In a confidential analysis, the World Trade Organization Secretariat has found that Brazil would have to reduce its applied tariffs on industrial goods under the cuts proposed by Non-Agricultural Market Access Chair Don Stephenson in his draft modalities paper. Stephenson proposed a coefficient between 19 and 23 for developing countries.
NAMA coefficients dictate the depth of tariff cuts on industrial goods, with lower coefficients leading to greater cuts. A coefficient of 23 would leave no tariff that is subject to formula cuts higher than 23 percent at the end of the nine-year implementation period.
The finding that Brazil would have to cut applied tariffs even with a coefficient of 23 contradicts previous arguments from the European Union in negotiations that Brazil would only cut applied tariffs with a coefficient of less than 20, which Brazil disputes (Inside U.S. Trade, July 20).
This finding by the WTO Secretariat could put pressure on the U.S. and EU to show more flexibility in NAMA negotiations in the WTO's Doha round, one source speculated. The U.S. and EU have demanded cuts in applied tariffs, to show more flexibility in NAMA negotiations in the Doha round.
One source said he hoped the study would help spur forward a successful conclusion to NAMA talks, as it provides a third-party analysis of the effects of proposed cuts, which had been intensely contested. But this source predicted that countries would not be able to make enough progress on NAMA by the end of the year to hold a ministerial, although he expected a revision of Stephenson's modalities paper, possibly in October.
Stephenson has started meeting bilaterally with delegations to decide how and when to proceed and call new open-ended or small group meetings on NAMA. NAMA talks are expected to resume next week, sources said.
The so-called NAMA 11, which includes Brazil, India and Argentina and is comprised of the most defensive members on NAMA, has decided as a group to wait and see for now what happens in the agriculture negotiations before deciding on next steps. The agriculture talks restarted this week in Geneva (see related story). Many NAMA 11 members feel demands in agriculture and NAMA are unbalanced.
Specifically, the WTO study analyzes the effect of applying coefficients between 19 and 23 on Brazilian applied tariffs, both taking into account so-called paragraph 8 flexibilities and without applying flexibilities, according to an informed source. The study also analyzes the effect on applied tariffs that result from applying coefficients between 24 and 26 without applying any flexibilities, this source said.
With a coefficient of 19, the average percentage reduction on Brazilian applied tariffs would be 14.6 percent if no flexibilities are used, although that number is reduced to 12.5 percent if paragraph 8, option (b) flexibilities are taken into account.
These flexibilities, which Stephenson included in his draft modalities paper and which are the most likely to be used by Brazil, allow countries to keep up to 5 percent of their tariff lines unbound or not apply formula cuts to those lines, provided they do not exceed 5 percent of the total value of a member's imports.
With a coefficient of 23, Brazil would face an average percentage reduction of 9.3 percent in applied tariffs, while that number is reduced to 7.6 percent if paragraph 8, option (b) flexibilities are used.
In addition, Brazil would face average percentage reduction in applied tariffs of 8.4 percent with a coefficient of 24, 7.7 percent with a coefficient of 25, and 7 percent with a coefficient of 26 if no flexibilities were used, according to the study.
On bound rates, Brazil would face average reductions of 59.8 percent with no flexibilities and a coefficient of 19, and a 56.6 percent average reduction with paragraph 8 flexibilities. With a coefficient of 23, Brazil faces an average reduction of 55.3 percent, which drops to 52.3 percent with flexibilities. With a coefficient of 26, Brazil faces an average reduction in bound tariffs of 54.3 percent, which drops to 52.3 percent with flexibilities.
Argentina, one of the most defensive members on NAMA and one of three members that has explicitly rejected the NAMA text proposed by Stephenson, believes that a coefficient of 20 would imply cuts on 48 percent of applied tariff lines, while a coefficient of 35 would lead to cuts on 25 percent of applied tariff lines, according to informed sources.
One developing country source argued that even with a coefficient of 35, Brazil and Argentina would still be forced to make some cuts in applied tariff lines.Inside U.S. Trade
