Order Code RL33634
CRS Report for Congress
Received through the CRS Web
The World Trade Organization:
The Non-Agricultural Market
Access (NAMA) Negotiations
August 30, 2006
Ian F. Fergusson
Specialist in International Trade and Finance
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

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The World Trade Organization: The Non-Agricultural Market
Access (NAMA) Negotiations
Summary
Talks on Non-Agricultural Market Access (NAMA) in the World Trade
Organization’s (WTO) Doha Round refer to the cutting of tariff and non-tariff
barriers (NTB) on industrial and primary products, basically all trade in goods which
are not foodstuffs. The Doha Round was suspended for an indefinite period of time
in July 2006 due to differences in the agriculture negotiations. While the agriculture
negotiations have received greater scrutiny in the Doha round, trade of industrial and
primary products, the subject of the NAMA negotiations, continue to make up the
bulk of world trade. Average tariffs in developed countries have declined from 40%
at the end of World War II to 6% today through successive rounds of General
Agreement on Tariffs and Trade (GATT)/WTO trade negotiations. Developed
countries seek the reduction of continuing high tariffs in the developing world,
particularly from such countries as Brazil, India, and China. Developing countries
seek special and differential treatment and tie their cuts in industrial tariffs to
reductions in agricultural tariffs and subsidies.
Several econometric studies have modeled the possible effect of industrial tariff
liberalization on the global economy. The studies vary based on the assumptions and
data used. All but one found a greater net welfare benefit from liberalization of
manufacturing tariffs than from agriculture. The studies indicate that developing
countries in the aggregate would gain the most from manufacturing liberalization, at
least in relative terms, and that the single largest gainer in terms of net welfare
benefit would be China.
Negotiations on NAMA have proceeded slowly and have now been suspended
after the agriculture talks collapsed in July 2006. The main stumbling block has been
the negotiation of the tariff reduction formula. Members agreed to a Swiss-formula
non-linear tariff reduction formula approach at the December 2005 Hong Kong
Ministerial, one in which higher tariffs are decreased more than lower tariffs.
However, disagreements persist about the size or amounts of the tariff cuts. The talks
also seek to reduce the incidence of non-tariff barriers, which include import
licensing, quotas and other quantitative import restrictions, conformity assessment
procedures, and technical barriers to trade. Both the United States and the EU favor
using sectoral tariff elimination as an alternative modality for NAMA negotiations,
but negotiations have stalled on which products to cover and the extent of
participation (i.e. whether developing countries would be able to exempt themselves
from commitments). Developing countries have sought “less than full reciprocity in
reduction commitments,” as called for in the Doha Ministerial declaration.
Developing countries generally seek special and differential treatment through longer
implementation periods, less than formula cuts for some items, and outright
exclusions from some reductions. While some countries believe that they need this
special treatment to provide extra time for their industrial and manufacturing sectors
to develop, some economists argue that more immediate trade liberalization with few
or no exemptions would better serve developing countries. This report will be
updated as events warrant.

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Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Evolution of the NAMA Negotiations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Possible Effects of a NAMA Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Major NAMA Negotiating Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Tariff Reduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Tariff Binding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Special and Differential Treatment for Developing Countries . . . . . . 12
Non-Tariff Barriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Sectoral Approaches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Prospects for the Negotiations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
List of Tables
Table 1. Tariff Averages in Selected Countries . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Table 2. Net Welfare Benefits from Manufacturing Liberalization: Results
from Selected Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

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The World Trade Organization:
The Non-Agricultural Market Access
(NAMA) Negotiations
Introduction
Talks on Non-Agricultural Market Access (NAMA) in the World Trade
Organization (WTO) Doha Round refer to the reduction of tariff and non-tariff
barriers (NTBs) on industrial and primary products, basically all trade in goods which
are not foodstuffs. While the agriculture negotiations have received greater scrutiny
in the Doha round, trade of industrial and primary products, the subject of the NAMA
negotiations, continue to make up the bulk of world trade. Nearly $8.9 trillion in
manufactures and primary products were traded worldwide in 2004, accounting for
81% of world trade activity.1 In the United States, industrial and primary products
accounted for 66% of exports and 81% of imports in 2005.2 Hence, the outcome of
these negotiations could have a substantial impact on the U.S. trade picture and some
effect on the overall U.S. economy.
Previous to the Doha Round, industrial tariff negotiations were the mainstay of
General Agreements on Tariffs and Trade (GATT) negotiations. These rounds led to
the reduction of developed country average tariffs from 40% at the end of World War
II to 6% today. However, average tariff figures mask higher tariffs for many labor
intensive or value-added goods that are especially of interest to the developing world.
Moreover, average tariff levels in developing countries remain high, with average
industrial tariffs averaging about 13%.
For the United States and other developed countries, prospective gains from the
NAMA talks in this round would be from the reduction of high tariffs in the
developing world, particularly from such countries as Brazil, India, and China.
Developing countries were exempted from making concessions in market access in
previous rounds, thus sustaining the heavy tariff structure in those countries.
Developing countries are leery of opening up their markets to competition, often
making the argument that protectionist policies have been employed in the
development of many successful economies, from the European and North American
economies in the 19th century to the rise of the East Asian tigers in the 20th century.
However, as negotiating positions have made clear, developed countries are
demanding more access for their industrial products as a price for opening up their
agricultural sectors, where many developing countries have a comparative advantage.
Conversely, developing countries have held industrial tariff negotiations hostage to
1 World Trade Organization, International Trade Statistics 2005, p. 3.
2 Bureau of Economic Analysis, “ International Trade in Goods and Services, 2005 Annual
Revision,” June 9, 2006. [http://www.bea.gov/bea/newsrelarchive/2006/trad1306.pdf]

