POLICY FOR THE TEAM OF NEGOTIATORS FOR Project funded by the - - PowerPoint PPT Presentation

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RESEARCH & CONSULTING Project funded by the European Union under its Trade Capacity Building Programme for Ethiopia under the 9th EDF

SHORT TRAINING IN TRADE POLICY FOR THE TEAM OF NEGOTIATORS FOR ETHIOPIA’S WTO ACCESSION

Derk Bienen

Module 3: Preparation of offers for non-agricultural products

28 - 31 March 2011

Day1/Session 2: How are schedules prepared? – Negotiations on market access

Project funded by the European Union under its Trade Capacity Building Programme for Ethiopia under the 9th EDF

Overview – Session 2

1. GATT/WTO tariff negotiations on non-agricultural products

 Principles of tariff negotiations  GATT negotiations on tariffs  Negotiation techniques for tariff reductions  History of negotiations and outcomes

• 2. Accession negotiations on tariffs

 Difference to “normal” negotiation rounds

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GATT/WTO tariff negotiations on non-agricultural products

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Project funded by the European Union under its Trade Capacity Building Programme for Ethiopia under the 9th EDF

• 1. Principles of tariff negotiations

Mandate (1)

Article XXVIIIbis GATT 1947/1994: Tariff Negotiations

“1.The Contracting Parties recognize that customs duties often constitute serious obstacles to trade; thus negotiations on a reciprocal and mutually advantageous basis, directed to the substantial reduction of the general level of tariffs and other charges on imports and exports and in particular to the reduction of such high tariffs as discourage the importation even

• f minimum quantities, and conducted with due regard to the
• bjectives of this Agreement and the varying needs of individual

contracting parties, are of great importance to the expansion of international trade. The Contracting Parties may therefore sponsor such negotiations from time to time.”

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Project funded by the European Union under its Trade Capacity Building Programme for Ethiopia under the 9th EDF

• 1. Principles of tariff negotiations

Mandate explained (1)

Article XXVIIIbis GATT 1947/1994: Tariff Negotiations §1

• importance of tariff negotiations

 common recognition of the trade-restrictive effects of tariffs on international trade, in particular of those which are high and discourage the importation even of minimum quantities

• mandate

 calls for multilateral tariff negotiations to take place periodically

• the principle of tariff negotiations

 explicitly calls for these to take place on a ''reciprocal and mutually advantageous'' basis

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• 1. Principles of tariff negotiations

Mandate (2)

Article XXVIIIbis GATT 1947/1994: Tariff Negotiations

“2. (a) Negotiations under this Article may be carried out on a selective product-by-product basis or by the application of such multilateral procedures as may be accepted by the Contracting Parties concerned. Such negotiations may be directed towards the reduction of duties, the binding of duties at then existing levels or undertakings that individual duties or the average duties on specified categories of products shall not exceed specified levels. The binding against increase of low duties or of duty-free treatment shall, in principle, be recognized as a concession equivalent in value to the reduction of high duties. (b) The Contracting Parties recognize that in general the success of multilateral negotiations would depend on the participation of all Contracting Parties which conduct a substantial proportion of their external trade with one another.”

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• 1. Principles of tariff negotiations

Mandate explained (2)

Article XXVIIIbis GATT 1947/1994: Tariff Negotiations §2

• use of tariff negotiating techniques (§2(a))

 selective product-by-product basis (i.e. request-offer) or 

• ther multilateral procedures as agreed by the Contracting

Parties

• objective of tariff negotiations (§2(a))

 reduction of duties  binding of duties at then existing levels or  undertakings that individual duties or the average duties on specified categories of products shall not exceed specified levels

• recognition that multilateral trade liberalization is

based on the participation of all Contracting Parties (§2(b))

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• 1. Principles of tariff negotiations

Mandate (3)

Article XXVIIIbis GATT 1947/1994: Tariff Negotiations

“3.Negotiations shall be conducted on a basis which affords adequate opportunity to take into account: (a) the needs of individual Contracting Parties and individual industries; (b) the needs of less-developed countries for a more flexible use

• f tariff protection to assist their economic development and the

special needs of these countries to maintain tariffs for revenue purposes; and (c) all other relevant circumstances, including the fiscal, developmental, strategic and other needs of the Contracting Parties concerned.”

