WORLD TRADE WT/GC/W/453

2 November 2001
ORGANIZATION
(01-5409)

General Council Original: English

PREPARATIONS FOR THE FOURTH SESSION OF THE MINISTERIAL CONFERENCE

Proposal on Market Access for Non-Agricultural Products

Communication from Kenya, Mozambique, Nigeria, Tanzania, Uganda and Zimbabwe

The following communication, dated 19 October 2001, has been received from the Permanent
Mission of Kenya.

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A. Rationale

Although the Uruguay Round and the subsequent Ministerial conferences did not make any
mention on future negotiations on industrial tariffs, it is widely recognized that tariff reduction has
been one of the key functions of the multilateral trading system. However, any decision to undertake
further reduction on tariffs in this sector would require an explicit decision, and the consensus of all
Members.

In order to get a fairer picture of the current situation in developing as well as least-developed
countries and make an informed decision on whether to engage in negotiations or not, there is an
urgent need for the WTO membership to conduct a stocktaking exercise on the relationship between
liberalization on industrial products and development concerns of this group of countries. This need
arises from the experiences, which have had adverse effects arising from past liberalization on
industrial products. A study process involving stock-taking, examination and analysis will assist the
WTO membership to draw lessons from the experience of the past and make conclusions on the most
appropriate manner in which to proceed on this matter. Such an educative process is needed to
examine the positive and negative experiences of different Members, so that each Member can draw
from the lessons of these experiences and devise appropriate policies that would avoid negative
effects whilst achieving positive effects in their industrialization process. The educative process may
also provide valuable inputs to the evolution of appropriate policies, guidelines and modalities for the
future work of the multilateral trading system in this area. It would be premature to begin a process of
negotiations before the study process is completed. Therefore, negotiations in this area should not be
launched at the 4th Ministerial, but should await the conclusions drawn from the study process. Since
the WTO is seeking to place the interests and needs including development of developing and
least-developed countries at the heart of the WTO's work, the study process on the impact of
liberalization on industrial products should be given first priority after Doha.

Experience of some developing and least-developed countries

Liberalization has taken place at a significant rate and in a wide scope in many developing
and least-developed countries. Whilst some developing countries have managed to tailor their
liberalization on their capacity to compete, many other countries were unable to do so. The latter
group of countries had an over-ambitious liberalization programme, in some cases as a result of
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structural adjustment reform policies that did not offer much flexibility. As a result, many local
industries lost their market share arising from uncontrolled imports and subsequently closed down
rendering many people out of employment. Governments that substantially reduced their customs
tariffs also experienced significant loss of revenue, which has added to pressures on the government
budget deficit, a problem made worse by the decline in aid flows, the fall in commodity prices, and
the continuation of debt servicing.

Recent studies by international agencies and academics have provided increasing empirical
evidence of many developing and least-developed countries experiencing these negative
consequences. For example, a new publication by Cambridge University Press authored by Professor
Edward Buffie (2001), entitled "Trade Policy in Developing Countries" has collated what he calls "the
most disturbing evidence" of post-1980 liberalization episodes in the African region. According to
information collected in the book (page 190-191):

Senegal experienced large job losses following a two-stage liberalization programme that
reduced the average effective rate of protection from 165 per cent in 1985 to 90 per cent in 1988. By
the early nineties, employment cuts had eliminated one-third of all manufacturing jobs (Weissman,
1991; African Development Bank, 1995, p.84).

The chemical, textile, shoe, and automobile assembly industries virtually collapsed in
Côte d'Ivoire after tariffs were abruptly lowered by 40 per cent in 1986 (Stein, 1992). Similar
problems have plagued liberalization attempts in Nigeria. The capacity utilization rate fell to 20-30
per cent, and harsh adverse effects on employment and real wages provoked partial policy reversals in
1990, 1992, and 1994.

In Sierra Leone, Zambia, Zaire, Uganda, Tanzania, and the Sudan, liberalization in the
eighties brought a tremendous surge in consumer imports and sharp cutbacks in foreign exchange
available for purchases of intermediate inputs and capital goods. The effects on industrial output and
employment were devastating. In Uganda, for example, the capacity utilization rate in the industrial
sector languished at 22 per cent while consumer imports claimed 40-60 per cent of total foreign
exchange (Loxley, 1989).

The beverages, tobacco, textiles, sugar, leather, cement, and glass products sectors have all
struggled to survive competition from imports since Kenya initiated a major trade liberalization
programme in 1993 (African Development Bank, 1998; Ministry of Planning and National
Development, 1998). Contraction in these sectors has not been offset by expansion elsewhere in
manufacturing. The period 1993-1997 saw the growth rates of output and employment in
manufacturing fall to 2.6 per cent and 2.2 per cent, respectively (Ministry of Planning and National
Development, 1998, p. 164).

