Oct 5, 1988

TEXTILES: 27-YEAR OLD "TEMPORARY" ARRANGEMENTS SEEKING PERMANENCE.

AN IFDA SPECIAL FEATURE

GENEVA, OCTOBER (IFDA/CHAKRAVARTHI RAGHAVAN)—The special arrangements governing international trade in textiles and clothing, negotiated under auspices of and sanctioned by the general agreement on tariffs and trade, was 27 years on october 1.

But the event passed without any observance: no champagne bottles were uncorked in the industrialised countries who have benefited from these arrangements, nor were there any mourning in third world countries, the main victims of these special arrangements.

More disquieting perhaps, the special discriminatory measures aimed against third world exporters, is now threatening to become a regular feature of the general agreement, extending to all exports from the third world.

The first special arrangements in textiles were negotiated and put in place in October 1961, during the Dillon round of GATT multilateral trade negotiations (MTNS).

Titled "short-term arrangement regarding international trade in textiles" (STA), it was intended to be temporary, to provide breathing space for the cotton textile industry in the north to adjust and vacate in favour of the more competitive south, which had the comparative advantage in both labour and raw material.

But in October 1962, the STA became the LTA (long-term arrangement for international trade in cotton textiles), and with periodic extensions remained in force till 1973.

In 1973, the LTA took on a new shape as the MFA (Multifibre arrangement), covering not only cotton textiles, but textiles made of synthetic fibres.

Renewed periodically through protocols, successive MFAS have been more restrictive and regressive (against the third world) than its predecessors.

The current MFA-4 now embraces cotton textiles, woollen, synthetics, silk, and all kinds of other natural fibres, and products made of them.

MFA-4, concluded in august 1986 is to run till July 31, 1991.

The Punta del Este declaration launching the Uruguay round MTNS, mandated negotiators to formulate modalities that would permit the eventual integration of the trade in this sector into GATT an the basis of strengthened GATT rules and disciplines, thereby also contributing to the objective of further liberalisation of trade.

Third world delegates, and particularly the exporting MFA countries, came away from Punta del Este feeling that negotiators were now committed to dismantle the MFA.

But two years after the adoption of the declaration, and just about nine weeks from the mid-term ministerial review at Montreal, the negotiating group on textiles and clothing has not so far been able even to have a "dialogue" to establish d firm basis for negotiations to dismantle the MFA.

More disquieting, the MFA is now threatening to become a permanent feature of international trade, with negotiators from industrial countries arguing that integration of the trade in this sector into GATT would have to involve incorporating into GATT some of its provisions (enabling discriminatory restrictions against individual countries), and its application to all sectors of trade.

This at least is the impression of several third world participants after the last meeting of the textiles negotiating group in September.

Just before the meeting of the negotiating group, members of the ITCB (international textiles and clothing bureau, which groups the third world exporting country members of the MFA), had a meeting in Geneva where trade policy officials from capitals were advised by a number of trade experts and importers in industrial countries, that third world countries should take a stand now and secure a commitment from industrial countries at Montreal for the winding down of the MFA.

Otherwise, third world countries were warned, MFA would become a permanent feature, with several of its provisions imported into the GATT itself.

However, they also got some contrary advice from the GATT director-general, Arthur Dunkel, who noted that the MFA and its predecessors were now 27 years old, and had stood in the way of trade liberalisation and expansion in the sector.

However, Dunkel suggested that the MFA and its predecessors had also served "useful ends", such as permitting industry in the north "to adjust to changing competition", and had "permitted international trade to expand in an orderly manner ... limited the recourse to unilateral measures of protection ... (and) ... allowed for entry of newcomers".

Dunkel also noted that the MFA had evolved in a discriminatory way against the "more vulnerable, though often more efficient trading partners", and had shown the way for circumvention of GATT in other sectors, such as footwear, steel, automobiles, machine tools, consumer electronics, and now high technology products like computer chips.

While there was now awareness that "the MFA cannot be an instrument forever", and ministers at Punta del Este had demonstrated the political will to make an effort to bring the trade into the mainstream of international trade, the MFA had now become a part and parcel of the international scene, and a system developed over so many years could not be dismantled abruptly or without due preparation.

Negotiators would have to select "an appropriate modality" and one that would be "feasible", and had to be "politically acceptable" to all concerned, Dunkel added.

Whether intended or not, third world delegates at the ITCB meeting, reportedly came away with the impression that Dunkel was advising caution, and need to take account of realities of life.

