Oct 2, 1992


GENEVA, 1 OCTOBER (CHAKRAVARTHI RAGHAVAN) -- The GATT Council ended its session Thursday, with the U.S.-EC dispute over the Community’s oilseeds regime unresolved, but with some indications of continuing bilateral contacts between Washington and Brussels.

No clear indication was immediately available whether some settlement (which, it would appear, would need to encompass both the oilseeds dispute as well as the overall Uruguay Round agricultural package, would be reached or whether a trade war between the two major trading partners will be unleashed.

The EC oilseeds regime, providing support to its domestic producers, had been found by a GATT panel to have nullified the benefits that the U.S. had negotiated with the EC in the Kennedy and Tokyo Rounds resulting in a bound zero tariff for imports of Soya beans. The panel had recommended that the EC bring its regime in line.

Subsequently, and after considerable internal debate, the EC modified its regime, but that too was held by a second panel, as not complying with the recommendations of the earlier panel, and still impairing the benefits the U.S. had negotiated and obtained. The EC was asked either to comply or compensate.

The EC came back to the GATT Council, seeking to re-negotiate with the parties involved its bound tariffs on the oilseeds regime, and do it under the authority of the Council, rather than bilaterally. It got the Council's sanction for it, but the bilateral negotiations with the U.S. and other interested parties (who had acquired principal suppliers' rights or had a major interest in the market) did not get far.

The major problem continued to be the U.S. claims that the damage suffered by its trade was two billion dollars while the EC put it at no more than 400 million.

Also, the U.S. continued to press for a deal by which its Soya exporters would regain the EC market, rather than get compensation in the form of trade benefits for other products.

Following the deadlock, both parties came back to the Council.

The U.S. sought "arbitration" to determine the extent of damage, suffered by it. This would have enabled the U.S. to use this figure as implicit green signal for undertaking retaliation against the EC, even if the consensus rule in the Council would prevent its getting the necessary authorisation.

The EC for its part came to the Council with the request that the Contracting Parties discuss the issue and make recommendations - a process that was bound to be prolonged and one where the consensus rule would still apply. But at some point though, when the EC (in the absence of an agreement) notifies the new tariff schedules, the U.S. and others would still be able to retaliate and withdraw equivalent concessions for EC products.

However, the U.S. and EC politics intruded here.

For the U.S., where President Bush is facing an election campaign and by all indications seems likely to lose to Clinton, winning the farm belt States, and particularly Illinois where the votes of Soya producers and exporters has become crucial.

With Clinton battering him on Bush's failure to safeguard the farmers interests and not using the retaliatory power, Bush has to show results before election day. Whether it will still enable him to win or not remains an open question.

For the Community, particularly in the context of the uncertainties over the Maastricht treaty, and the very narrow margins of the French approval (with the countryside and cities split and French elections due before March), any worthwhile concession has proved difficult.

Parallel to this, Washington and Brussels have also been trying to negotiate their differences over agriculture in the Uruguay Round and clinch a deal. This, according to all reports, had been almost ready, but had to be put off because of the narrow French vote and likelihood that Paris might dig its heels and get backing from Bonn, particularly because of Bonn's row with London over currency issues and the European Monetary Union and its higher political priority over Europe.

It is now also being accepted on all sides that the oil seeds dispute and its outcome has become inextricably linked to the Uruguay Round, and any trade retaliation would spill over and deal one more blow to the Round.

It was in this context that the U.S. insistence on arbitration over its demand for assessment of damage (which could have been simple and swift and provided it with another card to play against Brussels), and the EC's "vague proposal" for a small working group, excluding all interested parties, to go into the U.S. demand as well as the EC's "technical questions" came into play at the GATT this week.

The U.S. delegate, Amb. Rufus Yerxa had summarily rejected the EC proposal as a delaying tactic, providing no assurance of any end result. He insisted on an arbitration process that would be swift and result in an outcome that the EC would accept and implement. But the EC was unwilling or unable to commit itself to a binding outcome.

