Kenya will lose its preferential treatment in non-agricultural market access in the ongoing World Trade Organisation negotiations, a Nairobi-based research institute says.

The Institute of Economic Affairs (IEA) says that a reduction in the tariff advantage - known in WTO parlance as preference erosion - means that the country's export competitiveness will be reduced by making its competitors' exports less expensive.

Dr Mary Mbithi, lead researcher at the institute, said preference erosion, or tariff cuts, will adversely affect Kenya's international trade.

Non-agricultural market access (Nama) negotiations are part of the Doha Development Agenda work programme, whose objective is to reduce or eliminate high tariffs, tariff peaks and tariff escalations as well to reduce or eliminate non-tariff barriers using the agreed Swiss formula.

The Swiss formula is a mathematical method designed to cut and harmonise tariff rates in international trade. It incorporates the average bound tariff of a country into the equation.

This will soften the tariff cuts, especially for countries with higher bound average tariffs.

Generally, added Dr Mbithi, the formula would affect developing countries more, as their tariffs are generally higher than those of industrialised countries.

According to the proponents of the Swiss formula, it leads to harmonisation among countries. But according to countries such as India, the formula does not take into consideration each country's development needs and reverses the principle of "less than full reciprocity" by reducing the tariffs of developing countries more.

Most developing countries are yet to endorse the Swiss formula, which is being championed by the West, led by the US and the EC.

But the formula is also supported by a number of Latin American countries, who ironically are banded together with the developing nations. During each round of WTO tariff negotiations, participants have to reach agreement on the methods or modalities by which to commence tariff reductions.

Different rounds approached tariff-reduction modalities in different ways. For instance, the participants in the Tokyo Round used a "formula approach" in which they applied an agreed mathematical formula to cut all tariffs across the board.

But in the Uruguay Round, participants negotiated cuts product by product as well as through sectoral tariff initiatives.

During July 2004, the negotiating group on Nama agreed to pursue work on a non-linear tariff cutting formula applied to every tariff line of each WTO member's tariff schedule, without product exclusions.

In the recent past, there has been increasing convergence on a Swiss formula approach with sufficient flexibility so that the methodology will work for all economies.

Though the ongoing negotiations would result in trade losses for the developed countries, the overall trade loss to developing countries would amount to millions of dollars, according to IEA.

As a result of tariff cuts at the WTO, trade loss in developed countries would amount to $33.3 million and the trade gain in developing countries would amount to $16.5 million. "This represents about 1.2 per cent of all non agricultural exports and 0.3 per cent of all Kenya exports," said Dr Mbithi.

In addition, she said, the tariff cuts would deepen the crisis of de-industrialisation and accentuate unemployment and poverty.

Kenya is among the developing countries that do not have to apply the tariff cut formula. Equally, several of its trading partners in the region do not have to apply the same formula.

However, the application of the Swiss formula by Kenya's trading partners, both developed and developing, will affect the country's access to foreign and regional markets by eroding its preferences in these markets.

In order to mitigate the negative effects of the reduced tariffs, said Dr Mbithi, Kenya should seek support from the already existing liberalisation compensatory frameworks as the integrated framework and the IMF trade integration mechanism.

The country can also chose to increase and diversify its export base to take advantage of opportunities which will arise from both developing and developed countries' markets after Most Favoured Nation tariff liberalisation.