Jul 20, 1989

EEC TARIFF CUT FORMULA AIMED AT THIRD WORLD TARIFFS.

GENEVA, JULY 18 (BY CHAKRAVARTHI RAGHAVAN) The European community has tabled in the Uruguay round GATT negotiating group on tariffs a formula for tariff reductions that would force third world nations to drastically cut their tariffs and bind them.

Japan also has presented a formula approach that would substantially reduce and bind third world tariffs.

The U.S. however has continued to insist on its "request-offer" approach. This would enable the U.S. to maintain its high tariffs, peaks and tariff escalations in respect of highly competitive imports from the third world in textiles and other such industrial products.

The EEC and Japanese formulae are purportedly in pursuance of the mid-term accord which, while calling for "substantial reduction or, as appropriate, elimination of tariffs by all participants", had also reiterated the general principles governing negotiations set out in the Punta del Este mandate.

These principles include the concept of special and more favourable treatment to third world countries. Under this the industrial countries said they did not expect reciprocity for commitments made by them to reduce or remove tariffs and other barriers to trade of third world countries, or make "contributions" in the negotiations which were "inconsistent with their individual development, financial and trade needs".

In putting forward the general formula approach and demand for "binding" all third world tariffs, the EEC and Japan are in effect applying the special and more favourable treatment concept only to the least developed countries (LDCS). They are demanding reciprocal concessions from the "more advanced" and "other" (other than LDCS) third world countries.

Under the EEC formula, there are two types of tariff cut formulae: one to apply to industrialised and the "more advanced developing countries" - a term which is not defined and presumably will be more than the so-called "newly industrialising countries" and include all the major third world economies - and the second for "other developing countries other than the least advanced" (the least developed in UN category).

The formula out forward by the EEC in a paper introduced in the negotiating group tuesday is such that the EEC itself would pay very little price by way of reduction and harmonisation of its tariff peaks or tariff escalations, and would also deny the benefits of its tariff cuts to those third world countries who would be maintaining non-tariff measures, including the GATT-sanctioned and legal restrictions on imports on balance-of-payments considerations.

The third world countries have generally high tariffs, both as a protective measure and also for revenue purposes.

The EEC formula will attack these high tariffs, and provide for a ceiling of 20 percent in respect of the "more advanced" third world countries and 35 percent for all others, excepting the least developed countries (LDCS).

The EEC tariff cutting formula, in respect of the industrialised and "more advanced developing countries", provides that tariffs above 40 percent would be reduced to a ceiling of 20 percent, tariffs between thirty and forty percent would be cut by 50 percent, and between zero and 29 percent at a percentage rate arrived at by adding 20 to the base rate.

In respect of the "other developing countries", the formula envisages cutting all rates above 35 percent to a ceiling of 35, and those below 35 percent to be reduced and harmonised through bilateral negotiations.

All the rates negotiated and reduced or left unchanged for either group of countries are to be "bound" in GATT. This means they must be incorporated into the GATT schedules and cannot be varied and raised without notice to the principal suppliers and negotiating with them to provide compensation.

The EEC formula would also exclude tariffs on agricultural products. The EEC maintains variable levies on agricultural product imports, varying the duty to protect its domestic production from world market prices. The EEC has made clear that the variable levies are an integral part of its common agricultural policy (CAP), and while it would negotiate in the round reforms in agricultural trade, it would not give up the cap and its instruments.

Most of the industrial countries, particularly after the Tokyo round, have relatively low levels of tariffs on industrial products exchanged among themselves, but do have tariff peaks and in respect of products of export interest mainly to the third world and tariff escalation as between raw, semi-processed and processed commodities.

According to published UNCTAD data, the post-Tokyo MFN rates in the EEC and principal industrial markets show that the major concentration of tariffs are between zero to five and five to ten percent.

In the EEC, 560 tariff-lines have tariffs in the range of 10-15 percent, and in Japan and the U.S. respectively 407 and 463.

In the range 15-20 percent tariffs, 142 product or tariff lines are involved in the EEC, 175 in Japan and 291 in the U.S.

In the above 20 percent range, EEC has about 129 individual tariff lines or products, 231 in Japan and 84 in the U.S.

Products or tariff lines on which tariff information is not available, and could fall into any of the categories, are 448 for EEC, five for Japan and 52 for the EEC.

The EEC has also proposed for "all participants" coordinated negotiation linking tariff and non-tariff measures.

It envisages that by end of the Uruguay round, all industrial tariffs should be bound for all participants using the formula it has put forward, and similar formula should be applied for reduction and elimination of non-tariff measures.

The EEC paper makes clear that it does not intend to grant concessions nor give credit to tariff concessions nullified or impaired by non-tariff measures (NTMS).

Third world participants said that without a proper study it would be difficult to assess the full impact of the EEC formula, but on the face of it the formula would have the least effect on the EEC, but would affect third world countries most, including in respect of their GATT-legal NTMS like those for bop purposes.

Also, some of the third world countries like Mexico which have drastically reduced and bound their tariffs would find they would still have to reduce them even more and bind them at 20 percent.

The reductions effected by Mexico as part of its exchange of concessions with the U.S. for entry into GATT, coupled with the IMF adjustment measures, have already hit Mexican industry, and the present formula would hit them even more, one Latin American observer commented.