Feb 8, 1982





(Editors: This is the first of a two part series)

Geneva Feb (IPS) By Chakravarthi Raghavan -- The US move for a new round of negotiations in GATT to deal with capital flows and 'trade in services' has been received cooly so far both by its principal trading partners (the EEC and Japan) as also by Third World Countries.

The US wants this to be the principal item for the November ministerial meeting of the GATT Contracting Parties, and wants the meeting to agree upon and launch this new round. 

The US has been talking about this since 1980, and has been repeatedly plugging this line, both in GATT meetings and elsewhere.

At the Davos symposium, organised by the European Management Forum, the US Trade Representative, Mr William Brock addressed the issue more specifically and wanted the ministerial meeting to deal with problems of investment and all attendant problems of liberalising the free movement of capital, liberalizing the trade in services, the challenges of trade in technology, the thorny question of safeguards and problems of structural adjustment, and perfect the arrangements for trade in agriculture.

Other issues listed by Brock included improving rules and methods to deal with nonmarket economies so that they are able to compete in the world market, but fairly and without exporting their price and cost distortions, nontariff barriers and other trade matters, as he put it, "not even contemplated when GATT was set up".

In response to questions at the symposium, Brock explained that in 'trade in services', the US wanted to bring in issues relating to capital investments and free movement of capital, banking, insurance shipping, consultancy, data systems etc.

Brock also spoke of the ministerial meeting focusing on how to bring the Third World into the world trading system, both to provide them market access in products where they have competitive advantage and encourage them to assume a full share in responsibility for managing the world trading system.

The Director-General of GATT, Mr Arthur Dunkel took a more cautious approach to the issue, pointing out that trade in services covered a number of different activities with different problems. Both in GATT and in the OECD, he said, studies have been started to get a clear picture of what the problems are.

"I am one of those," Dunkel added, "who think that before entering into negotiations you have to know what you are going to negotiate, and I suppose, negotiators will have to know what they will get and what they have to pay. The movement has started but it is very difficult to say what concrete results will come out of this. But things are accelerating".

Dr Guido Carli, President of the Brussels-based European Entrepreneurs Organisation, suggested that the issue of liberalising trade in services should first be conducted within the EEC before the problem is tackled worldwide.

Many Third World delegations in GATT say they are yet to understand the implications of the new US move. But they seem to be generally cool, if not hostile, to the US move.

As some of them see it, there is yet much unfinished business of the Tokyo Round relating to the Third World countries. These are yet to be tackled, two years after the conclusion of the Tokyo Round and the promise then to deal with them.

They see the US move as aimed at virtually creating a new GATT -- but without the intricate international negotiations needed for this -- and involve GATT in areas where it does not have the competence, pre-empting action in other UN forums, and rewrite new rules of the game from the standpoint of the USA, and perhaps the EEC and Japan, within their favoured Bretton Woods-GATT system and its international capitalist philosophies.

At Davos, Mr Brock was specifically asked whether it was not proper to address the unfinished business of the Tokyo Round concerning the Third World: trade in agricultural products and specially tropical products, tariff escalations on Third World processed commodity exports at each stage of processing, removal of quantitative restrictions an their exports, and a safeguards code that would clearly define and make transparent safeguard actions by importing countries and subjecting them to multilateral surveillance and discipline.

Mr Brock replied that all the issues would have to be tackled together in the new round of negotiations, and he could not see how some of them (the unfinished Tokyo Round items) could be tackled first before taking up the issues he suggested.

This viewpoint has not been well received by Third World delegations.

They point out that even in the seven years of Tokyo Round MTNs, though the issues of concern were specially to have been addressed as promised in the Tokyo Declaration, in fact these were shunted aside. In the Tokyo Round, the three trading blocs (US, EEC and Japan) virtually negotiated among themselves, both an tariff and nontariff issues and presented them to other participants on a take it or leave it basis, and pushed them through.

