TECHNOPOLICY BRIEF 12

WHAT DANGER LIES IN THE WTO - NAMA
NEGOTIATIONS FOR AFRICA?

Ha-Joon Chang

AFRICAN TECHNOLOGY POLICY STUDIES NETWORKPublished by
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© 2005 African Technology
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Acronyms
GATT
LTFR
NAMA
SDT
US
WTO

The General Agreement on Tariff and Trade
Less-than-full Reciprocity
Non-Agricultural Market AccessSpecial and Differential Treatments
United States
World Trade Organization

Table of Contents
1.0

Introduction1

2.0

NAMA - An Underestimated Danger?

2

3.0

Why Tariff?

4

4.0

Is a ‘level playing field’ Attainable?

7

5.0

Are ‘Special’ (and Differential) Treatment and Less-than-fullReciprocity for Real?

11

Conclusion

13

6.0

References

15

1.0
Introduction
For Africa and other developing countries, the most important issue in theforthcoming WTO ministerial meeting in Hong Kong, December, 2005, is going tobe NAMA (Non-Agricultural Market Access). It is however worrying that many
developing countries do not seem to realise how devastating the industrial tariff
cuts resulting from the NAMA negotiation can be, especially if the radical US version
is adopted.

12.0
NAMA - An Underestimated Danger?
For many people, the most important issue for the developing countries in thecurrent Doha ‘development round’ of trade negotiations is agriculture. When mostpoor people are farmers living in developing countries, it is argued, making iteasier for them to export agricultural products to the developed countries is themost obvious way to help the poor and promote development. For this reason,
many developing country negotiators and development campaigners, both fromthe North and the South, have focused their attention on reducing agriculturalprotection and subsidies in the North.
However, there is another issue in the current round of negotiation at the WTO that
could have an even bigger impact on development in the longer run – it is the
NAMA (Non-Agricultural Market Access ) negotiation, whose key element is thelowering of industrial tariffs.1
Needless to say, lowering tariffs, especially industrial tariffs, has always been the
key goal of the GATT-WTO, but the tariff cuts proposed in NAMA are on ahistorically
unprecedented scale. Especially if the most radical US proposal is implemented,
the tariff cuts could be truly drastic. For example, according to the calculation doneby the Indian government, the (simple) average tariff for most developing countries
will become 5-7%, down from the current 10-70% (Khor & Goh, 2004).2
This means that average industrial tariffs in developing countries will become thelowest since the days of imperialism, when colonies were forced into free trade
and when the still-independent weaker countries were forced to impose a flat tariff
While there are issues like non-tariff barriers (NTBs) and the abuse of anti-dumping measures that arealso important in the NAMA negotiation, its key issue is tariff.
2
The EC proposal will bring it down to 5-15%, while the Korean and the Indian proposals will bring it
down to 10-25% and to 10-50%
12What Danger Lies in the WTO-NAMA Negotiations for Africa?
rate of no more than 3-5% through the so-called ‘unequal treaties’. They will bealso lower than the rates that prevailed in any of today’s developed countries until
the Second World War, except for Britain and the Netherlands between the late19th and the early 20th centuries and Germany briefly in the late 19th century (seeTable 1).3
The effects of such drastic reduction in tariffs on the developing countries could betruly monumental. In the short run, the main casualties will be the middle-income
developing countries, many of whose industries will be destroyed and jobs lost.
However, in the longer run, the poorer developing countries, even though they havefew industries to lose at the moment, will also lose out because they will not be able
to nurture new industries behind tariff barriers when the need arises.
In contrast, the impacts of tariff cuts on the developed countries are likely to beminimal, given that they already have low industrial tariffs. For example, according
to the same calculation cited above, the average industrial tariff of Japan will godown from 2.3% to 1.3% (EC formula) or 0.7% (US formula) and that of the USA will
go down from 3.2% to 1.7% (EC formula) or 1.0% (US formula). These may belarge cuts in proportional terms, but not larger even in proportional terms than in
the case of some developing countries – for example, the Japanese cut according
to the US formula will be about 70% (from 2.3% to 0.7%), whereas the cut forIndonesia will be 82% (from 35.6% to 6.3%) and that for Brazil will be 80% (from30.8% to 6.2%). And the impacts of the cuts are incomparable – a tariff cut from
2.3% to 0.7% or from 3.2% to 1.7% is not going to affect the local industries every
much, whereas a cut from 30-35% to 6% can have devastating effects.

