May 10, 1988

U.S. WILL NOT NEGOTIATE DISMANTLING MFA IN URUGUAY ROUND

GENEVA MAY 7 (IFDA/CHAKRAVARTHI RAGHAVAN)— The United States reportedly made clear in no uncertain terms this week that it had no mandate and would not negotiate in the Uruguay Round the modalities for dismantling of the Multifibre Arrangements (MFA-4).

The U.S. reportedly argued in the negotiating group on textiles and clothing that the Punta del Este mandate was to formulate 'modalities', and not any 'single modality', and that the modalities were to permit the 'eventual' integration of this sector into GATT on the basis of strengthened GATT rules and disciplines.

The implication in the U.S. statement was 'eventual' was something in the distant future. During MFA-4 negotiations, U.S. delegates had privately suggested that they could not even envisage end to MFA by the end of this century.

As for the future of the arrangement, the U.S. reportedly told exporting Third World country-members of the MFA-4, that they would have to take this up in terms of the agreement in the textiles committee, and not in the Uruguay Round negotiating group on the trade in this sector.

The envisaged time frame for the conclusion of the Uruguay Round is end of 1990. MFA-4 is due to run till July 31, -1991. Under its provisions, its future will come up before the textiles committee at the earliest in July 1990, and if past practice were any guide, serious negotiations will take place only a few weeks before expiry.

The U.S. blunt words, reportedly at on informal meeting of the negotiating group on textiles and clothing this week, came as a shock to some of the Third World countries who have been passively or otherwise providing some support to the U.S. in other negotiating groups, particularly on new issues, and blocking any joint Third World front against the U.S., in the hope they could get some benefit in areas of concern to themselves like tropical products and textiles and clothing.

GATT sources said that the discussions at the informal meeting were largely a 'debate' led on one side by the U.S. with some tacit support from the EEC and Japan, and India and Pakistan on the other.

Other Third World participants said that while the U.S. had been perhaps 'blunt', but only at the informal meeting where no records are kept, the Position of other industrialised countries were not very different, though some of them were 'devious enough' to disguise their opposition by requests for 'studies' and other such tactics.

Pakistan at one stage reportedly told the group that if imparting countries were not serious about negotiations in this sector 'they should say so plainly and we will transmit this information to our authorities'.

"The major share of our export earnings came from exports of textiles and clothing and this is of vital importance to us. Our whole attitude to the Uruguay Round would be affected by the treatment of this sector".

The Pakistan delegate also reportedly warned of the consequences of the "the lack of will to negotiate" in the context of the Montreal meeting (for mid-term review) in December, and for the Uruguay Round as a whole".

In the formal meeting where a number of them spoke, as well as in the informal, Third World countries made clear that work in the group should advance at least as fast as in other negotiating groups. Implied was the warning that if there were no progress, work in other groups too would slow down.

The Punta del Este ministerial declaration on the MTNS in goods has expressly avowed the negotiations in all the areas as 'a single undertaking'.

The chairman of the group, Lindsay Duthri of Australia, in his summing-up reportedly said that participants had recognised that there had been a lack of concrete progress and that the two proposals (one from Pakistan, and the other from Third World countries including Pakistan) would be a good basis for work.

The chairman also reportedly stressed the need to achieve concrete progress that could be reported to the ministerial meeting at Montreal, and urged participants to come forward with further proposals and specific comments to contribute positively to the work of the group.

The group has scheduled its next meeting for June 13-14, and has also agreed to keep open the possibility of further meetings in July, and two more meetings, after the summer recess, in September and November.

At the formal meeting, the group was presented with the proposal on behalf of the ITCB members.

A number of other Third World countries made individual statements in support of the ITCB proposals and said it was a good basis for further work and that they looked forward to specific reactions from the imparting countries. All of them also underscored the need for progress in the negotiating group in relation to the upcoming mid-term review.

Among those who spoke in these terms were reportedly Brazil, China, Uruguay, Hong Kong, South Korea, Argentina, Colombia and Bangladesh.

Brazil repeatedly noted that trade in this sector had been subject to special restrictions and institutionalised discriminatory treatment for more than 45 years. Continued maintenance of such a regime, as a major derogation from GATT principles, was contrary to the determination to halt protectionism. It also resulted in trade distortions inconsistent with the economic principles of efficient allocation of resources.

Pakistan, while supporting the ITCB proposals, said that its own paper already before the group should been as complementary.

Pakistan also presented studies that showed that the so-called 'low-price' advantage was no longer true of Third World exporters.

The studies by a Zurich institute on comparative international production costs, brought out that labour costs were only a very small fraction of total manufacturing costs, and there were several industrial-countries that had lower production costs.

‘Cost factors’, and 'price' criteria should not be used to maintain the MFA regime, Pakistan argued.

Hungary noted that Third World countries were not the only ones that had been affected by the discriminatory provisions of the MFA. The time had come to examine concrete modalities for a phase-out of the MFA, and the paper of the ITCB would-form a good starting point.

Japan reportedly viewed both the proposals as positive contributions, but its detailed comments gave little comfort to the Third World.

The Japanese delegate said the proposals should be examined in terms of 'the reality' of the industry, and made same comments in terms of the Japan’s domestic industry.

In the Japanese view, the modalities to be arrived at should be 'balanced' in terms of rights and obligations and balance of benefits between imparting and exporting countries should be maintained. There should be 'a progressive and pragmatic approach' to on eventual integration of the trade into GATT, with a 'sufficient transition' period and progressive liberalisation.

Japan justified MFA restrictions based on 'price', arguing that safeguard provisions of GATT also contemplated such restrictions based on 'Price' of imports, but had no answer to Third World delegates who pointed out that restrictions on the basis of GATT 'safeguard' provisions had to be applied without discrimination and on basis of global quotas and not country-quotas.

