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United Nations Conference on Trade and Development De Develop lopment ent opportun rtunities ities & c & challe lleng nges es in the WTO TO Indus ustria ial l Ta Tariff iff Negotia tiatio tions ns Cape Town-South Africa

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SLIDE 1

De Develop lopment ent opportun rtunities ities & c & challe lleng nges es in the WTO TO Indus ustria ial l Ta Tariff iff Negotia tiatio tions ns

Sam Laird UNCTAD

United Nations Conference on Trade and Development Cape Town-South Africa

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SLIDE 2
  • Address tariff peaks, high tariffs, tariff escalation,

non tariff barriers, especially on products of export interest to developing countries.

  • Comprehensive product coverage
  • Less than full reciprocity

Doha Declaration on market access for non-agricultural products (NAMA)

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SLIDE 3

United Nations Conference on Trade and Development Division on Trade in Goods, Services and Commodities

3 FACT: DEVELOPING COUNTRIES AND LDCs FACE HIGHER TARIFF RATES

Exporter Developed Country Developing Country LDC Importer Developed Country 1.31 2.12 3.05 Developing Country 9.00 6.26 6.33 LDC 10.88 14.79 9.95

MFN Average Applied Tariff Rates by Country Grouping

Source: UNCTAD Computations WITS/TRAINS Database

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SLIDE 4

United Nations Conference on Trade and Development Division on Trade in Goods, Services and Commodities

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CONTEXT: DEVELOPING COUNTRIES HAVE BEEN LOWERING THEIR TARIFFS ON INDUSTRIAL GOODS

10 20 30 40 50 60 70 80 90 1994 2004 %

Bangladesh Brazil Bulgaria India Malawi Philippines Zambia Developing Countries

MFN Applied Rates of Selected Developing Countries

Source: WITS/TRAINS

Developing Countries have done a lot of autonomous liberalization

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SLIDE 5

United Nations Conference on Trade and Development Division on Trade in Goods, Services and Commodities

5 FACT: BINDING COVERAGE LOWER IN DEVELOPING COUNTRIES

77.5 43.9 98.6 10 20 30 40 50 60 70 80 90 100 Developed Developing LDC

% Percentage of Bound Items

Source: UNCTAD Computations WITS/TRAINS Database

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SLIDE 6

United Nations Conference on Trade and Development Division on Trade in Goods, Services and Commodities

6 FACT: TARIFF ESCALATION INHIBITS EXPORTS OF PROCESSED GOODS

9.4 8 0.5 3.2 1.2 3.3 17.2 3.6 12

2 4 6 8 10 12 14 16 18 20 Developed Developing LDC

% Primary Intermediate Final

Trade Weighted Averages

Source: UNCTAD Computations WITS/TRAINS Database

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SLIDE 7

United Nations Conference on Trade and Development Division on Trade in Goods, Services and Commodities

7 FACT: TARIFF PEAKS AFFECT DEVELOPING COUNTRIES EXPORTS

Number of Tariff Peaks Among Selected Developed Countries

50 100 150 200 250 Apparel, not knit Apparel, knit Textiles Fish and Seafood Preparations Footwear Leather Number of Tariff Peaks USA Japan EU

Source: UNCTAD Computations WITS/TRAINS Database

Peaks: Tariffs above three times national average

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SLIDE 8

United Nations Conference on Trade and Development Division on Trade in Goods, Services and Commodities

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KEY ISSUES FOR AFRICA

15.9 42.7 42.4 45.2 5 10 15 20 25 30 35 40 45 50 LDC South Africa Malawi Zambia %

Binding coverage: LDC 74% South Africa 96% Malawi 19.93% Zambia 4%

Source: UNCTAD Computations WITS/TRAINS Database

Initial Tariffs

Trade Weighted Averages

Bound Tariffs

7.9 12.8 13.5 12.6 2 4 6 8 10 12 14 LDC South Africa Malawi Zambia %

Applied tariffs

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SLIDE 9

More ambitious proposals in NAMA usually imply:

  • Greater exports and welfare gains

But:

  • Greater imports, lower tariff revenues, reduced
  • utput in some sectors and labour market market

adjustment

  • May mean foregoing industrial policy options (« policy space »)