Japan had 5% average tariff rate in the late 19th century, but this was the result of a series of unequal
treaties that it was forced to sign upon opening up to the outside world in 1853.
3

3

3.0
Why Tariff?
The worrying thing is that most developing countries have been slow to wake up to
the potentially devastating effects of the industrial tariff cuts resulting from the NAMA
negotiation. Moreover, to the extent that they are now resisting it, they do not seemto be able to challenge the basis premise of the negotiation that freer trade (lower
tariffs, lower NTBs) is always better, and are bogged down in the debate on theexact formulas to be used for tariff cuts.
However, the premise that freer trade is better is not true as a general proposition.
Lowering tariff for a particular commodity may make its import cheaper, benefiting
the consumers of the particular commodity, but the overall result depends on what
happens to the rest of the economy.
It is theoretically possible that increased import competition makes the domestic
producers more efficient. In this case, everyone is better off, and the only possible
loser from the process will be the workers that may have been sacked in the processof raising efficiency. However, in the standard trade theory models that underlie theproposals for tariff cut, not even this is considered a problem because perfectresource mobility is assumed and therefore the displaced worker is bound to findan alternative employment, which is at least as well-paying as his/her current job.
However, in reality, what happens following the tariff cut very much depends on
where and how it is done. If the magnitude of the tariff cut is large, as it is likely to be
if the developed countries get their way in the current NAMA negotiation, andtherefore if the domestic producers need to increase their efficiency very quickly inorder to survive, the result may be the closure of the relevant producers, destroying
income and jobs, rather than the rise in their efficiencies. And given that resource
mobility is not perfect in the real world, the resources that come out from thebankrupt enterprises may not find alternative employment opportunities that willallow them make as large contributions to the national economy as before. For
4

What Danger Lies in the WTO-NAMA Negotiations for Africa?
example, if a reduction in steel tariff results in the closure of steel mills, the blast
furnaces are likely to be sold as scrap metal and the laid-off steel workers are likely
to end up unemployed or working in unskilled jobs like security guard or janitor.
Of course, even if tariff cuts lead to the destruction of domestic producers and theresulting ‘waste’ of resources, the whole society may gain, if the costs from thedestruction of income and jobs are lower than the benefits to the consumers.
However, even in this case, the distributional question still remains, as there is noautomatic ‘trickle-down’ from the gainers to the losers from trade liberalisation –how do we compensate the automobile workers and the textile workers who losttheir jobs thanks to trade liberalisation? In the developed countries, there are wellestablished mechanisms to re-distribute wealth – the welfare state with its
progressive taxation and income transfer – but in the developing countries suchmechanisms are at best weak and often non-existent. Moreover, given that tariff isa very important source of government revenue in many developing countries (evenafter two decades of liberalisation tariffs make up around 1/3 of government revenue
in many of them), the already meagre abilities of their governments to make fiscal
transfers to the losers in the process of structural change will be even more impairedby the tariff cuts and the consequent fall in government revenue.
More importantly, tariff cuts may damage long-term economic development. In the
short run, it may indeed be more efficient for developing countries to get rid of thoseindustries that cannot survive without tariffs and other protective measures and relyon agriculture and some labour-intensive industries (although the question ofprotection of these sectors by the developed countries still remains). However, inthe long run, it is extremely unlikely that the countries can develop on that basis –as history shows.
Most of today’s developed countries relied on tariff protection, subsidies, and othermeasures, in order to promote their ‘infant industries’ in the earlier stages of theirdevelopment (for details, see Chang, 2002). In particular, the UK between the early
18th century and the mid-19th century and the USA between the mid-19th century
and the mid-20th century relied heavily on tariff protection, much more than did
other countries that are usually associated with protectionism, such as Japan,
France, and Germany (on the US case in particular, see the Box). As we can see
5

