EC COMPROMISE DOESN'T SEEM TO FLY.

Oct 1, 1992

EC COMPROMISE DOESN'T SEEM TO FLY.

GENEVA, 30 SEPTEMBER (CHAKRAVARTHI RAGHAVAN) -- Hopes Tuesday night that the U.S.-EC oilseeds dispute and possible outbreak of trade retaliation could be averted on basis of a compromise proposal of the EC seemed to have been considerably reduced Wednesday morning when it became clear that the EC was not ready to commit itself to implement any conclusions of the small working group that EC had proposed (to consider the issues).

A bitter U.S. delegate, Amb. Rufus Yerxa, formally put forward in the Council the U.S. plea asking for arbitration on the extent of trade damage the U.S. had suffered, and seeking Council authorisation for retaliation.

Yerxa told journalists that the EC compromise proposal was in no way acceptable to the United States. The small working group to consider the question, suggested by the EC, would be too weak, and in any event the EC was not ready to agree to abide by the outcome and implement it. The U.S., he added, was giving the EC time till Thursday to consider its position and respond in the Council. He did not indicate whether the U.S. would go ahead with its planned retaliation.

GATT spokesman David Woods said Wednesday (after the morning session) that the consultations were continuing and that the Council would meet in the afternoon, but that the discussions could go on till lunch time Thursday.

The European Community appears to have indicated that it would give its response on whether it would commit itself to accept the findings of the working group suggested by it by that time.

When the Council adjourned Tuesday night, there had been hopes that the last minute compromise proposal put forward in the GATT Council Tuesday night by the European Community on its U.S.-EC oilseeds dispute with the U.S. could provide a way out and that a trade war of retaliation between the two sides may be avoided.

However, this hinged on clear understanding and commitment of sorts from the European Community that the outcome of its compromise procedure on this issue would be accepted by the EC and implemented and not blocked by withholding consensus.

Informal consultations on the EC compromise proposal were held at the GATT till late in the night of Tuesday, and the principal protagonists (the U.S. and EC) were to advise the Council Chairman Wednesday morning.

The Council resumed Wednesday morning to deal mostly with the other items on the agenda.

It briefly heard the Argentinean request for a panel to consider its case against the EC on its claims to be a "principal supplier" in the EC on Soya, in relation to the EC's efforts to renegotiate its bound tariffs on oilseeds including Soya. Its exports of Soya, the Argentine delegate underlined, constituted a very large part of its exports, and in terms of the Article XXVIII renegotiations of EC tariffs, it should have principal supplier rights. Argentina said that in accordance with the GATT procedures (since the midterm review), the subject should be automatically referred to a panel at its next meeting, if there was no solution before hand or unless the Contracting Parties by consensus decide otherwise. Argentina recognised that the issues raised by it were tied to the wider questions and the idea of a small working group to consider them proposed by the EC and awaiting a Council decision.

The Argentine case was supported by a large number of delegations from Latin America as also the U.S., while the EC merely referred to the fact of the wider issues seized of by the Council. The EC also seemed to question the Argentine assumption of an automatic reference to a panel at the next Council, but did not elaborate.

The Council Chairman merely ruled that the statements would be taken note but that no decision was called for.

On Tuesday when the U.S.-EC dispute came up before the Council, it had before it three separate agenda items on the EC oilseeds regime issue, arising out of two panel rulings which went against the EC on the GATT legality of its regime and the subsequent EC efforts to renegotiate its bound tariffs in this area rather than implement the panel rulings.

There was the U.S. request for arbitration to assess the damage it has suffered, an EC request for the Contracting Parties to consider the impasse in its efforts to renegotiate the bound tariffs, by paying equivalent compensation, and the Argentine request for a panel over its claims for "principal supplier" interest and rights (and thus compensation) in the renegotiations.

The U.S. has sought "arbitration" by the same panellists that went into the issue twice and ruled against the EC. The U.S. now wants arbitration to determine the extent of the "nullification or impairment" suffered by the EC subsidisation policies.

The nullification or impairment, upheld by the two panels, arises out of the fact that the United States negotiated with the EC and secured a zero bound tariff on Soya, a gain which it contends has been nullified by the subsequent EC policy of domestic support that has expanded EC oilseed production to the detriment of U.S. exports.

The EC however claims that the loss of U.S. share in the EC market or its inability to expand exports is due to the fact that lower priced imports from Argentina and Brazil are more competitive.

The U.S. claims it has suffered a damage of over two billion dollars while the EC estimates U.S. loss to be no more than 400 million dollars.

In the Council the EC refused to accept the arbitration request for determining such a value which, both the EC and several others in the Council, see as a step towards U.S. retaliation.

The EC has said that it would be forced to counter-retaliate if the U.S. were to go ahead and retaliates against the EC on the basis of two billion dollar claim.

The U.S.-EC negotiations have been stalemated - with the U.S. seeking to persuade the EC to find ways to open its market to U.S. Soya exports, while the EC has offered compensation in the forms of tariff-quotas on some high value agriculture products: durum wheat, prime cuts of beef, turkey meat and other such categories.

The EC has also offered to bind its current level of domestic support (under the revised oilseeds regime).

The U.S. has found the compensation inadequate, and has further contended that it does not benefit its Soya producers who have initially raised the dispute.

But according to the sources close to the negotiations, some of the other interested parties are perhaps ready to accept the EC offer.

The U.S. in the Council gave some indirect confirmation by accusing the EC in its renegotiations offer to be attempting to "divide and conquer".

