Malawi’s Response to the adoption of the Malawi’s Response to the adoption of the Swiss calculation of tariff and impact to the Swiss calculation of tariff and impact to the

economy:economy:Presentation at Post Hong Kong WTO Presentation at Post Hong Kong WTO

SADC CSO Strategic ConferenceSADC CSO Strategic Conferenceonon

Thursday 6Thursday 6thth April 2006 Johannesburg April 2006 Johannesburgbyby

Lloyd A. MuharaLloyd A. MuharaTrade Policy National Working Group, Trade Policy National Working Group,

MalawiMalawi

Hong Kong WTO MinisterialHong Kong WTO Ministerial Introduction – Assumption is that WTO is Introduction – Assumption is that WTO is

familiar to all familiar to all - First Ministerial 1996- First Ministerial 1996 - DDA – 2001 to 2005- DDA – 2001 to 2005 - 6 Meetings (4-2)- 6 Meetings (4-2) Organisational Issues- Transparency, Organisational Issues- Transparency,

Involvement and participation of members Involvement and participation of members Main players: developed and developingMain players: developed and developing Developing country coalitions: African Developing country coalitions: African

Group, ACP, LDCs, G90Group, ACP, LDCs, G90 G110 – G90 + G20 – New Development G110 – G90 + G20 – New Development

Hong Kong WTO MinisterialHong Kong WTO MinisterialMAJOR ISSUESMAJOR ISSUES

AgricultureAgriculture NAMANAMA ServicesServices RulesRules TripsTrips LDCSLDCS Development Development Aid for TradeAid for Trade Other (Minor) IssuesOther (Minor) Issues

AgricultureAgriculture Formula: reduction of tariffs and Formula: reduction of tariffs and

TDSTDS Increased market accessIncreased market access PreferencesPreferences Timeframe for reduction of TDSTimeframe for reduction of TDS Elimination of export subsidiesElimination of export subsidies Special products and special Special products and special

safeguard mechanismssafeguard mechanisms Sensitive productsSensitive products CottonCotton

Non Agricultural Market Access Non Agricultural Market Access (NAMA)(NAMA)

Origin of Swiss FormulaOrigin of Swiss Formula DOHA Declaration Para 16 – Market Access DOHA Declaration Para 16 – Market Access

for Non-Agricultural Products.for Non-Agricultural Products. “ “We agree to negotiations which shall We agree to negotiations which shall

aim, by modalities to be agreed, to reduce aim, by modalities to be agreed, to reduce or as appropriate eliminate tariffs, or as appropriate eliminate tariffs, including the reduction or elimination of including the reduction or elimination of tariff peaks, high tariffs, and tariff tariff peaks, high tariffs, and tariff escalation, as well as non-tariff barriers, in escalation, as well as non-tariff barriers, in particular on products of export interest to particular on products of export interest to developing countries”.developing countries”.

Non Agricultural Market Access Non Agricultural Market Access (NAMA) (Continued)(NAMA) (Continued)

““Modalities to be Agreed”;Modalities to be Agreed”;

- Swiss Formula Vs. Other Formula- Swiss Formula Vs. Other Formula

(Girard)(Girard)

- Debate in Cancun was - Debate in Cancun was

Inconclusive Inconclusive

THE SWISS FORMULATHE SWISS FORMULA

Formally adopted by WTO through Para 14 of Formally adopted by WTO through Para 14 of Hong Kong Ministerial Declaration:Hong Kong Ministerial Declaration:

““We adopt a Swiss Formula with coefficients at We adopt a Swiss Formula with coefficients at levels which shall levels which shall inter aliainter alia::

- Reduce or as appropriate eliminate tariffs, - Reduce or as appropriate eliminate tariffs, including the reduction or elimination of tariff including the reduction or elimination of tariff peaks, high tariffs and tariffs escalation, in peaks, high tariffs and tariffs escalation, in particular on products of export interest to particular on products of export interest to developing countries; anddeveloping countries; and

THE SWISS FORMULA THE SWISS FORMULA (Continued)(Continued)

- Take fully into account the special - Take fully into account the special needs and interests of developing needs and interests of developing countries, including less than full countries, including less than full reciprocity in reduction reciprocity in reduction commitments.”commitments.”

The Negotiating Group was The Negotiating Group was instructed to finalise the Formula’s instructed to finalise the Formula’s structure and details “as soon as structure and details “as soon as possible”.possible”.

