Non-Agricultural Market Access Negotiations - Term Paper Example

An explanation and illustration on how the multilateral trade negotiations at the WTO (the 'Doha Round') on industrial goods (Non-Agricultural Market Access - NAMA negotiations) are seeking to increase countries' trade and welfare and to recognize differences in reform capacity across countries. Introduction 2 What are the NAMA Negotiations? 3 The Differentiation Between Developed and Developing Countries 7 MEDC and LEDC adjustment costs and, trade liberalisation 11 Conclusion 13 References 15 Introduction International trade represents the backbone of global economics, however, the varied views concerning tariffs, trade barriers and related facets has become an increased source of issues between developed and developing nations. The Doha Round as represented by the NAMA negotiations represent the attempt to provide a uniform series of tariff and trade foundations based on current global conditions that has run into resistance on the part of developing countries that see the process as one that is unfairly skewed to the interests of the developed economies. The foregoing has been the subject of demonstrations as well as stalled talks in bringing the NAMA negotiations to closure as the policy foundations are based on the views of developing economies looking to install balance in the foregoing. As is usually the case in stalled negotiations, each side seeks to achieve benefits that they deem as being necessary to improve their positioning or condition. In the instance of the NAMA negotiations, the principles adhere to the foregoing, and have complex ramifications. Developing nations are seeking to protect their infant and developing industry sectors in the same manner that developed economies did in the 1930s through 1940s, which current day global economics does not see in the same light. This study seeks to examine the NAMA negotiations and the factors involved from a balanced perspective to explain as well as to illustrate how the multilateral trade negotiations seek to increase trade as well as deal with the differences in policy and reform to cause the foregoing to occur. As such, this examination will look at the substantive facets of the trade talks as well as philosophical, economic and other areas to understand the foregoing. What are the NAMA Negotiations? NAMA represents the official abbreviated term for ‘Non-Agricultural Market Access’, which is a classification of global products that are manufactured, mining and fuels, fish as well as fish products and forestry products (World Trade Organization, 2009). The NAMA negotiations represent a Ministerial Declaration as agreed to under the Doha Development Round during November 2001 that was convened “… to reduce or as appropriate eliminate tariffs …” (Laird, 2006, P. 1). The preceding was a result of heightened differences that had been developing between developed economies (notably the United States, European Union, and Japan), and developing economies as led by China, Brazil and India (Hertel and Winters, 2006, P. 8). These talks have stalled in terms of forward progress as a result of the rift in core values between these two sides (Khor and Yen, 2005, Pp, 10-12). In understanding the nature of the foregoing, it is necessary to understand the conceptual foundation that is at the core of the difference between the two sides to the negotiations. The foregoing represents the ideological approach taken on by developed nations after the Second World War that was based on the universal free trade theory as put forth by Adam Smith (Stiglitz and Charlton, 2005, P. 12). Smith’s theory did not distinguish between the differences as represented by nations and individuals, but held that what was in the interests of the UK was also in the interest of the rest of the world, reflecting what is termed as a cosmopolitan approach (Teichgraeber, 1986, P. 10). The significance of the preceding is that it represented the philosophical underpinning of Western thinking (developed countries) with respect to their interests, ideology as well as relationships that influenced the development of the General Agreement on Tariffs and Trade and subsequent events and agreements, thus representing the source of the rift (GATT) (Das, 2005, Pp. 34-35). The GATT Treaty formulated in 1947 represented the foundation upon which the Doha Round was founded, with Adam Smith’s theory also serving as the foundation for Bretton Woods, the International Monetary Fund, and the World Bank (Bergsten, 2001, Pp. 6-8). The Havana Charter, which represented a reduction of tariff barriers as well as “… higher standards of living, full employment and conditions of economic and social progress “ which would have softened tariff differences that stand at the core of the present rift (United Nations Conference on Trade and Development, 1948, P. 18). The balance of power is solidly vested in the interests of developed countries as a result of the preceding under the current conceptual foundation, along with the power of Trans National Corporations (TNCs) that in 2000 controlled 70 percent of world trade (Hart-Landsberg, 2002). The above is central to understanding the core differences that shall be further developed herein. The Potential and or Expected Trade and Welfare Impacts of an Agreement Khor and Yen (2005, Pp, 10-12) tell us that if the proposals cutting tariffs are employed then developing nations