REPORT ON NON-AGRICULTURAL MARKET ACCESS

UNCLAS SECTION 01 OF 05 GENEVA 002412

SIPDIS

PASS USTR FOR BROADBENT/BOVIM
DOC PASS ITA/JACOBS, SJONES AND CMORROW

E.O. 12958: N/A
TAGS: ETRD WTRO USTR
SUBJECT: REPORT ON NON-AGRICULTURAL MARKET ACCESS
NEGOTATIONS SEPTEMER 19-23, 2005


SUMMARY


1. The WTO Negotiating Group on Market Access (NAMA) met in
Geneva from September 19-23, 2005 to continue work on the
modalities for the reduction and/or elimination of tariff
and non-tariff barriers (NTBs) affecting industrial goods,
with the goal of determining the formula for tariff
reductions and other key approaches to liberalization by no
later than the Hong Kong Ministerial Meeting in December

2005.


2. Discussions were substantive and focused. Members
discussed formula and sectoral tariff cuts as well as non-
tariff barriers. Though Argentina, Brazil, and India (the
ABI countries) continued to push their own tariff proposal,
support for this approach continues only among the
Caribbeans and some African countries. Members expect that
the ABI countries will not abandon their proposal for
strategic reasons related to the balance with agriculture
and services results. Mexico and Pakistan both presented in
detail their formula proposals seeking to bridge the
discussion between the two main options on the table: the
dual-coefficient Swiss formula and the ABI formula (which
makes use of the country's average tariff level as a primary
coefficient). END SUMMARY

FORMULA

3. NAMA Chair Stefan Johannesson asked Members to be
prepared to address a cluster of issues in an integrated
fashion: 1) the tariff cutting formula, 2) treatment for
unbound lines, and 3) developing country flexibilities.
Mexico presented its idea on how to operationalize the
balance between ambition in the formula, Paragraph 8
flexibilities, and the treatment of unbound lines. While a
number of countries including the U.S and other friends of
ambition spoke of clear linkages between the three items in
the cluster, others (including India and Brazil) argued that
flexibilities are not linked to the formula and should be
treated outside of other issues. Members also discussed
Pakistan's formula proposal to use dual coefficients based
on a simple Swiss formula.


4. The U.S. engaged Members in plenary sessions and
bilateral meetings to clarify Member needs in all three
areas and push for an ambitious outcome that properly
balances all three components of the cluster of tariff
related issues. In bilateral's it became apparent that a
number of developing countries (including China) are anxious
to begin discussions on numbers that would be appropriate
for the formula coefficient, but there is some hesitancy in
linking the numbers on flexibilities to the coefficient
discussion. Some Members continue to link progress in NAMA
to progress in other negotiating areas, making it difficult
to initiate detailed discussions on numbers in the absence
of progress in those areas. Brazil made an intervention
that it will not be able to negotiate seriously in NAMA if
it does not see equivalent movement and concessions from
developed countries in Agriculture and on antidumping NAMA
or other forums. Argentina echoed this statement. Brazil
also called for reduced distance between the timing of
negotiations in agriculture and NAMA.

PAKISTAN'S PROPOSAL:


5. Pakistan's proposal uses the same structure supported by
the U.S. (i.e., a Swiss formula with dual coefficients, one
for developed and one for developing). However, it proposes
using the average bound non-agricultural tariff rates (6
for developed and 30 for developing countries) as the
coefficients. For unbound tariffs, Pakistan proposed a 30
percentage point mark up of current applied rates before the
application of the formula. Member reactions seemed to fall
into three camps: 1) Members supporting Pakistan in
structure but not on the numbers (including the U.S.,
Canada, Australia, Hong Kong, EC, Turkey, Philippines and
Korea, which believe 30 is too high, and the gap between
developed and developing country coefficients is too wide to
be able to achieve new market access; 2) Members that
appreciated having real numbers to consider and like the
high figure for developing countries; and 3) Members that
did not like the structure or the numbers. In informal
consultations with the U.S., China confirmed that Pakistan
sees its numbers as negotiable. While there is one school
of thought that thinks paragraph 8 flexibility is not
negotiable, China thinks this viewpoint is too rigid.
Mauritius raised concerns about the impact of the Pakistan
proposal for a developed country coefficient of 6 on their
preference margins in the US and EC markets. South Africa,
followed by a few other delegations, raised the notion of
running different scenarios on the Pakistan formula proposal
with different ranges of numbers. The U.S. indicated that
while not opposed to looking at numbers in different ranges,
the Pakistan numbers do not work for us, and that concerns
remain over the Secretariat running these numbers for
technical reasons.