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movement on agriculture. This dynamic has been one of the factors contributing to
the current suspension of the negotiations.
Table 1. Tariff Averages in Selected Countries
Country
Manufacturing
Agriculture
Quad Countriesa
4.0
10.7
United States
4.6
9.5
European Union
4.2
19.0
Japan
3.7
10.3
Canada
3.6
3.8
Large Middle Incomeb
13.1
26.6
Lower-Incomec
13.2
16.6
Countries
Source: World Bank, Global Economic Prospects, 2004.
Note: Applied most favored nation, ad valorem tariff averages.
a. United States, European Union, Japan, Canada
b. Brazil, China, India, Korea, Russia, South Africa, Mexico, Turkey
c. Bangladesh, Indonesia, Guatemala, Kenya, Malawi, Togo, Uganda, Zimbabwe.
Legislation to implement any agreement that results from the Doha Round
negotiations would need to be passed by Congress. If considering such legislation,
Congress may examine the extent to which a potential agreement opens foreign
markets to U.S. exporters through the reduction of both tariff and non-tariff barriers.
Congress may also examine a potential agreement by its impact on the health of the
U.S. manufacturing sector, and its impact on manufacturing employment.
Evolution of the NAMA Negotiations
The current round of trade negotiations were launched at the 4th Ministerial of
the WTO, held at Doha, Qatar in November 2001. The course of the negotiations
were set in the Doha Ministerial Declaration, which provided the negotiating
objectives of the round in general terms. The objectives for the non-agriculture
market access negotiations were described in Paragraph 16, which read:
We agree to 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. The
negotiations shall take fully into account the special needs and interests of
developing and least-developed country participants, including through less than

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CRS-3
full reciprocity in reduction commitments... To this end, the modalities to be
agreed will include appropriate studies and capacity-building measures to assist
least-developed countries to participate effectively in the negotiations.
The NAMA paragraph was short on specifics and left the modalities for the
talks to negotiations. The general nature of the document reflected the reluctance of
many members to sign up for the round and the language has been characterized as
the least common denominator of what could be agreed upon at the time. However,
the declaration gives certain clues about what path the negotiations would take. First,
the declaration showed a clear intent to address concerns of the developing countries
by a commitment to reduce tariff peaks and escalations, to concentrate on products
of export interest to developing countries, and to provide special and differential
treatment (SDT), including “through less than full reciprocity in reduction
commitments” which became a mantra for developing countries. However, the
language on reducing tariff peaks, high tariffs, and escalation also suggests the desire
for a degree of tariff harmonization. This, in turn, would suggest the use of a non-
linear reduction formula (see “Tariff Reductions” below). Paragraph 16 allowed
members to take away from the Ministerial what they wanted, and to return to
specifics later. This initial ambiguity has haunted the negotiations to this day.
Negotiations proceeded at a slow pace in 2002 and 2003. Several deadlines for
agreement on negotiating modalities (i.e., methodologies by which negotiations are
conducted) were missed in the agriculture and industrial market access talks. Without
agreement, negotiators looked toward the September 2003 Cancún Ministerial to
resolve the modalities. In the weeks before Cancún, negotiating documents to
achieve this resolution were criticized by all sides, and expectations of the Ministerial
were reduced to achieving an agreement on the framework for the modalities to be
used in future negotiations.
During this period, the United States favored an aggressive tariff-cutting
negotiating strategy. In December 2002, the United States proposed the complete
elimination of tariffs by 2015. This proposal would have eliminated "nuisance" tariffs
(tariffs below 5%) and certain industrial sector tariffs by 2010, and would have
removed remaining tariffs in 5 equal increments by 2015.3 This proposal applied to
all countries and did not contain SDT language. Throughout the negotiations, the
United States generally has sought to limit the scope of special and differential
treatment, maintaining that it is in the developing countries' own interest to lower
tariffs, not least to promote trade among developing countries.
The initial European Union (EU) tariff reduction proposal relied on a
"compression formula," one in which all tariffs are compressed in four bands with
the highest band being 15%.4 A joint submission by the United States, Canada, and
the EU before the Cancún Ministerial first proposed the use of a Swiss-style
3 Market Access for Non-Agriculture Products, Communication from the United States,
(TN/MA/W/18), December 2, 2002.
4 Market Access for Non-Agriculture Products, Communication from the European
Communities, (TN/MA/W/11), October 31, 2002.

