Oct 5, 1981

 

UNCTAD: FROM FREE TRADE TO MANAGED TRADE

 

Geneva Oct 2 (IPS/by Chakravarthi Raghavan) -- The unconditional most-favoured-nation (mfn) treatment has now ceased to be the guiding principle of international trade relations, and has given place to "managed" trade, with flexible mechanisms benefiting limited groups of countries and with less favourable treatment to the Third World," according to UNCTAD.

This assessment of the international trade regime in GATT, after the Tokyo Round MTN (multilateral trade negotiation) accords has been given to UNCTAD's Trade and Development board by the UNCTAD Director of Manufactures Division, Mr R.G. Figueredo. Mr Figueredo's oral presentation to a sessional committee of the Board has now been circulated as a document, and has become available

Assessing the overall results and, as he put it, looking beyond the sum of its parts (tariff reductions, nontariff agreements, understandings etc). Figueredo said as a result of the MTNs "international trade relations are being conducted within the framework of a system that presents different characteristics from that which existed in 1973 when the Tokyo Declaration

was drawn up".

There was now a decline in the importance of fixed measures of protection specially customs duties, whose incidence however tended to be greater on imports from Third World countries.

There was now greater reliance on mechanisms of 'flexible protection', for application of measures in specific conditions. Such protective measures 'based' upon interpretations of various terms and criteria has been influenced by a tendency towards 'managed' trade.

While tariffs and residual quantitative restrictions, (QRs) and discriminatory non-tariff measures have been gradually liberalized these have not been evenly distributed. The average tariffs facing Third World exports was now frequently two to three times those that applied to imports from industrialised countries. Residual QRs are concentrated on products where the Third World countries are major suppliers.

This outcome, in Figueredo's view has been due to two factors: the Third World has been unable to exercise the bargaining power necessary to achieve tariff concessions on products where it is the principal or substantial supplier. The OECD countries have been unwilling to make or seek tariff reductions in products where they have lost or rapidly losing their comparative advantages in international trade.

This is also because the negotiating processes under GATT are based on concepts of reciprocity and mutuality of advantages, where the Third World has little to offer to extract major concessions.

Such flexible measures do not represent mutual balance of advantages. Interpretations of various terms for such measures -- serious injury, injury, material injury, serious damage, market disruption or threat or real risk thereof, subsidised and dumped exports at prices substantially lower than those prevailing in the importing country. Disruption, unfair competition etc -- all relate to situations in the importing country and the character of the imports themselves.

Combinations of these concepts are now used to provide the legal and political justification for protectionist steps, over and above the bound-tariffs.

While some of these terms would over a period of time become defined by case law under the GATT dispute settlement procedures, the terms defined in particular instances in disputes involving a limited number of countries would become inappropriate for general and universal application, Figueredo commented.

Under the MTNs, the concern for flexibility in protectionist

measures has been equally, if not more important than the drive for liberalised trade.

Under the now 'managed trade' concept, instead of tariff harriers, the importing country decides the quantities and prices of imported products to be sold in its domestic markets. This concept has arisen mainly because the current system has been unable to provide a legal mechanism to deal adequately with shifts in comparative advantage from one country or group of countries to others, the already existing discriminations like QRs against 'low cost' suppliers, or those favouring members of customs unions or free trade areas -who had accepted equivalent level of rights and obligations have been worsened on the basis whether a country (under the mtn) had or had not accepted new obligations on a reciprocal basis.

Instead of the GATT contract obligation of more favourable treatment to developing countries, there was now less favourable treatment to them.

The reason why the unconditional mfn clause, so vociferously defended over so many years, was being given up is because of the implicit recognition by the major economic powers that the original GATT system could not be effectively applied in an universal context.

While it could be argued that the system was adapting itself to changing circumstances, it was questionable as to how long a system

could be maintained that paid lip-service to general principles and rules but whose main role now was of providing a judicial framework for bestowing legality on measures conflicting with such rules and principles.

The UNCTAD Director argued that it was time to conceive a new system, of a more universal, comprehensive and coherent nature rather than the present ad hoc one.

In his view UNCTAD should now begin to consider, as stipulated in its principal functions, the formulation of principles and policies on international trade and related problems for economic development, and to make proposals to put such principles and policies into effect having regard to the differences in economic systems and stages of development of countries.

It was time to begin considering what new, or revised, principles and policies would be necessary to resolve the contradictions in the post-MTN international trading system and provide the basis for an improved, more comprehensive, more realistic, and universal system.