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• 1. Principles of tariff negotiations

Mandate explained (3)

Article XXVIIIbis GATT 1947/1994: Tariff Negotiations §3

• tariff negotiations should take into account the varying

needs of individual contracting parties, especially developing countries which need

 a more flexible use of tariff protection to assist their economic development and  to maintain tariffs for revenue purposes.

• What about accession countries?

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Project funded by the European Union under its Trade Capacity Building Programme for Ethiopia under the 9th EDF

• 1. Principles of tariff negotiations

Summary

The key principles (1) reciprocity and mutual advantage

 Exception: SDT for developing countries

• Non-reciprocal preferential access to DCs under the Enabling

Clause (e.g., GSP)

• Lesser liberalisation from DCs in negotiation rounds (“less

than full reciprocity”)

(2) the MFN treatment principle; and (3) predictability and transparency on tariff concessions (tariff bindings)

• What about accession countries?

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• 2. GATT negotiations on tariffs

Negotiation principles

Two staged procedure in negotiations: 1. Agree on modalities

 Modalities determine the way in which the new Schedules of concessions will be prepared

• guidelines on how WTO Members will prepare and

implement their new commitments: conditions, requirements and flexibilities

 Types of modalities

• Product-by-product
• Formulas
• Sectoral approach
• 2. Agree on reductions commitments

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• 2. GATT negotiations on tariffs

Negotiation rounds

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Negotiating Rounds Modality used to reduce tariffs Geneva Round 1947 Product-by-product negotiations; Annecy Round 1949 Product-by-product negotiations; Torquay Round 1950 Product-by-product negotiations; Geneva Round 1956 Product-by-product negotiations; Dillon Round 1960-1961 Product-by-product negotiations; Kennedy Round 1963-1967 Tariffs: formula approach (linear cut formula) with exceptions; Product-by- product negotiations; Tokyo Round 1973-1979 Tariffs: formula approach (''Swiss Formula'') with exceptions; Product-by- product negotiations; Uruguay Round 1986-1994 Tariffs: formula approach (simple average reduction + sectoral approach); Product- by-product negotiations;

Project funded by the European Union under its Trade Capacity Building Programme for Ethiopia under the 9th EDF

• 2. GATT negotiations on tariffs

Product-by-product or request/offer technique

Bilateral product by product/Country by Country technique

 Oldest negotiating technique: used in first 5 rounds  Exporters requested concessions in the products in which they were likely to be the principal suppliers to the country from which the concession was being asked  Country being asked

• Would make an offer for concessions or
• Had the right to refuse by invoking the "principal supplier rule“ if the

real main supplier did not participate in negotiations

 Country that successfully secured a concession through this approach would receive an "initial negotiating right“  Bilateral agreements extended to the other participants on an MFN basis and "consolidated" in a single document: the Schedule of concessions

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• 2. GATT negotiations on tariffs

Product-by-product or request/offer technique

Advantages

• Flexibility to protect sensitive sectors/products
• Focus on those sectors/products which are most important

for exporters Disadvantages

• Lack of transparency
• High transaction costs (too many WTO Members, too

many products)

• Dependence on the “principal supplier rule”

 Prevents negotiations where principal supplier is not a GATT/WTO Member  Excludes small traders with high interest from negotiations

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• 2. GATT negotiations on tariffs

Formula approaches

• Developed in the 1960s in response to shortcoming of

request/offer approach

• Principle:

 Agree on formula to be used  Agree on parameters for formula

• Key determinants/issues (apart from the above)

 Base rate: bound or applied tariffs?  Treatment of unbound tariff lines?