The EEC, in a vague and non-specific statement which was received with some disappointment by the Third World countries, argued that the group should consider 'the real problems', since 'certain aspects' had so far not been studied in depth. In the EEC view "not all the elements of the MFA are necessarily bad".

While drawing attention to its own 'package of 'liberalisation' in this sector (through tariff cuts). Canada also cautioned about talk of wholesale dismantling of the MFA, since in the Canadian view there had been 'same useful elements' that had led to 'progressive liberalisation' and increase in Third World exports.

Hong Kong reportedly drew attention to the 'unprecedented calls' issued by Austria against a number of Third World exporters, and the press reports that Japan was considering introduction of some restrictions under MFA. Hong Kong was 'alarmed' at the press reports about Japanese intentions, particularly since Japan itself had been subject to MFA restrictions.

(When Japan was negotiating entry into GATT, the U.S. had insisted on Japan voluntarily restraining its textiles exports to the U.S.. the pattern of this agreement eventually became first the long-term arrangement, LTA, covering cotton textiles trade in 1961, and replaced in 19'13 by the MFA and its successors).

Hong Kong also reiterated the view that exporting countries should not be asked to pay a price now for dismantling MFA, since they were never compensated for these years of restrictions under MFA.

India reportedly recalled its statement at Punta del Este that the biggest contribution the Uruguay Round could make to a strengthened multilateral trading system and for further liberalisation of this trade was to achieve integration of the sector into GATT within a short time-frame so that no further extension of the MFA would be made after July 1991.

At a time when they were negotiating modalities for integration of trade into GATT, it did seem add that imparting countries should seek to invoke selective and discriminatory mechanisms the MFA. This called into question the standstill commitment, which, Third World countries were being reportedly told, was above all 'a political commitment'. Everyone should hence be mindful of 'the political signals' of such restrictive actions.

This was the reason, India argued, for the ITCB proposal that in the first phase for dismantling MFA, there should be no further restrictions and existing ones should be relaxed.

The removal of restrictions alone would not be enough to integrate the trade into GATT. They had to ensure that the framework of MFA, based on selectivity and discrimination, was dismantled.

As to the EEC arguments that not all elements were necessarily bad, India sought clarifications as to what the 'positive elements' of MFA were, and whether such positive elements should be 'salvaged and applied across the border to all sectors of trade'.

India was also surprised that Canada, the leading proponent of efficient trade in agriculture, was unable to see to obvious distortions created by discriminatory derogation from GATT in the textiles sector, but spoke in favour of the MFA.

And since, Canada had seen 'development and expansion of trade in textiles' because of MFA, would Canada be prepared to proceed the premise that without effective GATT rules and disciplines world trade in agriculture had also continued to grow and hence there was no need to bring agriculture into GATT?

Uruguay, a Cairns group member, felt that just as they were moving towards effective GATT rules and disciplines in agriculture, they must also have process in this direction in the textiles and clothing sector.

In other exchanges and remarks, India reportedly noted that GATT had incorporated the principle of differential and more favourable. Treatment to Third World countries.

But in the textiles and clothing sector, this principle had been 'turned on its head' and discriminatory and less favourable treatment was being meted out.

This was the reason for the mandated negotiations in this area, and the call from ministers for 'strengthened GATT rules and disciplines'.

In a reference to U.S. restraints and bilateral accords even against the least developed countries, like Burma and Nepal, India wondered whether it was seriously possible to suggest that imports from such sources posed a threat to U.S. industry.

The Nordic countries reportedly said they were still considering formulation of their proposals, but sought studies on the economic consequences of the removal of the MFA.

"The direct economic consequences of removal of the MFA would be greater efficiency in resource allocations", India responded.

A number of other Third World countries reportedly criticised the Nordic stand, noting that two years after the launching of the round, these countries were still trying to make up their minds and now were-seeing new studies.

In a reference to these and other requests for studies and documentation, Pakistan reportedly said that if industrial countries did not want to negotiate on the issue, they should plainly say so, so that the Pakiston delegation could report this to its authorities.

In the informal discussions, the U.S. reportedly argued that the negotiating objectives in the area called for formulation of 'modalities' and this meant more than one single modality.

The U.S. could not accept that the only modality was removal of the MFA. Strengthened GATT rules and disciplines were other modalities to permit eventual integration into GATT. For such strengthened rules, the Third World countries must give up their rights to impose restrictions for BOP reasons or for protecting in ant domestic industry or for development considerations.

Third World countries should also dismantle their own restrictions on textile imports, the U.S. reportedly argued, citing a recent study by the U.S. international trade commission (ITC), which found restrictions against imports in a large number of countries.

The U.S. wanted the secretariat to prepare documentation on restraints currently maintained by countries, and under what GATT provisions, and whether these had been notified to GATT.

The U.S. also emphasised that there were "limitations" to what was feasible for the U.S., and it was premature' ' to t a I k about dismantling the MFA.

On the U.S. request for documentation, India reportedly pointed out that all MFA participants were obliged to report regularly to the textiles committee and the surveillance body all restrictions introduced or any bilateral accords for restraints relating to textiles and clothing. All the information sought by the U.S. was already available in textile committee reports.

As for the U.S. ITC study, the India delegated noted that it had not mentioned that the U.S. textile exporters were not subject to the MFA export restrictions. The basic problem facing the Third World exporters, that the U.S. did not face, was the discriminatory nature of the MFA.

If the U.S. had difficulty in accepting the dismantling of MFA as the 'only modality', perhaps the negotiating group could take the approach of identifying the 'obstacles' to integrating trade in 'this sector into GATT."And the biggest obstacle is the discriminatory from GATT rules and principles", India added.