WTO - SEMINAR ON NON-AGRICULTURAL TARIFFS,
20-21 MARCH 2001
CONTRIBUTION BY AUSTRALIA
NEGOTIATING MODALITIES : LESSONS FROM PAST MULTILATERAL NEGOTIATIONS
INTRODUCTION
The reduction in tariff barriers achieved under the General Agreement on Tariffs and Trade (GATT) has laid the foundation for the remarkable growth in world trade since World War II. In this period there has been an 18 fold increase in global trade. Prior to the Uruguay Round of trade negotiations, seven rounds of multilateral negotiations had succeeded in lowering the average (trade weighted) Most Favoured Nation tariff rates on non-agricultural goods from a high of 40% to around 6% by the end of the Tokyo Round (1974-79). The Uruguay Round (1986-93) further reduced the average trade-weighted rates to 4%1.
The reduction of tariff barriers, accompanied by the strong, rules-based international trading system provided by the General Agreement on Tariffs and Trade (GATT) and now the World Trade Organization Agreement provides a predictable and transparent international trading environment and opens up significant trade opportunities. It has benefited all countries, whether they are highly diversified developed economies, or whether they are developing countries dependent upon exports of a narrow range of commodities. Although Western Europe, North America and Japan continue to account for the bulk of global trade, developing countries have expanded their exports of merchandise at a faster rate than the growth in global trade. The value of world merchandise exports rose by 3.5% in 1999 and the merchandise exports of developing countries grew at 9%. Developing countries' exports of merchandise trade represented 27.5% of world exports in 1999. Least developed countries have also seen their merchandise exports increase faster than world merchandise trade2.
Successive rounds of multilateral negotiations on tariffs has seen the evolution of a body of negotiating modalities that has been employed and adapted as appropriate in each multilateral round. Experience shows that all these modalities, and often a combination of them, have been necessary to achieve desired outcomes. No one modality is likely to be sufficient to address the full range of participants' objectives, or even the full needs of individual participants. Experience also demonstrates the need for flexibility in determining the appropriate modalities for multilateral negotiations on tariffs.
NEGOTIATING MODALITIES EMPLOYED IN PREVIOUS GATT NEGOTIATIONS ON TARIFFS
The WTO has published a history of multilateral tariff negotiations3 which provides a valuable insight into the issues which have arisen in multilateral tariff negotiations and the modalities applied in each of the eight rounds of negotiations. Negotiations on non-agricultural tariffs were the cornerstone of multilateral trade negotiations under the General Agreement on Tariffs and Trade (GATT) up until the Uruguay Round when agriculture, services and intellectual property were brought within the framework of multilateral trade rules.
The negotiating modalities adopted in each round were developed to suit the objectives which participating countries set for themselves as well as the complexities brought about by the variations in the tariff structures of the increasing number of countries participating in these negotiations.
The request-offer approach of the early rounds under which individual participants negotiated tariff concessions on an item-by-item basis was well suited at that time. However, by the time of the Kennedy Round in the mid-1960's it was clear that a more ambitious formula type approach was needed, not only to achieve more substantive tariff reductions by countries that were by then experiencing strong post-War economic recovery, but also as a means of engaging participants in trade liberalisation on a more collective basis.
The following overview illustrates the ingenuity and flexibility which negotiators ave brought to the issues which have emerged in progressive rounds of negotiations on industrial tariffs.
The early rounds up until the Dillon Round in 1960-61 focused mainly on item-by- item negotiations between individual participants, and participants concentrated closely on achieving bilateral reciprocity. These were early steps in the multilateral approach to tariff reduction. For a variety of reasons not all Contracting Parties participated actively in each of the early negotiating rounds, some of which were primarily concerned with accessions.
The Kennedy Round (1964-67)
It was not until the Kennedy Round that the more ambitious objective of substantial linear tariff reductions emerged. The adoption of this negotiating modality marked a sea change in multilateral tariff negotiations. It moved away from the line-by-line, offer and request approach and involved participants agreeing to reduce tariffs across the board by a specified amount.