ATPS Technopolicy Brief 12
from table, the industrial tariff rates that prevailed in these countries during theperiods in question were around 40-50% - rates that are higher than those prevailingin many developing countries today and rates that are several times higher thanwhat will prevail in most developing countries if the ambitious US proposal isadopted in the WTO.
More contemporary experiences also confirm the importance of infant industry
protection. Successful developing countries such as Korea, Taiwan, China, andIndia, all developed their industrial capabilities behind walls of tariff protection andother government supports. The growth records of the developing countries during
the last two decade of trade liberalisation also suggest that the removal of protection
and subsidies have led to a slowdown rather than an acceleration of economic
growth. For example, during the 1960s and the 1970s, the ‘bad old days’ of importsubstitution, per capita income in developing countries grew at 3.0% per year. In
the 1990s, after more than a decade of extensive trade liberalisation, growth rate
fell to about half that rate – 1.7%.

6

4.0
Is a ‘Level Playing Field’ Attainable?
In the push for the reduction in industrial tariffs, the rhetoric of ‘level playing field’ isdeployed as the most important principle that justifies drastic cuts in industrial
tariffs by the developing countries. The developing countries should ‘level the playing
field, it is argued, by making the access to their industrial markets by developed
country exporters easier.
‘Level playing field’ is like, as the Americans say, motherhood and apple pie. It isdefinitionally good and therefore difficult to oppose. But it is something that has tobe opposed if we are going to build a world trading system that is truly prodevelopmental.
Needless to say, level playing field is the right principle to adopt when the players
are equal. However, when the players are unequal, it is the wrong principle to apply.
For example, if a team of 13-year-old children are playing football against theBrazilian national team, it is only fair that the playing field is not level and thatchildren are allowed to attack from up the hill.
Indeed, in most sports, unequal players are not even allowed to compete against
each other. In boxing, wrestling, weightlifting and many other sports, they haveweight classes. A heavyweight boxer like Muhammad Ali would not have been
allowed to box Roberto Duran, the legendary Panamanian boxer, and take away
his titles, however likely his victory was.4
Weight classes are not the only thing to prevent competition on an equal footing
among unequal players. In many sports, including football itself and baseball (theDuran is one of only 4 fighters to hold 4 different world titles— lightweight (1972-79), welterweight(1980), junior middleweight (1983) and middleweight (1989-90).
4

7

ATPS Technopolicy Brief 12‘Little League’), there are age classes – adult teams are not allowed to play againstchildren and juvenile teams. In sports like golf, we even have an explicit system of‘handicaps’ that allows weaker players to compete with advantages in (inverse)
proportion to his playing skills. And so on.
To take the boxing analogy further, the developed countries seeking a radical tariff
reduction through NAMA are like a heavyweight boxer who sweet-talks a host oflighter boxers into boxing him by promising that they will be allowed to use protective
gears and then suddenly turns around and accuses the others of playing foul byarguing that they have ‘unfair’ protection. And when the heavyweight boxer insists
on wearing protective gear for his abdomen (agriculture and textile?) on the groundthat it is his weak part, we begin to wonder whether there is any sense of fair play inhis mind. Add to this the fact that the heavyweight boxer almost single-handedly
writes the rules of the game, owns the only bank in town (and may refuse to lendmoney to those boxers who complain about his tactics), and also controls the town
newspaper (which will assassinate the characters of those boxers who speak
against him), we begin to see how absurd the rhetoric of ‘level playing field’ is in thepresent world trading system.
Box 1
The Secret History of US Currency- Historical Double Standards in International Rules
On 26 November 2002, the US government submitted a proposal to theWorld Trade Organization that industrial tariffs be cut to zero by 2015. Impressive as the
proposal to eventually eliminate US tariffs on textiles and other consumer goods may be,
this proposal, if accepted, will impose disproportionately large burden for tariff cuts ondeveloping countries, which have much higher industrial tariffs than the USA and otherdeveloped countries.
Interestingly, few people are aware of the historical double standards that the
USA is adopting in advancing this proposal. In the 19th century, when most of its industries
were behind the European ones, the country took the view that free trade was not in its
national interest. Indeed, for about a century until the Second World War, the US economy
was the most heavily protected in the world.
The historical double standards adopted by the USA do not end with free
trade. This is clear from looking at American currency, which carries the pictures of8What Danger Lies in the WTO-NAMA Negotiations for Africa?
politicians whose policies would have come under severe criticism from the World Bankand the WTO.
On the one-dollar bill is the first President, George Washington. He insisted on
wearing American clothes over higher-quality British clothes in his inauguration ceremony– a potential violation of the proposed WTO rule on transparency in government
procurement.
On the rarely-seen two-dollar bill, we have Thomas Jefferson, who strongly
argued against patents. He believed that ideas are “like air” and therefore should not be
owned by anyone.
The other statesmen who appear on US currency are even bigger offenders
on the issue of free trade.
On the five-dollar bill, we have Abraham Lincoln. He was a well-known
protectionist and after the Civil War raised tariffs to the highest level ever.
On the ten-dollar bill, we have the first US Treasury Secretary, Alexander
Hamilton. Hamilton is the person who invented the so-called “infant industry” doctrine,
which says that less developed countries need to protect their industries against competition
from more developed countries.
Benjamin Franklin, on the hundred-dollar bill, did not share Hamilton’s infantindustry doctrine, but he insisted on high protection as a measure against “social dumping”
from the then lower-wage countries of Europe.
On the 50-dollar bill, we have Ulysses Grant, the Civil War hero-turned
President. In defiance of the British pressure on the USA to adopt free trade, he famously
remarked that “within 200 years, when America has gotten out of protection all that it canoffer, it too will adopt free trade”.
That leaves Andrew Jackson on the 20-dollar bill. At first glance, Jackson, awell-known advocate of small government, may seem to fit the current policy orthodoxy.
However, he was not very good at protecting land rights – he evicted many native
Americans from their homelands. And he was hostile to foreign investors – he famously
killed off the country’s first de facto central bank, the (second) Bank of the USA, partly on
the ground that it was largely owned by foreign (mainly British) investors.
Thus, judging from US currency, the most revered politicians in US history
seem to be precisely the ones who pursued policies the current development orthodoxy
vehemently rejects.
However, historical double standards are not the monopoly of Americans.
Virtually all of today’s rich countries – from Britain down to Korea and Taiwan – used tariff
protection and subsidies for industrial development. In the earlier stages of their development,

