Oct 27, 1992

U.S. AND EC TRYING TO BRIDGE A WIDENING GAP?

GENEVA, 26 OCTOBER (CHAKRAVARTHI RAGHAVAN) The top U.S. and EC negotiators appear to face a daunting, if not an impossible, task of reaching a credible bilateral deal on their differences on agriculture trade issues and manage to "sell" them to other participants in the multilateral context, to enable an agreement to be concluded which would stick beyond the 3 November Presidential poll.

The focus on these talks have shifted to the meeting of the EC agriculture ministers in Luxembourg on Monday, and a possible meeting (depending on its outcome) of EC Agriculture Commissioner Ray MacSharry and U.S. Agriculture Secretary ED Madigan which is tentatively being set for Wednesday, according to reports here.

GATT Director-General Arthur Dunkel is reported to have scheduled some kind of "green room" consultations for Tuesday to take stock of the state of the Uruguay Round negotiations.

But Geneva-based trade negotiators are showing some scepticism on what could be achieved over the next days.

"Even if the U.S. and EC agree on a deal in agriculture, there are still a large number of issues arising out of such a deal that would need to be settled, with the agreement of other parties, and it is not so easy", several said.

The scepticism of Geneva diplomats is shared by some of the Brussels-based diplomats, one of whom from an European country was doubtful on anything being completed before 3 November. "The two sides are farther apart now than ten days ago", he said.

The differences within the European Community is among its member-States as well as within the Commission itself, and relate to the kind of deal that the Commission could accept in agriculture in terms of the mandate given to it under the reforms on the Common Agricultural Policy.

Though some GATT sources, and media reports reflecting them, have portrayed the differences in simplistic terms of just 500,000 tonnes of soyabean imports into the EC, others familiar with the problems say they are more complex.

The "bargaining" going on between the U.S. and EC in terms of volume reductions in subsidised exports are put in terms of 24 percent (over 1986-1988 average) suggested in the Dunkel Draft text, the 21 percent that the U.S. has been ready to accept as a compromise and the 18 percent being talked about by the French.

Behind these are the differences within the Commission on what the CAP reforms would effect in terms of reductions in domestic production and availabilities for exports.

A report in the Financial Times, quoting estimates prepared by Inseé (the French government's economic research arm), said Monday that even under the CAP reform (that France has accepted), the cereal exports will fall to 14.8 million tonnes by 1996.

This figure of EC subsidised exports by 1996 would be one million tonnes more than the volume cuts that the U.S. wants the EC to achieve in terms of the Uruguay Round accord.

In pushing for an accord with the U.S. on the compromise being worked out in technical talks, EC Commissioner Ray MacSharry is arguing, within the Commission and with France, that the cutbacks sought be the Americans would anyhow be achieved by the CAP reform. This view is clearly not shared by the French government and by Jacques Delors, the EC Commission President.

Monday's Luxembourg meeting of the EC Ministers in Agriculture will perhaps show whether in fact the French are isolated, and whether the others are willing to ignore France and give a nod to MacSharry.

The further problem faced (in the U.S. EC deal) relates to the oilseeds issue and cutbacks in production, and the impact on the EC market of animal feed substitutes on which the EC (and the French) want the U.S. to accept commitments to voluntarily restrain exports.

Such a deal would also need to be put into the Dunkel draft text which allows each contracting party (and the EC will be one for this) to exempt only one such grey area measure (for the next few years) as an exception to the rule for complete phase-out.

The U.S.-EC agreement, if one is clinched, is also on the basis of full tariffication of all existing barriers on agricultural imports, as well as putting into a special green box or expanding the existing green box, to cover all the direct payments to be made to EC farmers under the CAP reform.

The full tariffication would also need to be accepted by others including Japan and South Korea.

But the "expansion" of the domestic support measures to be placed beyond challenge or domestic reduction commitments (which has been agreed to between the U.S. and EC), purportedly to help uneconomic "small" firms in some of the rich European countries like Germany, would be strange in the face of the limitations placed on developing countries and their efforts to for programmes of rural development, and develop their subsistence agriculture and achieve food self-sufficiency.

Since they don't have resources to provide direct budgetary support, the only way developing countries could do so would be through domestic price mechanisms, which would run foul of the Dunkel text packages on market access commitments. While the focus so far has been on the U.S. attempts to pry open the EC markets, internal literature of the U.S. and statements in the Congress make clear that the long-term U.S. objective is to prevent Third World food self-sufficiency policies and ensure a market in these countries for its exports of agriculture.

While there is a general impression that the Dunkel text has not heeded the U.S. view and has accepted the special and differential treatment principle for developing countries, except for the least developed among them the actual contours for each country would have to be settled in bilateral and plurilateral negotiations and might prove less substantial than made out, particularly given the very inadequate information on price structures in developing countries across their segmented markets.

Non-Cairns group developing country negotiators, already hard put to defend what they have agreed to under the Dunkel compromise, would find it even more difficult to carry their public and legislatures with them when the full extent of what their agriculture has to face begins to unfold.

And apart from the agriculture issue being resolved, for a Uruguay Round agreement clinched over the next few days, there are also the problems relating to "services", including financial services liberalisation. Most of the estimates of 250 billion dollars worth of trade being freed seem related to this.

In this area, when the issues raised in the U.S. Senate report on the Bank of Credit and Commerce International (BCCI) and the just published UK Bingham report are digested, it would mean that changes have to be made in the framework that would enable national authorities to write more stringent prudential regulations - on not only banking and other financial service operators, but operations of "services" like those audit firms.

One financial expert noted for example that if the Basle Committee recommendation about the "unified" audit of home and overseas branches and subsidiaries of a transnational bank is accepted, and the Bingham report on the responsibilities of auditors to the regulatory authorities is to prevail, should the local prudential regulations also require international audit firms like Price Waterhouse, involved in such "unified" audits, to give to the host governments too a full picture, to enable them to protect their own interests?

That the problems of BCCI and the propensity of private operators in the market to run a coach and four through governmental regulations is not merely one of an exceptional "rogue" operation, but also involves some "respectable" names in banks have been brought out in the still unfolding Indian stock market scam.

The Parliamentary Committee in India going into the stock-market scam scandal (where several banks have been found involved in financing illegal speculative operations on the stock markets) has been advised by the local officials of two leading foreign banks (purported to account for 40 percent of the activities) are purported to be responsible for a large proportion of the moneys lost in the scam, but that their head offices were told by their local staff about the violations of the Indian regulations, but were given the green signal to go ahead still.

This is hardly a prescription for liberalisation, which some of the major Third World economies are being asked to undertake through "improved offers" by the EC to clinch the Round, and compensate the EC for its "sacrifices" in agriculture, that the Third World public or their legislatures can swallow.