A general reduction of 50 per cent of bound tariffs was agreed as the working hypothesis for the Kennedy Round. Exceptions were not ruled out, but participants were required to justify the exclusion of any particular products or product groups.
The linear reduction modality was adjusted to take account of particular concerns. For example, concerns by the EEC that equal linear tariff reductions may not provide an adequate balance of advantage were addressed through arrangements which permitted them to apply criteria which resulted in less than 50 per cent reductions in tariffs on items where tariffs were already significantly lower than in the United States and the United Kingdom.
Participants also recognised the special circumstances of Canada, Australia, New Zealand and South Africa with their very large dependence on exports of agricultural and other primary products. These countries were permitted to make item-by-item offers rather than linear tariff reductions, although concessions of equivalent value were expected4.
This approach also led to a more sophisticated application of the principle of reciprocity.. The notion that negotiations for the substantial reduction of tariffs should be held on a mutually advantageous and reciprocal basis has been an enduring feature of multilateral trade rounds. However, there is no formula for determining the value that participants get from multilateral trade negotiations.
Each participant comes to the multilateral negotiating table with its own particular expectations and capacity to offer concessions, and each participant needs to be satisfied that it has achieved a fair deal. Since the Kennedy Round, this has not necessarily been achieved on a one-to-one basis of request-offer negotiations with principal trading partners. The result has been a much broader set of concessions that benefit all participants to a much greater degree than could be achieved through country-by-country concessions.
While reciprocity remained the general rule guiding the Kennedy Round negotiations, the capacity of less developed countries to provide full reciprocity was recognised.
The Tokyo Round (1973-79)
Another modality for across-the-board tariff reductions was developed in the Tokyo Round to address tariff peaks more effectively. This was the formula approach which was designed to achieve reductions across the board, but with larger reductions for higher tariffs. Various formulae were proposed by Canada, the United States, the EEC, Japan and Switzerland, with the Swiss formula eventually being adopted.
However, again, the formula was not rigidly applied. Furthermore, it was not the only negotiating modality applied in this round. Some participants varied the formula coefficient, which resulted in slightly lower levels of tariff reductions. Many participants either exempted products from the application of the formula, or made shallower cuts for particular items compensated by deeper cuts in other areas. A number of participants also chose not to apply the formula and to negotiate on an item-by-item basis. And agricultural tariff reductions were negotiated on an item-by-item basis.
These variations from the formula approach permitted participants to ensure they achieved an acceptable level of reciprocity in the negotiations
Through the application of the formula tariff reduction modality, the Tokyo Round was particularly successful in achieving greater harmonisation of tariffs, that is, reducing some of the tariff peaks in participants' tariff schedules.
The Uruguay Round (1986-94)
The objective of the Uruguay Round with respect to non-agricultural tariffs was expressed in broad terms. Under the Punta del Este Declaration, negotiators sought to reduce or, as appropriate, eliminate tariffs, and to make further progress on reducing or eliminating high tariffs and tariff escalation. Emphasis was also to be given to the expansion of the scope of tariff concessions among all participants5.
The Declaration did not state whether or not the negotiations would follow the linear or formula approach. Discussions on negotiating modalities only commenced once the negotiations were launched. While the EC, Canada and Switzerland proposed formulae aimed at harmonization, the United States favoured a return to the item-by-item approach on the grounds that the formula approaches of previous rounds had achieved substantial liberalization and the item-by-item approach was best suited to addressing tariff peaks and tariff escalation.
Developing countries supported a formula approach, but one which could take account of individual development, financial and trade needs. They also sought arrangements for recognizing liberalization measures already undertaken.
The question of whether a formula approach should be adopted proved to be a major stumbling block in the Uruguay Round negotiations and was, in fact, not resolved. The matter was taken up at the mid-term review meeting at Montreal in December 1988 where participants agreed on a number of guiding principles for meeting the Punta del Este Declaration.
Although no agreement was reached on a particular reduction formula, participants did agree to reduce tariffs by one-third, and it was left to participants to determine how this should be implemented. Various formulae were adopted by individual participants. The United States, however, maintained a request-offer, item-by-item technique, and targeted its concessions to those countries that participated in the negotiations.