9

ATPS Technopolicy Brief 12

they did not protect intellectual property rights, especially those of foreigners. Switzerland
and the Netherlands did not have a patent law until the early 20th century.
Once they became rich, these countries started demanding that the poorer
countries practice free trade and introduce “advanced” institutions such as strong patentlaw. Friedrich List, the great 19th-century German economist, argued that such practiceamounted to rich countries “kicking away the ladder” with which they climbed to the top andthus denying the poorer countries the chance to develop.
After the Second World War, thanks to post-colonial guilt and Cold War politics,
such “ladder-kicking” was at a low ebb. However, during last two decades, developing
countries have been under enormous pressure to adopt free trade, open their capital
markets, and adopt “best practice” institutions such as strong patent laws. When applying
such pressure, the rich countries rarely acknowledge that they are preaching what they
did not practice.
The result has been a marked slowdown in the growth of the developing countries.
The growth of per capita income in the developing countries has been halved from 3 percent annually during the 1960-80 period to 1.5 percent during the 1980-2000 period.
In light of this, a radical re-thinking on today’s development orthodoxy is warranted.
In practical terms, this means re-writing the international rules so that countries can adopt
policies and institutions that are more suitable to their conditions. The past twenty years’records suggest that this may give the developing countries a better chance for growth anddevelopment.

10

5.0
Are ‘Special’ (and Differential) Treatment andLess-than-full Reciprocity for Real?
There is, naturally, some unease with this rhetoric of level playing field among thedeveloping countries, which the developed countries cannot totally ignore. This is
why we have ‘special and differential treatments’ (SDT) in the WTO and why thedeveloped countries in the NAMA negotiation say that they are happy with ‘less thanfull reciprocity’ (LTFR) from the developing countries. However, there are serious
problems with these ‘concessions’ in the forms of SDT and LTFR.
The problem with SDT is the word ‘special’. To call something ‘special treatment’is to say that the person getting the treatment is getting an ‘unfair’ advantage.
However, in the same way we wouldn’t call stair-lifts for wheelchair users or Braillewritings for the blind ‘special treatments’, we should not call the higher tariffs andother means of protection ‘special treatments’ – they are just ‘differential’ treatments
for countries with ‘differential’ capabilities and goals.
The notion of LTFR should also be questioned. The notion implies that thedeveloping countries will give ‘less’ than do the developed countries in the NAMA
deal. However, the notion of reciprocity cannot be discussed without some reference
to the relative positions of the parties involved. We would not say that a poor friend
is being ‘less than reciprocal’ simply because he cannot buy champagne andcaviar for his rich friend, as far as he is treating his rich friend often enough andgenerously enough, given his means. Likewise, even a small cut in tariff may be a
lot to ask for a developing country desperate to preserve jobs, develop industrial
capabilities, and collect government revenues, while even a relatively large cut
may not be such a big burden on countries with greater wealth and higher industrial
capabilities.
So, when the tariff cuts asked from the developing countries are much larger intheir impacts – due to their greater absolute magnitudes and, more importantly, totheir weaker adjustment capabilities and their greater needs to use the tariffs – it is11