MEXICO'S PROPOSAL:


6. Mexico gave a comprehensive presentation on its
proposal, which mathematically integrates formula,
flexibility, and treatment of unbound lines. While based on
the concept of a Swiss formula with dual coefficients,
Mexico's proposal requires developing countries to apply a
more ambitious coefficient, if they exercise Paragraph 8
flexibilities (formula exemptions or less than formula cuts
on a certain percentage of lines). A similar mechanism would
apply for unbound lines whereby developing countries would
be allowed to depart from the Mexican rational approach for
unbound lines on a limited subset of lines in return for
applying a lower markup on the remaining unbound lines.


7. The complexity of Mexico's proposal elicited numerous
questions and comments from Members. A number of Members
spoke out against the concept of what they viewed as a
"trade-off" between the formula coefficient and use of
flexibility. Members including India, Brazil, Argentina,
Malaysia, Thailand, El Salvador, and Barbados argued that
developing countries should not have to pay for using
flexibility by applying a more ambitious formula cut. Other
developing countries, including Chile, Costa Rica, South
Africa and Uruguay supported Mexico's concept because it
gives Members choices on flexibility, and/or credit for not
using paragraph 8 flexibility.


CHINA BILATERAL


8. In a separate meeting with the U.S., China said it does
not endorse adding additional flexibilities to the text
because it could open the door for even more options and
limit their market access in developing country markets.
China promised to talk about results of an evaluation it is
conducting on specific industry needs for paragraph 8
flexibility at the next session.

EGYPT BILATERAL



9. The U.S. delegation also met with Egypt to resolve
confusion over their position on the structure and ambition
of the tariff-cutting formula. In response to the U.S.
request for clarification, the Egyptian representative
stated that they have no preference regarding formula
structure and that their position will be driven by the
coefficient that determines the depth of tariff cuts. They
also stated their discomfort with the link between the
formula and flexibility. The U.S. asked how much comfort
Egypt expects from the flexibility already provided by
paragraph 8 and for details on what paragraph 8 does not
provide. Egypt was reluctant to get specific on the level
of coefficient they would be willing to undertake, however
their `interest' in the ABI proposal suggests that their
number hovers around 30. Egypt's sensitivities in the
textiles sector seem to be driving their lack of ambition in
the formula, and they also seemed reluctant to pursue a
`sectoral approach' on textiles outside of the formula given
Cairo's impression that a sectoral agreement would be more
ambitious than the formula.

TRINIDAD AND TOBAGO BILATERAL


10. The US delegation also met with representatives from
Trinidad and Tobago to exchange positions on the formula and
flexibilities, as well as discuss CARICOM's July proposal
for giving credit in the formula to small economies based on
a number of `development' indicators. Trinidad did indicate
that revenue dependence was not a concern for them, but was
a significant issue for other smaller CARICOM countries.
The US delegation expressed concerns that many of the
criteria identified in the CARICOM proposal were
unquantifiable while others captured key US markets like
Brazil and India. Trinidad and Tobago did indicate that
revenue dependence was not a concern for them, but for other
smaller CARICOM countries. On the formula, Trinidad and
Tobago stated that the CARICOM position on the formula, i.e.
their unwillingness to undertake any formula reductions that
would cut into applied rates, had not changed. They would
like to maintain sufficient `policy space' which would allow
them to develop future industries (such as steel and cement)
and did not see longer implementation periods as a mechanism
to address this concern. When pressed as to what formula
coefficient would address their needs, they hinted at the
ABI formula with a B coefficient of 4, or a Swiss 200. On
Paragraph 8, they indicated that they would use exceptions
from the formula for those products bound at 70, but that
the trade limitations currently in brackets in Annex B were
not sufficient to cover their sensitivities.


AD VALOREM EQUIVALENTS



11. The Chair briefed the plenary on the significant
progress made during consultations on September 13 on how to
calculate ad-valorem equivalents (AVEs),noting that Members
seemed willing to use the agriculture method for calculating
AVEs without filters. The Secretariat then presented its
guidelines on AVE calculations to the plenary. The Chair
said that Members might need to deviate from these
guidelines, but would need to provide justification for
these deviations. The United States thanked the Secretariat
for the guidelines and noted concerns on two technical
issues: 1) the treatment of pooled tariff rate quotas and
the need to calculate these at the tariff line level, and 2)
how to calculate mixed duties. Argentina suggested these
guidelines be used for both agriculture and non-agriculture
products. (Note: The Agriculture negotiating group has
already agreed on its own guidelines, on which the NAMA
approach is based. NAMA rules are slightly simpler,
reflecting the fact that there are no major differences
between world market prices and domestic prices in
industrial products.) The Secretariat indicated it would be
sending Members spreadsheets to be used for calculating and
verifying AVEs.

