Mauritius is introducing the paper on behalf of the African, Caribbean and Pacific countries (ACP) which comprises of 78 countries out of which 54 are World Trade Organisation (WTO) members. The ACP also constitutes the vast majority of Less Developed Countries? (LDC) as well as small, weak and vulnerable countries as can be evidenced by their low level of economic development and the tiny fraction of world trade. Indeed, the share of the ACP countries in world trade stands at around 2.0% and that too is concentrated in a very limited range of products. This is a clear indication that helping these countries maintain at least their current market share would in no way impact on global trade, which is expected to increase with the removal of trade barriers as a result of the current round of trade negotiations.

The philosophy underlying the present submission is, first, to reiterate the agreement reached in August, that the issue of preference erosion needs to be addressed in the negotiations as part of the Non Agricultural Market Access (NAMA ) package as well as the Doha Development Agenda (DDA). The decision reached in August on other development issues calls for the particular concerns of developing countries, including preferences, to be taken into consideration, in the course of the agriculture and NAMA negotiations. NAMA stipulates that additional negotiations will be required, amongst others, on the specifics of preferences. It has also been agreed that the negotiating group is to take into consideration, in the course of its work the challenges faced by non-reciprocal preference beneficiary countries.

The submission also, lays down a set of objective criteria that can be used to identify the narrow range of products that are concerned with preferences. It is pertinent to note that, by virtue of its narrow scope preferences cannot undermine the broader multilateral trading system. In fact, this issue has been on the General Agricultural Tariffs and Trade (GATT?s) Agenda since its inception in 1947. GATT which lays down the basic principle of non discrimination, stipulates that the Multilateral Trading System MFN principle shall not require the elimination of preferences in respect of import duties or charges, under conditions obviously.

This is testimony that preferences have been part and parcel of the system right from the very beginning. This has, however, not prevented the liberalisation of trade at the Multilateral level. Indeed, tariffs on industrial goods which were to the tune of 40% on average in 1947 has dropped to between 4-5% at present. This is an indication, if needs be, that trade preferences have never undermined the (MFN), nor have they prevented tariff reductions on an MFN basis.

<B>A devastating impact on economies</B>

But one thing that needs to be recognised is that trade preferences have been instrumental in lifting millions from poverty and the shackles of marginalisation. Without preferential access, neither the LDC?s, nor the small, weak and vulnerable economies would have been able to secure a share in world trade. Contrary to what the opponents say, preferences have not been inconsequential. My own country is a case in point. From a monocrop economy in the 70?s, Mauritius has been able to successfully diversify its economic base and develop an export led strategy thanks to preferences obtained under the Lome Conventions and now the Cotonou Agreement. On average, 95% of ACP exports to date to the EU take place under preferential access, without which these exports would not have been possible and obviously, with the ensuing socio-economic impact.

The African Growth Opportunity Act (AGOA) preferences granted to Sub-Saharan African (SSA) countries, which are amongst the poorest in the world, are contributing significantly to the development of these countries and by extension to combatting poverty, famine etc. A report prepared by USTR on AGOA in May 2004 confirms that AGOA has had a significant impact on growth and economic development. AGOA related trade and investment has created 190,000 african jobs and over $340 million in investments. In 2003, AGOA generated exports of over $14 billion and has helped diversify US-Africa trade which was concentrated on fuel before. Countries such as Kenya, Lesotho, Madagascar, Malawi, Mozambique, Namibia and Zambia have been able to attract investment in the industrial sector which otherwise would have been impossible.

It will be most unfair if these countries are denied further development as a result of a significant erosion of their preferential margins. Already they have been affected by the phasing out of textile quotas which had been providing them with a guaranteed market. Tens of thousands of jobs have been already lost as a result of the closure of factories, including in my own country. The compounded effect of the quota phase out and erosion of the preferential margins as a result of tariff reductions on the export market would have a devastating impact on their economies as a whole. This would be counter to the very objectives of the Marrakech Agreement which are, I quote ?to raise standards of living, ensuring full employment and a larger and steadily volume of real income and effective demand and expanding the production of and trade in goods and services?..? unquote.

It is with the express view of ensuring that the poorest and most vulnerable countries are not unduly penalised as a result of the current negotiations, and at the same time of not jeopardising the liberalisation of trade in the broader sense that we are making this submission. We are proposing a methodology based on an objective set of criteria to identify precisely those products that would be affected by preference erosion. The methodology proposed is as follows:

For a country to be vulnerable to preference erosion, it must have some characteristics. First, it must already enjoy significant preferences (for the ?erosion of preferences? to take place). Secondly, a country is considered as vulnerable when it depends on few export products and export markets, and it is a small exporter, relative to the world.

In concrete terms, this can be calculated using three relationships :-The share of the particular product of the importing country on the total exports of the exporting country;

The share of the particular product of the exporting country in the importing country;The world market share of the exporting country, for the particular product. The three above mentioned factors can be condensed in an ?index of vulnerability?.

In other words, the product and market concentration is fundamental: the country will be more vulnerable the less diversified its export markets and export products are, and the smaller its world share is.

The list of products obtained by using this methodology would, in all likelihood, be common for exports under different preferential schemes. Moreover, the number of tariff lines concerned would be limited and concentrated in certain sectors only for which an appropriate modality would have to be developed so that preference erosion is minimal and sequenced over a longer period of time. The correction coefficient proposed by the Africa Group is certainly a viable option.

This submission does not propose any modality for addressing preference erosion. This is premature at this stage since the core modality for tariff reductions has yet to be defined and agreed upon. Moreover, decision has also yet to be reached on the sectoral component which would have a direct bearing on preferences. The ACP group as well as individual ACP members reserve the right to come up with written-oral submissions on these and other elements in the light of discussions in NAMA negotiating group.