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harmonization (i.e. non-linear) formula for tariff reduction. This joint paper did
contain SDT language for developing countries in the form of credits awarded for
unilateral liberalization activity.5
In the end, industrial market access was not even discussed at the Cancún
Ministerial, which broke up over agriculture and the so-called “Singapore issues.”
Yet, a draft text from the Ministerial, known as the Derbez text, became the basis for
the July 2004 Framework Agreement, which, in turn, formed the basis for subsequent
negotiations. The July Framework Agreement reaffirmed the use of an unspecified
non-linear formula applied line-by-line that provides flexibilities for developing
countries. The text also supported the concept of sectoral tariff elimination as a
complementary modality for tariff reduction on goods of particular export interest to
developing countries, but it advanced no concrete proposal.
In negotiating the July Framework, developing countries resisted the wholesale
inclusion of the Derbez text. They insisted on a paragraph, included as the first
paragraph of the text, indicating that “additional negotiations are required to reach
agreement on the specifics of some of these elements,” the elements being the
formula, treatment of unbound tariffs, flexibilities for developing countries,
participation in sectoral tariff modalities, and preferential tariff beneficiaries. As in
the Doha Ministerial, ambiguity allowed for an immediate agreement, but sowed the
seeds of future disagreement.
As in other sectors, subsequent negotiations on NAMA have been conducted on
the basis of the July Framework Agreement. Although it was hoped that modalities
could be achieved in time for the 6th Ministerial at Hong Kong, this proved
optimistic, and progress was limited to incremental steps. For example, while the
July Framework called for a non-linear, harmonizing tariff reduction formula, the
Hong Kong Ministerial finally settled on the Swiss formula for tariff reduction, but
did not settle on coefficients for that formula.6 At the Ministerial, WTO members
agreed on a new deadline of April 30, 2006, to achieve final negotiating modalities
and to establish draft schedules based on these modalities by July 31, 2006. These
deadlines were not met, and after a contentious negotiating session on agriculture on
July 23, 2006, Director-General Pascal Lamy suspended the Doha Round
indefinitely.
Possible Effects of a NAMA Agreement
Several studies seek to estimate the potential gains emanating from the
reduction of tariffs on industrial products resulting from a successful outcome of the
Doha negotiations. These studies typically attempt to quantify the net welfare benefit
from various liberalization scenarios. They use models of the world economy known
5 “Non-Agricultural Market Access: Modalities,” Joint Communications from the United
States, the European Union, and Canada, (TN/MA/W/44), September 1, 2003.
6 For a detailed treatment of the current status of the negotiations, see “Major Negotiating
Issues” below.

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as computable general equilibrium (CGE) models, which provide computer
simulations of the world economy through equations that simulate the relationship
between economic variables. The models use the versions of the Global Trade
Action Project (GTAP) database, which compiles trade flows, and estimate the
economic impact of such flows on tariff revenues, production, prices, and welfare.7
Assumptions made in modeling the world economy, as well as the version of
the GTAP data used, affect the results of the studies. For example, it has been noted
that models that use the most recent data (GTAP version 6, using 2001 data) have
found smaller welfare gains to the world economy from trade liberalization. Previous
versions of the data did not reflect ongoing trade liberalization such as China’s entry
into the WTO, the implementation of preferential trading arrangements, or the phase-
in of previous liberalization commitments.8 The results also depend on whether a
given model uses static or dynamic assumptions such as constant or increasing
returns to scale, or whether the model accounts for unemployment or technology
transfer. The focus of these reports are often on the effects of agricultural
liberalization or on the potential gains (or losses) of developing countries. However,
this section restricts itself to those studies that model industrial or primary product
tariff reductions. Table 2 provides a summary of the model outcomes described
below.
One well-known attempt to gauge the impact of the multilateral trade
liberalization is the Michigan Model, a multi-country, multi-sector, general
equilibrium model that is used to analyze various trade policy changes and scenarios.9
In this study, conducted at the beginning of the round, the model measures the
welfare effects of a 33% reduction in tariffs and subsidies on agriculture, the same
reduction on tariffs in manufactures, and service sector liberalization. According to
this model, a 33% reduction in manufacturing tariffs would result in a net welfare
benefit of $163.4 billion to the world economy. The United States would achieve a
net $23.6 billion welfare gain, although Japan ($45.2 billion) and the EU (39.2
billion) would receive greater gains. Overall, the developed countries would achieve
$113.4 billion in net welfare gains and the developing countries led by China ($10.9
billion) would receive the other $50 billion in worldwide net benefit. The model’s
outcome suggests, the United States could gain primarily from services liberalization
($135 billion), would receive some net welfare benefit from manufacturing tariff
liberalization ($23.6 billion), but could suffer a net welfare loss of $7.23 billion from
the agricultural liberalization assumed in the model.10 The model suffers from the
use of older data from 1995, but is bolstered by more dynamic assumptions such as
increasing returns to scale and monopolistic competition.
7 For more information, see the GTAP website at Purdue University,
[https://www.gtap.agecon.purdue.edu/about/center.asp].
8 Frank Ackerman, “The Shrinking Gains from Trade: A Critical Assessment of Doha Round
Projections,” October 2005.
9 Drusilla K. Brown, Alan V. Deardorff, and Robert M. Stern, “Computational Analysis of
Multilateral Trade Liberalization in the Uruguay Round and Doha Development Round,”
University of Michigan Discussion Paper #489.
10 Ibid., p. 13.

