Aug 1, 1986


GENEVA JULY 30 (IFDA/CHAKRAVARTHI RAGHAVAN) -- A three-step action programme to create a consensus for successful multilateral trade negotiations (MTNS) has been advocated by the UN Conference on Trade and Development.

In a report to the trade and development board (TD/B/1104), the Secretariat points out that the international community is moving into a negotiating phase "in the absence of an underlying consensus" on the problems of the trading system and the general lines of actions needed.

And without a consensus such negotiations are doomed to failure.

But MTNS, particularly for the purpose of strengthening and improving the trading system, once entered into should not be allowed to fail, the Secretariat stresses.

From this viewpoint, the Secretariat advocates that UNCTAD could make an appropriate contribution for success, "by stimulating the consensus-building process, through in-depth multilateral examination of the key elements involved".

Negotiations would contribute to the strengthening of the system only "if they deal with the fundamental issues relating to the essential rules and principles of the system, and address the question whether there will, in fact, be a ‘system’ at all".

This would be a pre-requisite for negotiation of concessions or arrangements for products or for specific rules in issues listed in the 1982 GATT Ministerial Declaration.

Past experience, UNCTAD points out, shows that success in strengthening and improving the system, could be obtained in a negotiating context "only if the process of building a broad-based consensus on the fundamental issues involving the developing countries is undertaken".

While the international community has largely completed the diagnosis phase of the ills of the system, it was moving into the negotiating phase without first building up a consensus.

An effort should be made to integrate the consensus-building and negotiating phases, through a three-step action programme.

These would require restoration of credibility to the system, agreement on the fundamental principles of an improved system, and then relaunching the momentum towards trade liberalisation.

The restoration of credibility, UNCTAD argues, is closely associated with the implementation of international commitments on standstill and rollback of protectionism.

Also, a new and comprehensive multilateral safeguard system would be needed, not only to ensure effective implementation of the standstill and rollback commitments, but to arrest the trend towards "managed trade" and bringing within GATT rules trade in sectors like agriculture, textiles, steel and autos.

A key element in such a safeguard system, UNCTAD underlines, would be "unequivocal adherence" to the unconditional MFN principle, and establishment of more specific "economic criteria" of injury to domestic producers warranting safeguard actions.

There should also be effective multilateral surveillance mechanism of safeguard actions, with countries showing the political will to accept conclusions reached in any international scrutiny of specific actions.

The strengthening of the system would also require either reaffirmation and commitment to the principles of the post-war system or agreement on new principles.

But some of the negotiating principles now being put forward, if incorporated as multilateral obligations, would establish a new trading system, based on different rules and principles, UNCTAD stresses.

The restoration of unconditional MFN into the system would involve not only a safeguard agreement, "specifically excluding selectivity", but also bringing the textiles and clothing trade into GATT, application of benefits of Tokyo round codes on an unconditional basis, elimination of "grey area" measures, and recognition of the unconditional MFN clause in bilateral and domestic legal instruments.

Workable solutions would also have to be found for the current problems of reciprocity in negotiations between third world and industrial countries.

"One approach", UNCTAD suggests, "could be negotiation of bindings of preferential tariff rates in return for appropriate contributions by developing countries with respect of products where developing countries are not principal suppliers.

"At the same time", it adds, "the essential original principle of the GSP, non-reciprocity and non-discrimination, should be strictly adhered to".

The principle of differential and more favourable treatment to third world countries, specified in part IV of GATT and the Tokyo round "enabling clause", UNCTAD notes, has never been extensively implemented in GATT, since industrial countries do not view this as a contractual obligation on their part.

But par IV of GATT could become meaningful only if given "a binding status, accompanied by procedures enabling developing countries effectively to contest cases of non-compliance".

Another main challenge, according to UNCTAD, is the initiation of meaningful trade liberalisation of the "managed trade system" in sectors facing long-term structural difficulties.

This would need parallel approaches: a return to a tariff based system, with negotiations for raising tariffs in certain sectors by some countries with appropriate compensation to affected countries, and acceptance of longer term safeguard measures.

The longer term safeguard measures would have to be subject to "specific, multilaterally agreed, non-discriminatory conditions and criteria, which do not simply serve to frustrate new entrants and preserve traditional market shares, and with the obligation to undertake structural adjustment measures".

The concept of "dynamic comparative advantage", UNCTAD stresses, necessarily involves a mix of carefully designed economic strategies by countries which would threaten the status quo.

Some countries consider such strategies to be the preserve of the private sector, and view government assistance to non-military R and D, or other such steps as "subsidy".

Solutions to disputes in this area need an examination of existing obligations, preceded by an international examination of what constitutes "unfair" practices, "actionable injury", and how new realities and national interests could be reflected in solutions to reduce tensions.

A universal trading system would also have to provide some legal framework for trade relations between all countries.

The options would involve either continuation of a separate import regime by market economy countries for trade with non-market economy countries (which could ad hoc or de jure) or draw a multilateral agreement to realistically provide a more secure and equitable basis for such trade.

No efforts to strengthen and improve the trading system would be successful unless a momentum of trade liberalisation is maintained.

While a safeguard system would be "an essentially defensive measure", the momentum of trade liberalisation should be maintained by addressing traditional tariff barriers, including tariff escalation and improvements of the GSP, and deal with sectors largely omitted in past across-the-board tariff cuts – textiles, clothing, agricultural products and processed tropical products.

There would also be the need to re-establish a balance of rights and obligations, UNCTAD suggests.

These would require:

-- Tariff negotiations aimed at redressing the current imbalance, where only a few countries have made concessions on a substantial proportion of the items on their customs tariffs. These tariff bindings could include preferential rates favouring third world countries.

-- Trade policies of "all" countries should be subject to multilateral surveillance.

Industrial countries wishing to apply safeguard mechanisms should be subject to the same levels of multilateral surveillance as countries with balance-of-payments difficulties face in GATT and in the IMF/World Bank system. Before taking safeguard actions, they should demonstrate "serious injury", and submit plans for liberalisation and structural adjustment.

-- There should be appropriate provisions to establish a balance of rights and obligations in commodity trade, which would make the trading system more relevant to a large number of third world countries.

-- There should be effective disciplines, liberalisation and elimination of discrimination where applicable, to render the system more meaningful for agricultural exporting countries, and those exporting textiles and clothing, steel, etc.

-- There should be political commitments to make the dispute settlement mechanisms and procedures work.

-- There should be tighter rules on RBPS, and narrowing the GAP between trade policy practices and competition policies.

-- A set of meaningful multilateral disciplines on activities of TNCS should be evolved that would permit host countries to accept concessions with regard to the restrictions they now impose on TNCS.