The general tariff cuts were, however, not the only outcome for tariffs in the Uruguay Round. A number of developed countries concluded agreements to reduce or eliminate tariff peaks in ten product sectors6. An agreement to harmonise tariffs on chemicals was also agreed. These were referred to as zero-for-zero arrangements. To a large extent, the participants in these agreements accounted for the bulk of international trade in the products concerned.
A combination of modalities was thus employed in the Uruguay Round:
·?Across-the-board reductions, according to varying formulae;
·?Request-offer negotiations on an item-by-item basis;
·?Tariff elimination and harmonisation through sectoral agreements.
WHAT HAS BEEN ACHIEVED THROUGH MULTILATERAL TARIFF NEGOTIATIONS?
As noted at the beginning of this paper, the progressive reduction and removal of tariffs over the past fifty years has been a major factor in the growth in global trade.
The extent to which individual countries have responded to the opportunities provided by this liberalisation varies. Several factors come into play in taking advantage of improved market access. However, what is clear is that all countries have benefited from the reductions and elimination of tariff barriers, whether they export a wide or narrow range of products, whether they sell primarily industrial or agricultural products, and whether they are developed or developing countries. The important challenge of minimising the effect of tariffs on international trade has been met for all countries.
With the full implementation of Uruguay Round commitments, tariffs have been eliminated on nearly half the imports into developed countries, irrespective of source7. For example, almost 40% of imports of industrial products into the United States are covered by duty free treatment, almost 38% into the European Union and 71% of Japan's imports8.. Average tariffs of many countries have now been reduced to relatively low levels. A high proportion of bindings of tariff lines reinforces the effectiveness of these concessions and the predictability of the trading environment.
This situation has led to a widespread belief that tariffs are no longer a major problem for international trade, including for the trade of developing countries9.
However, a 1997 UNCTAD/WTO study shows that problems of high tariffs are still widespread. Even after the full implementation of all Uruguay Round concessions a substantial number of high tariffs will remain, including on exports from developing countries. These provide high levels of protection which distort international trade. Other studies on the results of the Uruguay Round negotiations on tariffs, and identified by the WTO Secretariat, also indicate that there is a high degree of agreement on the need to address remaining tariff barriers.
A few groups of products continue to be subject to tariff peaks in the tariff regimes of a number countries for various reasons. Tariff peaks are generally accepted as being tariff levels which are significantly above the level of average tariffs in a country's tariff schedule. There is no internationally agreed benchmark for identifying tariff peaks, but levels of 10%, 15% or 20% are used by certain countries. The OECD uses two reference levels: 15% and three times the national mean tariff10. Non-agricultural products subject to tariff peaks include clothing and textiles11, footwear and leather goods, and transport equipment. Other peaks are prevalent for processed foods and fish and fish products. These are discussed in a number of the papers identified by the WTO Secretariat12.
The measures applied to these products need to be seen in conjunction with the cessation of the Multifiber Agreement and the liberalisation of quantitative restrictions which is being achieved under the WTO Agreement on Textiles and Clothing.
Tariff escalation is the term applied to the situation where higher tariffs are applied as a basic commodity is more highly processed, e.g. wool, fabric, clothing. The effect is to protect domestic processing and manufacturing industry and inhibit or prevent countries from exporting more highly processed, and hence more valuable, products. Although many trade distortions arising from the application of higher rates of tariffs to more highly processed products have been addressed through multilateral tariff negotiations, particularly the Tokyo and Uruguay Rounds13, the OECD notes that tariff escalation remains a contentious issue among some trading partners14.. There are a number of methodological issues in identifying and assessing tariff escalation, necessitating a product-by-product approach.
WHAT SCOPE IS THERE FOR FURTHER MULTILATERAL NEGOTIATIONS ON NON-AGRICULTURAL PRODUCTS?
Although there has been considerable progress in reducing tariff barriers and distortions to trade arising from the structural characteristics of Members' tariffs, there are still benefits to be gained by both developed and developing countries from further tariff reductions. This includes improving the predictability of the trading environment by extending the degree of tariff bindings. In developed countries, average tariffs are generally low except in ``sensitive'' sectors such as textiles and clothing and transport equipment. Average tariffs of developing countries are relatively higher, but also have peaks in sensitive sectors such as textiles and clothing or on intermediate products15.
