U.S. THREATENS RETALIATION OVER EC OILSEEDS REGIME.

May 4, 1992

U.S. THREATENS RETALIATION OVER EC OILSEEDS REGIME.

GENEVA, APRIL 30 (CHAKRAVARTHI RAGHAVAN) -- The United States told the GATT Council Thursday of a likely Washington announcement of unilateral retaliatory measures against one billion dollars worth of imports from the EC over its oilseeds regime, but found itself isolated Council on its threat of recourse to "unilateralism".

Several countries, who had earlier in the Council supported the U.S. in pressing the Community to accept the panel ruling that its proposed changes were not in conformity with an earlier ruling, spoke up against the U.S. threat of unilateral actions and underlined that such an action without prior authorisation from the GATT Council would itself be totally illegal.

The U.S.-EC dispute goes back to 1988, when the U.S. brought up the complaint that the EC regime compensating oil crushers subsidy for making use of domestic (higher priced) oilseeds was contrary to the GATT and nullified the tariff concessions for zero tariff on imported Soya and other oil seeds that the EC had made in the Kennedy Round and bound in its GATT tariff schedule.

The panel was established in June 1988 and gave a ruling against the EC, which was adopted by the Council in January 1990.

The panel had then held that the EC payments to oilseed processors conditional on their purchase of oilseeds originating in the EC was inconsistent with GATT obligations under Article III: 4 (non-discrimination and national treatment for imported products) and impaired the tariff concessions given by the EC earlier to the introduction of the regime.

The panel recommendation, adopted by the GATT Council, asked the EC to bring its regulations into conformity with its GATT obligations and ways and means to eliminate the impairment.

After considerable internal debate, the EC announced its plans to change its domestic regime, and on 27 December implemented a new support system for producers of Soya beans, rapessed, colza and sunflower seed, replacing the old system.

The new system eliminated the old system under which EC processors paid EC producers guaranteed prices, and were recompensed by the EC if the prices paid were higher than world-market prices. The old system of producers enjoying guaranteed prices per tonne of oilseeds was eliminated and replaced by a system of direct payments per hectare.

While under the old system, the producer prices were determined by the level of guaranteed prices, under the new they were determined by the price producers were able to obtain on the EC market in competition with other producers and imported oilseeds, as also a direct payment based on average yields of oilseeds.

The reconvened panel noted that the new regulations would discontinue the payment mechanism which had been found by the original panel to be contrary to Article III: 4.

However, the panel said in respect of the new regime that what was relevant was not whether the subsidies provided were described as income or price support, but rather whether they were product-specific production subsidies.

The panel ruled that this was indeed the case: they were payable only in respect of oilseeds, were specifically designed to supplement returns from production of oilseeds, and were linked to yields for individual regions.

The new system, the panel said, had retained the essential features of the old which had led the panel to find an impairment of concessions, and was designed to maintain producers' incomes by systematically supplementing their returns. It protected producers from the effect of the general movement of import prices and continued to impair the benefit the U.S. could reasonably expect to accrue from its tariff concessions.

The panel also noted that the EC had aligned support for oilseeds with support or returns for producers of alternative crops (cereals) which were protected by the variable levies and completely insulating such procedures from world market prices. This alignment itself was hard to reconcile with the expectations of the U.S. at the time the zero tariff bindings were negotiated.

The panel noted that over two years had elapsed since the original ruling and the EC had had a reasonable opportunity to comply with the recommendation and there was no reason to continue to defer consideration of further action in relation to the impairment of the concessions, if the U.S. so requested.

The panel therefore recommended that the EC act expeditiously to eliminate the impairment of the concessions, either by modifying its new support system for oilseeds or by renegotiating its tariff concessions for oilseeds under Article XXVIII of GATT.

If the dispute is not resolved expeditiously in either of these ways, the panel said, the CONTRACTING PARTIES should, if so requested by the U.S., consider further actions under Article XXIII: 2 of the GATT (authorising withdrawal of equivalent concessions).

When the panel ruling came up before the Council Thursday, most of the speakers called on the EC to accept the report and allow its adoption.

However, EC representative John Beck said this was the first time that the report of the panel reviewing the EC efforts to comply with the earlier ruling had come before the Council. The EC was still studying it and could not allow the adoption of the report. However the EC was anxious to find a solution and would come forward with its proposals at the next GATT meeting (set for 16 June), he said.

