GENEVA, May 23: Proposals to give special treatment to customs unions between developing countries risk undermining efforts to open up markets for industrial goods, a senior developed country diplomat said on Friday.

The proposal, in the latest negotiating text on industrial goods from the World Trade Organisation (WTO) could be “devastating” if it is also taken up by members of free-trade agreements, as some are now suggesting, he said.

“It’s not just a theological argument of principle, it’s grounded in analysis of the commercial facts,” said the diplomat, speaking to Reuters on condition of anonymity.

That analysis shows that some countries could more than double the proportion of imports that would be protected under special arrangements or “flexibilities” for developing countries, if customs unions get special treatment, he said.

The question of customs unions is likely to be a major and contentious issue as WTO members review the proposals next week.

WTO mediators in industrial goods and agriculture published new proposals this week as blueprints for a deal to open up world trade in the Doha round, now in its seventh year and facing potentially a decisive few weeks.

The customs union proposal in the latest negotiating text represents a demand by Brazil and Argentina to give special treatment to the Latin American trade bloc Mercosur, which also includes Paraguay and Uruguay.

Brazil, a formidable food producer and exporter, is one of the leading developing country players in the Doha round.

Foreign Minister Celso Amorim has said that building Mercosur is a political priority for Latin America’s biggest country, comparable in his eyes to the creation of the European Union, and he will not sacrifice it for the Doha round.

But according to the analysis, the proposal would carve out much of the market opening for manufacturers in major developing countries sought by rich nations such as the United States and European Union in exchange for cutting farm tariffs and support.

Figures for the developing country flexibilities, which allow them to shield a proportion of products and import volumes from full tariff cuts, are still being negotiated.

But if a developing country is allowed to shield up to 12 per cent of its products and up to 12 per cent of its import volumes, Brazil would be able to cover up to 10 per cent of its trade, if its total trade is considered, the diplomat said.

However, if trade within Mercosur is excluded from the calculation, Brazil would be able to protect 13 per cent of its imports, according to the analysis.

Taking limits of 12 per cent of products and 17 per cent of volumes, near the upper end of what is under negotiation, Brazil could shield 12 per cent of imports counting all trade but 20 per cent of all imports excluding intra-Mercosur trade.

For Argentina the difference is even bigger.

On the first assumption, with limits of 12 percent for both products and imports, Argentina can shield 12 percent of imports when all trade is counted. Once intra-Mercosur trade is excluded from the calculation, the share of total imports that Argentina can protect jumps to 32 per cent, he said.

“That is simply because so much of their trade is with Brazil, particularly in sensitive products like textiles and automobiles,” he said.

The flexibilities apply to both the number of products and the volume of imports, so if a country protects a sensitive product accounting for a high volume of imports it quickly runs up against the volume limit and cannot include other products.

If the sensitive product is imported mainly from a customs union partner, it will account for a smaller share of external trade.

Under the formula used for customs union members, they could include more sensitive products before the import volume limit is reached than if their total trade was being measured.—Reuters