Feb 13, 1990
UNCTAD ADVOCATES STRENGTHENING OF ARTICLE XXIV OF GATT.
GENEVA, FEBRUARY 8 (BY CHAKRAVARTHI RAGHAVAN)— The strengthening of Article XXIV of the General Agreement in the direction of its original intent has been advocated by the UN Conference on Trade and Development in a report to the Trade and Development Board. The Article provides the basis for the establishment of customs unions (like the EEC) and free trade areas (like EFTA and the U.S.-Canada FTA) and interim arrangements leading to the two. In its report commenting on implications of bilateral arrangements and economic integration groupings, UNCTAD has referred to growing analysis and interest on the movement towards deepening of the integration of the EC, the Canada-U.S. FTA, and suggestions for establishment of FTAs in the Pacific Region and elsewhere revolving around the U.S. and Japan. The conjuncture of these moves, UNCTAD notes, has been a source of as much concern as the fact that they are taking place in parallel to the Uruguay Round and a period of continuing erosion in trading disciplines. While customs unions and free trade areas are derogations from GATT rules, Article XXIV recognised the desirability of promoting trade liberalisation through closer integration of economies, and outlined the conditions and criteria for such integration - notification to other contracting parties and stipulation that the agreement does not raise barriers to third country trade and that it cover -substantially all- trade between partner countries. But the application of the article, replete with ambiguities in its interpretation, has permitted a wide degree of latitude. The examination of the customs union or free trade agreements takes place in a GATT working party, after the agreement is notified. While this provides a degree of transparency in assessing the implications and studying its effects, the absence of a requirement about pre-notification presents the arrangements as a fait accompli. In the face of ambiguities surrounding interpretations of Article XXIV, GATT practice has been to extend a high degree of tolerance to a wide variety of arrangements. Discussions while frequent have had inconclusive results. Since 1948, of the 70 FTAs examined by GATT, only four were held compatible with XXIV requirements. No working party so far has reached a unanimous conclusion in regard to the arrangements under the Rome Treaty for the EEC. While parties to an agreement deem absence of conclusions or recommendations to amend the agreement as de facto approval, third countries generally consider this as leaving the issue unresolved and hence subject to further review. Apart from the ambiguity of its provisions, another reason for disuse of Article XXIV is due to fact that non-economic considerations have often outweighed other factors in GATT decisions. Affected third countries have been reluctant to criticise such arrangements, partly because they affect interests of their key trading partners and partly because they themselves have entered into similar arrangements. The ambiguities in Article XXIV have allowed exceptions in coverage of agriculture and other sectors in many agreements, which have been notified to GATT, and as the GATT Eminent Persons Report said "have set a dangerous precedent for further special fragmentation of the trading system and damage to trade interests of non-participants". The strengthening of Article XXIV - proposed in the Uruguay Round negotiations - in the direction of its original intent, namely ensuring that such agreements do not raise barriers to third country trade, improve arrangements for notification, and for rigorous monitoring and review prior to establishment of such arrangements, "could contribute to a better assessment of the consistency of such agreements with GATT rules". The interest of ICs in bilateral accords and FTAs arise in part from their perception that multilateral processes are generally slow and limited in scope, and dispute-settlement procedures inadequate and time-consuming. "However", UNCTAD comments, "it is not certain that bilateral/plurilateral arrangements hold out any significant promise of trade reform or liberalisation". "Problems in areas of structural adjustment, persistent trade deficits or surpluses, agriculture, subsidies, trade frictions, exchange rates and monetary policies affecting trade, are of a systemic character and could be resolved better in a multilateral context". Also, assurances repeatedly given, that integration arrangements would contribute to a more dynamic and opening trading system, would be reinforced if the Uruguay Round negotiations succeeded in strengthening the international trading system and improving overall market access for Third World countries. The major trading nations could also help assuage the concerns of Third World countries by ensuring, through a rigorous review and monitoring of the provisions of trade groupings, that they do not impede access of Third world countries to their markets. "The onus of confidence-building lies very much with the policy-makers of these arrangements".