An issue which deserves mention is the importance of non-agricultural products to the trade of developing countries, and consequently the need for developing countries to consider carefully their involvement in any new multilateral round. Improved market access to developed country markets for agricultural products and textiles and clothing is important to a number of developing countries. However, the dramatic expansion of developing countries' exports of non-agricultural products since the 1980's and developing countries' reliance on each other as markets points to the importance for developing countries of further tariff liberalisation16.. For instance, while non-agricultural products made up only one-quarter of developing countries' merchandise exports in 1965, this share had increased to just over thirty per cent by 1981, and to almost three quarters by 1994. Furthermore, analysis of trade flows indicates that developing countries are relatively more important destinations for non-agricultural exports from developing countries than they are for industrial countries' exports17.. The World Bank assesses that developing countries have in fact much more to gain from further liberalisation of non-agricultural tariffs than do developed countries18.
Many other trade measures have of course been addressed in parallel with tariffs through the multilateral processes to ensure that the gains obtained through tariff reduction or elimination are not undermined. A number of the agreements which make up the World Trade Organization Agreement address particular non-tariff barriers, such as import licensing, standards and sanitary and phytosanitary measures. Experience with the implementation of the WTO Agreement suggests there may be a need for further consideration of arrangements to address non-tariff barriers, although none have been specifically identified at this stage.
Experience in the implementation of WTO Agreements such as the Agreement on Technical Barriers to Trade (TBT Agreement) and the Ministerial Declaration on Trade in Information Technology Products (ITA Agreement) indicates there may be a number of non-tariff barriers which could be addressed, either through work programs in the WTO or through multilateral negotiations.
NEGOTIATING MODALITIES DISCUSSED PRIOR TO AND AT THE 1999 SEATTLE MINISTERIAL CONFERENCE
Discussions on tariff negotiations prior to and at the Seattle Ministerial Conference confirmed that there are still some significant gains to be made from further negotiations on non-agricultural tariffs.
The draft text considered at Seattle was well developed. The overall objective was to reduce tariffs as much as possible on non-agricultural products19.. It did not specify any particular negotiating modality or modalities. The text did not rule out negotiations on issues other than reductions in general tariffs, tariff peaks and tariff escalation, and expansion in the scope of tariff bindings. It suggested that the negotiations should take account of autonomous liberalisation since the conclusion of the Uruguay Round.. It also referred to the need to take account of the interests of developing and least developed countries20.
This text was based on proposals tabled by Members in the lead up to the Seattle Conference. These proposals reflected the strong support by developed and developing countries for further tariff liberalisation, and for a flexible approach to modalities to permit a range of issues to be taken into consideration including the concerns of developing countries.
The text also included the objective of negotiating the reduction or elimination of non-tariff measures that might undermine the effectiveness and benefits of negotiated market access liberalisation.
In developing a mandate for negotiations on tariffs on non-agricultural products for a new multilateral round, it will be important not to lose sight of the general objective - on which there is already a sound consensus - and to allow sufficient flexibility in any negotiating modalities which might be suggested so that all participating countries can pursue issues of relevance to them in the course of the negotiations.
CONCLUSIONS
This seminar has provided a valuable opportunity for all Members to either refresh their appreciation, or gain a detailed knowledge, of the key issues involved in tariff negotiations and the experience gained from previous negotiations. It will be important for all Members, especially developing and least developed countries, to have a clear understanding of the negotiating modality options open to them in any further negotiations.
Undoubtedly, some Members have more experience and greater capacity to engage substantively in negotiations. However, one of the basic requirements for all Members will be to have a body of detailed information on the applied and bound tariffs of other Members and of recent trade flows. This information is the first step for all Members in developing their individual negotiating positions. The Integrated Data Base (IDB) established by the WTO Secretariat is the most reliable and comprehensive source of such information. It will be important for all Members to contribute up-to-date data to the IDB in advance of any further negotiations.
