May 21, 1987


GENEVA, MAY 19 (IFDA/CHAKRAVARTHI RAGHAVAN) -- The United States is seeking to curb third world capacity for autonomous development by eliminating the right of these in GATT countries to safeguard their balance of payments (BOP), and force them to adopt IMF-World Bank theories and policies in this regard.

This has become clear after this week's meeting of the Uruguay Round negotiating group on review of GATT articles, according to participants.

The U.S. is reported to have put forward a request that the GATT articles XII, XV and XVIII should be taken up for review, from the viewpoint of appropriate policies that countries could take for BOP reasons.

Article XII empowers a country to impose quantitative restrictions on imports in order to safeguard its external financial position and balance of payments.

Article XV deals with exchange arrangements and cooperation of GATT contracting parties (acting jointly) and the IMF in these matters.

Article XVIII deals with government assistance to economic development, and includes some special provisions dealing with third world countries, for their infant industries as well as wider economic development considerations.

The major argument of the U.S. for review of these articles was that since the general agreement was concluded major and very significant changes have taken place in the international monetary system, and these justified review of the GATT articles.

The original provisions for BOP protection was in relation to an international monetary system based on fixed parities and gold standards whereas the system was now based on floating exchange rates. The IMF and World Bank were also providing balance of payments support to countries, under suitable adjustment programmes.

These developments, in the U.S. view, had obviated the necessity for countries to impose any import restrictions for BOP purposes.

IMF theoreticians have been advancing this U.S. view elsewhere that third world countries should just float their currencies (and presumably allow the currencies to continuously devalue) and thus do away with import restrictions, leaving it all to the benign influence of the market to regulate itself and reach an equilibrium.

Third world sources note that apart from its questionable merits, in practice it has been seen that such IMF prescriptions result in countries being flooded with luxury imports that the rich can afford at high prices while essential imports for the poor are reduced because they can't afford high import prices.

Under the present GATT provisions, third world countries have to justify their restrictions on the basis of their actual BOP situation, but have an element of discretion in deciding their import priorities in relation to their socio-economic development priorities and needs of their peoples.

The U.S. proposal, third world sources felt, presumably is intended to make sure that even if countries refuse to go to the IMF for support and adopt its "adjustment programmes" aimed at promoting the interests of the IMF’s dominant majority countries and their TNCS, they would be compelled to adopt the same policies by depriving them of the limited tools they now have in GATT to protect their precarious BOP situations.

The U.S. argument apparently was that third world countries take recourse to the BOP provisions and restrict imports selectively, thus protecting their domestic industries, rather than use the provisions of the GATT relating to "infant industry" which would require them to justify and pay compensation to others.

Countries taking recourse to restrictive measures under BOP provisions of GATT are forced to go even now before the BOP Committee, and justify their actions.

But clearly the U.S. is finding it not enough for its purposes, since it is unable to use the review in the BOP Committee to force countries to abandon its chosen development path and adopt totally different domestic policies to suit U.S. interests and its ideological views.

The U.S. is reported to have suggested that all the three articles should be reviewed to clarify the conditions under which they could be invoked and to prescribe conditions to ensure they were properly invoked and used.

The U.S. request was viewed with "sympathy" by the European Communities, which also agreed with the U.S. that there were some insufficiencies in the GATT notification procedures.

The EEC also took the position that the changes in the international monetary system and the floating exchange rates by themselves would justify a review, and that measures taken by countries for BOP purposes could be affecting the balance of rights and obligations of other CPS.

Canada in supporting the U.S. position felt that this issue had me relationship with the work of the group on improving the GATT stem and GATT’s relationships with the IMF and the World Bank.

The U.S. reportedly suggested that the GATT secretariat should update a decade-old document (submitted to its BOP Committee), and that the IMF and the world bank should be asked to provide their views and analysis of the BOP issues.

India, supported by a number of countries, reportedly rejected the idea of the GATT secretariat or the IMF and the world bank preparing any analysis or support papers on the relationships of BOP and trade.

Parties requesting review of any particular GATT article, these countries contended, should first make out a case for this, and only on the basis of agreement of others could a review be undertaken. Background papers by the secretariat could be called only thereafter.

The Indian delegate reportedly said that before the U.S. request for review of the three articles could be considered, full justification and identification and description of the problems should be put forward.

Unless a CP requesting review of a specific article put forward a detailed justification, it would be difficult for others to make a judgement and agree to a review.

Argentina, Brazil, Mexico, Cameroon and Yugoslavia were among the countries that supported the Indian view.

Egypt agreed that it was premature to ask the GATT secretariat to provide any analysis, leave aside outside bodies like the IMF and the World Bank.

The EEC was concerned that the idea that requests for review should be accompanied by written justifications since this might block and delay the whole review process and thus the negotiations themselves.

India and others however reportedly argued that the U.S. suggestions and the reasons given were not clear, and without this it would be difficult for the authorities in their countries either to respond or to agree to take up the articles for review. In any event they could not accept a blanket proposal for review of all GATT articles from the viewpoint of the BOP adjustments.

Hong Kong felt that there was an element of "automaticity" involved in the review, and if any CP requested that an article should be reviewed, the group should agree to that.

Australia agreed with the view that it could not be said the group's stage of "receiving" requests had ended, and the review process had begun. The provisions in the negotiating plan for "requests" and "review" should be seen as an evolutionary process. It was incumbent on proponents of review of any particular article to convince others about the appropriateness of the review.

When the EEC suggested that the review was automatic, and envisaged in the Punta del Este declaration, and that the group should proceed to negotiations, India reportedly reminded the EEC of its position in another negotiating group (on agriculture) that the pace of negotiations could not be forced and the EEC could say "no" and block negotiations.

Negotiations for review of GATT articles could not also be forced and negotiations could take place only when all the parties agree to do so, India reportedly reminded the EEC.

The chairman of the Committee, Canada’s John Weeks, reportedly agreed at this stage with India and other third world countries that written justifications by contracting parties requesting review would facilitate the process of consideration and expedite this stage. The secretariat of GATT, he is reported to have said, should provide a purely factual background document.

India had earlier cited a Canadian stand in this regard on another issue, and said the secretariat paper should provide factual background notes on the various articles only on the basis of those matters where there was a consensus decision by the CPS, and not on the basis of individual views of any CP.

Earlier, New Zealand is reported to have made a written submission calling for review of some of the provisions of article XXIV, relating to customs unions, and particularly the interpretation of "internal duties" and "other regulations of commerce" used in section 5 (A) of that article.

This article requires that internal duties and other regulations of commerce applied by a customs union should not on the whole be higher or more restrictive to other CPS than before the formation of such a customs union.

New Zealand complained that this was a fundamental requirement, and because of differences in interpretation, other CPS outside the customs unions had been discriminated against. Sometimes the internal duties were used against imports only, and thus raised the effective import duties above the levels the countries concerned had bound themselves in their tariff schedules.

New Zealand also supported review of article XXVIII, and particularly to secure in cases where a CP wanted to modify or change its applicable tariff schedules, that not only a CP with a "principal supplying" interest or those "primarily concerned" should be consulted, but also other suppliers where the supplies constituted an important segment of their exports and economy.

Switzerland has put forward a similar suggestion.

South Korea in an independent request reportedly went further and said that even CPS with "potential interest" should be consulted.