THE CHALLENGE OF DOHA

Gains and losses are not evenly spread across countries or sectors

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SLIDE 10
  • Positive linkage between trade and growth
  • BUT questions about relative importance of openness

and institutional factors

  • Some highly protected sectors (agriculture/ textiles

& clothing) v. important for developing countries and for poorest section of those societies

  • Countries that have been able to diverify into

manufactures do better than commodity-dependent countries

  • Case for policy space (industrial development)
  • Protection (and rules?) loaded against trade

interests of developing countries

Trade and Development Issues

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SLIDE 11
  • Experience of adjustment to trade reforms in Africa
  • Mostly negative – job losses, reduced growth, social

problems

  • Case for moving carefully
  • Examples:
  • Cashew processing industry in Mozambique
  • Textiles in Zambia
  • Policies to mitigate the costs:
  • Phase-in policy changes so that labour and capital has more

time to adjust

  • Paying compensation to potential losers
  • Social policies and safety nets: education, health and physical

infrastructure

Adjustment Costs

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SLIDE 12
  • Tariff reduction formula (cf request &
  • ffer or zero for zero)
  • Exceptions allowed for sensitive items
  • Binding coverage to be increased
  • Level for binding applied rates
  • Sectoral elimination (voluntary?)
  • Electronics & electricals; fish & products;

stones, gems & precious metals;clothing; footwear; leather goods; motor vehicle parts)

What are key elements of WTO NAMA negotiations?

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SLIDE 13

United Nations Conference on Trade and Development Division on Trade in Goods, Services and Commodities

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CURRENT STATE OF PLAY OF NAMA NEGOTIATIONS: “JULY PACKAGE”

In July 2004, negotiators reached an agreement that re-vitalized WTO negotiations The Framework contains for NAMA:

  • Initial elements for future work on modalities
  • Formula-based approach, but options for other modalities kept open
  • Non linear formula applied on a line-by-line basis
  • Softer language on sectoral elimination as a “key” element
  • Increase binding: [two] times the MFN applied rate
  • Proposal for credit for autonomous liberalization by developing countries

since the conclusion of the Uruguay Round

  • Some flexibilities for developing countries

However, many issues are still unresolved such as timing, extent of tariff reductions and the specific formula to be used

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SLIDE 14

United Nations Conference on Trade and Development Division on Trade in Goods, Services and Commodities

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STATE OF PLAY OF NAMA NEGOTIATIONS

Commentary by NAMA Chairman: “ We have reached an impasse in the NAMA negotiations on the most fundamental element, the formula.” What are the proposals/positions on the table?

  • US and EU would agree to differentiated coefficients “Swiss Formula”
  • APEC Swiss type formula with coefficients to be negotiated
  • Chile, Costa Rica, Mexico and South Korea simple Swiss type formula
  • Argentina, Brazil and India (ABI) which claims that a country’s existing average tariff

be factored into the formula.

  • Caribbean a new reduction formula for developing countries, ABI plus other relevant

factors that are important for developing countries

  • Pakistan Swiss with two differentiated coefficients DG 30% DC 6%
  • Most Developing Countries have serious reservations about the fairness of a simple

Swiss type formula

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SLIDE 15

Linear and Swiss Tariff Cuts

Comparison of Linear Cut and Swiss Forumula (Tariffs for 0% to 50%)

5 10 15 20 25 30 35 40

2.5 5 7.5 10 12.5 15 17.5 20 22.5 25 27.5 30 32.5 35 37.5 40 42.5 45 47.5 50

Initial Rate (%)

Final Rate (%)

Swiss 8 Swiss 12 Swiss 20 Linear 40% Linear 30%

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SLIDE 16

United Nations Conference on Trade and Development Division on Trade in Goods, Services and Commodities

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OTHER ISSUES - BINDINGS

  • Binding coverage & level (Paras 5 & 6)
  • Reduction from [2] times MFN applied, except if current coverage less than [35]%, then bind

[100]% of lines at average developing country (12 weighted or 28 simple)

  • Flexibility (Para 8)
  • Less than formula to [10]% if not less than half formula and exclusion not more than [10]% of

imports OR

  • Exempt [5]% of lines if not more than [5]% of imports
  • LDCs «to substantially increase their level of binding commitment »
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SLIDE 17

United Nations Conference on Trade and Development Division on Trade in Goods, Services and Commodities

