Mar 21, 1986


GENEVE, MARCH 19 (IFDA/CHAKRAVARTHI RAGHAVAN) – Third world countries in the general agreement have strongly opposed U.S. efforts to bring on the agenda of a possible new round of multilateral trade negotiations, extraneous issues like investment regulations and counter-trade policies of countries.

The third world opposition was voiced at this week’s meetings of the GATT preparatory Committee for a new round, according to participants.

The Committee is due to conclude this week a first round of exchange of views on the objectives, subject matter, modalities for and participation in the MTNS.

After going through the various items on the GATT work programme, t its earlier sessions in January and February, the committee this week has been hearing views on other new subjects, sought to be put on the trade round agenda by various countries.

At the end of this phase of its work, and beginning from its next meeting in mid-April, the committee will take up the drafting of recommendations, to be readied by the end of July, for a meeting of GATT Ministers from September 15.

On Tuesday, the U.S. gave up its efforts to put on the agenda of a new round question relating to "high technology" – to which the EEC, and France within it, has been opposed.

In return, the U.S. got partial support from the EEC for U.S. efforts to bring some issues relating to foreign private investments on the agenda of a new round.

The U.S. delegate is reported to have stressed the high priority attached by Washington to the consideration of what it calls "trade-related investment issues" in the new round.

Over the last year, the U.S. has sought to present this issue as an effort to augment capital flows to the third world, and thus alleviate the debt burden, and foster development and growth.

But in fact, the U.S. since 1981 has been trying to bring the issue on GATT agenda, in order to ensure a free hand for its TNCS in their operations around the world, specially the third world countries.

The U.S. efforts in this direction, at the time of the GATT Ministerial meeting, failed, but the U.S. has renewed its efforts, and brought this up at the meetings of the Senior Officials Group in 1985.

The U.S. aim in bringing investment issues on the GATT agenda is to restrict the rights of governments, in exercise of their sovereignty, to impose conditions on foreigners, and specially transnational corporations, relating to any foreign private investments they wish to make in a country.

Many governments impose a variety of conditions – location of the production facility, use of domestic inputs to ensure horizontal linkages within the economy, requirements about research and development activities to be carried out by the foreign enterprises within the country.

There are also conditions about employment of local personnel, including in managerial, high skilled and senior technical levels, and requirements on export of a certain quantity or proportion of products of the enterprises, and/or restrictions on sales in the domestic markets.

The U.S. had raised the issue in GATT in 1981, in a dispute over Canadian policies. A GATT panel that went into it, found in U.S. favour only on one issue, namely, that the Canadian conditions about domestic content was contrary to the GATT provisions about national treatment for imports and domestic products alike.

Even in this area, the panel’s ruling indicated that in the case of third world countries, that impose such restrictions other provisions of the GATT would enable continuance of such practices, and the ruling in the case against Canada would not apply.

But even this does not apply to third world countries, which impose import regulations on balance-of-payments considerations.

In the Preparatory Committee this week, third world countries, even those actively promoting foreign investments by TNCS, reiterated their stand that the issue of investments was not within the jurisdiction of GATT, and some of the problems posed by the U.S. were within the sovereign jurisdiction of states, not amenable to international rule-making or regulations.

Some delegations even questioned the U.S. view that investments promoted expansion of trade (a GATT objective). In fact complete freedom of access to foreign investors could reduce the opportunities for trade in many cases, they argued.

Also, foreign investment, while being risk capital, had its impacts on the BOP of the indebted countries – through remittance of profits and eventually of capital itself. It was thus not too different from loan capital.

The EEC, at the time of the meetings of the Senior Officials Group in October 1985, had opposed the U.S. effort to bring the issue on the GATT agenda, arguing that simply by putting "trade" before every subject, the U.S. could not establish a GATT jurisdiction.

But at the Preparatory Committee this week, apparently as a quid pro quo for the U.S. abandoning its efforts to put high-technology on the GATT agenda, the EEC said that issues like performance requirements on foreign investors could be examined.

The EEC said that it was opposed to "trade-related investment! Issues but was agreeable to consider "investment-related trade issues".

Third world participants later said that the EEC was indulging in semantics, and making a distinction without a difference, to hide the change of its position in response to the U.S. giving up the high technology issue.

On the issue of counter-trade, the U.S. wanted GATT to address this in the new round since it undermined the "more efficient", normal trade flow, distorted trade and was contrary to GATT rules.

Third world countries said counter-trade was no violation of GATT, and dismissed some of the arguments advanced against it as a superficial view, and one looking at the symptoms rather than causes.

