The Hindu : Chasms in WTO talks on import tariffs

Online edition of India's National Newspaper
Friday, May 02, 2003

Business

Business

Chasms in WTO talks on import tariffs

By C. Rammanohar Reddy

Although the Doha Round of trade negotiations of the World Trade Organisation has met with no success whatsoever since its launch in November 2001, the stage is now set for yet another battle on an important subject on its agenda. These are the negotiations on a bread and butter subject of the WTO — reduction of customs duties on industrial products or what is technically called market access for non-agricultural products.

<167,4.3p,1>According to the schedule of negotiations, the member-countries of the WTO were expected to decide on the "modalities'' of tariff negotiations by the end of May. Modalities here are the formulae and methodology to be used for a reduction of customs duties by each country. Since it is impractical for countries to negotiate import duties, product by product, for thousands of manufactured products, the usual approach is suggest a formula, which would constitute the modalities for tariff reduction. Once the modalities are decided, an agreement has been more or less reached. The only job then is to fine-tune the modalities. This is what makes these talks so controversial. The modalities of negotiations on market access for agricultural products could not be wrapped up by the March 31 deadline and the same fate seems to await the May 31 deadline for the WTO talks on industrial products.

There is a huge chasm dividing countries engaged in the talks on industrial tariffs. At one end there is the U.S. which late last year suggested a time-table for reduction of import duties to zero — yes, zero — by the year 2015. Then there is India, which suggested a 50 per cent reduction of import duties by the developed countries and 33 per cent by the developing countries.

The negotiations on market access cover a number of factors — of which the average import duty is only one. There is the question of the number of products whose tariffs are "bound'' at the WTO — that is, a country commits itself not to raise duties on these products above a certain level. Today, India binds roughly 60 per cent of its product lines; the developed countries as a rule have bound duties on over 90 per cent of the products they import. The pressure is on India and other developing countries, to raise the proportion of the products on which they will bind tariffs in the Doha round.

There is also the issue of tariff peaks and tariff escalation, the phenomenon of import duties being higher on finished products than on raw materials in the advanced economies which works to keep out imports of finished products from the developing countries. Then there is the issue of the import duties which should form the basis for negotiations. Should they be the bound tariffs or applied rates, the latter being the import duties the country actually levies. India's applied rate is in many cases lower than the bound rate, but it would like to maintain the freedom of raising the applied rates to the bound levels in the eventuality of a flood of imports. The U.S., on the other hand, has been pressing for countries to negotiate on the basis of applied rates.

Negotiations at the WTO on all these issues have seen chasms between countries. The best illustration of this is, of course, in the divergent proposals on tariff reductions suggested by the members of the WTO.

The accompanying Table presents a simple average of import duties on non-agricultural products before and on the conclusion of the Doha Round, according to proposals made by four countries, taking the European Community (which is how the E.U. is represented in the WTO) as one. One of two version of the Chinese proposal is listed in the Table.

The Indian proposal had one package for developing countries and another for the developed world; the Table presents data assuming that Brazil, China and India will see themselves as developing countries.

The Table shows that while the U.S. proposal is an extreme one, calling for more or less an elimination of import duties on non-agricultural products; the E.C. which likes to project itself as sensitive to developing country concerns has proposed a broadly similar set of tariff reductions.

China's package falls somewhere in between. Thus, in India's case, the simple average of bound duties would come down by roughly 33 per cent (if the Indian proposal is accepted), by 50 per cent (China's proposal), by 66 per cent (E.C. proposal) and by nearly 80 per cent if the U.S. proposal is accepted.

Many of these proposals constitute posturing in the first skirmish of negotiations at the WTO. But the gaps are so wide and the trade-offs that countries can get in other areas (in agriculture and TRIPS, for example) are so few that not many are optimistic that when a consensus package is presented at the middle of this month for approval, it will go anywhere at all at the WTO talks.

Printer friendly page
Send this article to Friends by E-Mail

Business

Stories in this Section

CMIE expects slowdown

IFC to increase exposure in India to $1 b

BoB, Union Bank to cut PLR, deposit rates

Chasms in WTO talks on import tariffs

IOC plans for new petrol pumps

VSP keen on captive ore mine in Orissa

Walmart, GAP to make India sourcing hub

Centre seeks to end TMB imbroglio

Exploit poverty to improve quality — Prahalad