WTO Agrees on Formula for Unilateral Tariff Reductions

The Doha round of trade talks has made substantial progress agreeing upon a new formula for the reduction of tariffs. On Tuesday, Ambassador Donald Stephenson in the Chairman's Introduction to the Draft Non Agricultural Market Access (NAMA) Modalities announced, "there is an almost unanimous view that a simple Swiss formula with two coefficients should be adopted". Recent proposals to supplement or replace the Swiss formula with a linear cut or an average cut to facilitate convergence on the formulas were rejected.

On a line by line basis the formula is,

t₁ = (a or b) x t₀
(a or b) + t₀

where,

t₁= Final bound rate of duty
t₀= Base rate of duty
a = [8-9] = Coefficient for developed Members
b = [19-23] = Coefficient for developing Members

It can now be mathematically proven that the "long-term objective of substantial progressive reductions in support and protection resulting in fundamental reform is an ongoing process" in Art. 20 of the Agriculture Agreement, is fair. After this unilateral tariff reduction is fully adopted by Member nations the final bound rate of duty for products from developing nations will be 98.7-98.9% and products from developed nations 99.5-99.6%. Everyone wins.

These negotiations on agriculture began in early 2000, under Article 20 of the WTO Agriculture Agreement. By November 2001 and the Doha Ministerial Conference, 121 governments had submitted a large number of negotiating proposals. Without prejudging the outcome, member governments commited themselves to comprehensive negotiations aimed at - substantial reductions in market access and reduction in export subsidies with a view to phasing out all forms of export subsidies, and substantial reductions in domestic supports that distort trade.

Paragraph 16 of the Doha Ministerial Declaration, "negotiations which shall aim, by modalities to be agreed, to reduce or as appropriate eliminate tariffs, including the reduction or elimination of tariff peaks, high tariffs, and tariff escalation, as well as non-tariff barriers, in particular on products of export interest to developing countries. Product coverage shall be comprehensive and without a priori exclusions".

Paragraph 24 of the Hong Kong Ministerial Declaration in 2005 recognizes, "it is important to advance the development objectives of this Round through enhanced market access for developing countries in both Agriculture and NAMA. To that end, we instruct our negotiators to ensure that there is a comparably high level of ambition in market access for Agriculture and NAMA. This ambition is to be achieved in a balanced and proportionate manner consistent with the principle of special and differential treatment".

The adoption of a formula for unilateral tariff reductions is the most substantial enhancement of market access that the Doha round of trade negotiations has so far provided. As the result of lower co-efficients developing nations will benefit about 1% more than developed nations. It should be noted that to be considered a least developed countries that nation must produce less than 0.1% of international trade. The change is marginal but the formula makes the long term objective of the World Trade Organization more clear than ever.

Sources from the World Trade Organization:

1. Agriculture Agreement. Uruguay Round. Final Act of the General Agreement on Tariffs and Trade (GATT). 1994
2. Ambassador Donald Stephenson. Chairman's Introduction to the Draft Non Agricultural Market Access. 17 July 2007
3. Doha Ministerial Declaration. 4th Round. 14 November 2001
4. Hong Kong Ministerial Declaration. 6th Round. 18 December 2005