International Trade

Trade in Goods

NAMA - Frequently Asked Questions

Frequently Asked Questions (FAQ) on Non Agricultural Market Access (NAMA)

FORMULA

Q1: What is the Swiss Formula?

A1: The Swiss formula is a non linear formula which is mathematically expressed as :
T_f =(A* T_o)/(A+ T_o) where
A= Swiss Coefficient
T_f = Final Tariff Rate
T_o = Initial Tariff Rate

Q2: What are the features of the Swiss formula?

A2: The Swiss formula is a non linear formula that carries out proportionately greater reductions on higher tariffs and vice versa. The nature of the Swiss formula is such that it:

1. it reduces all the final tariffs to below the value of the coefficient “A”
2. if the initial tariff is below the value of “A” the tariff reduction would be below 50%
3. if the initial tariff is higher than “A” the tariff reduction would be more than 50%
4. if the initial tariff is equal to “A” the tariff reduction would be 50%

Q3: Would the Swiss formula be beneficial or detrimental to developing countries like India?

A3: The reduction commitments under the Swiss formula is dependent on the choice of the coefficient “A”. Higher the value of “A” lower the reduction commitments and vice versa. Therefore every country would try to negotiate for as high a Swiss coefficient as possible in order to take on lower reduction commitments. The selection of the coefficient is hence crucial in order to determine the effect of the formula on the final tariff profile of any WTO member.

The reduction commitments on various tariffs under different Swiss coefficients is as under:

Q4: What is Less than Full Reciprocity (LTFR)?

A4: Less than Full Reciprocity or LTFR is a terminology being currently used in the NAMA negotiations. Though the term does not explicitly figure in any of the WTO legal texts, references to it were made in the Uruguay Round of trade negotiations. It is being interpreted by a large membership of the WTO; chiefly the developing countries to mean that they would take on lower percentage reduction commitments than the developing countries. The expression find reference in para 16 of the Doha Ministerial Declaration; paras 2 & 4 of Annex B of the Framework Agreement ; and para 7 of Annex B and paras 14 &15 of the Hong Kong Ministerial Declaration. India in its negotiating strategy has been arguing for LTFR to be interpreted in terms of the difference in the percentage reduction commitments taken on developing and developed countries.

For example a 10% LTFR would mean that developed countries take on a 10% higher reduction commitment than developing countries. If one assumes the developed country average tariff of 6% and a developing country average tariff of 30% and these being the most frequently occuring tariff in these countries; then assuming that the developing country agrees to a Swiss coefficient of 30, the developed country would have to take on a Swiss coefficient of 4 to achieve 10% LTFR for this frequently occuring tariff line.

Q5: Do the averages of the WTO members follow the same pattern as the individual tariff lines when subjected to a Swiss formula cut?

A5: No, the averages do not follow the same pattern in terms of percentage or absolute reductions as the individual tariff lines. This is on account of the fact that the Swiss formula is a non linear formula. This means that average tariffs are dependent on the tariff profile of the WTO member. The Swiss formula subjects each tariff line to a different percentage cut depending on the absolute value of these tariffs. Therefore the averages after the application of the formula cuts are dependent on the tariff profile of the WTO member.

FLEXIBILITIES:

Q1: What are the paragraph 8 flexibilities?

A1: The provision of flexibilities for developing countries was given in paragraph 8 of the Framework Agreement and goes as under:

Paragraph 8. We agree that developing-country participants shall have longer implementation periods for tariff reductions. In addition, they shall be given the following flexibility:

a) applying less than formula cuts to up to [10] percent of the tariff lines provided that the cuts are no less than half the formula cuts and that these tariff lines do not exceed [10] percent of the total value of a Member's imports; or

b) keeping, as an exception, tariff lines unbound, or not applying formula cuts for up to [5] percent of tariff lines provided they do not exceed [5] percent of the total value of a Member's imports.

We furthermore agree that this flexibility could not be used to exclude entire HS Chapters.

Q 2: How would these flexibilities help developing countries like India?

A 2: Flexibilities are intended to address the developmental imperatives of developing countries like India. They would assist in the economic development and address the special needs of the developing countries. They are particularly important for sensitive sectors of the economy especially those which are employment intensive, those which address the livelihood concerns of the economically weaker sections of the populace and those dealing with Small & Medium Enterprises who are the most vulnerable to any trade liberalisation.

India would use these flexibilities to keep such sensitive sectors completely or partially out of the purview of formula reductions or bindings.

Q3: Have the flexibilities been negotiated and would they be sufficient for countries like India?

A3: The flexibilities are still in the process of negotiations. The crucial point of negotiation is the bracketed numbers under paragraph 8 of the Framework Agreement. The adequacy of the flexibilities can be gauged only once the numbers are actually negotiated.

TREATMENT OF UNBOUND TARIFFS

Q1: What are Unbound and Bound Tariffs?

A1: Unbound tariffs are those tariffs on which the WTO members did not take on any commitment to bind in the earlier round of multilateral negotiations. The commitments were not taken since these lines were either sensitive or there was n o request from other WTO members for taking bindings on them. Therefore, theoretically a WTO member can increase the customs duty on its unbound tariffs to any level.

On the other hand, Bound tariffs are those tariffs on which the WTO member had taken a binding level in the earlier round of multilateral negotiations. The binding level is the maximum customs duty that can be leviable by a WTO member.

Q2: What is the difference between bound and applied rates?

A2: Bound rates as explained earlier is the binding level committed to by a WTO member beyond which he cannot increase his customs duty. Applied rates on the other hand are the customs duty actually levied by a WTO member on the import of that specific product. A member is free to alter applied duties on any tariff line at any point of time provided it is equal to or less than the bound rate committed. However, in the case of unbound tariff lines, a member is free to levy any amount of customs duty or the applied duty.

The difference in the bound and the current applied duty is what is known as the binding overhang. Higher the binding overhang, greater is the flexibility for a member to adjust his applied duties. However, on the other hand, this also creates uncertainty for exporters to that WTO member.

Q3: What is the treatment for unbound tariffs in the NAMA negotiations?

A3: The thrust of the NAMA negotiations has been to bind all tariff lines barring specific exemptions like flexibilities (only for those lines where developing country members want to keep unbound under para 8(b) of the Framework Agreement) etc. Therefore the NAMA negotiations have to decide on the base rate to be fixed for the unbound tariff lines from where the formula reductions have to commence.

Based on deliberations on the various proposals, the negotiating members have zeroed in on a non linear mark up for unbound tariffs and the same finds expression in para 17 of the Hong Kong Ministerial Declaration which goes as under:

Para 17. For the purpose of the second indent of paragraph 5 of the NAMA Framework, we adopt a non-linear mark-up approach to establish base rates for commencing tariff reductions. We instruct the Negotiating Group to finalize its details as soon as possible.

As per para 5 of Annex B of the Framework Agreement, the markup would be on the applied rates of November, 2001. Among the various proposals on the table, the various mark ups being suggested are 5% ( by Canada, Hongkong, China, New Zealand and Norway), inverted markup (by Mexico) and a fair markup (by NAMA 11 coalition).