COSATU+Press+statement+on+NAMA,+ZV,+HK

= **COSATU Press statement on NAMA – issued from Hong Kong** =

As the talks at the Word Trade Organisation continue, the Southern African region, Africa, and other developing countries and regions face an ever increasing threat of catastrophic job losses and even the very real potential of de-industrialisation. The developed countries are putting developing countries under enormous pressure to accept cuts in tariffs.

They are proposing a formula that, when applied, would cut tariffs across the board. The formula, which they are pushing very hard, is the Swiss formula, that calculates reductions from the existing maximum bound tariffs that are allowed on each product, according to each country’s commitments to the WTO. [A "bound" tariff is a tariff in respect of which there is a legal commitment not to raise it beyond the bound level.]

The formula is non-linear which means that the higher the tariff, the greater the decrease when the formula is applied. The extent of damage will depend on the outcome of the negotiations on the formula and coefficient to be used. The coefficient is a number to be negotiated that will be inserted into the formula, and will determine the extent of the tariff cuts. The higher the coefficient the lower the tariff cuts will be. The lower the coefficient, the higher the tariff cuts will be.

Example of cuts using the Swiss formula with a coefficient of 30


 * **Initial bound tariffs** || **Final tariff after formula is applied** || **Percentage reduction with coefficient of 30** ||
 * 5% || 4.28% || 14.2% ||
 * 10% || 7.5% || 25% ||
 * 20% || 12% || 40% ||
 * 30% || 15% || 50% ||
 * 40% || 17.14% || 57.1 ||

Developing countries generally have higher average tariffs than developed countries, so they can raise government revenue, promote development and industrialisation, and ration scarce foreign exchange over a range of imports. These developmental tools will be wiped away by the tariff cuts, and especially the severe cuts into higher tariffs.

Developed countries are insisting that developing countries move on non-agricultural market access (NAMA) before developed countries move on agriculture. However, if developing countries were to accept this is would be disastrous – it would entrench developing countries in neo-colonial economic relationships where they export their minerals, agricultural products and other raw materials to the colonial headquarters, while importing products that they are unable to make. Any chance of industrialising in the future would be eliminated, since once the tariffs are cut, they cannot be raised again.

Thus for example, if a country has low tariffs on essential oils now because it is not producing any, it will be severely constrained in the future in terms of developing the oil industry because the low tariffs will have been bound – fixed at the very low rates appropriate to country’s not producing such products. If companies attempt to set up in such an environment, they would immediately face the cruel winds of international competition. Such infant industries would never even have a chance of surviving against giant industries that had developed and become competitive over time. Yet the developed countries have for years been using the very tariffs measures to protect and grow their industries.

To add salt to the wound, the developed countries are trying to bribe developing countries through promises of aid for trade. And while it may sound good to have aid for trade, much of this ‘aid’ would go into export promotion and be repatriated back to the donor countries. At this stage it is totally unclear that developing countries would be able to set their own conditions and programmes for the so-called aid.

The reality is also that when NAMA formula tariff cuts are applied, our most employment- sensitive sectors will be very hard hit. And it won’t just be in manufacturing since NAMA’s scope includes minerals, fisheries, forestry and manufactured goods. Sectors that are already experiencing job loss as a result of increased imports, should expect accelerated imports when tariffs are lowered, and more devastating levels of job loss and deindustrialisation.

Developed countries have argued that because there is a difference between our bound and applied rates (the actual rates payable at the border which may be lower than the bound rates), we developing countries will not be hard hit. They argue that the cuts off the bound rates will hardly affect our applied rates, or that the applied rates will be shaved – that is decrease by a very small amount.

Nothing could be further from the truth for South Africa and many other developing countries. To use South Africa as but one example, the formula cuts will cut deeply into our existing tariffs, particularly in labour intensive sub sectors that are sensitive. For example, using a Swiss formula with a coefficient of 30:


 * Tariffs in passenger vehicles would be cut from the current applied rate of 34% to a rate of 18.8%. This represents a real decrease of a massive 45.5%
 * Tariffs in clothing would be cut from the current applied rate of 40% to a rate of 18%. This represents a real decrease of a massive 55%.
 * Tariffs in televisions would be cut from the current applied rate of 25% to a rate of 15%. This represents a real decrease of a massive 40%.
 * Tariffs in furniture would be cut from the current applied rate of 20% to a rate of 12%. This represents a real decrease of a massive 40%.
 * Tariffs in final plastic products would be cut from the current applied rate of 20% - 25% to a rate of 12% - 13.6%. This represents a real decrease of a massive 40% to 46%.
 * Tariffs in auto components e.g. brake pads and lining would be cut from the current applied rate of 30% to a rate of 15%. This represents a real decrease of a massive 50%.

