ISLAMABAD, Nov 19: The United States and the European Union are opposing Pakistan’s proposal of seeking more cushion for developing countries in the reduction of customs duties on industrial goods to be considered at the upcoming Hong Kong ministerial conference.

Informed sources told Dawn on Saturday the two blocs that have a greater say in the negotiations process wanted that all customs duties should be reduced to less than 10 per cent through a Swiss formula with a coefficient of 10.

Pakistan’s proposal on non-agriculture market access (NAMA) was backed by members of G-20 and some developing countries. However, India and Brazil have presented their own formula for a tariff cut under NAMA so that they have least support on Pakistan’s proposal.

There are already three kinds of approaches on the Swiss formula for the reduction in tariff on industrials goods backed by the EU — Chile, Colombia and Mexico; Norway and the US; Argentina, Brazil and India; Antigua and Barbuda; Barbados, Jamaica, Trinidad and Tobago.

The Pakistan’s proposal submitted to the WTO for the tariff cut on industrial goods, a copy of which is available with Dawn, suggested that for developing countries the upper limit could be 30, with some exceptions for sensitive products such as automobile.

For achieving results at the Hong Kong conference, Pakistan proposed the adoption of a simple Swiss formula with two distinct coefficients for developed and developing countries. These coefficients should be based on an objective criterion, taking the overall average of the bound tariff lines or developed and developing countries as their respective coefficients.

The average has been worked out to be 5.48 per cent for developed countries and 29.12 per cent for developing countries.

This formula would be simple, transparent and easy to comprehend. It would also result in a significant reduction in tariff peaks and tariff escalations; cut higher tariffs much more than lower tariffs and it would make everyone contribute and everyone would get additional market.

The impact of the proposal on tariff cuts would be — for developing countries -– the current bound rate up to 30 per cent would reduce to 15 per cent or lower; rates ranging between 30 and 60 per cent would reduce to 15 and 20 per cent; and rates between 60 and 200 per cent would reduce to 20 and 26 per cent. For developed countries, rates of 5, 10, 15 and 30 per cent would reduce to 2.73, 3.75, 4.29 and five per cent, respectively.

For treatment of unbound tariffs (applied custom duty), there are five proposals on the table. In the July framework, a proposal of multiplying the MFN applied rate of 2001 by two; India, Brazil and Argentina proposal of marking up unbound lines by x times to be negotiated and binding tariff lines at an average level after the application of the formula.

Malaysia proposed capping of new bound tariffs at a ceiling of 40 per cent, with target average of 25 per cent and no tariff reductions in this round for new tariff bindings. Mexico proposed the ‘rational formula’ approach, a non-linear mark-up derived through a mathematical formula using two coefficients.

While Pakistan proposed that instead of a non-linear mark-up of five percentage points (absolute), mark-up of 30 should be added to the base rate (applied rate of 2001) for each unbound line before the application of a formula.

By this proposal, the base rate of five per cent would be marked up to 35 per cent and through the application of the formula (with a coefficient of 30 proposed) for developing countries; it would get reduced to about 16 per cent where it could be bound. This would give some policy space to developing countries with low unbound rates. For higher unbound rate of 100 per cent and above it would result in lowering that rate to around 24 per cent where it would be bound.