might benefit from welfare and trade gains. However they also caution that on the negative side such reductions might very well be at the expense of a loss in tariff revenues to developing countries which in many cases is a significant source of revenues, along with losses in jobs and productivity output (Khor and Yen, 2005, Pp, 10-12). The following Table illustrates the tariff revenue aspect of the foregoing: Table 1 – Tariff Revenues as a % of Tax Revenues (Hillary, 2005, P. 8) Fernandez de Cordoba and Vanzetti (2005, P. 39) help us to understand that “… welfare effects tend to be associated with trade flows in that an increase in trade generate increased welfare”. In delving into the aspects of expected and or potential welfare gains, developed countries under initial implementation would receive approximately 40% to 50% of the total (Fernandez de Cordoba and Vanzetti, 2005, P. 39). The capping formula proposed under the negotiations represents a uniform reduction that applies a tariff cap is “… three times the national average applied rate …” is subject to three tariff reduction levels as represented by “…ambitious, moderate and flexible …” (Khor and Yen, 2005, P. 14). In general, the formulas indicate that in some countries there will be a gain in certain sectors, where in other countries or sectors there will be adjustments that are important (Khor and Yen, 2005, P, 14). They warn that for developing countries the present “… weighted average import tariff rate …” is 12.5% that could drop to as low as 3.4% (Khor and Yen, 2005, P, 14). The impasse is also compounded by the fact that three approaches are in the negotiations as represented by the Swiss formula, ABI proposal, and capping (Laird, 2006, P. 8). Under the Swiss formula higher tariff rates are calculated for developing countries that is keyed to a coefficient (Hewlett Foundation, 2007, P. 3). It caps as well as harmonizes tariff levels, with a lower tariff levels representing an implied lower change in percentage (Hewlett Foundation, 2007, P. 3). The coefficient serves as a tariff ceiling that when fed into the Swiss formula, the tariff is reduced below the coefficient as revealed by the following: Table 2 – Effect of the Utilization of a Coefficient of 30 (Hewlett Foundation, 2007, P. 3) The Swiss formula is represented by T= at/(a+t) whereby T, the resulting tariff rate, is arrived at “… by dividing the product of the coefficient (a) and the initial tariff rate (t) by the sum of the coefficient (a) and the initial tariff (t) (Fergusson, 2006, P. 10). The key to the formula is the selection of the coefficient, whereby a lower coefficient results in a lower tariff. Within the Swiss formula the NAMA round has sought a coefficient of 10 for developed economies such as the United States and the European Union, with 15 for developing countries (Hewlett Foundation, 2007, P. 3). This has been a sticking point that has stalled talks, which can be seen from the resulting tariff projections when the above is applied: Table 3 – Impact of Coefficients of 10 and 15 (Hewlett Foundation, 2007, P. 4) Another proposal that has resulted in complicating the discussions and stalled talks is based on what is termed as ABI (Laird, 2006, P. 6). Under this method “the coefficient would be based on each country’s current national average … (that could potentially be) … multiplied by another factor that could be linked to flexibilities or to credit for past unilateral reforms” (Laird, 2006, P. 6). Under the ABI approach the focus is on “… harmonization within countries …” that takes into account the “… initial patterns of protection in each country and in some variations, of other factors (Laird, 2006, P. 6). The Differentiation Between Developed and Developing Countries In looking at the relative impacts of these three scenarios developing countries argue that they are not afforded sufficient protection levels for their industries as was the case for developed economies as they do not have the flexibility to moderate their tariff levels and structures regarding certain sectors in relationship to the evolution of their economies (marketradefair.com, 2005). This is presently at risk as NAMA is looking “… to impose permanent ceiling on tariff levels” (marketradefair.com, 2005). Their argument is based on the historical fact that “high and viable tariffs have always been a key tool in industrial policy and successful development” (marketradefair.com, 2005). The preceding refers to the fact that as per history, almost all countries that have been successful in building their industries have accomplished such through a “… selective sheltering of domestic producers” (marketradefair.com, 2005). The preceding aids new industry sectors to become established as well as sophisticated in terms of acquiring technology, knowledge and scale (marketradefair.com, 2005). The foregoing is evidenced by the fact that at comparable stages in industrial development (per capita) the United States tariffs were four times higher that what is the case with China and Brazil today (marketradefair.com, 2005). The following Table shows the relative effects under the three approaches: Table 4 – Changes in Developing Countries Weighted Average Industrial Tariffs (Laird, 2006, P. 8) The source of the differences that has stalled the talks can be seen when the above is compared against the relative welfare gains to developed countries as a result of lowered tariff