MALAWI’S RESPONSE TO THE ADOPTION OF THE SWISS CALCULATION OF TARIFF AND IMPACT TO THE ECONOMY: Presentation at Post Hong Kong WTO SADC CSO Strategic Conference on Thursday 6th April 2006 Johannesburg by Lloyd A. Muhara Trade Policy National Working Group, Malawi

Hong Kong WTO Ministerial Introduction – Assumption is that WTO is familiar to all - First Ministerial 1996 - DDA – 2001 to 2005 - 6 Meetings (6-2) Organisational Issues- Transparency, Involvement and participation of members Main players: developed and developing Developing country coalitions: African Group, ACP, LDCs, G90 G110 – G90 + G20 – New Development

Hong Kong WTO Ministerial MAJOR ISSUES Agriculture NAMA Services Rules Trips LDCS Development Aid for Trade Other (Minor) Issues

Agriculture Formula: reduction of tariffs and TDS Increased market access Preferences Timeframe for reduction of TDS Elimination of export subsidies Special products and special safeguard mechanisms Sensitive products Cotton

Non Agricultural Market Access (NAMA) Origin of Swiss Formula DOHA Declaration Para 16 – Market Access for Non-Agricultural Products. “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”.

Non Agricultural Market Access (NAMA) (Continued) “Modalities to be Agreed”; - Swiss Formula Vs. Other Formula (Girard) - Debate in Cancun was Inconclusive

THE SWISS FORMULA Formally adopted by WTO through Para 14 of Hong Kong Ministerial Declaration: “We adopt a Swiss Formula with coefficients at levels which shall inter alia: - Reduce or as appropriate eliminate tariffs, including the reduction or elimination of tariff peaks, high tariffs and tariffs escalation, in particular on products of export interest to developing countries; and

THE SWISS FORMULA (Continued) - Take fully into account the special needs and interests of developing countries, including less than full reciprocity in reduction commitments.” The Negotiating Group was instructed to finalise the Formula’s structure and details “as soon as possible”.

THE SWISS FORMULA (CONTINUED) Paragraph 6 to 16 of Annex B – HKM – Contains details of the Formula as proposed by Chairman of the Negotiating Group. Meaning: Those members of the WTO which or who have higher tariffs will face greater reduction while those maintaining lower tariffs will face lower reduction.

THE SWISS FORMULA (CONTINUED) :What Ministers agreed is the general principle; the actual coefficients which will determine the reduction levels were not agreed upon and this is what was deferred and referred to the Negotiating Group. What Ministers agreed, however, is “to establish modalities no later than 30th April 2006 and to submit comprehensive draft schedules based on these modalities no later than 31st July 2006”. (Para. 23, HKM).

Swiss Formula (Continued) Do we have a formula? Maybe yes. But we surely do not have the values to go into the formula. So formula incomplete at this stage

SWISS FORMULA AND THE MALAWI ECONOMY Malawi Economy, Agriculture based, commodity exporter. Very low Industrialisation Importation of a large proportion of finished and intermediary goods Swiss Formula NAMAindustrial tariffs

SWISS FORMULA AND THE MALAWI ECONOMY (CONT’D) Tariffs: “Tariffs introduce a wedge between the world price of a product and the price in the domestic market” – (p. 219, Richard Newfarmer, Trade, Doha, and Development) Tariffs are barriers to free trade

The Issues Malawi’s highest industrial tariff is 25%. For Agricultural goods it is 20-25%. Low applied industrial tariff a result of WB & IMF structural adjustment programmes. The premium (from tariffs) normally accrues to the government of the importing country as tariff revenue “- (p.219, Richard Newfarmer). Tariff Revenue forms 11 to 16% of total Malawi Government revenue.

The Issues (Continued) Reduction from 25% under Swiss Formula? As observed in Hong Kong and prior to Hong Kong, most developing countries are reluctant to reduce industrial tariffs as such cuts will adversely affect not only their budget support but will also affect their industrialisation policies (cheap imports Vs. domestic production). Products of export interest to Malawi – tobacco, tea and sugar.

Twist to the Tail New dimension: Para 24 HKM – Balance between Agriculture and NAMA “We recognise that it is important to advance the development objectives of this Round through enhanced market access for developing countries in both Agriculture and NAMA. To that end, we instruct our negotiators to ensure that there is a comparably high level of ambition in market access for Agriculture and NAMA. This ambition is to be achieved in a balanced and proportionate manner consistent with the principle of special and differential treatment”.

Twist in the Tail Has Para 24 been adopted as a counter measure to the provisions on SDT as well as relating to non-reciprocal preferences accruing to LDCs? Does this mean nothing moves in NAMA unless there is movement in Agriculture and vice-versa? Single undertaking. Meeting of Ministers in Geneva – April 2006.

WHICH WAY MALAWI? As an LDC Malawi is exempted from making commitments or reducing tariffs under the Swiss or any Formula. (Para 9 of NAMA Framework) Thus Malawi advised to cling to Para 8 Flexibilities; so that at best 25% industrial tariff be maintained (subject to Progress on Regional Integration) with possibility of hiking it when need arise.

WHICH WAY MALAWI (CONTINUED) Exports – Agricultural – Reliance on non-reciprocal preferences such as EBA, AGOA, GSP. Keep watch; Resist Trade offs between Agricultural export preferences and industrial tariff cuts/disadvantageous. Survival Kit: SDT with preferences as main tool as Swiss Formula not very relevant.

Watch out – Swiss Formula may affect the level of preference erosion to be experienced by the Malawi economy. Extend of dependence on preferences by Malawi.

Classification of Sub-Saharan countries by magnitude of the value of combined (non-oil) preferences in the European Union, Japan and United States relative to total (non-oil) exports, 2002 (p222, Richard Newfarmer) Less than 1 percent Angola, Burundi, Central African Republic, Chad, Congo, Democratic Republic of Congo, Djibouti, Equatorial Guinea, Gabon, Guinea, Liberia, Mali, Niger, Nigeria, Rwanda, Sao Tome and Principe, Somalia, South Africa Between 1 percent and 5 percent Benin, Botswana, Burkina Faso, Cameroon, Cape Verde, Comoros, Eritrea, Ethiopia, Ghana, Ivory Coast, Mauritania, Sierra Leone, Sudan, Tanzania, Togo, Uganda, Zambia Greater than 5 percent but less than 10 percent Gambia, Guinea-Bissau, Kenya, Madagascar, Mozambique, Namibia, Senegal, Zimbabwe Greater than 10 percent Lesotho, Malawi, Mauritania, Seychelles, Swaziland