Into this gap stepped in the Council Chairman, Amb. Balkrishan Zutshi of India, echoing the general desire of GATT membership to prevent a trade war if possible. Zutshi suggested some informal consultations to find some acceptable formula.

On Tuesday night, a formula would appear to have been worked out ad referendum. This would have set up a small working group with precise terms of reference - to assess the extent of trade loss or impairment as well as the question of initial negotiating rights and rights of countries with principal suppliers interests - and a short time frame to end its work and report. While the EC would not have committed itself to be bound by the outcome, the formula would have provided for the report of the group to come before the GATT Council for discussion, but where the EC would not have blocked a consensus.

However, with some media reporting on Wednesday morning that the U.S. had accepted the EC's "working group formula", and Washington getting "hopping mad" over its effect on the Bush prospects, Yerxa on Wednesday said the EC proposals were "seriously deficient" in generating an ultimate solution and that the U.S. would only support a process which once and for all would advise the EC what it must do to implement the panel rulings and, if it failed to do so, grant other parties the right to impose counter-measures. He insisted on the EC giving a commitment to accept the outcome of a quick process, and EC time till Thursday noon to provide a reply.

The EC, for its part, having mulled over it (in consultations here and Brussels among its member states) found itself unable to commit itself in advance to accepting an outcome.

At the Council Thursday, the U.S. regretted that the EC had not been able to give an answer. A number of other delegations also took the floor to express their concern and the negative impact it would have on the multilateral trading system if it did not have a credible dispute settlement system. But the EC for its part argued that it had done all that it was legally bound, and had come back to the Council for the views of the Contracting Parties.

In adjourning the Council, Zutshi said the subject would remain on the agenda and would come up at the next meeting, and that during the interregnum his services were available to all parties.

Yerxa later told newsmen that the question of what next was a political decision to be made in Washington, while EC officials suggested that the doors had not been closed.

Both sides seems more relaxed than Tuesday.

GATT sources said that Washington and Brussels were in direct touch and perhaps trying to work out a deal. The U.S. and EC are due to hold one of their periodical Ministerial meetings next week.

Sources said that whether there would be recourse to retaliation or an attempt to strike an overall deal with Brussels, would depend on an assessment by Bush's campaign strategists whether they could afford to hold off a retaliatory action any longer - given Clinton taunting him in the mid-West on Wednesday.

Any such U.S.-EC deal however would now have to deal with both the oilseeds dispute and the Uruguay Round agricultural issues, and Uruguay Round participants give it an even chance.

For Bush, who faces a desperate electoral situation, any deal that would appear a success for the U.S. would be a plus and a "gamble" worth taking.

For the EC, and France in the EC, a deal with the U.S. and Bush in such a situation, may be seen to be something that might elude them later - whether with Bush, if he wins the election without a deal, or with Clinton in the White House.

Any such deal might still face problems in the Congress. It would have a different shape after elections, and both Houses would be able under their autonomous right of settling rules of procedure to change rules, not subject to a White House veto, for blocking fast track consideration of any Uruguay Round agreement.

Sources here also suggest that any such deal can be clinched and announced after October 16, the EC summit on Maastricht and EMU, though officials could still work out and keep a deal ready.

"When that happens, and the two come forward to the GATT with their package on Uruguay Round agriculture", a Third World delegate commented, "all hell will break lose here. We will all be under pressure to give in to the two major players and settle the Round".

In such a situation GATT Director-General Arthur Dunkel and the GATT secretariat - both of whom have an even greater stake in a, successful outcome, since it would result in establishing an Multilateral Trade Organisation assuring not only their future jobs but power and influence on the international economic issues - could be expected to bring all their pressure (in green room consultations) and management of information to stampede the Third World, observers say. And in such a situation many of the outstanding points of some concern to the Third World would be swept under the rug, and countries would be forced to accept the Dunkel Draft Final Act text, without any modification except those (as in agriculture) that the U.S. and EC would agree upon.