Manufacturing output and employment grew rapidly in Ghana after liberalization in 1983 and
generous aid from the World Bank greatly increased access to imported inputs. But when
liberalization spread to consumer imports, employment plunged from 78,700 in 1987 to 28,000 in
1993 (African Development Bank, 1995, p. 397). The employment losses owed mainly to the fact that
"large swathes of the manufacturing sector had been devastated by import competition" (African
Development Bank, 1998, p. 45).

Following trade liberalization in 1990, formal sector job growth slowed to a trickle in
Zimbabwe and unemployment rate jumped from 10 to 20 per cent. Adjustment in the nineties has also
been difficult for much of the manufacturing sector in Mozambique, Cameroon, Tanzania, Malawi,
and Zambia. Import competition precipitated sharp contractions in output and employment in the
short run, with many firms closing down operations entirely (African Development Bank, 1998,
pp.45, 51).
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The book also provides some information on other developing countries outside Africa.
According to the author: "Liberalization in the early nineties seems to have resulted in large job losses
in the formal sector and a substantial worsening in underemployment in Peru, Nicaragua, Ecuador and
Brazil. Nor is the evidence from other parts of Latin America particularly encouraging: 'the regional
record as it now stands suggests that the normal outcome is a sharp deterioration in income
distribution, with no clear evidence that this shift is temporary in character.' (Berry 1999, p4)."

Information of this type indicates that for many developing countries the effects of import
liberalization can be negative and sometimes devastating, reducing their prospects for
industrialization and indeed in some cases destroying the domestic industrial base.

There is thus a need for the WTO to review the basis of its policies, rules and guidelines in
relation to industrial tariffs.

Developing countries have an interest in obtaining more access to the markets of developed
countries, especially in product areas where developing countries are able to benefit in. Thus, the
study process will identify area where further liberalization should begin and which products should
be targeted. Should the study show that because of their limited productive capacity and weak
industrial base developing and least-developed countries are unlikely to benefit from further
liberalization, then they should be exempted from further tariff reduction.

While this measure may be necessary, it may also not be sufficient for the purpose of giving
an opportunity for the affected countries to rebuild domestic industrial capacity in view of the closure
of local firms and industries. In order to take full account of this extremely serious situation, action
should be taken as soon as possible, even when the study process is progressing. We propose that the
rules of GATT 1994 be revisited to take this serious situation into account. Developing countries,
which have been adversely affected, should be allowed to reevaluate tariffs beyond their allowed
threshold levels in respect of specific products and product areas, in order to enable them to rebuild
the domestic capacity that had endured a decline, or to prevent a decline in such domestic capacity.

B. Proposal

The draft Ministerial Declaration issued on 26 September 2001 contains a paragraph

(Para. 13) on the issue of market access for non-agricultural products. We propose that this paragraph
be replaced by the following:

We agree to initiate a study process to be conducted in a working group to examine

the issue of market access for non-agricultural products. The study process shall take
into account the special needs and interests of developing and least-developed
country Members, including: (1) the effects that previous liberalization and tariff
reductions have had, including on domestic firms, employment and government
revenue; (2) the effects that tariff peaks and tariff escalation in developed countries
have had on the trade prospects of developing and least-developed countries; and (3)
the implications of these for future policies. The study process shall focus on the
reduction or elimination of tariff peaks and escalation in developed countries in
sectors and products of export interest to developing countries. It should also clarify
that, exemptions from further liberalization commitments shall be given to least-
developed countries and to developing countries that have been and would be
adversely affected by such liberalization. It should also clarify the appropriate
framework, guidelines and rules that can cater to the different conditions and needs of
Members, including non-reciprocity for developing countries, and the ability of
developing countries to increase their tariff beyond bound rates in certain cases. The
study process, based on an examination of these elements, may make
recommendations for guidelines and modalities for any future negotiations.
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While the study process is proceeding, the following action shall be taken:

1. Developed countries shall eliminate/substantially reduce their tariffs in product of

export interest to developing countries.

2. In the course of their developmental efforts, the developing countries may enhance
their tariffs beyond the bound levels in respect of specific products/product areas for a
specified period in pursuance of the provisions of Article XVIIIA and XVIIIC of
GATT 1994. They shall not be called upon to give any compensation for these
measures.

3. The developed countries shall remove their specific tariffs and convert them into ad
valorem tariffs within the next two years. Care must be taken to avoid effective
increase in the tariff levels as a result of such conversion.

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