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OTHER ISSUES – SECTORAL INITIATIVES & SUPPLEMENTARY APPROACHES

  • Elimination tariffs on some sectors (Para 7)
  • Girard text mentioned electronics and electrical goods, fish and fish products, textiles,

clothing, footwear, leather goods, motor vehicle, parts and components, stones, gems and precious metals

  • Not listed in July package (except through cross reference to Girard in Para 3)
  • Some discussion of new range of sectors for zero-for-zero liberalisation
  • Cuts agreed under formula & sectoral initiatives tro be supplemented by request and
  • ffer, zero-for zero, and sectoral negotiations. (Para 12)
  • Elimination of low duties (Para 13)
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SLIDE 18

United Nations Conference on Trade and Development Division on Trade in Goods, Services and Commodities

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OTHER ISSUES

  • Non-tariff barriers (Para 14) – little progress
  • Account to be taken of preferences and tariff revenues (Para 16)
  • Less than full reciprocity? (Para 2)
  • No target –just modalities (Para 3)
  • What is the level of ambition and for whom?
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SLIDE 19

United Nations Conference on Trade and Development Division on Trade in Goods, Services and Commodities

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Purpose:

  • To determine the implications for developing countries of various NAMA liberalization

scenarios based on the current state of play of negotiations Methodology:

  • Develop NAMA scenarios of possible outcomes based on the current state of play
  • Use of UNCTAD’s Database to determine tariff shocks
  • Use Computable General Equilibrium modeling: GTAP (Global Trade Analysis Project)

Key Assumptions and Limitations:

  • Perfect competition and constant returns to scale assumptions underestimate

gains/losses from trade

  • Real wages of unskilled labour in developing countries are fixed and the quantity of

labour flexible

  • Ad-valorem equivalents for developed countries bound and applied specific tariffs
  • Capital Account adjusts to equate Trade Balance (I-S=X-M), Static analysis
  • Armington assumption for bilateral trade that differentiates imports by source
  • Does not take all non tariff barriers fully into account
  • Market entry is not assured if policy barriers are eliminated

SCENARIO ANALYSIS: OVERVIEW

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SLIDE 20

United Nations Conference on Trade and Development Division on Trade in Goods, Services and Commodities

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DRAFTING THE SCENARIOS

Three different non-linear formulae are considered

Swiss WTO Capping

1

Ambitious Moderate Flexible 2 For each formula, three different cases are considered based on the

  • ther elements

that are currently under negotiation

2

In addition, a free trade scenario is considered

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SLIDE 21

United Nations Conference on Trade and Development Division on Trade in Goods, Services and Commodities

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DRAFTING THE SCENARIOS: FORMULAE

Swiss WTO Capping T1 = (a (a x T0) Capping mechanism of three times the average national applied rate. T1 = (a x x T0) (a + + T0) Where a is a maximum coefficient T1 = (B x ta ta x T0) (B x ta + T T0) Where B is a coefficient that can be varied to reflect different initial tariff levels. Where ta is a national bound average of the base rates. T1 = 0 All tariffs and other barriers to trade are eliminated Free Trade

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SLIDE 22

United Nations Conference on Trade and Development Division on Trade in Goods, Services and Commodities

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DRAFTING THE SCENARIOS: FORMULA COEFFIENCIENTS

Ambitious Moderate Flexible

Average weighted industrial tariff by country grouping Developed = 3.4% Developing = 12.5% Twice above

Swiss WTO Capping

B = 1 Developed B = 0.5 Developing B = 3 Developed B = 0.5 Developing B = 5 Developed 50% cut Developing 33% cut

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SLIDE 23

United Nations Conference on Trade and Development Division on Trade in Goods, Services and Commodities

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DRAFTING THE SCENARIOS: OTHER ELEMENTS UNDER NEGOTIATION

Binding Coverage Sectoral Elimination Elimination Of Low Tariffs

100% for all countries DC and DG = 2 x applied rate LDC = simple average of bound tariffs developing countries (29.4%) DC = 100% at 2 x applied rate DG and “Paragraph 6” countries = 95% at 2 x applied rate or 2 x simple average of bound tariffs for developing countries (29.4% x 2 = 58.8%) DC = 100% at 2 x applied rate DG and “Paragraph 6” countries = 90% at same as above Yes Developed: yes Developing : no No All tariffs below 2% reduced to zero Developed countries