THE SWISS FORMULA THE SWISS FORMULA (CONTINUED)(CONTINUED)

Paragraph 6 to 16 of Annex B – HKM Paragraph 6 to 16 of Annex B – HKM – Contains details of the Formula as – Contains details of the Formula as proposed by Chairman of the proposed by Chairman of the Negotiating Group.Negotiating Group.

Meaning: Those members of the WTO Meaning: Those members of the WTO which or who have higher tariffs will which or who have higher tariffs will face greater reduction while those face greater reduction while those maintaining lower tariffs will face maintaining lower tariffs will face lower reduction.lower reduction.

THE SWISS FORMULA THE SWISS FORMULA (CONTINUED)(CONTINUED)

:What Ministers agreed is the general :What Ministers agreed is the general principle; the actual coefficients which will principle; the actual coefficients which will determine the reduction levels were not determine the reduction levels were not agreed upon and this is what was deferred agreed upon and this is what was deferred and referred to the Negotiating Group. and referred to the Negotiating Group.

What Ministers agreed, however, is “to What Ministers agreed, however, is “to establish modalities no later than 30establish modalities no later than 30thth April April 2006 and to submit comprehensive draft 2006 and to submit comprehensive draft schedules based on these modalities no schedules based on these modalities no later than 31later than 31stst July 2006”. (Para. 23, HKM). July 2006”. (Para. 23, HKM).

Swiss Formula (Continued)Swiss Formula (Continued)

Do we have a formula? Maybe yes. Do we have a formula? Maybe yes. But we surely do not have the But we surely do not have the values to go into the formula.values to go into the formula.

So formula incomplete at this stageSo formula incomplete at this stage

SWISS FORMULA AND THE SWISS FORMULA AND THE MALAWI ECONOMYMALAWI ECONOMY

Malawi Economy, Agriculture based, Malawi Economy, Agriculture based, commodity exporter.commodity exporter.

Very low IndustrialisationVery low Industrialisation Importation of a large proportion of Importation of a large proportion of

finished and intermediary goodsfinished and intermediary goods Swiss Formula Swiss Formula NAMANAMAindustrial industrial

tariffstariffs

SWISS FORMULA AND THE SWISS FORMULA AND THE MALAWI ECONOMY (CONT’D)MALAWI ECONOMY (CONT’D)

Tariffs: “Tariffs introduce a wedge Tariffs: “Tariffs introduce a wedge between the world price of a product between the world price of a product and the price in the domestic and the price in the domestic market” – (market” – (p. 219, Richard p. 219, Richard Newfarmer, Trade, Doha, and Newfarmer, Trade, Doha, and DevelopmentDevelopment))

Tariffs are barriers to free tradeTariffs are barriers to free trade

The IssuesThe Issues

Malawi’s highest industrial tariff is 25%. Malawi’s highest industrial tariff is 25%. For Agricultural goods it is 20-25%.For Agricultural goods it is 20-25%.

Low applied industrial tariff a result of WB Low applied industrial tariff a result of WB & IMF structural adjustment programmes.& IMF structural adjustment programmes.

The premium (from tariffs) normally The premium (from tariffs) normally accrues to the government of the accrues to the government of the importing country as tariff revenue “- importing country as tariff revenue “- (p.219, Richard Newfarmer).(p.219, Richard Newfarmer).

Tariff Revenue forms 11 to 16% of total Tariff Revenue forms 11 to 16% of total Malawi Government revenue.Malawi Government revenue.

The Issues (Continued)The Issues (Continued) Reduction from 25% under Swiss Formula?Reduction from 25% under Swiss Formula? As observed in Hong Kong and prior to As observed in Hong Kong and prior to

Hong Kong, most developing countries are Hong Kong, most developing countries are reluctant to reduce industrial tariffs as reluctant to reduce industrial tariffs as such cuts will adversely affect not only such cuts will adversely affect not only their budget support but will also affect their budget support but will also affect their industrialisation policies (cheap their industrialisation policies (cheap imports Vs. domestic production).imports Vs. domestic production).

Products of export interest to Malawi – Products of export interest to Malawi – tobacco, tea and sugar.tobacco, tea and sugar.

Twist to the TailTwist to the Tail

New dimension:New dimension: Para 24 HKM – Balance between Agriculture and Para 24 HKM – Balance between Agriculture and

NAMANAMA “ “We recognise that it is important to advance the We recognise that it is important to advance the

development objectives of this Round through development objectives of this Round through enhanced market access for developing countries enhanced market access for developing countries in both Agriculture and NAMA. To that end, we in both Agriculture and NAMA. To that end, we instruct our negotiators to ensure that there is a instruct our negotiators to ensure that there is a comparably high level of ambition in market comparably high level of ambition in market access for Agriculture and NAMA. This ambition is access for Agriculture and NAMA. This ambition is to be achieved in a balanced and proportionate to be achieved in a balanced and proportionate manner consistent with the principle of special manner consistent with the principle of special and differential treatment”.and differential treatment”.

