DEMYSTIFYING HONG
KONG DUTY FREE QUOTA
FREE MARKET ACCESS
DECISION
Shiv Raj Bhatt
S&DT: Background
►
Special and Differential Treatment (S&DT) for developing countries,
especially LDCs are important to promote exports hence reduce
poverty.
►
GATT incorporated provisions to facilitate the growth and
development of LDCs by providing special right to protect and
access export markets (1960s).
►
The provisions of S&DT was further broadened and expanded in the
agreements, declarations and arrangements of the WTO.
►
However, such provisions were not helpful in expanding LDCs’
exports.
►
Therefore, LDCs are questioning the enforceability of S&DT and
hence the utility and value of these provisions.
S&DT under WTO
►
LDCs put forward the proposal of DFQF market access for their
exports in the first WTO Ministerial Meeting in 1996 held in
Singapore.
►
The Singapore Ministerial Declaration agreed on a plan of action in
favor of LDCs, that included positive measures such as duty-free
access on an autonomous basis for LDCs.
►
Despite, the very low share of LDCs in total world exports (less
than 0.6%), It took a decade for WTO members to address the
demand of LDCs.
►
In December 2005, during the HK Ministerial, it was agreed to
provide DFQF market access to LDCs.
►
…..developed….and developing-country Members ……… agree
to implement duty-free and quota-free market access for products
originating from LDCs as provided for in Annex F…..’ (para 47)
HK Declaration on DFQF Market Access
Annex F:
We agree that developed-country Members shall, and developing-country
Members declaring themselves in a position to do so should:
(i) Provide duty-free and quota-free market access on a lasting basis, for all
products originating from all LDCs by 2008 or no later than the start of
the implementation period in a manner that ensures stability, security and
predictability.
(ii) Members facing difficulties at this time to provide market access as set
out above shall provide duty-free and quota-free market access for at
least 97 per cent of products originating from LDCs, defined at the tariff
line level, by 2008 or no later than the start of the implementation period.
In addition, these Members shall take steps to progressively achieve
compliance with the obligations set out above, taking into account the
impact on other developing countries at similar levels of development,
and, as appropriate, by incrementally building on the initial list of
covered products.
(iii) Developing-country Members shall be permitted to phase in their
commitments and shall enjoy appropriate flexibility in coverage.’
Analysis of HK S&DT Provisions
► The
Declaration is loaded with conditions and loopholes.
► Since,
exports of most LDCs are concentrated in a few
products, the flexibility provided to developed countries to
exclude 3% of tariff lines under DFQF initiatives, may
curtail any benefits of the provision.
► The
Declaration obliges Members to take steps to
progressively achieve obligation of providing DFQF
market access to LDCs. The term ‘progressively’ is not
defined clearly, nor is a deadline specified for full
obligation of the provision.
► Further,
the Declaration urges developing countries to
provide DFQF market access to LDCs on a voluntary
basis, without any legal effect.
Value and utility of the proposed DFQF
market access agreed in the HK
from the perspectives of South Asian
LDCs (Bangladesh and Nepal).
Export Performance
► Both
countries initiated trade reforms since the
mid-1980s.




Increasing Trade/GDP ratio
Satisfactory growth in export performance
Share of manufacturing export Increasing
However, both countries have not been successful in
diversifying their export structure (carpet and RMG
constitute 40% share in Nepal’s total export; and textile
and RMG constitute 80% share in total export of
Bangladesh).
 Both countries also face market concentration in their
exports.
Direction of Exports
Bangladesh
Year
Nepal
1990
Developed
75.2
Developing
19.7
Developed
85
Developing
15
1995
83.3
15.4
89.2
10.7
2000
75.9
9.2
62
36.6
2004
78.3
8.7
43
54
Direction of Exports
Year
Bangladesh
EU
Nepal
USA and Canada
EU
USA and Canada
1990
35.4
32.2
60
24
1995
44.8
34
53.3
31.6
2000
40.2
33.6
22.5
33.6
2004
50
26.5
17.5
23.4
Bangladesh: Distribution of Exports to
Developed Country Markets
► Bangladesh
has exported under 98, 239, 265 and 452
tariff lines at 6-digit HS level to Australia, Canada,
Japan and the United States respectively in 2003.
► 3%
tariff lines constitute almost 100% in all markets.
► 0.5%
tariff lines at 6-digit HS level comprises of more
than 70% in Canada, Japan and the US markets, and it
is more than 90% in Australia.