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Project funded by the European Union under its Trade Capacity Building Programme for Ethiopia under the 9th EDF

• 2. GATT negotiations on tariffs

Formula approaches – general pros and cons

Compared to product-by-product approach:

• more transparent

 each Member knows how the others will reduce their tariffs

• more efficient

 simpler process than product-by-product approach

• more equitable

 tariff reduction depends on rules rather than bargaining power

• more predictable

 easier to foresee the results of the negotiations

• simpler

 allows negotiations to focus on the exceptions, rather than on the reductions applicable to most goods

• less flexible

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Project funded by the European Union under its Trade Capacity Building Programme for Ethiopia under the 9th EDF

• 2. GATT negotiations on tariffs

Formula types

• Line-by-line formulas

 Linear reduction formula / tariff independent formula  Non-linear formula / harmonisation formula / tariff dependent formula (e.g. Swiss formula)

• Formulas based on averages

 Simple average reduction formula  Reduction in the average  Target average

• Formula combinations

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• 2. GATT negotiations on tariffs

Linear reduction formula

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• First used in Kennedy Round
• Formula: T1 = C * T0

 With:

• T0: Initial tariff rate or existing tariff level (prior to

negotiations)

• C: Percentage reduction to be negotiated
• T1: Final tariff rate or new tariff level that would result

from the reduction

• Target in Kennedy Round: C = 50%
• Advantages and disadvantages?

Project funded by the European Union under its Trade Capacity Building Programme for Ethiopia under the 9th EDF

• 2. GATT negotiations on tariffs

Linear reduction formula – pros and cons

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Advantages

• Simplified negotiations: focus on exceptions

Disadvantages

• Does not address tariff disparities/dispersion (within

and across countries)

• Rigid

 limited flexibilities could be introduced by assigning different coefficients to different countries and/or sectors

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• 2. GATT negotiations on tariffs

Non-linear reduction formula: Swiss formula

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• First used in Tokyo Round
• Formula: T1 =

A * T0 A + T0

 With:

• T0 = base rate
• A = the coefficient, which is the only variable to be

negotiated

• T1 = the resulting lower tariff rate which will constitute the

new final bound tariff

• Results in tariffs with a maximum of A. Why?
• Reduces higher tariffs more than lower ones
• Formula of choice in Doha Round
• Advantages and disadvantages?

Project funded by the European Union under its Trade Capacity Building Programme for Ethiopia under the 9th EDF

• 2. GATT negotiations on tariffs

Swiss formula – pros and cons

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Advantages

• Simplified negotiations: focus on exceptions
• Reduces tariff disparities/dispersion (within and across

countries)

• Sets maximum tariff rates

Disadvantages

• Only limited flexibilities by assigning different

coefficients to different countries and/or sectors

• (Presumably) Sensitive sectors have to be liberalised

most

• Requires ad valorem duties or at least AVE

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• 2. GATT negotiations on tariffs

Reduction in the average formula

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• Used in Uruguay Round
• Formula: ØT1 = C * ØT0

 With:

• ØT0: Initial average tariff rate or existing tariff level (prior

to negotiations)

• C: Percentage reduction to be negotiated
• ØT1: Final average tariff rate or new tariff level that would

result from the reduction

• Requires agreement on which average to be used

(simple or weighted)

• Target in Uruguay Round: C = 33%
• Advantages and disadvantages?

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• 2. GATT negotiations on tariffs

Reduction in the average formula – pros and cons

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Advantages

• High level of flexibilities

 Countries can determine which sectors they want to spare from tariff reductions

Disadvantages

• Likely fails to reduce tariff disparities/dispersion

(within and across countries)

• Less transparent than other formulas

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• 2. GATT negotiations on tariffs

Sectoral approach

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• Definition: participants aim at reducing or eliminating

all together tariffs on some products in a particular sector

 “harmonization” sectorals: countries agree to reduce their bound duties to a common level in the sector  “zero-for-zero” sectorals: countries agree to fully liberalize trade in a sector

• Results of sector negotiations are then multilateralised
• First used in Uruguay Round (only for plurilateral

negotiations)

 Examples: ITA, agricultural equipment, beer, chemicals, construction equipment, distilled spirits (brown), furniture, medical equipment, paper, pharmaceuticals, steel and toys

• Advantages and disadvantages?