When the Third World countries protested, all that happened was a vague commitment to pursue the issues of concern to them within the regular GATT framework, but the commitment has not gone beyond the 'studies' stage of the issues.

A recent UNCTAD study has clearly brought cut that imports from the Third World countries face higher actual tariffs in the US, EEC,and Japan than average world imports into these areas, and that the array of nontariff barriers is even greater.

From this perspective, the Third World countries argue that a GATT Ministerial Meeting, and further work in GATT, should as a priority concern itself with the tariff and nontariff barriers to the exports of the Third World, and ensure for these countries the same liberalization of trade as for the industrialised world.

If this is not done, before the more complicated issues proposed by the USA, they fear that once again issues of concern to them would remain formally an the agenda but relegated to the background.

In any event, they argue, the type of issues that the US wants to put on the international agenda are far too complex and time-consuming, and issues of concern to the Third World could not be mixed up with them or postponed until solutions are reached on the complicated issues or - the Third World forced to give concessions on these complicated issues in return for ensuring the enjoyment of their existing rights and the observance of the most-favoured-nation treatment and free trading rules of GATT.


(this is the second part of a two part series)

Tuesday 9 February 1982



Geneva Feb (IPS) by Chakravarthi Raghavan -- Is the move for a new round of negotiations in GATT, now being pushed by the United States, an attempt to preserve Paxamericana, thwarting both the Third World drive for a New International Economic Order through global negotiations and European and Japanese challenges to the US?.-

This is the question that Third World delegations are asking themselves, in the light of public and private clarifications being offered by (the) US to persuade other countries to agree to its proposals for the November Ministerial meeting of GATT. The US has said it wants GATT to take up Trade in Services, and seeks to bring within this capital investment and flows, banking, insurance, shipping, consultancy, data systems , and high technology.

Many of the issues sought to be brought under 'trade in services', Third World delegations note, are not even directly within the competence of GATT.

GATT mainly deals with international trade in goods and basically does not cover the 'services' proposed by the US or issues relating to capital investments and capital flows.

As part of the postwar order, the Bretton Woods institutions were fashioned to deal with money and finance issues, and the new International Trade Organisation through the Havana Charter was supposed to deal with a wide range of trade issues.

The US blocked the Havana Charter (when it became clear the US Senate would not ratify it), and ultimately the General Agreement on Tariffs and Trade, dealing with commodities and goods and their international trade (which) emerged as a provisional treaty has so remained for the last 35 years. The US attempts to bring capital flows and investments within the Bretton Woods system failed then and these issues were left to be regulated by national decisions.

The IMF which deals with issues of money and finance, is mainly concerned with free convertibility of currencies and exchange rates, and flows an current accounts and balances. Within the current account flows are also brought in remittances via dividends, royalties etc. Even the IMF regulations about a single exchange rate do not apply to capital flows, and each country is entirely free to fix a different exchange rate for capital inflows and outflows (as France has for many years now).

Both the IMF and the World Bank, try to influence policies favouring foreign private capital investments and flows ensuring a transnational role - the Bank through its loans, and the IMF through its stabilisation programmes and assistance. This role is only in the Third World but not in the industrialised countries, who, since the mid-sixties have not been having, by and large, any recourse to the IMF.

Some aspects of shipping, banking and insurance (in so far as they affect the Trade and Development of the Third World) are being dealt with in UNCTAD, though the industrialised countries have been increasingly trying to prevent it. Some of the technical aspects of shipping are the concern of the International Maritime Organisation.

The US argument now for dealing with capital investment and free movement of capital, and the trade in 'services' within GATT is that these have 'distorting effects' on international trade and should thus be addressed within GATT.

If this argument is to be accepted, Third World delegates suggest, that there are other 'trade distortion' issues of concern to them that should also be dealt with. But such indirect issues they feel cannot be dealt with in GATT as now constituted.

