NAMA Negotiations in the WTO and Preference Erosion: Concerns of Bangladesh and Other Regional LDCs

The ongoing negotiations on non-agricultural market access (NAMA) in the WTO are expected to lead to substantive reductions in the tariff rates on industrial goods in both the developed and the developing countries. Although an agreement on the formula and coefficient(s) is yet to be reached, it is becoming increasingly clear that countries are moving towards a differentiated swiss-type formula with deeper cuts for higher tariffs. The July (2004) Framework Agreement stipulated that LDCs will not be required to undertake any tariff reduction commitments under the NAMA. However, LDCs are likely to suffer substantive tariff preference erosion as a consequence of NAMA negotiations since any tariff reduction by the developed countries will result in a fall in the preferential margins currently enjoyed by the LDCs under the various GSP schemes operated by the developed countries. Consequently, the competitive edge currently enjoyed by the LDCs by taking advantage of the preferential treatment under the various GSP schemes is set to suffer erosion. This is a major concern for Bangladesh and other LDCs in the Asia-Pacific region. This paper attempts to make an estimate about the range of preferential erosion for Bangladesh given her current trade pattern and preferential treatment enjoyed by her exports. The paper finds that for Bangladesh, the preferential erosion could be substantial (e.g. $42.1 million worth of net preference erosion in the EU alone for RMG products under one of the possible scenarios). Reduced preference margin will also undermine future competitiveness in the developed country markets. It is also to be noted that tariff reductions under NAMA will have positive implications for Bangladesh in the US market where most of Bangladesh’s industrial goods do not enjoy GSP treatment. Thus, tariff reduction under NAMA is expected to have diverse implications for Bangladesh’s export of industrial goods. NAMA, thus, may increase Bangladesh’s competitive edge vis-à-vis Caribbean and Sub-Sahara African countries which are currently enjoying zero-tariff access for apparels under the AGOA and the CBI. The paper reviews some of the proposals that are being discussed to address the possible negative consequences of preference erosion for the LDCs