Bangladesh: Distribution of Exports
Products covered
Australia
Canada
Japan
US
3%
100
99.51
99.16
98.88
1%
98.55
89.76
90.49
87.8
0.50%
95.14
77.47
79.8
72.17
0.20%
89.52
52.22
58.36
46.57
0.10%
86.21
36.64
43.17
30.29
No of tariff lines
98
239
265
452
Bangladesh: Distribution of
Exports
► With
regard to the trade with EU Members, the export
structure of Bangladesh is concentrated in a few products.
► 3%
of the tariff lines covers:
 100% of the exports to 6 countries (Austria, Denmark, Finland,
Greece, Ireland, and Portugal),
 more than 99% in 7 countries (Belgium, France, Germany, Italy,
Netherlands, Spain, Sweden)
 More than 98% in UK.
► Moreover,
only 0.5% of the tariff lines contain more than
four-fifth of the exports of Bangladesh in all EU member
countries.
Nepal: Distribution of Exports to
Developed Country Markets
Products covered
Australia
Canada
Japan
US
3%
100
100
99.91
99.28
1%
99.8
98.53
92.78
92.32
0.50%
94.23
92.51
84.12
81.28
0.20%
81.99
76.67
67.91
59.58
0.10%
73.23
69.96
52.86
43.96
55
87
161
272
No of tariff lines
Nepal: Distribution of Exports
►
The commodity composition of trade of Nepal with developed
countries is more concentrated than that of Bangladesh
►
Nepal exports less than 100 tariff heading at 6-digit HS level (in all the
countries except Japan, US, France, Italy and the UK).
►
In terms of tariff lines, 3% of the tariff lines covers:
 100% of the exports in Australia and Canada.
 More than 99% in Japan and the USA.
 Just 0.5% of the tariff lines comprises of more than 90% in
Australia and Canada and more than 80 percent in Japan and the
United States.
►
3% of the tariff lines include 100% of the exports of Nepal to the all
EU member countries.
►
Moreover, 0.5% of the tariff lines contain 100% exports in five EU
members, for rest of the countries the share is more than 80%.
GSP : An Overview
► Resolution
21(ii) at UNCTAD II in 1968 called for the
establishment of a ‘generalized, non-reciprocal, nondiscriminatory system of preferences in favour of the
developing countries, including special measures in favour
of the least advanced among the developing countries
► Under
GSP schemes, selected products originating in
developing countries are granted reduced or zero tariff rates
over the MFN rates.
► UNCTAD
reports that there are currently 13 national GSP
schemes notified to the UNCTAD secretariat by Australia,
Belarus, Bulgaria, Canada, Estonia, the European Union,
Japan, New Zealand, Norway, the Russian Federation,
Switzerland, Turkey and the United States of America.
Duty Free Market Access and LDC
Exports
►
Non-reciprocal preferences along with MFN duty free market access have
resulted in lowered import tariffs for LDCs’ exports.
►
Canada provides duty free access to 93% of tariff lines, but LDCs trade only
with the products of about 14% tariff lines (almost all imports from LDCs
enter duty free).
►
In EU, all imports from LDCs have entered without any duty in 2003 and
97.1% tariff lines attach zero tariffs for LDCs.
►
In Japan, more than 93% of LDC exports have entered MFN duty free, and
the remaining 7% is divided roughly equally between duty free preferential
access and MFN dutiable trade with no preference. However, only about half
of the tariff lines attach duty free for LDCs in the Japanese market.
►
In the United States, out of 99.9% of the total imports from LDCs which
enter duty free, 81.5% is MFN duty free and 18.4% is preferential duty free.
In terms of tariff lines, US provide duty free access to 21.2% under MFN
and 63.6% under preferential regime.
GSP Utilization
Preference Giving Countries
Canada
Bangladesh
Potential cover rate
10.3
45.4
Utilization Rate
74.2
77.4
7.7
35.1
100.0
100.0
Utilization Rate
50.8
71.3
Utility Rate
50.8
71.3
Potential cover rate
64.5
99.7
Utilization Rate
76.6
80.1
Utility Rate
49.4
79.9
1.9
4.7
69.0
90.7
1.3
4.2
Potential cover rate
57.3
44.9
Utilization Rate
51.6
74.1
Utility Rate
29.5
33.3
Utility Rate
European Union
Japan
USA
Potential cover rate
Potential cover rate
Utilization Rate
Utility Rate
Total Quad
Nepal
GSP Utilization of Bangladesh and Nepal

Product coverage is defined as the ratio between imports that are covered by a
preferential trade arrangement and dutiable imports from the beneficiary
countries.

Utilization rate is defined as the ratio between imports actually receiving
preference and covered imports.

