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Transcript of Development opportunities & challenges in the WTO Industrial Tariff Negotiations Sam Laird UNCTAD...
Development opportunities & challenges in the WTO Industrial Tariff Negotiations
Sam Laird
UNCTAD
United Nations Conference on Trade and DevelopmentUnited Nations Conference on Trade and Development
Cape Town-South Africa
• 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)
3United Nations Conference on Trade and DevelopmentUnited Nations Conference on Trade and DevelopmentDivision on Trade in Goods, Services and CommoditiesDivision on Trade in Goods, Services and Commodities
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
4United Nations Conference on Trade and DevelopmentUnited Nations Conference on Trade and DevelopmentDivision on Trade in Goods, Services and CommoditiesDivision on Trade in Goods, Services and Commodities
CONTEXT: DEVELOPING COUNTRIES HAVE BEEN LOWERING THEIR TARIFFS ON INDUSTRIAL GOODS
0
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
5United Nations Conference on Trade and DevelopmentUnited Nations Conference on Trade and DevelopmentDivision on Trade in Goods, Services and CommoditiesDivision on Trade in Goods, Services and Commodities
FACT: BINDING COVERAGE LOWER IN DEVELOPING COUNTRIES
77.5
43.9
98.6
0
10
20
30
40
50
60
70
80
90
100
%
Percentage of Bound Items
Source: UNCTAD Computations WITS/TRAINS Database
6United Nations Conference on Trade and DevelopmentUnited Nations Conference on Trade and DevelopmentDivision on Trade in Goods, Services and CommoditiesDivision on Trade in Goods, Services and Commodities
FACT: TARIFF ESCALATION INHIBITS EXPORTS OF PROCESSED GOODS
9.48
0.5
3.2
1.2
3.3
17.2
3.6
12
0
2
4
6
8
10
12
14
16
18
20
%
Primary Intermediate Final
Trade Weighted Averages
Source: UNCTAD Computations WITS/TRAINS Database
7United Nations Conference on Trade and DevelopmentUnited Nations Conference on Trade and DevelopmentDivision on Trade in Goods, Services and CommoditiesDivision on Trade in Goods, Services and Commodities
FACT: TARIFF PEAKS AFFECT DEVELOPING COUNTRIES EXPORTS
Number of Tariff Peaks Among Selected Developed Countries
0 50 100 150 200 250
Apparel, not knit
Apparel, knit
Textiles
Fish and Seafood Preparations
Footwear
Leather
Number of Tariff PeaksUSA Japan EU
Source: UNCTAD Computations WITS/TRAINS Database
Peaks:Tariffs above three
times national average
8United Nations Conference on Trade and DevelopmentUnited Nations Conference on Trade and DevelopmentDivision on Trade in Goods, Services and CommoditiesDivision on Trade in Goods, Services and Commodities
KEY ISSUES FOR AFRICA
15.9
42.742.445.2
0
5
10
15
20
25
30
35
40
45
50
LDC SouthAfrica
Malawi Zambia
%
Binding coverage:LDC 74%
South Africa 96%Malawi 19.93%
Zambia 4%
Source: UNCTAD Computations WITS/TRAINS Database
Initial TariffsTrade Weighted Averages
Bound Tariffs
7.9
12.813.5
12.6
0
2
4
6
8
10
12
14
LDC SouthAfrica
Malawi Zambia
%Applied tariffs
More ambitious proposals in NAMA usually imply:
• Greater exports and welfare gains
But:
• Greater imports, lower tariff revenues, reduced output 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 sectorsGains and losses are not evenly spread across countries or sectors
• 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
• 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
Tariff reduction formula (cf request &
offer 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?
13United Nations Conference on Trade and DevelopmentUnited Nations Conference on Trade and DevelopmentDivision on Trade in Goods, Services and CommoditiesDivision on Trade in Goods, Services and Commodities
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
14United Nations Conference on Trade and DevelopmentUnited Nations Conference on Trade and DevelopmentDivision on Trade in Goods, Services and CommoditiesDivision on Trade in Goods, Services and Commodities
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
Linear and Swiss Tariff CutsComparison of Linear Cut and Swiss Forumula
(Tariffs for 0% to 50%)
0
5
10
15
20
25
30
35
40
0 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 (%)
Fina
l Rat
e (%
)
Swiss 8
Swiss 12
Swiss 20
Linear 40%
Linear 30%
16United Nations Conference on Trade and DevelopmentUnited Nations Conference on Trade and DevelopmentDivision on Trade in Goods, Services and CommoditiesDivision on Trade in Goods, Services and Commodities
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 »
17United Nations Conference on Trade and DevelopmentUnited Nations Conference on Trade and DevelopmentDivision on Trade in Goods, Services and CommoditiesDivision on Trade in Goods, Services and Commodities
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 offer, zero-for zero, and sectoral negotiations. (Para 12)
• Elimination of low duties (Para 13)
18United Nations Conference on Trade and DevelopmentUnited Nations Conference on Trade and DevelopmentDivision on Trade in Goods, Services and CommoditiesDivision on Trade in Goods, Services and Commodities
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?