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Table 2. Net Welfare Benefits from Manufacturing
Liberalization: Results from Selected Studies
Net Welfare Benefit
Study
Assumption
($billion)
Michigan Model (2001)
33% Tariff Reduction
$163.4
World Bank (2005)
full liberalization
$105
50% developed/33%
$21.6
developing tariff reduction
Carnegie (2006)
50% developed/33%
$53.1
developing tariff reduction
36% developed/24%
$38.6
developing tariff reduction
UNCTAD (2005)
Full liberalization
$200.8
Swiss formula coefficients,
$134.7
3.4% developed/ 12.5%
developing
Swiss formula coefficients,
$107.6
6.8% developed/ 25%
developing
OECD (2006)
full liberalization
$23.4
The World Bank and several other organizations have modeled the effect of
trade liberalization using more recent GTAP-6 data from 2001. The World Bank
study found that full liberalization of all merchandise trade (including agriculture)
could lead to a $287 billion increase in real income by 2015. Full liberalization in
industrial manufactures alone would lead to a $105 billion increase in real income,
divided between a $38 billion increase from textiles and apparel liberalization, and
a $67 billion increase from liberalization for other manufacturers. Developed
countries could receive the largest share of benefit from full liberalization in dollar
terms ($57 billion v. $10 billion for developing countries), but developing countries
may achieve greater benefits in proportion to the size of their economies. The World
Bank study found that developing countries would receive a preponderance of the
benefits resulting from textile and apparel liberalization ($22 billion v. $16 billion
in the developed world).
The World Bank study also modeled possible Doha Round outcomes. In
computing a 50% reduction by developed country tariffs and a 33% reduction by
developing countries for all merchandise trade (agriculture and industrial), the study
found that welfare gains from such liberalization could total $96.1 billion. Of this

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amount, industrial tariff liberalization could provide $21.6 billion of extra net welfare
benefit with $7.1 billion accruing to developing countries.11
A Carnegie Endowment for International Peace study12 uses an applied
general equilibrium model with some novel features that attempt to account for the
presence of unemployment in developing countries (most studies assume full
employment), and to chart the dynamic effects of technology transfer, which
increases along with trade. The model poses two different scenarios for possible
manufacturing outcomes of the Doha Round: an ambitious scenario of a 50%
reduction in developed country tariffs and a 33% reduction in developing country
tariffs and a more modest scenario for manufacturing with a 36% reduction in
developed country and a 24% reduction in developing country tariffs. The authors of
the model warn the extent of liberalization may be overstated due to the model’s use
of applied, rather than bound tariffs.
The study found global real income gains from manufacturing were $53.1
billion for the ambitious scenario and $38.1 billion for the modest scenario. The
liberalization of manufacturing tariffs represented over 90.6% of the gains from the
Doha round liberalization in the ambitious scenario and over 87% for the more
modest formula. In the ambitious scenario, the gains were apportioned between
$30.2 billion (56.8%) for developing countries and $23 billion (43.2%) accruing to
developed countries. The more modest scenario yielded $21 billion to developing
countries and $16.4 billion to developed countries. In either scenario, the largest
recipient of welfare gains is China at $14.8 billion and $10.6 billion, respectively.
These figures represent nearly half of all gains shown for the developing world, and
slightly more than 1/4 of the gains overall. The study suggests that some regions,
such as Sub-Saharan Africa would be net losers in manufactured goods liberalization.
In terms of net gains or losses of world export market share for developing country
manufacturing exports under the modest scenario, China would be the largest gainer
with an approximate 0.33% increase in its share of world exports. Some countries
including Brazil, Mexico, South Africa, and the rest of Sub-Saharan Africa would
lose industrial market share under the modest scenario. For the United States, the
model suggests that real income gains resulting from manufacturing liberalization
would be nearly $6.5 billion for the ambitious Doha scenario and $4.5 billion in gains
for a more modest outcome.
The United Nations Committee on Trade and Development (UNCTAD) also
models trade liberalization in industrial sectors.13 The UNCTAD model uses a static
CGE model that assumes perfect competition and constant returns to scale. The study
models welfare gains under free trade and under several “Swiss” formula scenarios,
11 Kym Anderson, Will Martin and Dominique van der Mensbrugghe, “Doha Merchandise
Trade Reform: What’s At Stake for Developing Countries,” World Bank Policy Research
Paper, February 2006.
12 Sandra Polaski, “Winners and Losers: The Impact of the Doha Round on Developing
Countries,” Carnegie Endowment for International Peace, 2006, p.70.
13 Santiago Fernandez de Cordoba and David Vanzetti, “Now What? Searching for Solutions
to the WTO Industrial Tariff Negotiations,” [http://192.91.247.38/tab/events
/namastudy/coping.asp?pf=1].