But if the objective is to create a new kind of GATT, to deal with all these issues that might have an impact on international trade, they ask whether the approach should not be to try to formulate a new Havana Charter and create a new treaty through a UN conference rather than en passant within GATT, a provisional organisation with a provisional treaty?.

The US objective in raising the issue of capital investments and free movement of capital, and the trade in services would appear to them to be primarily aimed at creating new international rules of the game, but by the backdoor.

In the area of capital investment and free movement of capital, the US seems to want to curb the 'performance criteria' set by host countries requiring the foreign investors to use domestic components or inputs, and/or carry out an obligatory export performance.

The attempt is seen by Third World countries as really one to enable the US TNCs and the northern surplus capital accumulation that they control through banking and insurance to be free to invest and profit from activities in other parts of the world.

As some Third World delegates see it, if the surplus capital, one factor of production, is to be assured such rights, what about the right of surplus labour, the other factor of production, to be able to move at will across national frontiers?

If US. EEC or Japanese capital is to be given freedom of movement and investment and national sovereignty of host countries' are to be curbed, why should not the vast surplus of Asian, African and Latin American skilled and unskilled labour have the right to move into the industrialised countries?.

If the industrialised countries for social and other objectives (including thinly disguised racial views), and for the maintenance and improvement of the economic well-being of their citizens, have the right to impose restrictions on such labour movements, why should not other countries have the same rights in respect of capital to ensure that it subserves their public interest and the needs of the peoples of the host countries?.

Basically the US move for GATT to be involved in this area appears at the moment directed to solving its bilateral problems with Mexico, Canada, and perhaps Japan. But the ultimate thrust is against the Third World, and the US objective is thus to have 'international rules of the game' in this area, in the form of codes and committees to administer them, and penalise countries that do not accede to them by denying them MFN treatment for the export of their goods and services through its new concept of 'reciprocity'.

In the area of services, the US is apparently seeking to multilateralize some of its problems with Japan and West Germany, and lay down new rules that would inhibit their competition. But it would also affect, at a future date if not now, the Third World countries who are emerging as international actors in this area.

Third World countries ask if 'trade distortion effects' of shipping are to be considered, why not the issue of freight rates and insurance costs, and such issues like export credit guarantees and export credits?

In the area of shipping for example. the OECD countries directly or through flags of convenience and the liner conferences, control the movement of goods in international trade. The freight rates on manufactured exports from the industrialised countries to the Third World are in most cases lower than the freight rates in the reverse direction. There is often escalation of freight rates in the movement of processed commodities. Such escalation has been found, in UNCTAD studies, to have no relationship to the increased handling costs, if any, of the processed products, and in fact acts as a protectionist market barrier.


In the case of insurance, the costs of insurance and reinsurance, work out to be higher for the Third World In its exports.


In export credits and guarantees, while the industrialised countries are able to offer these facilities, and refinance them through their access and control of international and national capital markets, the Third World has no such access and thus faces unfair competition in its attempts to enhance its manufactured exports, and even agricultural exports.


Also, while GATT structures deal with some of the governmental barriers to trade they are totally silent on the barriers erected by private channels, specially the TNCs, who through their restrictive practices in technology, control of finance, and cartelization (often state-supported or organised) and use of restrictive business practices in trade, have created a global oligopolistic structure that restrict market access to new entrants.


As some Third World delegates see it, if some and all of these issues have to be tackled, and a new framework created for it, the place for it would not be GATT but the proposed new Global Round of Negotiations in the United Nations. In that framework, and as part of the objective of creating a new international economic order, some and all of these issues could be addressed, and perhaps an attempt could be made towards a new Havana Conference and Charter that UNCTAD has been advocating.


As one Third World observer put it, the US attempt to block NIEO and Global Negotiations and its efforts for a new round of negotiations in GATT to cover capital investments, free movement of capitals and trade in services, and high (or frontier technology) issues, is an attempt to reinforce and continue the Pax Americana built upon the postwar Bretton Woods and GATT, an order that is now being increasingly challenged by Europe, Japan, and the new Third World actors.