19United Nations Conference on Trade and DevelopmentUnited Nations Conference on Trade and DevelopmentDivision on Trade in Goods, Services and CommoditiesDivision on Trade in Goods, Services and Commodities
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
20United Nations Conference on Trade and DevelopmentUnited Nations Conference on Trade and DevelopmentDivision on Trade in Goods, Services and CommoditiesDivision on Trade in Goods, Services and Commodities
DRAFTING THE SCENARIOS
Three different non-linear formulae are considered
Swiss WTO Capping1
AmbitiousAmbitious
ModerateModerate
FlexibleFlexible
2 For each formula, three different cases are considered based on the other elements that are currently under negotiation
2
In addition, a free trade scenario is consideredIn addition, a free trade scenario is considered
21United Nations Conference on Trade and DevelopmentUnited Nations Conference on Trade and DevelopmentDivision on Trade in Goods, Services and CommoditiesDivision on Trade in Goods, Services and Commodities
DRAFTING THE SCENARIOS: FORMULAE
Swiss WTO Capping
T1 = (a x T0)
Capping mechanism of three times the average national applied rate.
T1 = (a x T0) (a + T0)
Where a is a maximum coefficient
T1 = (B x ta x T0) (B x ta +
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
22United Nations Conference on Trade and DevelopmentUnited Nations Conference on Trade and DevelopmentDivision on Trade in Goods, Services and CommoditiesDivision on Trade in Goods, Services and Commodities
DRAFTING THE SCENARIOS: FORMULA COEFFIENCIENTS
AmbitiousAmbitious
ModerateModerate
FlexibleFlexible
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
23United Nations Conference on Trade and DevelopmentUnited Nations Conference on Trade and DevelopmentDivision on Trade in Goods, Services and CommoditiesDivision on Trade in Goods, Services and Commodities
DRAFTING THE SCENARIOS: OTHER ELEMENTS UNDER NEGOTIATION
BindingCoverage
Sectoral Elimination
EliminationOf
Low Tariffs
100% for all countries DC and DG = 2 x applied rateLDC = 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
only
None
AmbitiousAmbitious
ModerateModerate
FlexibleFlexible
24United Nations Conference on Trade and DevelopmentUnited Nations Conference on Trade and DevelopmentDivision on Trade in Goods, Services and CommoditiesDivision on Trade in Goods, Services and Commodities
NAMA LIBERALIZATION CAN INCREASE WELFARE AND EXPORTS IN THE LONG RUN
Ambitious Moderate Flexible
(1) India, China and Brazil
Swiss
WTO Cap
616469
63
54 5450
4149
0
10
20
30
40
50
60
70
80$B
Sum of Additional Welfare in $B
These long term gains can only be realized by mitigating against the short term risks
These long term gains can only be realized by mitigating against the short term risks
3.73.94.3
3.5
2.8 2.82.52.1
2.5
0
1
2
3
4
5
6%
Swiss WTO Cap
Percentage Increase of Exports
Developing Countries
25United Nations Conference on Trade and DevelopmentUnited Nations Conference on Trade and DevelopmentDivision on Trade in Goods, Services and CommoditiesDivision on Trade in Goods, Services and Commodities
KEY ISSUES FOR AFRICA - WELFARE
Ambitious Moderate Flexible
Swiss
WTO Cap
2.82.9 2.9
1.71.7
2.2
1.6 1.6
2.0
0
0.5
1
1.5
2
2.5
3$B
Sum of Additional Welfare in $B
0.10.10.1
00 00 00
0
0.1
$ B
Swiss WTO Cap
Sub-Saharan Africa Malawi
26United Nations Conference on Trade and DevelopmentUnited Nations Conference on Trade and DevelopmentDivision on Trade in Goods, Services and CommoditiesDivision on Trade in Goods, Services and Commodities
KEY ISSUES FOR AFRICA - EXPORTS
Ambitious Moderate Flexible
Swiss
WTO Cap
3.63.93.9
2.4
1.61.6
1.8
1.21.4
0
1
2
3
4
5%
6.56.56.6
5.4
3.73.1
4.2
2.53.2
0
1
2
3
4
5
6
7%
Swiss WTO Cap