The EC suggestion that the panel ruling could be implemented in the context of the Uruguay Round was found unacceptable by Brazil, which supported the U.S. demand for adoption of the report. Canada, Argentina and Australia were among those who pressed for early adoption of the ruling.

Yerxa found the EC stance regrettable, and noted that the EC Agricultural Ministers had said the panel ruling was unacceptable. The damage suffered by U.S. exporters, Yerxa said, was an annual one billion dollars and the U.S. administration would announce (Thursday in Washington) the steps it would be taking for withdrawing an equivalent value of concessions in retaliation.

The U.S. had sought to resolve the matter through the GATT but had failed. The EC subsidy programme had resulted in a 40% increase in production and loss of markets to competitors.

Beck in response stressed that the EC would come up at the next meeting with a proposal for settling the problem and the delay sought till the next meeting was not "unreasonable". The U.S. announcement had in it "a whiff of unilateralism" and it was not in order at all for the U.S. to try to seek authorisation for retaliation at the very first meeting when the new ruling came before the GATT Council.

Several speakers who followed the EC agreed that it was not right for the Council to agree at this stage to retaliation. Canada asked the U.S. to stay retaliation until it got the authorisation of the GATT Council.

Several participants also agreed that it was a "reasonable" request of the EC to seek time till the next meeting. The dispute settlement procedures must be respected, several noted.

Argentina said it would support the U.S. if it sought authorisation from the GATT f or retaliation, but any retaliation must follow GATT procedures.

The EC noted that not one delegation had supported the U.S. move for unilateral actions, while Japan said there were some important implications in the report on domestic support and tariffs and it was necessary to reflect on the report before it was allowed to be adopted. Any unilateral departures from GATT procedures (through unilaterally announced retaliatory measures) would not be acceptable.

The Council is to revert to the subject at its next meeting.

Earlier, an Egyptian request for waiver of its tariff schedule obligations, in the light of its general programme (under a World Bank structural adjustment programme for converting quantitative restrictions into tariffs) for reform of its external trade regime, ran into some trouble when several of the interested parties wanted time to consider it.

Normally, any such request would involve renegotiations under Article XXVIII, which could be a length process and requiring Egypt to compensate interested parties now enjoying the concessions. The Egyptian request f or waiver was intended to short-circuit this.

While several developing countries spoke in support of the request, a number of ICs (including New Zealand, U.S., Canada and Austria) expressed some difficulties and were concerned that the proposals would create some commercial difficulties for them. They sought more time to consider the issue and also more information on the non-tariff measures that would still be maintained.

Egypt at that stage expressed disappointment and pressed on the GATT Council to proceed to a vote.

The GATT Council itself functions by consensus. The Egyptian request for waiver, if accepted by the Council, might still have needed a vote in any event. But the request of Egypt would have forced the Council to take a procedural vote on whether it should send the waiver request for a vote of the Contracting Parties.

The issue was put off for further consultations, and later it was announced that the GATT Council Chairman would held further consultations to see whether the Council could meet in May.

GATT sources said that if a general meeting was to be held in May, ahead of the regular one on 16 June, it would bring to a head at the same meeting both the U.S. retaliation threat and the issue of U.S. compliance with the alcoholic beverages ruling (see separate story) and thus all parties might wish to avoid it. One way out could be to hold a special meeting of the Council on the Egyptian issue itself.

On the issue of the U.S. complying with the Tuna panel ruling (where its actions against Mexico for tuna fishing under the U.S. law for protection of Dolphins in the western pacific, which a panel had held to be illegal, a number of countries pressed on the U.S. to abide by the ruling. A U.S. court has now mandated on the administration to extend the bans to secondary sources of tuna imports - countries which do not impose similar restraints on Mexican tuna, and export tuna or processed tuna to the U.S.

The EC which with others pressed on the U.S. to accept the ruling and implement it finally expressed itself as increasingly frustrated by the blockage of the dispute settlement machinery. The EC said it would have no choice other than to seek bilateral consultations with the U.S. on the secondary ban issue and then proceed to seek a GATT panel at its next meeting.

This issue too will figure at the next meeting.

A second round of debate however began with the announcement by U.S. Representative Rufus Yerxa who said that Washington would soon be making an announcement for retaliation against EC products of a value of one billion dollars.