Jun 23, 1992

EC AUTHORISED TO "RENEGOTIATE" OIL SEEDS TARIFF CONCESSIONS.

GENEVA, JUNE 19 (CHAKRAVARTHI RAGHAVAN) -- The GATT Council agreed Friday to a request from the European Communities to be authorised to renegotiate its oil seeds tariff concessions, which has been the subject of a long-running dispute with the United States of two panel rulings that ruled the EC regime to be GATT illegal.

In an effort to pressure the EC, the U.S. had announced a list of several billion dollars worth of imports from the EC into the U.S., from out of which it would select the products to be hit in retaliation by imposing 100 percent duties.

It had been done in the hope that the industries and producers likely to be hit, would bring pressure on the EC to modify its oilseeds regime to comply with the GATT rulings.

But in seeking renegotiations of tariffs, an alternative suggested by the GATT panel, via the multilateral route under XXVIII: 4, rather than the bilateral route (under XXVIII: 1) with the Contracting Parties with which the original tariff concessions were negotiated and those who had since then acquired a "principal supplying interest", the EC has probably increased its room for manoeuvre, though upping the costs to itself.

The renegotiations could prove politically embarrassing both for the EC (in terms of the compensation it would have to provide) as well as to the U.S. administration, particularly in the run-up to the November elections.

It could also have effects on the Uruguay Round negotiations, stymied over U.S.-EC differences on agriculture (as also on several other issues) including the new EC reforms of its Common Agricultural Policy for direct payments to the farmers and such direct payments not to be subject to challenge on ground of producer-subsidy.

It would make it that much more difficult to conclude the Round before U.S. presidential elections, particularly since President Bush is facing strong challenge from Perot's third party candidacy.

The effect of the Council's authorisation, to renegotiate the tariff concessions granted by the EC during the Kennedy and Tokyo Rounds, would mean that the United States would have to put off its threatened retaliations against the EC for at least 90 days.

And having won two panel rulings, whether it takes the retaliation route against the EC requiring prior GATT Council authorisation) or the renegotiations/compensation route, the U.S. Soya producers (on whose behalf it brought the case) would get no relief to maintain or increase their market share in the EC - underscoring the real weakness of the GATT, which the Uruguay Round and its MTO would not resolve in any way.

But it will also make the cost to the EC of renegotiating the oilseeds regime, and granting compensation in the form of concessions elsewhere more costly, as the U.S. warned in the Council.

The renegotiations would cover Soya bean, rape and coals seeds, sunflower seeds and oil-cakes.

According to the GATT spokesman, the CPs with initial negotiating rights are: the U.S. in Soya; Canada in coals; Canada and Sweden in sunflower; and Uruguay and Pakistan in oil cakes.

Those having a principal supplying interest in these various categories include Pakistan, Uruguay, U.S., and Canada. A number of other countries, not falling in either category, but have become important suppliers (like Argentina and Brazil) have said they have an interest in the matter and wish to participate. The EC has said that it would agree to hold consultations with them also.

All of them indicated their preferred route in resolving the differences would be for the adoption of the panel report and for the EC to implement its recommendation to expeditiously eliminate the impairment of the tariff concessions by modifying its new support system.

The normal route for renegotiations of tariff schedules is Article XXVIII, paras 1 to 3 which provide for renegotiations, and failing that for the applicant Contracting Party nevertheless going ahead and raising its tariffs. In this latter event, the CP, which initially negotiated the concession (and those with principal supplier interest) may, within six months but after 30 days notice, withdraw substantially equivalent concession initially negotiated with the EC.

This is essentially a bilateral negotiating route.

Under Article XXVIII: 4, the renegotiations are under multilateral scrutiny, and under the authority of the GATT Council. The negotiating rules and conditions of the first three paras would still apply.

The renegotiations would have to be concluded within 60 days after negotiations had been authorised, or any longer period prescribed by the CPs. Thereafter the applicant seeking renegotiations could refer the matter to the CPs, who are to promptly examine the matter and submit their views.

But if no agreement could be reached on this basis, the applicant would be free to modify or withdraw the concession, unless the CPs find the applicant CP has "unreasonably failed to offer adequate compensation".

If the concessions or modified or withdrawn, others - those with initial negotiating rights, those having a principal supplying interest, and other whit "substantial interest" - would be able to withdraw substantially equivalent concessions initially negotiated with the CP concerned.

There have been very few precedents for the XXVIII: 4 renegotiations, and the GATT officials could only recall a case in mid-1950ís which showed however that tariff negotiations could be used to compensate for subsidies (complained of).

When the GATT Council considered the EC application Friday, there was no real challenge to the EC seeking to proceed along that route, one of the options in the panel report.

On the other hand a lot of countries as well as the U.S. felt that a negotiation of this kind was clearly not going to bring relief to the interests that brought the original dispute - Soya bean farmers/producers will not benefit by the compensation that the EC might offer in other sectors.

And if the EC does put up tariffs (the re-balancing it has sought through the Uruguay Round), the U.S. farmers now enjoying zero tariff would find themselves facing EC tariffs.

U.S. delegate Rufus Yerxa pointed out in the Council that the renegotiations route could provide extremely costly for the PC. The U.S. has estimated the value of the tariff concession to be one billion dollars and that of market expectations at another billion. Any increase in tariff (by the EC) would involve additional compensation/concessions too.

The U.S. said in the Council that the renegotiations would have to address the underlying problem with respect to the oil-seeds sector and look at the settlement being "trade-creating" in order to compensate for the impairment of the tariff concession and the at the same time ensure compensation for any loss of trade.

The GATT Council set up a panel in June 1988 on the original U.S. complaint against the EC. The panel found that the EC oilseeds regime - EC payments to oilseed processors conditional on their purchase of oilseeds originating in the EC - to be inconsistent with the EC's obligations under GATT Article III: 4 (equal treatment to imported products with domestic products) and that the value of the EC's previous tariff concessions had thus been impaired.

The panel recommended that the EC bring its regulations into conformity with the GATT and also find ways and means to eliminate the impairment of tariff concessions.

The panel report (which gave time to the EC to modify its regime) was adopted on 25 January 1990. The PC thereupon held extensive internal discussions, and in mid-1991 decided to modify its regime.

The new regime, effective 27 December 1991, implemented a new support system for Soya beans, repe seed, colza and sunflower seed.

Under the old system the processors paid the EC oilseeds producers guaranteed prices. If these were higher than world market prices, the processors received compensation. The new regime has eliminated this.

Under the new regime, the producers are guaranteed direct per hectare payments, while under the role they enjoyed guaranteed prices per tonne of oilseeds.

And while under the old, the producers returns were determined by the level of guaranteed prices, under the new they were determined by the price they 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 held that the new system, while discontinuing the payment mechanism held to be GATT illegal, nevertheless provided for product-specific production subsidies, and thus retained the essential features that led the panel to find originally an impairment of tariff concessions.

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

Thereupon on 8 October 1991, the U.S. sought the reconvening of the original panel to determine whether the new EC regulations were in conformity with the General Agreement. The panel was reconvened and gave its rulings in March.