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the formula under which negotiations are now taking place (see “Tariff Reductions”
below).14 Under the complete liberalization scenario, the net welfare benefit accruing
to the entire world was estimated at $200.8 billion, with developing countries
accruing $135.3 billion of that. Over 1/3 of that gain would accrue to China ($48.6
billion). The EU would receive the largest gains among developed countries at $28.5
billion, and the study predicted the United States would receive $11.2 billion in
benefits.
The UNCTAD study also models Swiss formula reductions using coefficients
equaling the average weighted industrial bound tariff by group (3.4% for developed
countries, 12.5% for developing countries) with one scenario modeling the respective
coefficients at twice that level. This model generated net welfare gains between
$107.6 billion and $134.7 billion. Under the scenarios, developing countries gained
$65.2 billion to $86.9 billion of this figure, nearly 2/3 of the gains. Again, China
gained the most between $34.8 billion and $41.2 billion, around ½ of total world
welfare gains. The model shows U.S. gains of $5.8 billion and $7.0 billion,
respectively. While this study has the advantage of using an agreed-upon negotiating
modality, the study does not use coefficients actually proposed during the
negotiations.
A 2006 Organization for Economic Cooperation and Development (OECD)
study found that worldwide net welfare gains from full tariff liberalization in
manufactured goods could be $23.4 billion, which represented 56% of all tariff
reduction gains. Seventy-three percent of this gain went to developing countries ($17
billion) with $6.3 billion accruing to the developed world. In relation to the size of
their economies, developing countries gained relatively more with such gains
equaling 0.33% of developing country GDP, versus 0.05% for developed countries.
Notable in this survey was an outcome showing that North America would suffer the
largest welfare loss from manufacturing liberalization ($6.8 billion) due to, according
to the authors, an unfavorable terms-of-trade effects in the motor vehicle and related
industries, resulting from lower prices in the sector.15 The study also modeled several
Swiss formula scenarios, but the models did not differentiate between agriculture and
manufacturing tariffs.
Because of the differing assumptions made in these models and the different
datapoints generated by them, it is difficult to generalize about their results. All but
one found a greater net welfare benefit from liberalization of manufacturing tariffs
than from agriculture. The studies suggest that developing countries would gain the
most from manufacturing liberalization, at least in relative terms, and that the single
largest gainer in terms of net welfare benefit would be China. Most of these studies
indicate the United States could achieve modest net welfare gains from
manufacturing liberalization.
14 The study also modeled other tariff cutting modalities that were not adopted by WTO
negotiators; these are not considered here.
15 Prezemyslaw Kowalski, “The Doha Development Agenda: Welfare Gains from Further
Multilateral Tariff Liberalization,” in Trading Up: Economic Perspectives on Development
Issues in the Multilateral Trading System, OECD, 2006, p.32.

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Major NAMA Negotiating Issues
Tariff Reduction. The principal negotiating issue in the NAMA talks has been
over the tariff formula. The December 2005 Hong Kong Ministerial declaration
endorsed the use of a non-linear, “Swiss” style, tariff reduction formula. This result
builds on previous negotiations, beginning with the Doha Ministerial Declaration,
which launched the round in November 2001. That Declaration committed member
nations to negotiate the reduction or elimination of tariffs, based on modalities to be
agreed in the talks. Negotiating modalities discussed for the NAMA talks included
cuts determined by formula, by a request-offer approach, or by agreement to
harmonize or eliminate tariffs in a specific sector -- all of which had been used in
previous rounds of negotiations.
The Doha Declaration called for the reduction or elimination of tariff peaks or
tariff escalation. Tariff peaks refer to a country’s adoption of the maximum
allowable tariff in order to protect sensitive products from competition. Tariff peaks
are levied by the United States for certain textile products, footwear, and watches.
Tariff escalation is the practice of increasing tariffs as value is added to a commodity.
As an example of tariff escalation, cotton would come in with a low tariff, fabric
would face a higher tariff, and a finished shirt would face the highest tariff. Tariff
escalation is often employed to protect import-competing, value-adding industries.
Peak tariffs and escalations are levied particularly against the products of developing
countries, thereby adding to the cost of consumer goods in developed countries.
Negotiations to achieve modalities proceeded at a slow pace, but after more than
two years including the ill-fated Cancun Ministerial, the July 2004 Framework
Agreement endorsed a non-linear formula applied on a line-by-line basis as a
modality to conduct tariff reduction negotiations. A non-linear formula works to
even out or harmonize tariff levels among participants. This type of formula would
result in a greater percentage reduction of higher tariffs than lower ones, resulting in
a greater equalization of tariffs at a lower level than before. Negotiations on a “line-
by-line” basis means that the formula would not be applied as an average to industrial
categories, but to the tariff line of each individual product. A harmonization formula
would also work to reduce tariff peaks and tariff escalations, another stated goal of
the Doha declaration. By contrast, an example of a linear formula would be one that
reduced tariffs by a certain percentage across the board. Consequently, this formula
would not change the relative tariff rates among members. A country with relatively
high tariffs before undergoing the formula would still have high tariffs relative to
other countries afterwards. This approach is generally favored by countries with high
tariffs or certain tariff peaks that the country seeks to preserve.
After a further 18 months of largely fruitless negotiations, the December 2005
Hong Kong Ministerial formally adopted the Swiss formula as the non-linear formula
by which industrial tariff cuts would be negotiated. It is known as the Swiss formula
because it was the formula proposed by Switzerland, and later adopted by GATT
members, to cut tariffs in the 1970s Tokyo Round. The Swiss formula is,