PRODUCT COVERAGE


12. The Chair introduced a revised paper on product
coverage (JOB(05)/166) and noted that the Secretariat will
be preparing a paper on how tariff lines with some
agriculture components in sub-headings should be treated in
the negotiations. The United States stated that it would
like a specific list of products rather than guidelines from
the Secretariat.

SECTORALS


13. Members continued their work in informal meetings on
nine sectors, detailed below. Developing countries continue
to be involved in the discussions, with the most active
participation coming from developing ASEAN members and
Chinese Taipei. Members participating in several sectoral
initiatives have collaborated on formal papers that have
been submitted to the larger negotiating group proposing
tariff liberalization in specific sectors. Two developing
countries (Chinese Taipei and Thailand) have authored papers
on sectoral liberalization that were submitted to the
negotiating group during the week of September 19.


14. Electronics and Electrical Goods: Japan hosted the
meeting with the EC, Switzerland, Hong Kong, Canada,
Malaysia, Japan, Mexico, Thailand, Korea, Indonesia,
Australia, Chinese Taipei, Singapore, United States, and
Kenya in attendance. Japan circulated some additional data
and ideas for product coverage that participants will use
for consultation with industry and capital officials. A
number of developed countries have asked developing country
participants for additional guidance on what type of
flexibility and special and differential treatment
provisions they may need. Thailand indicated after the
meeting that it would co-sponsor the paper submitted to the
negotiating group in July by Japan, Korea, Singapore, and
the United States.


15. Forest Products: Canada hosted the meeting with the EC,
Singapore, Turkey, Norway, Switzerland, Turkey, Peru,
Indonesia, South Africa, New Zealand, Chinese Taipei,
Thailand, Hong Kong, Malaysia, and the United States in
attendance. Canada circulated its draft paper, which
proposes tariff liberalization on wood, paper, and printed
materials as well as other products of export interest to
participants. Canada is seeking co-sponsors for its paper;
thus far the United States and New Zealand have agreed to
sign on. Canada's proposal highlights the growth potential
in this sector for many developing countries. Some
participants (Thailand and Chinese Taipei) inquired about
the inclusion of wood furniture.


16. Drugs and Devices: Switzerland hosted the meeting with
Japan, Chinese Taipei, Israel, Thailand, Hong Kong, the
United States and the EC in attendance. India and Brazil
were invited but did not attend. The United States will
circulate the list of products covered by the Uruguay Round
medical equipment agreement for participants to comment on.
Thailand, Japan, and Hong Kong will continue to consult with
industry on areas of export interest in this sector. As few
developing countries have attended the meetings,
participants agreed to expand the invitation list to the
following countries: Malaysia, the Philippines, Zambia (as a
representative of the LDC group),Morocco, Kenya, Peru,
South Africa, and Korea. An invitation will again be sent to
India and Brazil.


17. Gems & Jewelry: Thailand hosted a meeting with Japan,
Israel, Switzerland, Norway, Australia, Korea, Turkey, EC,
Peru, China, South Africa, Hong Kong, Chinese Taipei,
Canada, Singapore, and the United States in attendance.
Thailand circulated its proposal on tariff liberalization in
the gems & jewelry sector, which proposes tariff elimination
in precious stones, pearls, synthetic stones and precious
metals. Thailand submitted its proposal to the larger
negotiating group with three co-sponsors: Singapore, Hong
Kong, and the United States.


18. Bicycles/Bicycle Parts and Sporting Goods: Chinese
Taipei hosted a combined meeting on these two sectors with
Japan, Norway, Thailand, the United States, Canada, New
Zealand, Australia, EC, and Hong Kong in attendance.
Chinese Taipei circulated two separate papers on tariff
liberalization in the sporting goods and bicycles sectors.
Although, Chinese Taipei submitted these papers to the
larger negotiating group, it continues to seek co-sponsors
of its proposal. For sporting goods, Chinese Taipei is
recommending product coverage that includes recreational
equipment, including skis, balls, rackets, and skates. For
bicycles, its paper proposes tariff liberalization on all
bicycles and parts.


