Oct 28, 1991


GENEVA, OCTOBER 24 (CHAKRAVARTHI RAGHAVAN)- Buoyed by reports of "flexible" mandate to EC agriculture negotiators and the on-going U.S.-EC direct talks on this, trade officials who cannot be identified projected Thursday to the media an air of "cautious optimism" on reaching "political decision-s" in November or December to conclude the Uruguay Round early in the New Year.

The officials said that GATT Director-General Arthur Dunkel and the Chairmen of the negotiating groups are still working to complete the consultations and work by November 1. On this basis, Dunkel and the chairmen will consult and review the results to see whether clean texts of final agreements could be prepared and presented to the participating governments.

Whatever the form in which these will be presented, the texts will become in fact "take-it-or-leave-it" texts.

While the "Political" decisions on the basis of these texts would have to be completed by end of November or early December, only the negotiations on market access and drawing up of each country's schedules, as well as initial commitments would continue in the New Year, so that the entire final package would be readied for acceptance and signature by March.

The optimism over the Round appears to be based on the negotiations and consultations taking place outside the GATT - within the Quad countries (Canada, EC, Japan and the United States) in various negotiating areas except agriculture - which currently is being handled in U.S.-EC contacts.

For both the U.S. and EC, the Round has become an embarrassment of sorts, distracting from their more fundamental problems (economic and political) created by the collapse of the Soviet Union, and both have agreed to wind it up, leaving their unfinished business for future negotiations.

But whether this desire could be translated into action in a. way that some of their domestic lobbies could be satisfied remains to be seen. But there is a general feeling among American and European, as well as of GATT officials, that with India, one of the major hard negotiators, having changed policy in many areas including on liberation of trade and foreign investments, it would be easy to push through a deal that the two could agree upon.

GATT officials and the Chairmen of the negotiations groups appear to be working on texts, removing square brackets and presenting single formulations, mostly on basis of what is being privately agreed to by the Quad, and leaving aside for future negotiations those where the differences among the majors, and particularly the U.S. and EC, and between them and others, cannot be resolved.

Negotiations for strengthened GATT rules, including in some of the Tokyo Round codes like anti dumping, subsidies, etc., might ultimately fall in this category.

In the case of anti-dumping, for example, no text could be prepared for the Brussels Ministerial meeting, and in the months of consultations, the same picture remains.

However, in the case of Trade-related Investment Measures, where there were some fundamental differences between the Industrialised Countries and the Third World countries, the chairman of the negotiating group, Georges Maciel of Brazil has prepared a text, which appears largely to meet the objectives of Industrialised Countries.

The only concession for the view of the Third World in this area appears to be in regard to "export performance requirements" that countries stipulate to foreign investors (as a way of countering restrictive business practices of TNCs for segmentation of world markets). On this, the Maciel text gives up the prohibition approach and adopts instead an "effect" approach of demonstrated trade restrictions or distortions adverse to the trade of another Contracting Party.

One area where there has not so far been agreement among the Quad, in resolving their mutual differences, is in the area of TRIPs - where there are some fundamental North-North differences, apart from the differences with the South.

In Agriculture, officials reported that the technical basis for decisions was available but that the interaction between the technical and political would have to await the outcome of the serious talks taking place between the U.S. and EC on how to cut agricultural subsidies.

In market access, where apart from bilateral negotiations, there are also plurilateral and multilateral ones going. In the area of tariffs the objective still is to cut tariffs by a third (an objective that largely the Third World countries, many of whom though have been already being forced to do this unilaterally by the Fund and the Bank through their structural adjustment and other loans and conditionalities).

In many cases, particularly by the ICs, the bilateral tariff offers and tentative accords, are conditional on agriculture. The U.S. and EC are treating these separately.

Trade officials also said negotiations were advanced in terms of the U.S. zero-zero option (for cutting tariffs on trade between them down to zero) in sectors - steel, pharmaceuticals, chemicals, construction equipment, paper, beer, non-ferrous metals, electronics, etc.

There is also some parallel negotiations (sponsored by the U.S., and at the moment outside the Uruguay Round) on the question of steel subsidies and voluntary export restraint agreements and quotas. Here a sticking point is also whether any agreement would foreclose ability of U.S. enterprises and producers to use the U.S. trade law to initiate subsidy or dumping investigations.

It is not also clear whether at some point, when an agreement is reached, the U.S. and others would try to bring it into the GATT or the Uruguay Round.

In Textiles and Clothing, while trade officials gave an upbeat view that the draft agreement to eliminate the MFA restrictions over ten years is more or less ready, other participants said that in the consultations the major importing countries (U.S. and EC) have not so far indicated their willingness to meet the demands of the Third World exporting countries.

Dunkel, who chairs the Textile negotiations, in an interview to an Indian paper, has said the negotiations in this area are still in an "evolutionary stage". He also appeared to agree with the exporting countries' view that as provided now (in the draft under discussion), the integration process would be very slow at the beginning, gaining momentum only in the final phase, and that in his personal opinion there was need for a quicker process in the beginning.