  • nly

None

Ambitious Moderate Flexible

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SLIDE 24

United Nations Conference on Trade and Development Division on Trade in Goods, Services and Commodities

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NAMA LIBERALIZATION CAN INCREASE WELFARE AND EXPORTS IN THE LONG RUN

Ambitious Moderate Flexible

(1) India, China and Brazil

Swiss WTO Cap

61 64 69 63 54 54 50 41 49

10 20 30 40 50 60 70 80 $B

Sum of Additional Welfare in $B

These long term gains can only be realized by mitigating against the short term risks

3.7 3.9 4.3 3.5 2.8 2.8 2.5 2.1 2.5

1 2 3 4 5 6 %

Swiss WTO Cap Percentage Increase of Exports Developing Countries

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SLIDE 25

United Nations Conference on Trade and Development Division on Trade in Goods, Services and Commodities

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KEY ISSUES FOR AFRICA - WELFARE

Ambitious Moderate Flexible Swiss WTO Cap 2.8 2.9 2.9

1.7

1.7 2.2

1.6 1.6 2.0

0.5 1 1.5 2 2.5 3 $B

Sum of Additional Welfare in $B

0.1 0.1 0.1

0.1 $ B

Swiss WTO Cap

Sub-Saharan Africa Malawi

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SLIDE 26

United Nations Conference on Trade and Development Division on Trade in Goods, Services and Commodities

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KEY ISSUES FOR AFRICA - EXPORTS

Ambitious Moderate Flexible Swiss WTO Cap

3.6 3.9 3.9 2.4 1.6 1.6 1.8 1.2 1.4

1 2 3 4 5 %

6.5 6.5 6.6 5.4 3.7 3.1 4.2 2.5 3.2

1 2 3 4 5 6 7 %

Swiss WTO Cap Percentage Increase of Exports

Sub-Saharan Africa Malawi

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SLIDE 27

United Nations Conference on Trade and Development Division on Trade in Goods, Services and Commodities

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RISKS: DECLINE IN TARIFF REVENUE AMONG DEVELOPING COUNTRIES

% Change in Tariff Revenue Relative to Base for Developing Countries Base Revenues: $156 b

  • 36
  • 32
  • 41
  • 29
  • 14
  • 15
  • 21
  • 12
  • 12
  • 50
  • 40
  • 30
  • 20
  • 10

10 %

Swiss WTO Cap Ambitious Moderate Flexible

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SLIDE 28

United Nations Conference on Trade and Development Division on Trade in Goods, Services and Commodities

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RISKS: DECLINE IN TARIFF REVENUE FOR AFRICA

% Change in Tariff Revenue Relative to Base Base Revenues: $10.6 b Tariff revenues as % Tax Revenues: No data

  • 16
  • 13
  • 16
  • 8
  • 3
  • 2
  • 5
  • 2
  • 2
  • 20
  • 15
  • 10
  • 5

%

% Change in Tariff Revenue Relative to Base Base Revenues: $0.1 b Tariff revenues as % Tax Revenues: 16.3%

5 5 5 5 3 2 3 2 2

1 2 3 4 5 6 7 %

Swiss WTO Cap Swiss WTO Cap

Malawi Sub-Saharan Africa

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SLIDE 29

United Nations Conference on Trade and Development Division on Trade in Goods, Services and Commodities

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RISKS: EMPLOYMENT LOSSES IN CERTAIN SECTORS

Machinery and Equipment Non Ferrous Metals Other Manufacturing Motor Vehicles Electronics China

  • 2.8
  • 4.1
  • 0.2
  • 10.4

6.7 India

  • 2.2
  • 25.9
  • 2.1
  • 5.6
  • 1

Rest of South Asia

  • 8.7
  • 13.4
  • 7.3
  • 36.8
  • 14.9

South East Asia 0.2

  • 6.4
  • 2.3
  • 6.6
  • 1.7

Brazil

  • 5.2

3.2

  • 2
  • 4.3
  • 1

Central America and Caribbean

  • 6.3
  • 8.2
  • 6.2
  • 2.1
  • 6.8

Andean Pact

  • 4.7

6.4

  • 2.9
  • 9.6
  • 10.7

Argentina, Chile & Uruguay 3.2

  • 1.4
  • 2

9.3

  • 7.6

Middle East and North Africa 0.2 5.8

  • 1.5

1.9 5.1 Sub Saharan Africa

  • 0.6

8

  • 0.5

0.6

  • 3.5

Asia Africa and Middle East Americas

Percent Changes in Labour Usage Relate to Base, by Sector

Swiss Formula, Ambitious Scenario

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SLIDE 30

United Nations Conference on Trade and Development Division on Trade in Goods, Services and Commodities

