The Current Status of Negotiations and the Concerns of the Developing Countries

LDCs All Developing Countries

70 26 87 9 4 4 0 10 20 30 40 50 60 70 80 90 100 1980-1983 2000-2003

Low-, medium and high technology manufactures Labour-and resource-intensive manufactures Primary commodities 30 17 67 12 21 53 0 10 20 30 40 50 60 70 80 90 100 1980-1983 2000-2003

Low-, medium and high technology manufactures Labour-and resource-intensive manufactures Primary commodities

Source: UNCTAD (2006)

4.3. The Current Status of Negotiations and the Concerns of the Developing Countries

As stated earlier, the duty free market access provision under the GSP schemes provided by developed countries incorporated some restrictions in terms of the Rules of Origin (RoO) requirements. The RoO requirement states that there should be some minimum domestic value addition in the LDCs’ products in order to be qualified for enjoying the zero tariff facilities. In the EU market, the Everything-But-Arms (EBA) provision allowed all products from the LDCs, except arms, to enjoy the DFQF market access from 2001 with some ‘stringent’ RoO restrictions; Australia, on a country to country basis, allowed DFQF facility for all LDC products from 2002; Canada added 903 tariff lines, except dairy, poultry and egg products, for 48 LDCs from 2003 to be under DFQF treatment; USA allowed African LDCs a GSP facility with DFQF provision for all products under African Growth and Opportunity Act (AGOA) from 2000; and many other countries including Norway, Singapore, Switzerland, Japan and Korea have allowed some DFQF

82 provision for the LDC products from the beginning of the twenty-first

century.

In the Sixth WTO Ministerial Conference, held in Hong Kong in December 2005, developed countries have made binding commitment with regard to providing duty-free and quota-free access to products originating from LDCs. According to the article 36 of Annex F of the Ministerial Declaration there is the commitment that “developed county members shall, and developing country members, declaring themselves in a position to do so, should provide Duty free Quota free market access on a lasting basis, for all products originating from all LDCs by 2008 or no later than the start of the implementation period”. The Hong Kong declaration has the provision for ‘members with difficulties’ to cover 97 percent of products, defined at the tariff line level, originating from the LDCs for DFQF consideration, and the developing countries are allowed to enjoy ‘appropriate flexibility’. Moreover, the Rules of Origin (RoO) requirements are also agreed to make simplified and transparent and preferential for the LDCs to enhance their market access.

It is, however, important to note that, the bilateral pressure from US on LDC negotiators to exclude some of the products from DFQF facilities may jeopardize the whole initiative. Some LDC negotiators argue that to be effective, all countries and all commodities should be under DFQF provision (BRIDGES, 15 December, 2005). However, there are several causes of concern on current negotiation outcome that leave room for LDCs to design further negotiation strategies:

a. The DFQF market access commitment is a binding commitment for developed countries. Therefore, firm commitment from all developed countries, especially from the USA and Japan, which have indicated their difficulties at this point of time, to provide DFQF market access for all products originating from LDCs needs to be reassured.

b. The provision of DFQF market access for at least 97 percent of products originating from LDCs, has one important implication which should be subject of further discussions and negotiations. The declared 97 percent is to be considered as the minimum, not the maximum level. That is, given the provision of Hong Kong MC, developed countries can make commitments at a much higher level than 97 percent.

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c. The Hong Kong Declaration specifically provides that members facing difficulties ‘shall take steps to progressively achieve compliance’. In this light, LDCs are to take a position that there must be a time line for phasing out the exclusion list.

d. The definition of providing DFQF access ‘on a lasting basis’ in paragraph 36 (a) (i) of the Hong Kong Ministerial Declaration is not clear. This should be considered as bound in the WTO, i.e., its implementation is mandatory and subject to dispute settlement discipline in case of breach.

e. The same paragraph of Hong Kong Ministerial Declaration while providing DFQF access for 97 percent of LDC products also mentions about ‘taking into account the impact on other developing countries at similar levels of development’. One can argue that developing countries at similar levels of development should imply consideration of interest of other LDCs, and not non-LDC developing countries.

f. LDCs’ strategy will be to keep most of the duty-paid export items out of exclusion list. One of the suggestions is to negotiate for having duty free access of all those products that have existing high tariffs (for example, tariff rates higher than 6 percent).

g. LDCs may negotiate to have those commodities that entered in the developed country markets with zero tariff facilities in the recent past to be included in the 97 percent duty free list.

h. LDCs are to point out that, tariffs on apparels and other industrial goods are expected to come down because of the on- going NAMA negotiations. Therefore, if the USA does not provide zero tariff market access now, the opportunity of benefiting from such preferential treatment will become insignificant in the near future.

i. There has also been a suggestion to propose to the US for consideration of ceilings for the items in the exclusion list, beyond which the specified duties may be imposed.

j. There can be negotiations about safeguarding the export interest of LDCs, which they are already enjoying. It is of the view that, since many other developed countries have comprehensive GSP schemes for LDCs, it is in the best interest of the latter that these schemes be brought under the ambit of the relevant special and differential treatment provision of the WTO.

84 An important concern, as far as the developing countries

perspectives are concerned, is that there is a possibility of preference erosion for the developing countries if the LDCs are allowed DFQF facilities for all of their products as agreed in the Hong Kong Ministerial Declaration. In general, the vulnerability to preference erosion depends on factors like preference margins (difference between MFN and preferential tariffs), product coverage (the ratio between products covered by a scheme and the dutiable imports), preference utilization rate (the ratio between imports that actually receive preferential treatment and those that are in principle covered) and the utility rate (the ratio of the value of imports that get preferences to all dutiable imports), all of which are measures of the use of preferential treatment enjoyed by the developing countries. The higher the values of the above indicators, the greater the risk of preference erosion with some generalized schemes of tariff reduction. The developing countries, that currently enjoy preferential tariff rates in the developed country markets for their exports, are subject to preference erosion with implementation of duty free access to LDC products; however, the magnitude will depend on the relative values of the above indicators in addition to the relative cost competitiveness of developing and least developed countries. Therefore, gains to LDCs from duty free quota free market access need to be weighted against the resulting preference erosion for the developing countries.

4.4. Global and Regional Welfare Effects of DFQF Market Access: