South Asia Watch on Trade, Economics & Environment (SAWTEE)

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Non-agricultural market access
Published: The Kathmandu Post, 3 September 2004
By: Ratnakar Adhikari

The intensity with which tariffs were reduced on industrial products during the various round of General Agreement on Tariffs and Trade (GATT) negotiations was far higher than in the case of agricultural tariffs for obvious reasons. As a result of various round of negotiations under the GATT, average industrial tariffs are as low as 3.8 percent in the developed countries.

However, one should not be swayed by the figure mentioned above, because some products of export interest to developing countries and least developed countries (LDCs) still face excessively higher than normal tariffs. These are known as tariff peaks. For example, products like textile, footwear, leather goods, stones, gems and precious metals – which are labour intensive products and in which developing countries and LDCs have comparative advantage – are still subject to tariff peak in most countries.

Similarly, developed countries and developing countries alike maintain a practice of tariff escalation, i.e., imposing higher tariff on products as they move up value chain ladder. An example of such practice would be to impose five percent tariff on hide and skin; 20 percent tariff on processed leather and 50 percent tariff on leather jacket. Such a practice is designed to secure industrial growth and reserve employment opportunities in own country.

Another set of formidable barriers to trade in industrial products are so called non-tariff barriers (NTBs). Interestingly, there is an inverse correlation between the tariff barriers and NTBs in the sense that as tariff barriers have gone down globally, incidence of NTBs has been exhibiting an upward trend. Though some of the NTBs are imposed to achieve legitimate policy objectives such as protection of plant, animal and human health and prevention of consumer deception, they have been, more often than not, misused for protectionist purposes.

In the run up to the fourth Ministerial Conference of the World Trade Organisation (WTO) held in Doha in November 2001, some developed countries brought forward the proposal to discuss the issue of “non-agricultural market access” (NAMA). The developed countries, infamous for agricultural protectionism, presented the proposal for discussions/negotiations on NAMA as a counter proposal to the proposal aimed at reducing agricultural protectionism.

However, the developing countries, which wanted to see the market access for their products improve in the developed countries market, were worried about the possible downside of a full-fledged NAMA negotiations. They were particularly concerned about three issues.

First, substantial tariff reduction by developing countries could have serious revenue implications because most of them still depend heavily on tariff for their revenue. According to International Monetary Fund’s figures import duties represented 15 percent of government revenue in developing countries in 1999-2001. In African least-developed countries, the percentage was more than twice as high, at 34 percent. Since the private sector in most of the developing countries is averse to the idea of paying direct taxes – such as income tax – it is much easier from an administrative point of view to collect tariff at the border rather than waiting for the private sector enterprises to make an honest assessment of their tax liability, and pay taxes based on the level of their incomes.

Second, developing countries governments feel that their industries are not fully competitive to face global competition. Hence reduction in tariffs, which results in removing protection to the domestic industries is likely to lead to de-industrialisation in these countries. It is not surprising to note that most developing countries and LDCs have bound less than two-third of their tariff lines at the WTO. This would provide them a leeway to increase tariffs on such products as and when they feel that their industries are under threat.

Third, those developing countries and LDCs, which are receiving preferential market access to developed countries are worried that across the board reduction in industrial tariffs would erode their margin of preference and expose their products to higher degree of competition. This could have devastating effect on their industrailisation process. Therefore, such a group of countries have been vehemently opposed to NAMA negotiations.

Given this backdrop, intense negotiations on NAMA text during the Doha Ministerial Conference was inevitable. After a series of acrimonious debate, trade Ministers ??finally made a decision to engage in negotiations. As far as deadline mandated by the Doha Ministerial Declaration, members were to reach a ‘common understanding’ on a possible outline for negotiating modalities by 31 March 2003. They were to reach agreement on those modalities by 31 May 2003, with a target of concluding NAMA negotiations by 1 January 2005. Like most other deadlines agreed under the Doha mandate, both the deadlines of 31 March and 31 May were missed.

The prospect for reaching ‘common understanding’ was marred largely by lack of consensus on modalities of tariff reduction. The draft proposal of NAMA Chair finalised on 16 May 2003 put across four major elements. The first one relates to an across-the-board liberalisation formula with a possibility of applying a non-linear formula, which means there would be deeper cuts on higher level of tariffs. Second one is a sectoral approach implying that the products of special interests to the developing countries should be subjected to reduction on a priority basis. Third one relates to special and differential treatment, which allows developing countries to make less than full reciprocal commitments and in a calibrated manner. Fourth one concerns reductions in NTBs which could result in improved market access opportunities for all the WTO member countries. The text has been followed up by a 19 August 2003 revision (TN/MA/W/35/Rev.1) that attempted to integrate some of the concerns surfaced since May 2003.

Since the Cancun Ministerial Conference held in September 2003 failed, the 19 August draft text also got shelved. However, as per the latest decision of the General Council dated 31 July – which has provided fresh lease of life to Doha Development Agenda – this very text would be used as the basis for negotiations.

In the case of Nepal, there is nothing to lose from the NAMA negotiations due mainly to three reasons. First, LDCs like Nepal is neither required to apply the formula nor participate in the sectoral approach. Indeed, LDCs are only expected to substantially increase their level of binding commitments. Since Nepal has already bound almost 100 percent of its tariff lines, it is not required to undertake any further commitment. Second, as a recently acceded country, Nepal can claim that it has already made substantial market access offers, though the reality is quite different. Third, even if Nepal is required to make some reduction commitments because of it having maintained high bound tariff level during the accession, it would be provided with transitional period and technical assistance to implement the commitments.

Given this reality, Nepal should not only support NAMA negotiations, but also use it as a bargaining chip for extracting other concessions such as a binding commitment for technical assistance from the developed countries. We should try and learn some negotiating tricks to protect our national interests!

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