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T= at/(a+t)
where T, the resulting tariff rate, is obtained by dividing the product of the coefficient
(a) and the initial tariff rate (t) by the sum of the coefficient (a) and the initial tariff
(t). Selection of the coefficient is key, because it determines the final tariff; a lower
coefficient results in a lower tariff (T). In addition, the equation works in such a way
that the coefficient also represents the country’s maximum tariff after the formula has
been applied.
Although the Ministerial agreed to a Swiss formula, it did not agree on the
coefficients that would finalize the negotiating modalities. Before the Round was
suspended in July 2006, negotiations in Geneva were being conducted around the use
of two coefficients for the formula, with one value for developed countries and
another, higher, value for developing countries. The EU in its cross-cutting proposal
of October 2005 proposed a coefficient of 10 for developed countries and 15 for
developing and least developed countries (LDCs); this ratio was subsequently
endorsed by the United States.16 Pakistan proposed that the developed countries have
a coefficient of 6 and developing countries a coefficient of 30.17 Other proposals
suggested a range of figures. New Zealand has suggested that the difference between
the two should be no more the five percentage points.18 Developing countries
contend that they should be afforded a higher coefficient based on language in the
Doha Ministerial Declaration affording them “less than full reciprocity in reduction
commitments.”
An alternate developing country proposal distinct from the Swiss formula with
multiple coefficients is one put forth by Argentina, Brazil, and India, known as the
ABI proposal.19 ABI also uses the Swiss formula, but it proposes the coefficient to
be the tariff average of each country, thus each country would have its own
coefficient. ABI would not result in tariff harmonization among countries because
there would not be a common coefficient; however, it would result in harmonization
across products within each country’s tariff schedule.20
Just prior to the June 30-July 1, 2006 mini-ministerial in Geneva, Pascal Lamy
suggested a possible compromise in the form of the 20-20-20 proposal. In addition
to advocating a ceiling of $20 billion in U.S. domestic agriculture support and the use
of the G-20 agricultural market access proposal for developed countries, Lamy
advocated a developing country of coefficient of 20 for the NAMA Swiss formula.
The NAMA element of the proposal was criticized by U.S. and EU officials as
lacking ambition. U.S. manufacturing groups scored the proposal as failing to
16 “U.S., EU to Work Together on NAMA,” Inside U.S. Trade, March 3, 2006.
17 “The Way Forward, Communication from Pakistan, (TN/MA/W/60), July 21, 2005.
18 “New Zealand’s Ambitious NAMA Plan,” Washington Trade Daily, June 9, 2006.
19 “Market Access for Non Agricultural Products,” (TN/MA/W/54), April 15, 2005.
20 Sam Laird, “Economic Implications of WTO Negotiations on Non-Agricultural Market
Access.,” [http://www.nathaninc.com/nathan/files/ccLibraryFiles/Filename/000000000044/
Economic%20Implications_Laird.pdf].

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provide sufficient market access to make a deal worthwhile to U.S. manufacturers.
Brazil, for its part, attacked the proposal as too ambitious, and renewed its call for a
coefficient of 30 for developing countries. Although this proposal was dismissed
during the mini-ministerial, it was subsequently endorsed by World Bank President
Paul Wolfowitz in a letter to leaders prior to the G-8 summit in St. Petersburg in July
2006.21
Tariff Binding. A second issue in the negotiations is the process of tariff
binding and the use of bound tariffs in the reduction formula. Under Article II of the
GATT, tariffs are “bound” at a specific levels of customs duty when an agreement
is reached between nations on a most-favored nation basis to: (1) lower a duty to a
stated level; (2) maintain an existing level of duty; or (3) not to raise a duty above a
specified level. Tariffs can be bound as a specific duty per item or as an ad valorem
duty. An ad valorem tariff is set as a percentage of the value of an imported good,
while a non-ad valorem or specific tariff uses some other measurement such as a
fixed rate per unit or weight of goods. The binding of tariffs provides for stability
and predictability in the trading system by preventing the raising of tariff rates except
under strict circumstances accompanied by compensatory actions.
The Uruguay Round achieved success in binding tariffs in both developing and
developed countries. For all countries, the percentage of imports under bound rates
increased from 68% to 87%. The percentage of imports under bound rates increased
from 78% to 99% in developed countries, from 73% to 98% in transition economies,
and from 21% to 73% in developing countries.22
The value of tariff binding to the world trading system is that it sets a maximum
tariff which cannot be exceeded without penalty. However, many countries actually
apply much lower tariffs to imported goods. These applied tariffs can vary widely
from bound tariffs especially in developing countries. Although the United States,
the EU, and several other NAMA “Friends of Ambition” advocated the use of
applied tariffs as the basis by which tariff formula cuts be made, the July Framework
and the subsequent Hong Kong Ministerial document decided to implement tariff
cuts based on bound rates.
This decision has implications for the tariff formula. Because bound tariffs are
often significantly higher than applied tariff levels, reductions from applied rates
would result in greater cuts to actually applied tariffs. Thus for the negotiations to
provide actual market access, as opposed to just cutting the binding rate, the formula
coefficient must be lower. Higher coefficients would work to exclude some tariffs
line from any actual cuts in applied tariffs, especially in developing countries.
However, it has been noted that the use of the applied rate may serve as a
disincentive for countries to undertake unilateral liberalization in the future. Under
this reasoning, countries would hesitate to undertake unilateral tariff reductions if
21 “World Bank Chief Backs 20-20-20 Plan to Break Impasse in WTO Agriculture Talks,”
WTO Reporter, July 11, 2006.
22 “Understanding the WTO. Tariffs: More Bindings and Closer to Zero,”
[http://www.wto.int/english/thewto_e/whatis_e/tif_e/agrm2_e.htm].