Third world countries were being forced to resort to counter-trade because of their economic circumstances – the sharp falls in export earnings and debt servicing burdens that left little foreign exchange for imports of even essential goods.

In this situation, counter-trade no only enabled essential imports, but in fact created new trade flows.

Some also saw counter-trade as the only legitimate response of countries faced with the practices of the transnational corporations, and their intra-firm transactions and oligopolistic control over market structures, preventing new entrants and exports.

The issue of Restrictive Business Practices (RBPS), and specially its use by the big TNCS to constrict international trade, is reported to have been raised by India.

The control and elimination of RBPS was one of the objectives of the Havana Charter, which had devoted an entire chapter to it. The issue of RBPS had come up, since then, in GATT several times in the past – in the 50’s, 60’s and in the 80’s.

Successive rounds of trade negotiations in GATT had dealt with tariff and non-tariff barriers to trade.

The proposed new trade round should address the RBPS, and especially those of TNCS, as a trade barrier to be eliminated or reduced.

The TNCS accounted for a very large part of international trade, and ignoring their activities, while seeking to promote growth of world trade would be futile.

TNCS had contributed to a proliferation of intra-industry and intra-firm trade and related transactions, which were "totally opaque", and resulted in trade distortions.

A number of third world countries are reported to have supported the Indian stand.

The U.S., which has been arguing that the objectives of GATT are wide enough to enable it to extend its activities into "services", even if the GATT articles referred only to goods or products, however took the position Tuesday that the issue of RBPS was "outside GATT".

The U.S. referred also to the 1980 RBP code, negotiated under UNCTAD auspices, to suggest that the issue was being tackled, and that even if more needed to be done in this matter, GATT was not the place.

Third world sources noted however that the 980 RBP code, apart from being voluntary set of guidelines without any international binding force, largely excludes the intra-firm transactions within a TNC – a price insisted upon by the U.S. to enable the adoption of the code.

Brazil is reported to have agreed with India that the issue of RBPS needs to be tackled, but noted that it would require an amendment of the general agreement.

Jamaica, in supporting the Indian proposals, is reported to have referred to the proliferation in international trade of Voluntary Export Restraints (VERS) and Orderly Marketing Arrangements (OMAS), and stressed that these too were RBPS.

But to the U.S., any suggestion that VERS and OMAS were RBPS was "hogwash". VERS and OMAS, being government-to-government arrangements were not RBPS at all, the U.S. argued.

The EEC felt that RBPS involving private enterprises could not be dealt with in GATT, unless there was some government involvement.

Another issue discussed in the committee, and where there was a wide measure of agreement, was on the need to strengthen GATT’s role in the area of notification and surveillance of trade restrictions imposed by governments.

The need for a review and new look at some of the GATT articles, and the way they had been interpreted and applied, was raised by some countries.

Among the provisions cited were those relating to state trading enterprises, customs unions and free trade areas and their arrangements with others – to the detriment of other contracting parties who were denied most-favoured-nation treatment.

The need for a look at the functioning of the GATT system, and to ensure that its mechanisms recognise the changes in the world trading environment, including the fact that 60 our of the 90’ GATT CPS now are third world countries, was stressed by some delegations.

The EEC, used the occasion to express its concern over Japan’s trade relations with the EEC, charging Japan with taking advantage of the GATT system to derive benefits and, while seemingly complying with the GATT provisions, used non-governmental barriers to discouraging imports, thus creating structural trade surpluses and endangering the entire GATT system.

In the EEC view, Japan had created artificial over-capacity, and had taken a number of "grey area measures" that restricted its imports while increasing exports to the entire world.

The domestic and foreign markets of Japan were isolated from each other and these distorted trades and created new tensions and problems.

But as New Zealand later pointed out, many of the charges made by the EEC about Japan, applied in equal measure to EEC practices, through its common agricultural policy, vis-a-vis other countries and their efforts to export to the community.

The Japanese delegate himself in a sharp rejoinder to the EEC said that if some countries had benefited from the GATT system, it was because of their hard work, whereas the EEC’s problems appeared to be due to structural rigidities.

At a news briefing on Tuesday, the EEC representative, Tran Van Thinh had said that Japan, and its structural trade surpluses, was the major trade issue for the EEC, and one to be addressed in the new round, ahead of the "technical" issues.

Some of the participants in the Preparatory Committee saw the EEC declaration, as both intended for its domestic audience and to express its concerns about signs that the U.S. and Japan were settling their similar problems bilaterally, and to the disadvantage of others, including the EEC.