7:17 AM Nov 28, 1995

EU PARLIAMENTARIANS CAUTIONED ON NEW AGENDA

Geneva 28 Nov (Chakravarthi Raghavan) -- European Parliamentarians, in public hearings in Brussels last week, received some cautionary advices and warnings over the moves to put new issues on the trade agenda of the World Trade Organization.

The Committee on External Economic Relations of the European Parliament which held public hearings last week on "Developing Countries in the International Trading System" heard some cautionary words from the UNCTAD Secretary-General, Mr. Rubens Ricupero and the Indian Ambassador to the World Trade Organization (WTO), Mr. S. Narayanan.

Copies of the speeches were made available here by UNCTAD and the Indian mission to the WTO.

In his address, Ricupero spoke of the opportunities and challenges facing developing countries under the WTO agreements at Marrakesh, the need to reinforce the confidence of the developing countries in the multilateral trading system, the contradictions between the demand on them for liberalisation of foreign trade even as high tariffs and other barriers to their exports remained in the developed country markets -- in agriculture and labour-intensive artisanal production.

Narayanan, who was an invited discussant, said that the new issues and new areas -- environment, investment and social clause -- being sought to be brought under the WTO trade disciplines seemed to be no more "new forms of protectionism". He appealed to the industrialized countries "not to succumb to the temptation of 'protectionism, unilateralism and subsidies', but look for ways of 'sustainable liberalisation' of trade by developing countries."

Referring to the WTO and the agreements annexed to it, the UNCTAD head stressed the challenges and opportunities facing the Third World in the new situation. A qualitative result of the Round for developing countries was the greater confidence they now had in the multilateral system. And that confidence should in no way be shaken or eroded.

The WTO head, Mr. Renato Ruggiero, Ricupero noted had recently underlined the importance of defining a community of interests that in joining the multilateral system the developing countries are assured of their own interests and that their interests are also recognized by other parties.

Ricupero said he shared this perception and saw the role of UNCTAD as contributing to the definition of this community of interests. For the new regime of rights and obligations to function effectively in safeguarding the national interests, special emphasis should be put on the reinforcement of the institutional capacities and human resources in most of the developing countries and particularly the LDCs.

Even as developing countries are acting to give effect to the new agreements, new subjects for future negotiations are beginning to emerge, Ricupero said.

They related to continuation of the reform process in agriculture and further negotiations for liberalisation of trade in services.

But also being mentioned were parallel negotiations for an investment regime in the WTO and competition policies as well as some aspects of the rules on anti-dumping, subsidies and rules of origin. Also being suggested were issues relating to environment and others mentioned at the Marrakesh meeting.

Some of these new areas have been dealt with in UNCTAD -- trade and competition, trade and investments, regionalism, interaction of trade policy with questions concerning monetary and financial issues including debt, and commodity markets, erosion of trade preferences and the links between trade and development and reduction of poverty.

Some of these proposals had been motivated in large part by the will to accelerate the globalisation process through what might be called "deeper integration" which could come about through common standards for what has been described as creating "level playing fields", Ricupero said.

But a discussion of these new initiatives should take account of the diversity of the situations among the nearly 200 countries participating in world trade, the UNCTAD head pointed out.

Most of these countries, he added, were confronting enormous economic challenges and also in the fields of politics in their delicate attempts to adapt themselves to the international trading system in the making.

Ricupero was convinced that UNCTAD could make a major contribution to the enlargement of this debate and make it both more pertinent and universal in range.

Attention has to be paid in this context to the situation of developing countries and the transition economies and enable them to gain from the processes of globalization. There was a need for redefining the concept of special and favourable treatment and ensure that it reduces the risks of marginalisation that accompany the globalization process.

"We must be aware," Ricupero added in this connection, "of some of the contradictions. The appeals for 'deeper integration' are coexisting with high tariffs on many agricultural products and restrictions on imports of artisanal and labour-intensive products coming from the poorer countries and lowering trade barriers for high-tech products. Some of the safeguards rules enable maintenance of discriminatory actions against those countries having a surge in exports as compared to others having traditional production modes."

The UNCTAD head went on to outline some of the important achievements of UNCTAD helping developing countries to integrate into the world economy and trading system, and noted that UNCTAD was often seen as representing the interests of the developing world while the GATT was perceived to be the 'club of the rich'. Both, he suggested, were inexact, and the two institutions had been functioning in a complimentary way and in cooperation. He also outlined the understanding reached between the UN and the WTO for continuing the cooperation arrangements, including for the heads of UNCTAD and WTO to meet atleast once every six months to coordinate and cooperate.

The Indian ambassador to the WTO, Mr. S. Narayanan who spoke after Ricupero as a discussant said that developing countries had undertaken unprecedented commitments in the Round -- increased binding of tariffs (from a 21% to 73% of tariff lines).

Though the Third World countries did not see any great advantage for them in the new areas like TRIPs and Services, they had not only entered into negotiations but had accepted commitments, notwithstanding the "political sensitivity" involved.

The Uruguay Round results had also resulted in a "significant dilution" of the concept of special and differential treatment incorporated into the GATT by the Tokyo Round.

Many of the Uruguay Round agreements which indicated prima facie a favourable treatment for developing countries "have been drafted in such a way that they have no legally binding effect", Narayanan pointed out.

The only special treatment for developing countries was the additional transitional period in some of the agreements. But the developing countries had proceeded on the basis that a rule-based multilateral system was in their interest and had hence committed themselves to an integrated dispute settlement system notwithstanding its cross-retaliation processes.

"But after making commitments of such an unprecedented magnitude in the Round developing countries are now wondering as to whether they got anything in return at all," the Indian ambassador said. "If you take the tariff concessions," he added, "it is clear these concessions are benefiting developed countries more than the developing countries."

