New Delhi: The US, the EU and Canada have submitted a joint proposal to the World Trade Organisation (WTO), which entails sharper cuts on tariffs on non-agricultural products for developing countries like India.

This proposal is expected to bring down average tariffs to about 9 per cent from the existing 41 per cent. This is in sharp contrast to the first draft formula circulated by negotiating group on market access (NGMA) chairman Pierre-Louis Girard, which would have required India to bring down its average tariff to 21 per cent.

At the same time, the new proposed formula is soft on tariff escalations and tariff peaks maintained by the developed world. These tariff peaks and escalations act as a major market access hindrance for developing countries.

Tariff escalation refers to the practice of linking tariffs to the level of processing a product has undergone. The higher the processing level, the higher the tariff. Tariff peaks are unusually high tariffs (several times higher than the average level) levied by countries for certain products.

India and some other developing countries had proposed that the linear formula for tariff reduction should be used which would lead to uniform percentage reduction in tariff for all countries irrespective of their prevailing tariff levels. Developed countries are pushing for the Swiss formula, which calls for sharper reductions for higher tariff levels.

After considering all proposals, Girard came up with his first draft proposal in May suggesting a formula which was a variation of the Swiss formula. To build in less than full reciprocity treatment for developing countries, the coefficient in the formula was linked to the average of base tariff rates of each member. The formula also had a common factor 'B' with a unique value to be determined by participants. The higher the value, the lower the reduction in tariffs.

In the new formula the EU, the US and Canada have proposed that the coefficient of reduction in the formula should be the same for all countries. This means that countries with high level of existing tariffs would have to bring about a major cut in their tariff rates while developed countries, which have low existing tariffs, will have to nominally reduce their tariffs.

These countries have further proposed that developing countries would be provided special and differential treatment only if they agree to bind more than 95 per cent of their tariff levels. The chairman's proposal had given developing countries the freedom to bind 95 per cent of its tariff lines, keeping 5 per cent unbound.

Meanwhile, Girard has also come up with a revised draft of his first proposal made in May 2003 with minor changes in the original tariff reduction formula proposed by him. Girard's new formula is expected to lead to a reduction in India's average tariffs to 16-17 per cent. Girard's formula is also designed to check tariff escalations and tariff peaks maintained by developed countries.

These new proposals are being discussed at Geneva in the series of meetings on important WTO issues being carried out by WTO director general Supachai Panitchpakdi. The meetings, which started on 11 August will go on till 22 August following which the chairman of the general council of the WTO will come up with the second draft ministerial text.

WTO members are working towards reaching an agreement on modalities for negotiations in non-agriculture commodities by the fifth ministerial meet of the WTO in Cancun, Mexico, on 10-14 September. Once agreed, the modalities will be used by members for the preparation of their initial, country-specific offers.