The negotiating group is to meet again in november, where its main work would be to agree an a report to be submitted at Montreal; and this is now expected to be a vaguely warded cosmetic affair, with ministers not being compelled at Montreal to agree to wind-down and end the MFA.

The ITCB members have tabled proposals in the negotiating group to freeze existing restrictions, and gradually reduce them and thus wind down the MFA.

However so far their main partners, the United States and the European communities, have not agreed to negotiate an end to the MFA.

Japan, one of the early victims of the special arrangements (instituted vis-a-vis the U.S. as a voluntary export restraint in the 1950’s), is now seeking to introduce such measures against imports from the third world into Japan, and wants to be able to do so, and thus against any freezing at current level of restrictions.

The major trading partners have not even so far been willing to accept the proposals of the third world as a basis for negotiations, suggesting that at best it could be one of the modalities for integration of this trade into GATT, and there could be other modalities too.

In any event, all of them have said, the question of terminating the MFA could not arise during the life-time of MFA-4, and what to do at its expiry would have to be decided at that time, and in accord with its provisions.

However, some of the smaller European states, at the last meeting of the negotiating group, made some comments seemingly addressing the concerns of the third world.

Switzerland, for example, said that the "integration" of the textile sector into GATT (mandated at Punta del Este) should in no case be through legalisation of the actual system by the GATT.

Application of GATT rules should enable progressive and real liberalisation of international trade in this field.

The integration of textile sector into GATT, Switzerland said, should mean extension of the principles and rules of GATT applicable to trade in other sectors to the textiles sector, with reinforced "safeguard" provisions in the general agreement.

Austria, suggested that the exporting countries' suggestions could be accepted as a basis for further negotiations, but for the period after July 31, 1991.

Finland, for the Nordic countries, linked work in the textiles group to the work on safeguards (where the industrialised countries want to secure the right to impose selective safeguards or discriminatory protective measures), and to the work in negotiating groups dealing with tariff and non-tariff barriers.

The Nordics also in effect turned down the suggestion of ITCB countries for freezing and dismantling some of the elements of the MFA, arguing that rights granted to imparting countries (to selectively restrain imports) would have to run until the expiry of the MFA.

Canada, often seen inside GATT as the stalking horse for the united states, put forward some ideas and comments that in effect suggest importing the MFA principles into GATT itself.

Outlining some ideas and principles for "phasing out" the MFA over an agreed time frame, Canada said this should be dome in combination with other ideas to enable integration of this trade into GATT.

These ideas or combinations of them, Canada said, could include an agreement for special GATT provisions to permit safeguards to continue to be taken in GATT "on a selective basis under a renewed MFA or another multilaterally agreed instrument".

Other suggestions of Canada included:

--Commitment from importing countries not to use GATT provisions to impose restraints more restrictive than under the MFA,

--Commitment to reduce or phase out all GATT inconsistent measures in the sector,

--Agreement to allow, on a limited and controlled basis, use of voluntary export restraints, and

--Broader commitment by "all" participants to reduce or eliminate tariffs and non-tariff measures.

Third world observers noted that the last essentially meant that industrial countries should be "compensated" for ending their derogation from GATT in textiles trade by third world countries giving up their GATT rights in relation to tariff or non-tariff restrictions permitted to them.

All the other measures or combinations would amount to importing the MFA provisions into the general agreement itself, and thus enable such discriminatory instruments to be used not only for textiles and clothing but other third world exports also.

The ITCB chairman, Darry Salim of Indonesia, however said that at Montreal the ministers should recognise that MFA had no future under strengthened GATT rules, and modalities should be negotiated without further delay to permit integration of this trade into GATT.

Ministers should emphasise the need to achieve results in this sector, and adopt a firm basis for negotiations.

The examination of modalities should now be considered as over, and the negotiating group should commence substantive negotiations early next year, Salim said.

The ITCB proposals should be taken as a basis for negotiations, and a date should be agreed upon in the Uruguay round for the termination of the discriminatory and exceptional treatment given to trade in textiles and clothing.

Neither the U.S. nor the community however seemed willing, and EEC sources later agreed that nothing can be expected on textiles and clothing at Montreal.

While president Reagan has vetoed the more pernicious textile bill, the U.S. negotiators in the Uruguay round have no mandate to negotiate. Both the presidential candidates have privately assured the industry the continuation of MFA beyond 1991.

The EEC has no negotiator at all in this area, and had been given no mandate either by the council of ministers.

Third world observers suggest that in this situation, unless the ministers from the ITCB countries take a stand at Montreal and block agreement on any other subject, the Uruguay round might well end up with the MFA imported-into GATT and to cover other sectors.