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they knew that multilateral liberalization efforts would use the applied rate that the
country had already unilaterally lowered as a starting point. It may also increase the
incentive to raise applied rates prior to negotiation.23
A second goal of the Doha negotiations in the area of tariff bindings concerns
the binding of tariffs by developing countries. Because the binding process commits
a country not to raise tariffs beyond a certain level, binding has been seen as the first
step in tariff reduction. Under the 2004 Framework Agreement, reductions in
unbound tariff lines would be calculated from twice the currently applied rate.
However, the Hong Kong Ministerial Declaration adopted a ‘constant non-linear
mark-up approach,’ but did not adopt any particular formula. Generally, such an
approach would add a certain number of percentage points to the applied rate of the
unbound tariff line in order to establish the base rate on which the tariff reduction
formula would be applied. Discussions have ranged from 5-30 percentage points as
the addition. The Framework also provided flexibility for developing countries who
have bound less than 35% of their tariff lines. They would be exempt from tariff
reduction commitments in the Round provided that they bound the remainder of their
non-agricultural tariff lines at the average tariff for all developing countries, which
now stands at 28.5%. Subsequent discussions on this issue have backtracked
somewhat, however, with some developing countries seeking binding rates of 70-
95%.24
In addition, all tariffs are to be bound in ad valorem terms; all remaining non-
ad valorem tariffs would be converted and bound by a methodology to be determined
through negotiation. While non-ad valorem tariffs are more prevalent in agriculture,
they continue to be employed for non-agricultural tariffs and are not solely a
developing country phenomenon. One study calculates that 4.2% of lines in the
United States tariff schedule remain non ad-valorem and for Switzerland the figure
is 82.8%.25
Special and Differential Treatment for Developing Countries. The
July Framework provided several flexibilities (known as Paragraph 8 flexibilities) to
developing country members. It permits developing countries longer periods to
implement tariff reductions. Under the Framework, developing countries may also
choose one of the following flexibilities: (1) apply less than formula cuts for up to
10% of tariff lines provided that the cuts applied are no less than half the formula
cuts and that the tariff lines do not exceed 10% of the value of all imports, or (2) keep
tariff lines unbound or not applying formula cuts for 5% of tariff lines provided they
do not exceed 5% of the value of a member’s imports. The aforementioned
percentages are working hypotheses and have not been formally agreed upon.
23 Joseph Francois and Will Martin, “Formula Approaches for Market Access Negotiations,”
The World Economy, January 2003, p. 17.
24 WTO Negotiating Group on Market Access, “Towards NAMA Modalities,”
(TN/MA/W/80), July 19, 2006. Available at WTO Documents Online,
[http://docsonline.wto.org].
25 Marc Bacchetta and Bigit Bora, “Industrial Tariff Liberalization and the Doha
Development Agenda,” WTO Working Paper, 2003, p. 15.

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Least developed countries (LDCs) would not be required to apply formula cuts,
nor participate in the sectoral cuts, but would undertake to “substantially” increase
their level of bound tariffs. The Hong Kong Ministerial also agreed that developed
countries and developing countries in a position to do so would grant LDCs duty-free
and quota-free access to 97% of their tariff lines as part of their Doha obligations.
The negotiations have also acknowledged the challenge of designing tariff reductions
for countries that are already beneficiaries to various preference programs such as the
U.S. African Growth and Opportunity Act or the EU’s Everything But Arms
Initiative.26
The relationship between the Paragraph 8 flexibilities and the formula
negotiations have proved controversial. Developed countries, such as the U.S. and
the EU have linked the flexibilities to the value of the coefficient in the tariff
reduction formula. At Hong Kong, the U.S. and EU wanted developing countries to
give up some of the flexibilities they would be granted under paragraph 8 in
exchange for a higher coefficient in a tariff reduction formula.27 Developing
countries rejected this linkage, contending that the Paragraph 8 flexibilities stand
alone and are unrelated to the value of the coefficients in the tariff reduction formula.
While the Hong Kong Ministerial Declaration reaffirmed the Paragraph 8 flexibilities
“as an integral part of the modalities,” the Declaration did not endorse that group's
contention that the flexibilities are a stand-alone provision immune to negotiation
concerning the tariff reduction formula.28
Non-Tariff Barriers. The industrial market access talks also encompass
negotiations on the reduction of non-tariff barriers. Non-tariff barriers include such
activities as import licensing, quotas and other quantitative import restrictions,
conformity assessment procedures, and technical barriers to trade. The July
Framework instructed members to submit notification of NTBs by October 31, 2004,
for negotiators to identify, examine, categorize and, ultimately, negotiate. Although
this notification procedure occurred, little substantive negotiations on NTBs have
taken place.
The NAMA chairman’s statement prior to the July 2006 Geneva mini-
ministerial indicates that specific requests and proposals have been made on export
taxes, export restrictions, and remanufactured goods, and on NTBs affecting the
automobile, electronic products, textiles, clothing and footware, and wood product
sectors. However, the chairman noted that some members oppose discussing
disciplines over export taxes or export restrictions as being outside the mandate of
the negotiations, while others argue that the negotiations are being hampered by the
lack of an agreed upon definition of non-tariff barriers.29 Recently, the European
Union and the NAMA-11 Group, an ad hoc negotiating group of developing
26 The EBA is an EU tariff preference program that provides LDCs with tariff-free, quota-
free access for their exports, excluding armaments.
27 “NAMA Official Warns of Impasse,” Inside U.S. Trade, December 16, 2005.
28 New NAMA Text Adds Language on Sectorals, Treatment of Unbound Tariffs, Inside
U.S. Trade, December 18, 2006.
29 TN/MA/W/18, p. 18.

