At Geneva, efforts continue to be made to wrap up the Doha round of multilateral trade talks by the year-end before the US stops negotiating because of its Presidential elections. The WTO-DG himself has gone on record saying that a deal to secure a breakthrough in the trade round is possible this month, and in a recent meeting between India and the US, negotiators of both countries have stated their willingness to work towards a compromise in the interest of a rapid conclusion of the current (Doha) Round of multilateral trade negotiation (MTN).

All the above notwithstanding, it appears a difficult call as the draft agreement has to include agreed modalities on a large number of areas like agriculture, non-agriculture market access (NAMA), services and rules, while simultaneously working out both the inter- and intra-sectoral trade-offs to the satisfaction of most Members before the ministerial meeting can be called. Pascal Lamy has been holding a series of invitation-only ‘green room’ meetings with some 30-odd delegations in an attempt to determine the scope of a potential ministerial decision. Although talks have intensified in recent weeks, there has however not been enough progress for the WTO to summon ministers to Geneva for a push for the long-elusive breakthrough in the round. In fact, most Geneva watchers feel that the earliest likely date for a ministerial meeting would be in early July.

While slow progress in the farm trade talks has pushed back the release of the crucial negotiating text from the end of April to the middle of May, the companion draft deal on manufacturing trade which is supposed to contribute to the basis for a ‘horizontal’ negotiating process of cross-sectoral tradeoffs, is also inexplicably delayed. The revised draft NAMA text from Chairman Stephenson which outlined different potential ways to trade tariff-reduction ambition against flexibility met with dissent from different quarters on different aspect. As discussed in the earlier column, India among others had opposed the original proposals on the ‘sliding scale’. Furthermore, agreeing on NAMA ‘modalities’ require agreement on special tariff treatment for small and vulnerable economies, and for the dozen-odd developing countries with a low proportion of bound tariffs. A deal will also have to pass muster with the group of least-developed countries (LDC), which though not required to cut tariffs as part of the Doha Round, have asked for greater clarity on how other countries will go about granting duty- and quota-free (DFQF) access to LDC exports, as well as on a mechanism for reviewing Members’ implementation of their commitments.

Subsequently, the chair of the NAMA negotiating committee modified his earlier suggestions by which deeper tariff cuts off against wider exceptions could be traded for some products so as to reach an acceptable compromise. Of the various options that Stephenson set out for trying to satisfy demands for deeper tariff cuts and targeted protection, Members seemed most willing to discuss a limited 'sliding scale' (or a 'half-formula' cut?), with three separate options for the coefficient and flexibilities.¹ Despite the increased willingness to discuss potential tradeoffs within the NAMA negotiations, some statements at the recent meeting point to the very real divisions that persist. But still, finalizing the key numbers which maximize the gains and minimize pains of industrial trade of a critical mass of WTO Members is within the realm of feasibility; the same cannot be said about the ongoing farm trade negotiations.

However, the main problem with the NAMA negotiations in this Round, in the opinion of this columnist, lies in the fact that the proposed gains from negotiated tariff reduction have failed to enthuse the driving force of the previous round of negotiations, viz. the business community. Further, reciprocity as a pillar of trade negotiations appears to have lost its utility, and in fact is now being used as a tool for protectionism. As Krugman (1997) famously pointed out, the economist’s case for opening markets is essentially a unilateral case. If trade liberalization brings about economic benefits, market opening should be pursued regardless of what other countries do. Nonetheless, economists go along with reciprocity because it serves a useful political economy purpose, in particular when faced with vested interests within the country. Negotiated as a part of a package of trade commitments, governments often find themselves in a better position to proceed with market opening, because they get the support from those constituents that gain from the improved access to market opening. Mutuality of concessions also (according to Bhagwati, 2002) implies fairness and makes adjustment to trade reforms politically more acceptable.

This is not to say that reciprocal concessions didn’t make any contributions to trade negotiations; they have in fact played a very important part in the past in trade liberalization. Therefore, WTO tariff negotiations since the past couple of Rounds are undertaken on a reciprocal basis and cuts are proposed and undertaken from the existing bound levels of tariff rates. However, this modality appears to have lost its efficacy in the current round of MTN, due simply to the significant amount of unilateral opening that has been undertaken by most developing WTO Members (and the industrialized countries having already reduced their tariff bindings to a very low level) since the Uruguay Round; and the business community is disenchanted with the incremental gains that the tariff negotiations in this Round could potentially bring. As a result, the industrialized country negotiators are now pressurizing their developing country counterparts to concede additional market access in a manner that accords ‘real market access’, as the acceptable cuts which would meet the LTFR requirement doesn’t cut to below the applied rates of their key trade partners. Or in other words, they propose that developing countries should take cuts from their applied tariff levels, and not seek credit for unilateral liberalization of the past decade in this Round.

On the other hand, currently most industrialized countries at an average have binding caps on their manufacturing tariffs well below the 8 or 9 percent proposed in the swiss formula, and usually at less than 3 percent, and removal of which would provide limited additional market access to developing countries. However, a handful of politically sensitive sectors - often those, such as textiles, in which poorer countries are competitive exporters - have been shielded to a significant extent from liberalization. A coefficient of 5 or 6, say, might not make a substantial difference to duties already at 2 or 3 percent, but would mean even sharper cuts for these higher tariffs, prompting opposition. According to the Washington-based Progressive Policy Institute, a narrow range of household goods such as clothes, shoes, luggage, linens, and plates and cutlery account for three-fifths of US customs revenue, although only 7 percent of imports. Exports from the poorest countries face the highest tariffs of all. Thus, Cambodia's exports - principally clothing - face an average tariff of 17 percent in the US market, while Britain, with its different export base, faces duties of only 0.7 percent. This has resulted in significant anguish among the developing country negotiators.

The consequence of the above political grand-standing by the two main groups has resulted in the current NAMA stalemate. This author therefore suggests, that in the interest of concluding the current Round of WTO negotiations, Members may consider the following intra-sectoral tradeoff. The developing countries (at least the larger ones) should agree to bind their unilateral regimes in return for deep cuts in the protected tariff lines in the industrialized countries and rationalization of the applied NTBs. Since the former is unlikely to reverse the present low tariff regimes (and in cases of contingency the emergency safeguard measures can always be invoked) they can prove themselves as equal and serious players in the Round in return for elimination/reduction of the pernicious tariff peaks in the industrialized countries in sectors of trade interest. But more importantly, this would allow Members to focus on the more crucial of the market access barriers in industrialized countries, viz. the non-tariff ones. It needs to be remembered that even under the grand preferential agreements as the AGOA and the EBA, it becomes increasingly difficult for the LDC trade partners to enter the US and the EU markets the higher they go up the product value chain. The days of substantive gains from reciprocal tariff negotiations seem to have gone; Members should get tariffs out of the way and start negotiating upfront the real concerns for market access.

Suparna Karmakar