Twist in the TailTwist in the Tail Has Para 24 been adopted as a counter Has Para 24 been adopted as a counter

measure to the provisions on SDT as well measure to the provisions on SDT as well as relating to non-reciprocal preferences as relating to non-reciprocal preferences accruing to LDCs?accruing to LDCs?

Does this mean nothing moves in NAMA Does this mean nothing moves in NAMA unless there is movement in Agriculture unless there is movement in Agriculture and vice-versa? Single undertaking.and vice-versa? Single undertaking.

Meeting of Ministers in Geneva – April Meeting of Ministers in Geneva – April 2006.2006.

WHICH WAY MALAWI?WHICH WAY MALAWI?

As an LDC Malawi is exempted from As an LDC Malawi is exempted from making commitments or reducing tariffs making commitments or reducing tariffs under the Swiss or any Formula. (Para 9 under the Swiss or any Formula. (Para 9 of NAMA Framework)of NAMA Framework)

Thus Malawi advised to cling to Para 8 Thus Malawi advised to cling to Para 8 Flexibilities; so that at best 25% industrial Flexibilities; so that at best 25% industrial tariff be maintained (subject to Progress tariff be maintained (subject to Progress on Regional Integration) with possibility of on Regional Integration) with possibility of hiking it when need arise.hiking it when need arise.

WHICH WAY MALAWI WHICH WAY MALAWI (CONTINUED)(CONTINUED)

Exports – Agricultural – Reliance on non-Exports – Agricultural – Reliance on non-reciprocal preferences such as EBA, AGOA, reciprocal preferences such as EBA, AGOA, GSP.GSP.

Keep watch; Resist Trade offs between Keep watch; Resist Trade offs between Agricultural export preferences and Agricultural export preferences and industrial tariff cuts/disadvantageous. industrial tariff cuts/disadvantageous.

Survival Kit: SDT with preferences as main Survival Kit: SDT with preferences as main tool as Swiss Formula not very relevant.tool as Swiss Formula not very relevant.

Watch out – Swiss Formula may Watch out – Swiss Formula may affect the level of preference erosion affect the level of preference erosion to be experienced by the Malawi to be experienced by the Malawi economy.economy.

Extend of dependence on Extend of dependence on preferences by Malawi.preferences by Malawi.

Classification of Sub-Saharan countries by magnitude of the value of combined Classification of Sub-Saharan countries by magnitude of the value of combined (non-oil) preferences in the European Union, Japan and United States relative (non-oil) preferences in the European Union, Japan and United States relative

to total (non-oil) exports, 2002 to total (non-oil) exports, 2002 (p222, Richard Newfarmer(p222, Richard Newfarmer))

Less than 1 percentLess than 1 percent Angola, Burundi, Central African Angola, Burundi, Central African Republic, Chad, Congo, Democratic Republic, Chad, Congo, Democratic Republic of Congo, Djibouti, Equatorial Republic of Congo, Djibouti, Equatorial Guinea, Gabon, Guinea, Liberia, Mali, Guinea, Gabon, Guinea, Liberia, Mali, Niger, Nigeria, Rwanda, Sao Tome and Niger, Nigeria, Rwanda, Sao Tome and Principe, Somalia, South AfricaPrincipe, Somalia, South Africa

Between 1 percent and 5 percentBetween 1 percent and 5 percent Benin, Botswana, Burkina Faso, Benin, Botswana, Burkina Faso, Cameroon, Cape Verde, Comoros, Cameroon, Cape Verde, Comoros, Eritrea, Ethiopia, Ghana, Ivory Coast, Eritrea, Ethiopia, Ghana, Ivory Coast, Mauritania, Sierra Leone, Sudan, Mauritania, Sierra Leone, Sudan, Tanzania, Togo, Uganda, ZambiaTanzania, Togo, Uganda, Zambia

Greater than 5 percent but less than Greater than 5 percent but less than 10 percent10 percent

Gambia, Guinea-Bissau, Kenya, Gambia, Guinea-Bissau, Kenya, Madagascar, Mozambique, Namibia, Madagascar, Mozambique, Namibia, Senegal, ZimbabweSenegal, Zimbabwe

Greater than 10 percentGreater than 10 percent Lesotho, Malawi, Mauritania, Lesotho, Malawi, Mauritania, Seychelles, SwazilandSeychelles, Swaziland