Percentage Increase of Exports
Sub-Saharan Africa Malawi
27United Nations Conference on Trade and DevelopmentUnited Nations Conference on Trade and DevelopmentDivision on Trade in Goods, Services and CommoditiesDivision on Trade in Goods, Services and Commodities
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
0
10
%
Swiss WTO Cap
Ambitious Moderate Flexible
28United Nations Conference on Trade and DevelopmentUnited Nations Conference on Trade and DevelopmentDivision on Trade in Goods, Services and CommoditiesDivision on Trade in Goods, Services and Commodities
RISKS: DECLINE IN TARIFF REVENUE FOR AFRICA % Change in Tariff Revenue Relative to Base
Base Revenues: $10.6 bTariff revenues as % Tax Revenues: No data
-16
-13
-16
-8
-3-2
-5
-2-2
-20
-15
-10
-5
0
%
% Change in Tariff Revenue Relative to Base Base Revenues: $0.1 b
Tariff revenues as % Tax Revenues: 16.3%
5 55 5
3
2
3
22
0
1
2
3
4
5
6
7%
Swiss WTO Cap Swiss WTO Cap
MalawiSub-Saharan Africa
29United Nations Conference on Trade and DevelopmentUnited Nations Conference on Trade and DevelopmentDivision on Trade in Goods, Services and CommoditiesDivision on Trade in Goods, Services and Commodities
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 6.7India -2.2 -25.9 -2.1 -5.6 -1Rest of South Asia -8.7 -13.4 -7.3 -36.8 -14.9South East Asia 0.2 -6.4 -2.3 -6.6 -1.7Brazil -5.2 3.2 -2 -4.3 -1Central America and Caribbean -6.3 -8.2 -6.2 -2.1 -6.8Andean Pact -4.7 6.4 -2.9 -9.6 -10.7Argentina, Chile & Uruguay 3.2 -1.4 -2 9.3 -7.6Middle East and North Africa 0.2 5.8 -1.5 1.9 5.1Sub 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 SectorSwiss Formula, Ambitious Scenario
30United Nations Conference on Trade and DevelopmentUnited Nations Conference on Trade and DevelopmentDivision on Trade in Goods, Services and CommoditiesDivision on Trade in Goods, Services and Commodities
CHANGES IN EMPLOYMENT FOR AFRICA
WTO Scenarios
2.6
0.3
1.5 1.31.5
0.10.7 0.7
1.3
0.10.6 0.7
0
1
2
3
Malawi Zambia Sub SaharanAfrica
All Other Regions
Ambitious Moderate Flexible
31United Nations Conference on Trade and DevelopmentUnited Nations Conference on Trade and DevelopmentDivision on Trade in Goods, Services and CommoditiesDivision on Trade in Goods, Services and Commodities
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 90.9
Swiss Ambitious
WTO Moderate
Capped Flexible
32United Nations Conference on Trade and DevelopmentUnited Nations Conference on Trade and DevelopmentDivision on Trade in Goods, Services and CommoditiesDivision on Trade in Goods, Services and Commodities
CHANGES IN EMPLOYMENT BY SECTORFOR SUB-SAHARAN AFRICA
4.1
11.2
30.6
2.1 1.4
4.2
01.5 1.6 2.5-12.8
-6.1 -1.5
2.6-6.72.3
-3.9
-15
-10
-5
0
5
10
15
Textile Waringapparel
Leather Iron and steel Non ferrousmetals
Motorvehicule
%
Sw iss Ambitious WTO Moderate Capped Flexible
33United Nations Conference on Trade and DevelopmentUnited Nations Conference on Trade and DevelopmentDivision on Trade in Goods, Services and CommoditiesDivision on Trade in Goods, Services and Commodities
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
0
2
4
6
8
Textile Leather Machinery andEquipment
Motor vehicules
%
Swiss Ambitious WTO Moderate Capped Flexible
34United Nations Conference on Trade and DevelopmentUnited Nations Conference on Trade and DevelopmentDivision on Trade in Goods, Services and CommoditiesDivision on Trade in Goods, Services and Commodities
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
35United Nations Conference on Trade and DevelopmentUnited Nations Conference on Trade and DevelopmentDivision on Trade in Goods, Services and CommoditiesDivision on Trade in Goods, Services and Commodities
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