Workshop on WTO-Related Issues for Government Officials in the SAARC Region 2 May 2006 – New Delhi Presentation by MANAB MAJUMDAR Team Leader – WTO, FTA and Foreign Trade Division FEDERATION OF INDIAN CHAMBERS OF COMMERCE AND INDUSTRY

DISCLAIMER Strictly personal views – do NOT necessarily reflect those of FICCI

Non-Agricultural Market Access [ NAMA ]

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

Introduction and Basics Part 1 Introduction and Basics

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

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

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

Linear Cut vis-à-vis Swiss Formula Cut

Tariff Reduction Formulae B x T0 B + T0 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 Ta x T0 (B x Ta) + T0 (B + C) x Ta x T0 [(B + C) x Ta] + T0

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

From Doha to July Framework via Cancun Part 2 From Doha to July Framework via Cancun

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

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 commitments in accordance with relevant provisions of Article XXVIII bis of GATT 1994 as per paragraph 50 of the Doha Declaration

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

July Framework on NAMA Framework 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 cuts Guidelines provided for addressing NTBs

Hong Kong and Outcome of Hong Kong Ministerial Part 3 Run-up to Hong Kong and Outcome of Hong Kong Ministerial

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”

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

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 flexibilities On 28 October 2005, EU sought cuts in applied duties of developed and more competitive developing countries EU advocated simple Swiss formula with coefficient B=10 for developed members For advanced developing countries, EU proposed same coefficient along with flexibilities – tariff cap of 15%

Why EU Proposal was Unacceptable? B COEFFICIENT AT 10 IMPLIES “MORE THAN FULL RECIPROCITY”

Outcome of Hong Kong Reaffirmed commitment to Doha Mandate and elements of the July Framework Adopted Swiss formula with (multiple ??) coefficients – ABI formula still on table Provided for reduction/elimination of tariff peaks and tariff escalation Retained “less than full reciprocity” Paragraph 8 flexibilities reiterated upfront Sectoral initiatives made non-mandatory Resolve to set up modalities by 30 April 2006 - MISSED

Select Issues and Implications Part 4 Select Issues and Implications

Sectoral Approach 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

Flexibility and S & D Treatment-1 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-2 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

Preference Erosion 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

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

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

Zero-for-Zero : Broad Response from Indian Industry

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

Needed : a Problem-Solving Attitude and Approach How could you contribute ?

THANK YOU Your comments are most welcome Please e-mail at : manab.ficci@gmail.com THANK YOU