A deal for global factories

Date: 08/12/05

Successive rounds of trade liberalisation over the past 50 years have cut the import tariffs imposed by rich countries on manufactured goods. According to the Organisation for Economic Co-operation and Development (OECD) the average EU tariff in 2003 was only 4%. Product specific tariffs are higher. For textiles, the average, even now that formal import quotas have been removed, is nearer 10%.

In developing countries, especially the big emerging market economies such as Brazil or Mexico, however, things are different. Mexico for example has an average import tariff of 18%, according to the OECD. For certain products the figures are much higher. Brazil levies import duties on cars of 45%.

But it is not just the tariffs that matter. The annex on Non-Agricultural Market Access (NAMA) in the draft ministerial text for Hong Kong, which was issued last week makes it crystal clear that negotiations have gone painfully slowly since July 2004. It also highlights the industrial countries' view that non-tariff barriers such as discriminatory government procurement policies or local content rules "constitute a greater barrier to their exports than tariffs".

The EU is the world's leading exporter of manufactured goods - EU exports hit EUR 817 billion in 2004, 85% of which were manufactured. So a top priority of the European Commission is to lever open the markets of fast industrialising economies. EU policymakers can see that once the US' unsustainable $700bn (EUR 594bn) trade deficit starts to shrink, then the EU's EUR 81.5bn trade surplus with the United States will slump, too, hitting EU growth. Exports have been the only really dynamic contributor to the EU's anaemic growth in the past three years.

Changing patterns of world trade also make it important to the EU to dismantle barriers to trade in manufactured goods. Instead of countries specialising in particular goods which they manufacture in their domestic markets, they are now part of a "global factory," in which parts for particular products are being sourced from a variety of locations, not just domestic suppliers.

The Commission's department of economic and financial affairs writes in its EU Economy Review for 2005 that "the traditional comparative advantages of the developed world in the skill and technology content of their products would [now] appear to be under more sustained pressure," in particular from low wage economies like China and the increasing ability of multinational companies to make effective use of their vast pools of labour.

The study concludes that the competitive position of industry in the EU15 in world markets is "still good", owing to its strength in upmarket products such as passenger cars, telecommunications equipment and pharmaceuticals.

The EU needs to come out of the Doha Round with some victories in the NAMA to support its competitiveness and offset concessions it will be forced to make elsewhere.

Among many other things success will involve getting the likes of Brazil and India, which worry that trade liberalisation will hit "nascent" industries or damage local vested interests, to agree to make significant cuts in industrial tariffs.

Author anticipates the negotiations on manufactured goods at the World Trade Organisation's Ministerial Conference in Hong Kong, 13-18 December 2005.

WTO: The WTO: Ministerial Conferences: The Sixth WTO Ministerial Conference, Hong Kong, China, 13-18 December 2005 http://www.wto.org/english/thewto_e/minist_e/min05_e/min05_e.htm

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