Developed countries have argued that they are giving flexibility to developing countries by allowing some 5% of tariff lines to be excluded from decreasing their tariffs OR 10% of tariffs lines to take a lower tariff cut. The reality is that these flexibilities will not sufficiently protect workers and light industry in South Africa and many other developing countries.

To take a South African example, we will see a substantial decrease in 255 tariff lines affecting clothing. If we calculate how many of these we could protect through the provisions for exclusions, we find that they are already 4.63% of all tariff lines. If you include the wider range clothing, textiles footwear and leather, 15.3% of tariff lines are affected. This means that clothing, textiles, footwear and leather alone would not be protected by a 5% exclusion. There would be no space to even think of including automotive and components, plastics, furniture, downstream metals and the range of other labour intensive sectors.

Given the deep cuts in tariffs and the low possibility of being able to exclude tariffs to protect jobs, we can expect massive retrenchments. Such a situation cannot be allowed. Most especially, developing countries should not be tricked or bribed into accepting NAMA formula cuts.

Moreover, any formula cuts on tariffs will have far reaching effects on the economies of the southern African region, in particular the South African Customs Union (SACU). SACU has an arrangement that the income from tariffs to the region is shared among Botswana, Lesotho, Namibia, Swaziland and South Africa. As tariffs are lowered, income to these countries in the SACU will also diminish rapidly, making it ever more difficult to implement social programmes and invest in economic infrastructure. Furthermore, developing countries would face increased pressure on their exports into developed countries, as they face ever increased competition and lose the preferences that they have into those developed countries. This means that the impact of NAMA negotiations is far reaching and will have a long if not permanent impact. For South Africa, it can sabotage the Accelerated Shared Growth Initiative and six percent economic growth target government has been talking about. De-industrialisation will defeat all goals of the GDS, including the goal of cutting unemployment by half by 2014, and instead unemployment would worsen in SA. This cannot be acceptable when South Africa’s unemployment rate at 41% is higher than any other middle income country, but will mean none of the UN millennium goals will be met.

In order to enforce this arrangement, the developed countries have been playing the conflicting interests of developing countries to kill the unity that had been built in Seattle and Cancun. It was unity of the developing countries that prevented WTO being used by the powerful nations to advance their interests at the expense of much weaker and developing countries.

In this round of negotiations the developed nations have found a formula to play the old divide-and-rule tactic. They are dividing and bullying the various developing countries to advance their own interests of gaining access into developing country’s markets for services and goods.

The demands that the developed countries are pushing will result in average industrial tariffs in developing countries being the lowest since the days of the unequal treaties in the 19th and early 20th centuries. They will also be lower than the rates that prevailed in any of today’s developed countries at the time they were developing. For example, the United State had average tariffs of as high as 48% while it developed, yet it expects developing countries to develop with average tariffs under 10%.

And while developed countries are pushing for developing countries to lower tariffs in order to promote market access, the developed countries themselves increasingly block access to their own markets through a range of non-tariff barriers. These are rules set up (not trade rules) that prevent imports because they do not, for example, comply with certain standards.

While there is text in the proposed Ministerial agreement on the need to address non-tariff barriers, it is very weak and receiving very little attention. Unless non-tariff barriers are seriously addressed we stand the chance of thinking we have made gains in terms of market access into developed countries, only to find in reality that a range of rules prevent our exports getting into developed countries.

In this respect we commend the South African delegation led by Minister Mandisi Mphahlwa, Minister Thoko Didiza, and Deputy Minister Rob Davies who are putting up a strong fight against the devastating demands by developed countries. The South African position has the support of the International Confederation of Free Trade Unions and most progressive NGOs because it emphasises development, stresses that there is not consensus on using the Swiss formula and is insisting on maximum flexibility.

COSATU strongly condemns actions by developed countries to divide developing countries.

Statement issued by Zwelinzima Vavi, COSATU General Secretary. For further information call (09852) 2802 8888 room 3219 or 1622.