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CHANGES IN EMPLOYMENT FOR AFRICA

WTO Scenarios

2.6 0.3 1.5 1.3 1.5 0.1 0.7 0.7 1.3 0.1 0.6 0.7

1 2 3

Malawi Zambia Sub Saharan Africa All Other Regions

Ambitious Moderate Flexible

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SLIDE 31

United Nations Conference on Trade and Development Division on Trade in Goods, Services and Commodities

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CHANGES IN EMPLOYMENT BY SECTOR FOR MALAWI

12.1 27.9

  • 6.1
  • 11.8
  • 14.6
  • 8.3
  • 9.6

42.7

  • 6.9
  • 11.4
  • 5.4
  • 5
  • 8.6
  • 3.9
  • 3.2
  • 4.9
  • 7.6

1.3

  • 3.8
  • 3.3
  • 5.3
  • 2.2
  • 1.7
  • 1.2
  • 2.8
  • 5.3
  • 15
  • 5

5 15 25 35

Textile Oil gas and other materials Wearing apparel Leather Iron and steel Machinery equipment Non ferrous metals Transport equipment Electronic equipment

%

90.9

Swiss Ambitious WTO Moderate Capped Flexible

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SLIDE 32

United Nations Conference on Trade and Development Division on Trade in Goods, Services and Commodities

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CHANGES IN EMPLOYMENT BY SECTOR FOR SUB-SAHARAN AFRICA

4.1 11.2 3 0.6 2.1 1.4 4.2 1.5 1.6 2.5

  • 12.8
  • 6.1
  • 1.5

2.6

  • 6.7

2.3

  • 3.9
  • 15
  • 10
  • 5

5 10 15 Textile Waring apparel Leather Iron and steel Non ferrous metals Motor vehicule % Sw iss Ambitious WTO Moderate Capped Flexible

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SLIDE 33

United Nations Conference on Trade and Development Division on Trade in Goods, Services and Commodities

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KEY ISSUE: EMPLOYMENT FOR AFRICA - ZAMBIA

Changes in unskilled labor used by sectors

  • 9.7
  • 6.9

6 1.1

  • 4.2
  • 6.3

1.3 4.2

  • 2.6
  • 3.8

1 4.8

  • 12
  • 10
  • 8
  • 6
  • 4
  • 2

2 4 6 8 Textile Leather Machinery and Equipment Motor vehicules % Swiss Ambitious WTO Moderate Capped Flexible

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SLIDE 34

United Nations Conference on Trade and Development Division on Trade in Goods, Services and Commodities

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CURRENT NEGOTIATIONS REPRESENT AN OPPORTUNITY TO ADDREES TRADE BARRIERS THAT REMAIN

1. Developed countries tariffs on developing countries exports are twice the rate imposed on developing countries. Focus should be on tariff peaks, high tariffs and escalation not on averages 2. Both “capping” and “swiss-style” formulae can achieve the same degree of trade liberalization, but “capping” formulae have the added benefit of transparency 3. Including sectoral elimination as a modality has a greater impact on the final outcome than the choice of formula 4. Allowing countries to bind at twice the simple average of bound tariffs (29.4% x 2) for developing countries provides greater flexibility for sensitive products 5. Developing countries may achieve some important trade and welfare gains, but these gains come at cost – lower tariff revenues, and reductions in output and employment in some sectors

Liberalization should be accompanied by provision intended to facilitate adjustment

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SLIDE 35

United Nations Conference on Trade and Development Division on Trade in Goods, Services and Commodities

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CONCLUSION

  • Benefits in the long run, but adjustment costs in the short run
  • The challenge for developing countries is to determine the special and

differential treatment they require

  • Therefore a cautious or measured approach may be preferable, as is

recognized in the Doha Declaration which calls for non-full reciprocity

  • Gains will only be possible through a development-centred

agreement and strategies to reduce the adjustment costs Developing Countries need coherent trade policies and NAMA negotiating strategies