But with the negotiations for modification of the tariff schedules in this area deadlocked, and the 60 day time limit having expired, the EC has now referred the issue back to the Council under XXVIII: 4 (c).

Under XXVIII: 4 (d), the CPs, and in this case the Council, has to promptly examine the matter and submit views to the Contracting Parties primarily concerned with a view to reach a settlement. But if no settlement is reached, the applicant (in this case the EC) would be free to modify or withdraw the concession. Thereupon, the others with whom it originally negotiated the concession (the U.S.) and those with principal supplying interest would be free to withdraw equivalent concession.

Given the fact that the Council can only act by consensus, the EC move would gain it time and prevent the U.S. from going ahead, with its threat of retaliation.

In the Council discussions, Tuesday, Amb. Rufus Yerxa of the U.S. reviewed what he called the "long and frustrating efforts" of the U.S. to resolve this dispute and the two panel rulings, that the EC had failed to implement, leading to the current impasse. Yerxa charged the EC with adopting delaying tactics in the renegotiations of tariff schedules and not coming forward with any credible offers.

This was why the U.S. had now sought the arbitration for the sole purpose of determining the total value to be ascribed to the impairment caused by the EC subsidies.

Rejecting the EC proposal, he contended that nothing could be more cynical than throw the issue back to the CPs for further review. This seemed intended to produce no result and take a long time to get there. The EC was merely trying to stifle the GATT dispute settlement procedure with further deliberation.

The central issue that had blocked the renegotiations was the amount of damage to be compensated - 2 billion dollars as the U.S. contended or 400 million as the EC has argued.

The EC, Yerxa charged, had often been accusing the U.S. of unilateralism and trying to be the judge, jury and prosecutor. In this case, he said, the EC was trying to be judge, jury and defendant.

The EC delegate, Amb. Tran Van-Thinh in rejecting the U.S. proposal, argued that the U.S. had just tried to extract one part of a detailed dispute settlement procedure under the Uruguay Round (arbitration to assess damage before retaliation), and this was not acceptable.

The EC also raised a number of highly technical issues relating to the question of calculation of the damage suffered and other matters, and said these too would have to be gone into.

While the U.S. received support from Argentina, Uruguay, Canada and some others, the EC position received some support from Austria, Norway, and Switzerland - all candidates to join the EC.

As the Council continued a protracted debate, without seemingly able to reach a conclusion. Tran threw up a proposal, which seemed intended to combine both the EC requests for the CPs to consider the issue and the U.S. request for arbitration to decide on quantum of damages suffered by it.

Under Tran's proposal, a working group would be set up, with limited membership and excluding the interested parties (U.S., EC, and all others having an initial negotiating right or have principal suppliers interest), and with precise terms of reference.

Such a group would look into the questions raised by the U.S., namely an assessment of its lost trade, a number of highly technical issues raised by the European Community, and questions about "initial negotiating rights" raised by Pakistan and the principal suppliers rights claimed by Argentina.

The U.S. said in the Council it was ready to consider such an approach, and sit in the Council through the night to find a solution. But a number of countries said they needed time.

In the result, Council Chairman Zutshi was to hold emergency consultations during the night and come back to the Council Wednesday morning when the Council could be in a position either to take a decision on the proposal, or "suspend" its meeting to be able to reassemble in a few days at short notice when a decision could be reached.

In the consultations, it became clear that the chances of agreement on the basis of the compromise, and thus avoiding a trade retaliatory war would be contingent on clear understanding between Washington and Brussels on a few key issues:

* Terms of reference of the working group,

* Membership of the group,

* A time-frame for the conclusion of its work, and

* Commitment from the EC that it would not block the adoption of the recommendations from the group but would implement them.

Sources among interested delegations said that the terms of reference could not really go into the plethora of highly technical questions raised by the EC in the Council such as whether "trade shares" should be computed in value or volume terms, how "majority" share is to be computed, etc.

The EC's "technical questions" could be argued about and discussed for years without any conclusions, like the "equitable market share" issue that has plagued GATT consideration of subsidised agricultural exports, they said.

If a quick settlement to avoid outbreak of retaliation is to be reached, the working group could only go into the value of the value of the impairment and the status of various parties, one source said.

Other sources said that while it might be possible to reach understanding on these, an understanding or commitment from the PC over its willingness to accept the outcome was more problematical.

GATT sources said Tuesday night that it was clear both delegations were making an effort to avoid a bruising outbreak of retaliation and counter-retaliation that could complicate their overall relations and the Uruguay Round (which both profess they want to conclude), but whether their principals would agree was not certain.

But so far, on the Uruguay Round, the U.S. and EC have been able to agree only on the price others should pay, and not what they would each pay.

Both their economies are in serious trouble and both have some serious political problems and uncertainties. In the U.S. President Bush, according to most indications, is facing defeat. In Europe, in the aftermath of the currency turmoil and the razor thin margin of approval for the Maastricht treaty, and the deep social and political divisions thrown up in the process, the political leadership of the major countries in the EC and the Brussels bureaucracy are fighting for their fife. In this situation neither has the capacity to make the necessary concessions and accept the sacrifices needed to conclude the Round.

Over and above the complications of the Round, the oilseeds dispute issue, related to the agriculture question but separate, is being handled and pushed at very high levels in both capitals and their motivations and willingness to compromise are not so clear, the sources said. Apart from Washington's legitimate anger that it is unable to get relief even when it wins a dispute in GATT, everything in Washington would be decided now in terms of its effect on Bush re-election chances, just as in Brussels the effect on the Maastricht treaty and political calculations of the principal parties (including France) would weigh heavily.