Utility rate is defined as the ratio between imports actually receiving preference
and all dutiable imports whether it is covered by GSP or not.
►
The utility rates for Bangladesh and Nepal differ across exports and
markets.
►
The total QUAD potential coverage is higher for Bangladesh (57.3 %) than
Nepal (44.9%).
►
Utilization rate is higher for Nepal (74.1%) than Bangladesh (51.6%).
►
Total value of the preference schemes stand at about one third for both
countries.
GSP Utilization of Bangladesh and
Nepal
►
The coverage is the highest in the EU (100%) but the utilization
rate is the highest in Canadian markets for both Bangladesh
(74.2%) and Nepal (77.4%).
►
In the US market, the coverage is quite low (1.9% and 4.7% for
Bangladesh and Nepal respectively), as a result utility rate is
also very low (1.3% and 4.2% in Bangladesh and Nepal
respectively), despite higher rate of utilization.
Preferential Market Access in
Developing Countries
►
The importance of developing country market is increasing for Nepal (share in
total export increased from 15% in 1990 to 54% in 2004). Therefore,
preferential market access in these countries is crucial.
►
Some of the developing countries provide preferential market access to LDC
products, however, the depth and coverage of these preference schemes are
often limited.
►
Among the preferential schemes, the importance of non-reciprocal preferential
market access schemes and the Global System of Trade Preferences (GSTP) has
limited utility for Nepal and Bangladesh.
►
But preferential market access granted on a bilateral basis by India bears a
significant importance to Nepal. Bilateral trade agreement between Nepal and
India provides duty free market access of Nepalese products in Indian market,
albeit with some conditions.
►
China has also announced in September 2005 to grant duty free treatment to
certain products from 39 LDCs.
Implications of HK Decision on DFQF Market
Access
►
Hong Kong Decision on DFQF market access for LDCs has both
commercial and diplomatic values for Bangladesh and Nepal.
►
It is natural to expect significant trade expansion of these countries after its
implementation.
►
But, the Declaration is loaded with conditions and loopholes, forcing us to
suspect the intention of the preference-giving countries.
►
Some crucial questions that determine the utility and value of the decision
are:
 What kind of leverage developed countries will have to exclude products
under the veil of 3% exclusion?
 How such exclusions will change the landscape of real market access
situations for LDCs?
 Why LDC specific decisions takes into consideration export interest of
other developing countries rather than focusing on the LDCs?
 What are the modalities of progressively achieving duty free quota free
market access?
Implications of HK Decision: Some caveats
►
Exports of Bangladesh and Nepal are highly concentration in few tariff
lines. The flexibility provided to developed countries to exclude 3% of
tariff lines under DFQF initiatives may exclude virtually all exportable
products of the two countries.
►
Merely granting duty free market access to exports originating in LDCs
does not ensure that LDCs are effectively utilizing the preferences. The
market access should be supplemented by measures that address
structural problems of the LDCs such as; rules of origin, competitive
tests, safeguard measures and administrative procedures.
►
Developing countries has been emerging as a major market for South
Asian LDCs and thus, preferential access in these markets is required for
export expansion of these countries.
►
Export composition of South Asian LDCs and other developing countries
resemble at the product categories but at the more disaggregated level
such similarity tends to shrink. Thus granting DFQF market access will
not endanger the domestic industry of developing countries
Implications of HK Decision
►
In the light of the above caveats and past experience, one has
reason to doubt the effectiveness of the Hong Kong Decisions on
DFQT market access for LDCs.
►
The paper thus argues that DFQF initiatives might not bring
desired effects to South Asian LDCs, if their interest is not
properly reflected in the design.
►
If we go along with the existing ambiguities, the HK decision on
market access increase the market access of LDCs but may run
the risk of rolling back existing preferences.
HK Decision on DFQF Market Access:
How to Make it Work?
The decision needs to be further corroborated with the following interpretations
and explanations:
 The flexibility provided to developed countries to exclude from DFQF market
access should be interpreted as 3% of existing non-zero tariff lines and should
also be capped by the volume of imports (for example, not exceeding 10% of
imports at tariff lines).
 As the landscape of market access has been changing over the period,
developing country also should provide DFQF market access for at least half of
the tariff lines, comprising of half of the export value.
 LDCs should be allowed to designate specific percentage of tariff lines, e.g. 0.5
per cent in the case of developed countries and 0.1 per cent in the case of
developing countries.
 The rules of origin for preferential market access should incorporate the stage
of development of the LDCs and be harmonized for all preference-granting
countries.
 Product originating in any of the LDCs or any of the regional trading partners
should be considered as a product originating in the exporting LDC.
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