19. Chemicals: The United States hosted a meeting with
Japan, Chinese Taipei, Thailand, South Africa, Singapore,
Switzerland, Norway, Hong Kong, EC, Korea, Australia,
Turkey, Canada, Oman, the UAE, and Croatia in attendance.
The meeting focused on products that could be liberalized in
this initiative using the Uruguay Round Chemical Tariff
Harmonization Agreement as a basis. At present, the
participants are interested in including a wide range of
chemical products across the supply chain from basic organic
and inorganic chemicals to more processed products such as
plastics, soap, and fertilizers. Japan is also interested
in including some rubber products and will circulate
potential additions to the list electronically.


20. Fish: New Zealand hosted the meeting with Chile,
Australia, Peru, Switzerland, Norway, Thailand, Canada,
Singapore and the United States in attendance. Norway is
working on a draft paper on proposed liberalization in the
fish and fish products sector for tariffs as well as non-
tariff barriers. The meeting focused on tariff
liberalization; participants discussed broad product
coverage in fish and fish products, end rates,
implementation periods, and flexibility for developing
countries. Canada and Norway are interested in reducing
tariffs to zero. Thailand noted its interest in this sector
but will need some flexibility for a few products.


21. Autos: Japan hosted a meeting with Hong Kong, Korea,
Canada, Malaysia, Singapore, Korea, Mexico and the United
States in attendance. Japan introduced its draft paper on
tariff liberalization for autos, which included critical
mass data and suggested product coverage of passenger
vehicles. Japan also reported on the activities of the
Global Automotive Industry Dialogue (GAID),comprised of
industry associations from Brazil, Canada, India, Japan,
Korea and the United States. The GAID will meet the week of
October 10 in Geneva to discuss non-tariff barriers
affecting the autos sector.


NON-TARIFF BARRIERS (NTBs)


22. NTB meetings this week were substantive and better
attended than previously. Several new informal papers on
the "nature of the barrier" were circulated. A common
thread was discussion on how to move the process from the
identification phase to the next level of actual problem
solving. The U.S. hosted two meetings to reach out to LDCs,
certain developing countries, and small economies to get a
better sense of their NTB concerns and how the U.S. might
assist their efforts. The United States also hosted an
informal meeting on NTBs affecting the automotive industry.
In separate bilaterals with EU and Japan after the auto
meeting, the US delegation suggested that individual WTO
Members take leadership to draft proposals to advance
specific auto NTB issues. Japan agreed to shepherd work on
automotive customs issues that may be too industry specific
to be taken up in the more general Trade Facilitation
negotiations, and the EU agreed to take the lead on TBT
issues affecting the auto industry. India is considering
our suggestion that it take the lead on intellectual
property issues affecting the auto industry. New Zealand,
Korea, the EC, and Japan led informal NTB meetings on wood
products electronics, export taxes and export restrictions,
respectively. At the electronics meeting, Korea distributed
a report of the group's activities since its inception, and
indicated that its plan to invite regional coordinators
(e.g., for LDCs and Africa) to the October NAMA meeting. In
addition, Members focused on the case of NTBs resulting from
the convergence of IT and non-IT products (such as LCD
monitors) and the need to include industry input due to the
highly technical nature of the discussion. The US noted
that it is developing a proposal to address regulatory
barriers faced by the electronics industry and hoped to have
this proposal ready to circulate later this fall. At the EC-
hosted meeting on export taxes, the EC spoke of eliminating
export taxes and, where elimination is not possible,
imposing a cap. Japan raised the issue of quantitative
export restrictions on minerals and its view that current
WTO disciplines do not provide guidance as to quantitative
export restrictions (as they do for quantitative import
restrictions). In response to a U.S. question as to whether
this proposal would cover the large number of dual-use items
of proliferation concern that are subject to export
restrictions, Japan affirmed that such controls were not
part of the proposal. Japan believes that a discussion
should take place on how to balance the WTO agreement such
that export and import restrictions are treated equally,
both in a systemic manner as well as in the specific context
of minerals.


NEXT STEPS



23. The Chair set the next NAMA session for October 10-14
and indicated that the short gap between sessions was
necessary as we approach Hong Kong. The Chair emphasized to
delegations that with the Ministerial fast approaching, they
should be prepared for continuous negotiations and the
possibility of being called in for consultations on short
notice.