Swiss formula for NAMA negotiations

EXIM MATTERS

The consensus declaration at the Hong Kong Ministerial meet of the World Trade Organisation (WTO) has helped all the trade ministers return home without much embarrassment and claiming wins here or there.

Everyone had given in a little and gained a little. For the World Trade Organisation, it was a desperately required face-saver that avoided a repeat of the collapse of trade talks at Cancun two years back.

The big news for Indian businessmen from Hong Kong is not that our 650 million farmers have been protected, as Commerce Minister Kamal Nath claims.

The issues of maintaining the 10 per cent de minimus levels on the aggregate measure of support for farmers or price trigger to invoke special safeguard mechanism were not on the negotiating table at Hong Kong.

In terms of impact, the big news is not even that a cut-off date for ending export subsidies on farm products or cotton have been agreed to, although these are positive developments.

The export subsidies were being phased out anyway and their share in total subsidies had also come down significantly in the last few years. Moreover, the export subsidies will be phased out only by 2013.

The European Union did not budge an inch on the issues of market access for farm products or domestic support for farmers.

The big news for Indian businessmen is that the Doha Round will adopt Swiss formula for negotiations on the Non-Agricultural Market Access (NAMA).

The so-called simple Swiss formula represents an "aggressive" approach, requiring drastic cuts in tariffs, with deeper cuts for higher tariffs. This will affect most developing countries more, as their tariffs are generally higher than those of industrialised countries.

Argentina, Brazil and India had opposed the simple Swiss formula and proposed another non-linear formula (known in WTO jargon as the Swiss-type formula or the Girard formula), which incorporates the average bound tariff of a country into the equation to soften the tariff cuts, especially for countries with higher bound average tariffs.

The federation of industries had expressed dismay that adoption of 10 per cent coefficient in Swiss formula would result in steeper tariff cuts on industrial tariffs by developing countries and also termed "not acceptable" the "less than full reciprocity" that the Swiss formula entailed.

The Federation of Indian Chamber of Commerce and Industry's (Ficci) calculations showed that under the formula, at a co-efficient of 10, while the US and the European Union will cut their tariffs by 24.22 per cent and 28.06 per cent, respectively, India will cut its tariffs by 77.43 per cent.

Although the Ficci calculations are suspect, for they apply the formula to aggregate duties and not basic Customs duties, the point remains valid.

"It would amount to providing flexibilities and special and differential treatment in favour of the developed countries," the Ficci observed but welcomed the final declaration that allowed flexibilities to keep sensitive items outside the ambit of tariff reduction formula and also provided for reduction of tariff peaks and tariff escalation in products of interest to developing countries.

As it has turned out, the Hong Kong meet hints at multiple co-efficients for the tariff cutting Swiss formula that could result in lower tariff cuts for developing countries.

This is a welcome development but what it means is that a very intense study of rules will have to be done and strong documentation prepared quickly to present the cases for establishing full modalities for further negotiations by end April.

tncr@sify.com