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countries, have advocated the establishment of a mechanism, apart from dispute
settlement, to facilitate the resolution of NTBs in short-time frames as they arise.30
Sectoral Approaches. WTO members have agreed to consider the use of
sectoral tariff elimination as a supplementary modality for the NAMA negotiations.
Sectoral initiatives, such as tariff elimination or harmonization, permit a critical mass
of countries representing the preponderance of world trade in a commodity to agree
to eliminate tariffs in that good. Such an arrangement requires the participation of
the major players, however, because under most-favored-nation principles those
tariffs would be eliminated for all countries, even those not reciprocating. The 1996
Information Technology Agreement is an example of a completed sectoral tariff
elimination agreement in which 41 countries have eliminated tariffs on 180 products.
Sectoral negotiations have been proposed for bicycles, chemicals,
electronics/electrical equipment, fish, footwear, forest products, gems and jewelry,
pharmaceuticals and medical equipment, raw materials and sporting goods.31
Textiles, apparel, and auto parts have also been mentioned for sectoral negotiations.
While some developing countries have participated in these discussions, and have
proposed some sectors, other developing countries have questioned engagement in
sectoral negotiations prior to settling on a formula for negotiations. The Hong Kong
Ministerial Declaration took note of these sectoral negotiations and instructed
negotiators to determine which sectors “could garner sufficient support to be
realized.”
Prospects for the Negotiations
The Doha Round negotiations have been suspended since negotiations broke
down over agriculture tariffs and subsidies on July 23, 2006. Although negotiators
have expressed hope for a quick resumption, the suspension of the negotiations has
all but assured that any eventual agreement will not be reached in time for
consideration under current U.S. trade promotion authority (TPA). The de facto
deadline for the round has become the expiration of TPA in the United States on July
1, 2007. If the expedited TPA procedures are to apply, absent Congressional action,
a completed agreement must be submitted to Congress by March 31, 2007. It is
commonly assumed that even if the talks were moving forward in reaching their
deadlines, it would take many months to produce a final schedule of concessions
through bilateral negotiations and to verify the tariff schedules of others. Without the
TPA deadline acting to concentrate the efforts of negotiators, the talks may be held
hostage to the electoral time line, one that includes upcoming elections in the United
States, Brazil, France, and Japan.
30 “Negotiating Proposal on WTO Means to Reduce the Risk of Future NTBs and to
Facilitate their Resolution,” Communication from the European Communities,
(TN/MA/W/11/add.8), May 1, 2006; “Resolution of NTBs through a Facilitative
Mechanism,” Submission by the NAMA-11 Group, (TN/MA/W/68/Add.1), May 8, 2006.
31 “Draft Ministerial Text,” (Job(05)/298, Annex B) p. B-4.

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Although the suspension of the negotiations does not, by itself, mean the end of
the Doha Round, a prolonged pause may have consequences for industrial tariff
liberalization. First, the negotiation of bilateral and regional free trade agreements
may accelerate. In the wake of the suspension, the United States, the EU, Brazil, and
India all announced plans to concentrate on additional bilateral liberalization. While
bilateral or regional free trade agreements (FTA) potentially can completely remove
tariffs any other trade distortions between negotiating countries, the proliferation of
these agreements may complicate international trade as exporters must navigate
competing tariff schedules, rules of origin, or other non-tariff barriers. This prospect
can lead trade diversion, a trade distortion in which countries trade based on tariff
levels and not on comparative advantage. A related question is whether the
proliferation of these agreements may erode the willingness of participating countries
to negotiate multilaterally, especially if countries are able to strike deals with their
major trading partners.
A further consequence may be the loss of agreements already made at the
negotiations. While the NAMA talks are far from completed, some components (such
as the Swiss formula) have been agreed. It is possible that a prolonged suspension of
talks may imperil the progress that has been made as countries may withdraw what
they have agreed in an attempt to extract additional leverage in the talks.
It is also unlikely that the NAMA talks could continue without a renewal of the
agriculture talks. For good or ill, the agriculture talks have become the linchpin of the
negotiations. Aside from the intrinsic importance developing countries place on the
agricultural talks, many developing countries appear to have used the NAMA
negotiations as a bargaining chip to hold out for better agriculture offers. These
countries often hold defensive positions in the NAMA talks and seek expanded
agricultural access in protected and subsidized developed country agricultural
markets as recompense for any NAMA concessions they might make. Conversely,
developed countries seek market openings in industrial products to offset their
concessions in agriculture. Because of the negotiating principle of the single
undertaking, in which nothing is agreed until everything is agreed, separate
agreements in discrete negotiating areas are unlikely.

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