ATPS Technopolicy Brief 12
wrong to say that these countries are being less than fully reciprocal, even then they
are making less cuts in proportional terms than are the developed countries(although even this is not necessarily the case – see the earlier example comparing
Japan, on the one hand, and Brazil and Indonesia, on the other hand.
Against the One-Way-Street View of Flexibility
The developed countries have tried to sell certain agreements in the WTO to thedeveloping countries on the ground that they give enough ‘flexibility’ to the lattercountries – mainly in the form of keeping some sectors off the agreements. So
GATS is said to be flexible because it allows countries to keep some sectors off
their market-opening commitments. The same notion of flexibility was bandied
about in the (now-dormant) negotiation for the MIA in the run up to the Cancun
ministerial meeting in 2003 (for a post mortem on Cancun, see Chang, 2003). In
the NAMA, it is said that there is some flexibility because countries can reserve
some sectors from their tariff-binding and -cutting commitments, although the scopes
for these are supposed to be quite limited.
However, this is a very peculiar notion of flexibility. Once a sector isliberalised, there is no going back. Indeed, the whole idea of tariff binding in the
WTO is based on this notion of ‘one-way flexibility’. The exercise is based on the
belief that there is a tariff rate in a sector above which the tariff should never rise.
If there is going to be genuine flexibility, countries should be allowed to unbind andraise their tariffs, if there is a reasonable ground for it. For example, if a country had
genuinely under-estimated the adjustment costs when it made a decision to cut
the tariffs in particular industries – as it was in fact case with many developing
countries in the Uruguay Round – it may be reasonable to allow that country toraise tariff ceilings in those industries. For another example, a country may have
set low tariff ceilings in certain industries because it under-estimated thecapabilities of domestic producers and did not think any infant industry protection
would ever become necessary in those industries. However, it should be allowed toraise tariff ceilings if it later finds that after all there is some hope of viable domestic
producers emerging with stronger tariff protections in those industries.
Unfortunately, if tariff reduction is done on the line-by-line basis, as it is the casewith the current round of NAMA negotiation, this will not be possible, even if thecountry may be willing to “compensate” for this tariff rise by lowering tariffs in otherindustries (Akyuz, 2005).
126.0
Conclusion
In short, the developing countries should wake up to the realities of the NAMA
negotiation. Instead of being bogged down in the technical details of tariff-cut
formulas, they should come out questioning the very justification of the NAMA
negotiation. They should also question the fundamentally biased notions of what is‘fair’ in the international trading system, which are manifested in concepts like‘level playing field’, ‘special and differential treatment’, ‘less than full reciprocity’,and ‘flexibility’ used by the developed countries in the negotiation process.
If NAMA proceeds in the way it is doing at the moment, there may be no moreindustrial development in the developing world, especially given that the WTO
rules governing the use of other policy tools for industrial development, such as
subsidies, regulation on foreign investment, and technological imitation, have been
dramatically tightened. This may sound like a very drastic assessment, but boththeories and (historical and contemporary) evidence suggest that it is the only
realistic assessment.