On GATT dispute settlements, the Chairman of the group, Julio Munoz Lacarte of Uruguay, has put forward some proposals to provide for some element of automaticity in acceptance of panel reports, subject to an appeals board procedure, and for their implementation and failing that authorisation for "retaliation" including an arbitration process for deciding on the quantum of nullification or impairment and the extent of "retaliation" in the form of withdrawal of equivalent concessions.

While the proposals and agreements relate to the GATT dispute settlement mechanism and procedures, bringing together into a consolidated form also the earlier decisions of Contracting Parties, trade officials said a wider issue that could only be tackled at the end, relates to the common dispute settlement mechanisms and procedures under all the agreements – the regular GATT accords, the Tokyo Round codes, the new agreements in TRIPs, etc. - and the issues of cross-retaliation.

In Services, work is continuing both on the general framework for GATS (General Agreement on Trade in Services) as well as on sectoral annexes.

Trade officials suggested that differences had been narrowed down on some difficult issues like the Most-Favoured-Nation principle and its application in the Framework agreement.

However, the U.S. has continued to maintain its opposition to the MFN principle in the Maritime sector and is opposed to the Nordic proposal for a so-called "common approach" which would amount to a commitment by everyone for a standstill against new restrictions on international shipping services or suppliers of such services and for removal of existing restrictive or trade-distortive measures over a three-year period.

A group of 24 African countries who are also opposed to the Nordic proposals and its implications for the development of their own shipping and cargo sharing arrangements (under the UNCTAD Liner Code) have put forward a paper outlining their concerns and insisting on their situations and special circumstances to be taken into account.

The countries grouped since 1975 in the sub-regional organisation for maritime cooperation called "Ministerial Conference of West and Central African States on Maritime Transport" have said that the comer stone of their maritime cooperation policy is the UN Convention on a Code of Conduct for Liner Conferences. They have underscored in this connection the reaffirmation by the UN Review Conference of the Code and its usefulness, in particular for developing countries.

The policies of the sub-regional grouping had led to development of their maritime services - national merchant fleets and auxiliary transport activities, establishment of shippers organisations, strengthening of port infrastructure and equipment.

It has also allowed them access to freight, and negotiations with partners on freight rates, rationalisation of shipping services and costs of maritime transport auxiliary activities, and have helped improve the competitiveness of their export products and reduced the domestic price of imported goods.

This fledgling process had to be strengthened in the context of a previously "captive market" from which countries of the sub-region were excluded.

These special circumstances should be taken into account in any GATS agreement.

On the question of sectoral annex on financial services, the co-chairman, Frank Swedeolv of Canada, has put forward a text which however the Third World countries are viewing only as one more text on the table and not a basis for negotiations.

The consultations and discussions show continued differences over the "dual track" approach favoured by the major ICs - involving two levels of commitments and benefits: one in terms of generality of the framework obligations about transparency, etc., and the other among countries willing to undertake a higher level of commitment for liberalisation in this sector.

Another area of difference relates to the issues of prudential regulatory powers of the countries and the question of dispute settlement in this.

There is general agreement that each state would need to put in place prudential regulations, which are essential for a successful functioning of a banking system.

The four OECD countries, which had put forward a paper at Brussels and since then, and whose views are reflected in the Co-chairman’s text would enable dispute settlement procedures against regulatory measures and decisions of other Contracting Parties on "prudential grounds".

This would mean, for example, if a country refuses to permit the operation of financial services enterprise on its territory - on the view that its international network elsewhere is subject to inadequate or lax supervision, it could be a subject matter of dispute if the home country raises it.

The proposals of the South and South-East Asian countries (the so-called SEACEN group of central bankers) stipulates that regulatory measures and decisions for prudential reasons or for ensuring integrity and stability of the financial system would not be amenable to dispute settlement procedures.

That this is not a issue of protection vs. liberalisation but involves much more has been brought by the BCCI affair, which has brought out not only the lack of supervision in the Emirates where the principal banking company was incorporated, but in Luxembourg and UK from where its international operations were conducted.

In the years preceding its collapse, the BCCI was refused incorporation and market access in some countries on grounds of the inadequate supervision of its affairs in Luxembourg where it was headquartered for its international operations, though the country concerned did not specify or make it known.

If the financial services agreement had been in force, it could easily have been a subject of dispute, in which case the national authority refusing permission would have been forced to disclose what it knew (even confidential information like this is bound to leak out with incalculable results in the fiduciary sector). And in a case like that of the BCCI where the charges are of a long period of alleged fraudulent practices, while any national authority would be bound to take note of the information and act, it would not be able to conclusively prove it.

In retrospect, it is clear that the country concerned was correct in its decision and thus safeguarded the interests of its would be depositors.

On audio-visual services, differences continue over the issue of cultural exceptions. The EC wants to have a separate annexe to provide for cultural exceptions, which could apply to co-production arrangements in TV.

The EC view received strong support from the individual members of the EFTA. While the EFTA countries have always sought provisions to protect national culture, the way individual countries took the floor to make the points, made some wonder whether this was an indication of the way EFTA-EC agreement would work - with EFTA countries in practice behaving as good EC members.

A number of Third World countries also favour cultural exceptions, but don't see the need for it to be confined to the audio-visual services and put into an annex - but would rather see it as one of the exceptions to the GATS.