerial continued to recognize this in paragraph 20: - Reference is made to the Annex B which in turn refers to paragraph 8 of the July, 2004 framework which portrays methods of flexibility for developing members Most important problem: how the process for tariff reduction can provide this flexibility.

Tariff Negotiations in the DDA Issues From what base rate should reductions will be made? - The Hong Kong Ministerial agreed “we adopt a non-linear mark-up approach to establish a base rate for commencing tariff reductions.” How will unbound tariffs be treated?

Tariff Negotiations in the DDA Issues Currently two types of proposals (although others have been raised) The first is to add a fixed percentage to each unbound tariff and bind them. An example would be to add 5 percentage points to each unbound tariff.

Doha Development Agenda Sectoral Issues product coverage elimination or harmonization phasing critical mass - Results will be MFN

Current State of NAMA Negotiations July 17, 2007, Chair tabled draft Modalities - Not a consensus document Based on five general observations – All will have to change positions – All must contribute – Special treatment for developing countries – Comparable ambition with agriculture – Differentiated groups of countries

Current Status June 3, 2008: Chairman temporarily suspends discussions as little progress achieved. Talks were later resumed to lead into July 2008 “mini-ministerial”.

DOHA Current Situation Technical negotiations resumed with gradual progress. – Committee chairs drafted texts to assist reaching consensus on modalities – Mini-Ministerial meeting in July 2008 moved forward, but negotiations broke down again over special safeguards for agriculture. But US Fast Track Authority has already expired – Election cycles in several key members make an agreement difficult before 2009-10.