Project funded by the European Union under its Trade Capacity Building Programme for Ethiopia under the 9th EDF

• 2. GATT negotiations on tariffs

Sectoral approach – pros and cons

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Advantages

• High level of flexibilities

 Countries can determine whether or not to participate  Members can focus on their export interests

• Tariff peaks and escalation can potentially be

eliminated Disadvantages

• Important traders might decide not to join sector

negotiations (free-riding problem)

 Sometimes “critical mass” requirement is used (e.g. ITA)

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• 2. GATT negotiations on tariffs

Use of flexibilities

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• Staging: longer implementation period
• Less ambitious (“softer”) form of the same modality
• Lesser reductions for (or exclusion of) a certain

number of products (only case of line-by-line formulas)

• Possibility of deviating from the main modality by

compensating with other products

 not a flexibility in itself, but rather a measure that could accompany other flexibilities  allow participants to deviate from the main tariff reduction modality, while "paying" for any deviation

• Full exemption from tariff reductions

 situation prevailing for least-developed countries in the Doha negotiations

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• 2. GATT negotiations on tariffs

History of negotiation rounds, outcomes

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Negotiating Rounds Focus, outcomes Geneva Round 1947 Tariffs: 15,000 concessions Annecy Round 1949 Tariffs: 5,000 concessions Torquay Round 1950 Tariffs: 8,700 concessions Geneva Round 1956 Tariffs: Modest reductions Dillon Round 1960-1961 Tariffs: 4,400 concessions Kennedy Round 1963- 1967 Tariffs and NTM (anti-dumping, customs valuation); Average tariffs reduced by 35%; some 33,000 tariff lines bound Tokyo Round 1973-1979 Tariffs and NTM Average tariffs reduced by one-third to 6% for OECD manufactures imports Uruguay Round 1986- 1994 Tariffs, NTM, services, creation of WTO etc. Average tariffs again reduced by one-third

• n average

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• 2. GATT negotiations on tariffs

Negotiation rounds, use of formulas (1)

Kennedy Round: linear reduction

• Some countries used bilateral product-by-product

technique

• Some countries did not apply coefficient of 50% to all

sectors Tokyo Round: Swiss Formula

• Some countries used coefficient of 14, others 16, some

used modified formula

• Exemptions for certain sectors by certain countries
• Some countries used bilateral product-by-product

technique

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• 2. GATT negotiations on tariffs

Negotiation rounds, use of formulas (1)

Uruguay Round: reduction in the average

• Base rate for "other products”:

 For bound tariff lines: existing bound MFN rates  For unbound tariff lines: MFN applied tariff rates during a reference period of time as agreed by the Members

• Trade-Weighted Applied Tariff Average of Non-

Agricultural Products Before and After the UR

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Imports from: Trade-weighted tariff average Pre- Uruguay Post- Uruguay Percentage reduction All sources 6.3 3.8 40 Developing countries (other than the LDCs) 6.8 4.3 37 Least-developed countries 6.8 5.1 25

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Accession negotiations on tariffs

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Accession negotiations on NAMA Overview

• High importance of NAMA concessions for accession

process

• Modalities:

 Request/offer procedure  (Confidential) Bilateral negotiations

• Initial offer by acceding country sent to WTO Secretariat

and distributed to all Working Party Members

• Members may put forward requests to acceding country
• Bilateral negotiations are held separately (duration open)
• Signed bilateral agreements are sent to WTO Secretariat

 Multilateralisation of bilaterally agreed concessions

• Schedule of concessions prepared based on all bilateral

negotiation outcomes (MFN principle!)

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Accession negotiations on NAMA “Normal” vs. accession negotiations

• What are the differences, and what is their

importance?

• Principles:

 Reciprocity?

• Request/offer or offer/request?

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