He cited in this regard a paper prepared by a World Bank consultant for a World Bank sponsored conference in Washington on assessment of the Uruguay Round and said according to this paper, "of the total benefit (short-run static welfare gains) of $53 billion arising out of the tariff concessions, $10 billion will accrue to the United States, $26 billion to the EU, $7 billion to Japan and the rest of the world would share the remaining $10 billion..."

"This is not surprising," Narayanan said, "because the major problem for developing countries is not the tariff but non-tariff barriers which the developed countries continue to apply. "Moreover, in areas of interest to developing countries like Textiles and Agriculture, no meaningful liberalization has taken place. (In) Textiles, everybody knows that the whole process of integration is back-loaded. We all know that neither the EU nor the US has integrated in the first stage any product under restraint".

Citing India's experience, Narayanan said that the EU would not integrate any product in respect of which it was applying a quota in the case of India till the end of the 10-year transition period.

The situation was not very different in the case of Agriculture. Experts were pointing out that tariffication of quotas which was supposed to result in liberalization of trade in agriculture had "actually been manipulated" in such a way that there were "greater barriers to agriculture trade now than before."

Third World countries were also disappointed in new areas like TRIPs and Services.

The TRIPs agreement had thrown up fundamental issues like Patenting of life forms, rights of traditional societies etc. These issues were yet to be discussed in a meaningful way, the Indian representative said, adding that he wished to express his "deep sense of gratitude" to the European Parliament which had shown "great sensitivity" to concerns of countries like India on patenting of life forms and rights of traditional societies.

On the services issue, in earlier hearings, the Committee had been told that it was in the interest of developing countries to open up their financial services sector.

"But the same logic and reasoning does not seem to impress the developed countries when we argue about Movement of Natural Persons," the Indian diplomat commented.

"When we talk of Movement of Natural persons," he added, "we are not talking of migration, but simply talking of providing a facility to highly qualified skilled personnel from developing countries to go to a developed country, stay for two or three months, to deliver a service... With great difficulty, the EU was persuaded to file some commitments in this area. But these are circumscribed in many respects and we have to wait and see as to what real benefit these commitments will confer upon developing countries."

Referring to the dispute settlement mechanism, Narayanan said that they had all thought that with the new mechanism, unilateral action would not be taken. "But the experience of the last one year has shown us that unilateralism is very much alive. This is a matter of great concern to us".

Though at an earlier session (where the WTO officials had spoken) the Textile Monitoring Body was mentioned as functioning satisfactorily, the Indian Representative said, "I have to regretfully say that from our point of view, it is not functioning in a satisfactory manner".

Referring to the "enormous interest" taken by the two major trading entities (US and EU) in the composition of the Appellate body, Narayanan stressed the common interest of everyone in getting persons of highest calibre and integrity as Members of the Appellate Body.

And while there should be an overall geographical balance, "the manner in which the two major trading entities have tried to influence the composition of the Appellate Body makes us wonder whether our faith in the dispute settlement system is justified."

On regional arrangements, Narayanan expressed worries over the increasing dominance of regionalism over multilateralism and said: "One cannot refuse to recognise the reality by saying Regional Arrangements are reinforcing Multilateralism". While Narayanan named no one, the WTO head Renato Ruggiero has been repeatedly speaking in these terms.

Citing another example of regionalism over multilateralism, Narayanan noted that the EU was planning to remove, with effect from 1 January 1998, quotas on some textiles and clothing items from countries with whom it had preferential trading arrangements.

"This is bound to affect adversely the textiles and clothing exports from other developing countries. Therefore, the fact that slowly a conflict is emerging between regionalism and multilateralism has to be recognized".

On the new issues, the Indian delegate said it was their perception that these new areas were "nothing but new forms of protectionism".

It seemed that attempts were being made "to neutralise the comparative advantage that developing countries have in some areas."

In the case of environment, it was not as if developing countries did not want to protect the environment. But developed countries must appreciate the problems of the Third World. Poverty was the greatest pollutant and to remove poverty "we want access for products in which we have comparative advantage". But developed nations want to use "so called environmental considerations to deny access to our products."

On investment issue, Narayanan said that what the developed countries were seeking was "right to investment". It was not possible for many developing countries, in a political sense, to concede this right at this stage.

Developing countries, including India, were wooing foreign investment.

"But when we are talking of an investment issue in the WTO," Narayanan said, "we are talking of something else. What developed countries are saying is that there should be an internationally agreed discipline bound into the WTO system with its cross-retaliation provisions on the subject of investment. This is not a simple issue."

As for the social clause, while India was not against treating labour well or giving them the right due to them, the ALLOY dealt with labour issues and the social clause was a subject for the ALLOY.

"By bringing this subject into the WTO, we feel the developed countries are trying to take away the comparative advantage in labour costs which the developing countries are having."

Developing countries would like to continue to have faith in the multilateral system.

"However developed countries have to realize that developing countries are trying to integrate themselves into the competitive stream of the world economy at great political, social and probably economic cost. I would request developed countries not to succumb to the temptation of 'protectionism, unilateralism and subsidies'.

"There are many problems for developing countries including some about which much discussion has not taken place -- for e.g. exchange rates, interest rates etc introduce volatility in the Capital flow and have an impact on trade. These problems have to be addressed... what developed countries should look for is sustainable liberalization. If developing countries are forced into certain policies of liberalization which they cannot sustain, it is not in the interest of developed countries".

Using the phraseology of international environmental agreements like that on climate change, Narayanan added: "Both developed and developing countries have 'common but differentiated responsibilities' towards the multilateral system. This difference in responsibilities has to be recognized. In the societies of many developing countries, growth is no longer the main issue. Growth with justice is the main issue. Similarly, in international trade also, growth alone cannot be issue. Growth with equity is the issue".