Jan 10, 1987



GENEVA, JANUARY (IFDA) CHAKRAVARTHI RAGHAVAN —While large uncertainties and some disquieting elements loom in the area of south-north trade, ten-year old efforts to expand south-south trade through the Global System of Trade Preferences (GSTP) could become a reality in 1987.

This assessment comes from both participants in the efforts to establish the GSTP, as well as some observers and technical experts.

However some of the inherent difficulties in this first-ever third world effort to create multilateral ties on a world-wide, rather than regional basis, has made progress towards negotiations often painfully slow.

Over the next few month, third world countries would need to strive hard to start and conclude the first round of negotiations this year, if they are to meet the political challenge of making GSTP an objective reality, a clear demonstration of translating solidarity into concrete action, and indication of firm resolve on the part of the south to stand on its own feet.

Some 57 state-members of the Group of 77 have notified their intention to participate in the first round of negotiations for GSTP, and they are now engaged in preparing detailed "request" lists of products of export interest to them on which they will seek preferential trade concessions from other participants.

The request lists were to have been submitted by December 31, 1986, but by the date only three countries had put in their lists, and even these were partial.

The December 31 target date was set at the May 1986 Ministerial meeting of the GSTP negotiating Committee at Brasilia.

The delay, some of the participants explain, is due to a number of reasons, including the fact that virtually the same delegates were heavily preoccupied until the end of September with the preparations for and the actual holding of the GATT Ministerial meeting at Punta del Este in September 1986.

There was also the additional problem that this is the first comprehensive multilateral negotiations where third world countries as a whole would be active participants – seeking and offering and negotiating concessions.

For most of the 57, this is the first major inter-regional and multilateral negotiating exercise, whose outcome would involve assumption on their part of concrete rights and obligations.

Even those of them who are GATT contracting parties have been minor players in the successive rounds of GATT Multilateral Trade negotiations. The main negotiations were among the major trading blocs, with third world countries virtually bystanders and occasionally benefiting from the multilateralisation of the concessions.

There were few products where the third world countries were major suppliers, but even on these few of the industrial countries had been willing to negotiate seriously with them, and on some like textiles and clothing, etc., far from being willing to negotiate concessions and liberalisation, the industrial world was only interested in imposing discriminatory restrictions.

The GSTP negotiations being only among the G77 members, the situation is totally different. The negotiations involve much greater home-work by the third world countries, who are being provided technical assistance for this by the UNCTAD secretariat, through funds provided by the Perez Guerrero ECDC Trust Fund, under a G77/UNCTAD/UNDP project agreement.

The technical assistance part of this programme, relating to help to individual participating countries in preparation of request and offer lists, was able to get into full swing only in the fourth trimester of 1986, when the GSTP Negotiating Committee was able to assess and approve the detailed programme formulated by the project secretariat.

The stewardship of the project secretariat also changed hands in 1986, with a new director, Diego De Gaspar, a Brazilian national who heads UNCTAD’s technology division, taking over towards end of September.

In December, a seminar for participants was organised under the project and subsequently technical consultations were held with individual delegations when they were provided with data available in the UNCTAD database to enable their preparation of "request" lists.

This series of individual consultations were completed only on December 19.

On the basis of notifications by countries, at an earlier stage, listing products of export interest to them, UNCTAD has now identified and provided details for some 1786 products out of a possible 1832 under the four-digit CCCN (Customs Cooperation Council Nomenclature) and the SITC (Standard International Trade Classification), with the CCCN classification further desegregated at two alphabet levels.

Participants have been provided consolidated computer printouts for all the 1786 products (that have figured in one or other country’s list of export interest products).

These printouts product-wise give the CCCN number and description, lists the countries that have indicated export interest in them, the total value of exports form G77 countries of the product to the world, the total G77 imports from the world, and the total G77 exports to other G77 countries. Under each of the aggregate export and import figures are also provided information of the ten largest exporters or importers as the case may be.

In addition individual countries have also been provided for some 10-20 major products of interest to them, detailed information about the major markets for these products, the major suppliers in these markets, the detailed trade control measures for the product in the market.

On the basis of these date, as well as on an assessment of their own domestic supply capacity, and ability (actual and potential) to provide export supplies for any additional trade generated through concessions obtained, that the individual country concerned would be able to formulate its "request" lists.

And if in respect of any product of interest to a country, where other participants are major suppliers, the country concerned might not even feel the need to put in its own "request" but prefer to await initiatives from the major suppliers, and then join these request or even wait for the ultimate multilateralisation of these concessions on the product on an most-favoured-nation basis.