rates: Table 5 – Changes in Developed Countries Weighted Average Industrial Tariffs (Laird, 2006, P. 7) The key to the formula is the selection of the coefficient, whereby a lower coefficient results in a lower tariff. Within the Swiss formula the NAMA round has sought a coefficient of 10 for developed economies such as the United States and the European Union, with 15 for developing countries (Hewlett Foundation, 2007, P. 3). This has been a sticking point that has stalled talks, which can be seen from the resulting tariff projections when the above is applied: Table 6 – Impact of Coefficients of 10 and 15 (Hewlett Foundation, 2007, P. 4) The preceding explanations provide an understanding as to why and how the agreement differentiates between developed and developing countries that are intertwined with the expected potential trade and welfare impacts. The following offers further illumination on the first area. The following Table reveals the net expected welfare gains under these different approaches: Table 7 – Change in Welfare Relative to the Base (Fernandez de Cordoba and Vanzetti, 2005, P. 40) MEDC and LEDC adjustment costs and, trade liberalisation In looking at the reform capacity of the tariff changes on developed countries (MEDC) and developing countries (LEDC), the International Forum on Globalization (2009) tells us that NAMA trade liberalisation by and of itself will not be enough to fulfill the objectives and goals of the Doha Round. Inherent in making NAMA operate is the understanding and recognition that due to structural as well as administrative and infrastructure weaknesses, developing economies will require support in technical as well as financial areas in order to increase their capabilities (Bacchetta and Jansen, 2003, P. 4). The adjustment costs as induced by trade in developing countries represents a concern in trade liberalisation due to transitional costs not being understood in the same manner as the benefits of trade liberalisation (Prowse, 2005, P. 5). Adjustment costs in this context refer to the short term costs in shifting from one status to another, in the broad sense, with the narrow sense represented by the transfer of resources from one sector into another (Prowse, 2005, P. 5). Under the preceding, the gross costs entail understanding the cumulative aspects of positive as well as negative changes that are representative of costs of resource turnover (Criscuolo et al, 2004, Pp. 395-397). Adjustment costs (net) represent the change in resource levels such as labour and capital, after the negative and positive facets have been offset by each other (Criscuolo et al, 2004, Pp. 395-397). The preceding are illustrated below: Table 8 – Adjustment Costs (Criscuolo et al, 2004, Pp. 395-397) Labour markets, particularly those in the private sector, is the area that is the most studied as they represent the highest costs and in general have strong political influence (Clarete, 2005, Pp. 5-6). Structural economic adjustments can include financial as well as physical capital that are represented by resource reallocation and the divesting and reinvesting of capital and equipment, respectively (Clarete, 2005, Pp. 5-6). For the public sector, adjustment costs usually are represented by revenue losses in the form of taxes, primarily from those associated with tariff collection reductions (Ebrill et al, 1999, P. 21). The long-term effects of trade liberalisation is summarised by Baldwin et al (1980, P. 419) who stated, “Economists have sometimes dismissed such adjustment costs with the comment that the displaced factors become reemployed in the long run”. The preceding helps to provide the overall vision concerning trade liberalisation and adjustment costs that are a factor of reforming tariffs. Davidson and Matsusz (2000, P. 45) found that in some cases that adjustment costs can reduce and or outweigh liberalisation gains as represented by rigid labour market economies as a result of output reductions and unemployment. The scenarios involved in adjustment costs and from trade liberalisation do not have hard and fast rules that are universally applicable to all situation, however as indicated, in developing economies there are costs to be borne in the implementation stages. Conclusion As brought forth herein, the negotiation points in the NAMA round basically center on developing and infant industry protections through having tariff levels set high enough to resist external segments from under cutting them. That simplification also includes limiting the capacity of Trans National Corporations (TNCs) from making further inroads in developing economies. Looking from the other side of the coin, developed economies have in place a beneficial system of trade flows, raw materials, external labour and other factors that when combined with financial resource and technical expertise is dependent on the status quo. The foregoing might be an over simplification, yet the core of the vision is in keeping with what has been uncovered in this examination. The Swiss formula, as shown herein, is a calculative that reinforces that status quo by imposing a coefficient of 10 and 15, with the lower amount applicable to developed nations. While the overall purpose of the NAMA negotiations is to increased international trading flows, the developing nations argue that such comes at their continuing expense. References Akyuz, Y. 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