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NEWS UPDATES Asean Affairs   14  December 2010

Indonesia and other developing nations agree to tariff cut

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A dozen developing countries including Indonesia will sign an agreement this week to cut tariff barriers and boost trade among themselves, a senior Brazilian government official said on Monday.

Negotiations under the Global System of Trade Preferences Among Developing Countries were relaunched in 2005 in an attempt to diversify developing countries' trade revenue and reduce their dependence on rich countries.

Around 43 countries are signatories to the original GSTP agreement from 1988, and 11 countries will sign the updated accord in southern Brazil this week.

Under the deal, countries will cut applied tariffs by 20 percent on 70 percent of their products.

"So far the GSTP had no importance at all ... it was more political, now it has become an instrument for opening trade," Carlos Marcio Cozendey, head of the Brazilian foreign ministry's department of economics, told a news conference.

The agreement covers fast-growth economies with combined gross domestic product of around $5 trillion and nearly one-third of the world's population.

The other signatories are Argentina, Uruguay, Paraguay, Indonesia, Malaysia, South Korea, Morocco, Egypt and Cuba.

But the accord's ability to generate large new trade flows is likely to be limited, as countries are granted significant exemptions and tariffs could remain prohibitive if they were high to begin with.

In addition, some countries do not have proper trade ties or adequate infrastructure to act on the new incentives.

"It's an accord that allows you to protect your sensitive goods but gives you a larger number of small preferences on a big array of products," said Cozendey.

"It's an agreement to open new opportunities, it doesn't focus on existing trade." In Brazil, manufacturers are more likely than farmers to benefit from new access to markets in Asia and elsewhere.

Critics say the administration of outgoing President Luiz Inacio Lula da Silva focused too much on building stronger ties with other developing countries, while neglecting its traditional partners in Europe and the United States.

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