All these are complicated issues needing careful assessments in capitals, often involving other sections of governments than those dealing with foreign trade, and hence is taking more time than originally thought.

When all the request lists are in, the GSTP project would circulate to all the participants in the first round these request lists, a pre-requisite for the elaboration by the participating countries to whom requests have been addressed to formulate their "offer" lists, specifying in respect of each product the concessions they are willing to "offer" for imports into their market.

On presentation of the offer lists, the negotiating process could begin, with the actual negotiations on exchange of concessions among participating countries.

The start of actual bilateral and/or plurilateral negotiations on exchange of concessions – for which arrangements would be made once all the request and offer lists are in – had been targeted to be conducted and concluded during the second trimester of 1987.

But is clear now that this process will be delayed, at least by a few months.

With the approval of the draft GSTP agreement at Brasilia in May 1986, much of the preparatory rule-making process for establishment of the GSTP have been completed.

The GSTP agreement itself will enter into force at the conclusion of the first round, when the participating countries have exchanged concessions among themselves and these have been multilateralised, and when 15 of them from the three regions of the Group of 77 (Asian, African, and Latin American and Caribbean), have ratified or otherwise acceded to the GSTP agreement.

Much of the current focus in the negotiations at this stage is in the preparations by the governments, and the actual exchange of concessions in negotiations.

However, a few gaps in the annexes to the GSTP agreement still remain to be filled. Over the next few weeks, and side by side with the actual negotiations for exchange of concessions, work is to continue to fill these GAPS.

While considerable ground has been covered in formulating rules or origin, a few tough points still remain.

The rules of origin envisage GSTP benefits to be extended to goods wholly originating in a participating country.

In addition benefits are also to accrue for those goods exported by a GSTP participant, when the original product has a partial import content originating in non-participants or is of undetermined origin. A point to be settled here is the extent of permissible import content – whether it should be 40 percent or 50 percent.

A second related question is over the extent of cumulation to be allowed. It has already been agreed that there should be partial cumulation, namely that products that have acquired originating status in the territory of one GSTP participant could be used as inputs for a finished product eligible for preferential treatment in the territory of another.

Yet to be decided for this partial cumulation is the percentage of aggregate content in the final FOB value of the product that originates in the territory of the participant – whether it should be 60 percent or 75 percent.

Other unresolved problems in this area include the special and more favourable percentage criteria to be provided for least developed country participants, both in respect of import content as well as cumulation, and the definition of "vessels" and "factory ships" – for products of sea fishing taken from the sea by "vessels" or such products processed in "factory ships" that would be eligible for GSTP benefit.

Some of these are very tricky and tough issues, and would involve not merely trade policy officials of governments, but customs and financial authorities of countries. Also involved would be the differing approaches among G77 countries towards the issue of transnational corporations.

Countries with large domestic markets, and who have some restrictive approaches to TNC infiltration of their domestic markets, would be quite reluctant to have origin rules that would favour the TNCS, based in other third world countries and involved in merely assembling and packaging operations based on inputs from the TNC home countries.

In some regional groupings, like the SADCC in Southern Africa for example, majority control of such enterprises by nationals is a qualification for eligibility of these products.

But there hare other G77 countries, especially those with little domestic markets but focussing on exports, who have adopted a "more liberal" approach to TNC operations on their territories. These countries would be reluctant to agree to restrictive rules of origin vis-à-vis TNCS.

The process of domestic and multilateral coordination involved in reconciling these complicated economic and ideological issues could be lengthy.

At the GSTP seminar in December, two viewpoints were expressed.

One viewpoint was that while every effort should be made to agree on common rules of origin, inability to do so on the outstanding issues need not hold up exchange of concessions in the first round or entry of GSTP into force. Efforts to harmonise and evolve common rules of origin could continue even later.

But what every participant would need to know before going into the negotiations in the first round would be awareness of the rules of origin of the other with whom concessions are to be exchanged. If subsequently the country concerned changes its rules of origin, which reduces the benefits, there are other remedies in the GSTP to take care of this loss of benefits.

The other viewpoint was that without common rules of origin, exporting countries, and particularly smaller countries, would have great difficulty in producing and exporting products and benefit from GSTP. For they could have viable and economic scales of production for export, only on the basis that the same product would be eligible for GSTP benefits in different export markets, since no single export market would be able to provide for such economies of scale.

Also, being a preferential arrangement, without a common rule of origin, third parties or non-participants could encroach on such benefits, or a non- participant could transit its goods through the territory of a participant and acquire benefits, and it is in the interest of all GSTP participants to prevent this type of development.