13

ATPS Technopolicy Brief 12
Table: Average Tariff Rates on Manufactured Products for Selected Developed Countries in
Their Early Stages of Development(weighted average; in percentages of value)1
Austria
Belgium4
Denmark
FranceGermany 5
Italy
Japan6
Netherlands4
RussiaSpain
SwedenSwitzerland
United Kingdom
United States
3

18202
R
6-8
25-35
R
8-12
n.a.
R
6-8
R
R
R
8-12
45-55
35-45

18752
15-20
9-10
15-20
12-15
4-6
8-10
5
3-5
15-20
15-20
3-5
4-6
0
40-50

1913
18
9
14
20
13
18
30
4
84
41
20
9
0
44

1925
16
15
10
21
20
22
n.a.
6
R
41
16
14
5
37

1931
24
14
n.a.
30
21
46
n.a.
n.a.
R
63
21
19
n.a.
48

1950
18
11
3
18
26
25
n.a.
11
R
n.a.
9
n.a.
23
14

Source: Chang (2002), p. 17, table 2.1.
Notes:
R = Numerous and important restrictions on manufactured imports existed and therefore average tariff rates
are not meaningful.
1. World Bank (1991, p. 97, Box table 5.2) provides a similar table, partly drawing on Bairoch’s own
studies that form the basis of the above table. However, the World Bank figures, although in most cases
very similar to Bairoch’s figures, are unweighted averages, which are obviously less preferable toweighted average figures that Bairoch provides.
2. These are very approximate rates, and give range of average rates, not extremes.
3. Austria-Hungary before 1925.
4. In 1820, Belgium was united with the Netherlands.
5. The 1820 figure is for Prussia only.6. Before 1911, Japan was obliged to keep low tariff rates (up to 5%)
through a series of “unequal treaties” with the European countries and the USA. The World Bank tablecited in note 1 above gives Japan’s unweighted average tariff rate for all goods (and not just manufactured
goods) for the years 1925, 1930, 1950 as 13%, 19%, 4%.
6. Before 1911, Japan was obliged to keep low tariff rates (up to 5%) through a series of “unequal treaties”
with the European countries and the USA. The World Bank table cited in note 1 above gives Japan’s
unweighted average tariff rate for all goods (and not just manufactured goods) for the years 1925, 1930,
1950 as 13%, 19%, 4%.

14

References
Akyuz, Y. 2005. The WTO Negotiations on Industrial Tariffs: What is at Stake forDeveloping Countries?, mimeo., Third World Network, Geneva Office.
Chang, H-J. 2002. Kicking Away the Ladder – Development Strategy in Historical
Perspective, London, Anthem Press.
Chang, H-J. 2003. ‘The Future for Trade’, Challenge, 2003, vol. 46, no. 6.
Khor, M. & Goh, C. Y. 2004. The WTO Negotiations on Non-Agricultural Market
Access: A Development Perspective, a paper presented at the Asia-PacificConference on Trade: Contributing to Growth, Poverty Reduction and
Human Development, Penang, Malaysia, 22-24 November, 2004.

15

ATPS Technopolicy Briefs Series
Who Benefits from the New International Intellectual Property Rights Regime? And
What Should Africa Do? by Ha-Joon Chang(ATPS Technopolicy Brief 1)
How Can We Constitutionalize Innovation, Technology and Intellectual Property in
Kenya ? by Bernard Sihanya(ATPS Technopolicy Brief 2)What Can Biotechnology Do For Africa? How Can The Associated Risks And
Uncertainties Be Managed? by Norman Clark(ATPS Technopolicy Brief 3)
Who Needs Technology Policy? by Ha-Joon Chang(ATPS Technopolicy Brief 4)
Keeping Hunger at Bay: Genetic Engineering and Food Security in sub-SaharanAfrica by John Mugabe(ATPS Technopolicy Brief 5)
Science in a Globalizing World: Implications for Africa by Awele Maduemezia(ATPS Technopolicy Brief 6)
How can Science and Technology in Africa be Formulated and Implemented? by
Osita Ogbu
(ATPS Technopolicy Brief 7)
How can Science and Technology Policy Aid Nigeria’s Reconstruction? by Osita
Ogbu(ATPS Technopolicy Brief 8)
Can Africa Develop without Science and Technology by Osita Ogbu
(ATPS Technopolicy Brief 9)
How can Innovation Systems and Innovative Clusters be used to Develop Africa? by
Osita Ogbu
(ATPS Technopolicy Brief 10)

The author is at the Faculty of Economics, University of Cambridge.

For more information this series and ATPS Contact:

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