Sep 9, 1986


GENEVA SEP. 6 (IFDA/CHAKRAVARTHI RAGHAVAN) -- "There is a good deal of discreet, not to say secret diplomacy taking place ... and we can expect good results in Punta del Este", according to the GATT Director-General, Arthur Dunkel.

At a Press Conference Friday, Dunkel stressed that there would be no majority decisions at Punta del Este over a new round, but only decisions by consensus.

"Majority decisions do not help in trade policy matters and trade negotiations", Dunkel declared in response to questions, on how he assessed prospects at Punta del Este and the consequences to GATT of a majority decision there.

Dunkel's remarks were in sharp contrast to the viewpoint fostered in the closing days of July, when the GATT preparatory committee was unable to reach a consensus and remitted three alternate drafts to the ministerial meeting at Punta del Este.

At that time, a view was being fostered, including through the media by GATT Officials, that the new round could be launched at Punta del Este by a majority decision, isolating countries like India, Brazil and others in the group of ten, who were opposing new themes in GATT, and seeking firmer commitments on standstill, rollback and safeguards.

But since then, the European communities have come out strongly in favour of decisions by consensus, and finding compromises to take a board all contracting parties, industrial and third world, and including major third world nations like India and Brazil.

Dunkel underlined that when governments had agreed to meet at ministerial level at Punta del Este to consider proposals aimed at launching a new round, they had very much mind "the catastrophic effect of a failure", and this was a "very important incentive" to make every effort to find agreements.

It did not mean that there won't be hard bargaining. It would be very difficult negotiations at Punta del Este.

Compared to a year ago, there was no longer a question whether there should be a new round, but of how to launch the round and what should be the areas covered.

On the coverage in the new round, there was already a very large area of agreement among the participants, though there were also a number of areas where negotiations were needed to achieve a consensus.

But progress was taking place in respect of them, and "there is a good deal of discreet, not to say secret diplomacy, taking place, leading one to say we can expect good results in Punta del Este".

In the troubled areas of agriculture, while in previous trade rounds it was not the main focus, now intensive preparatory work had been made, and it would be a central part of the negotiations.

On textiles, while a new MFA had been negotiated on the eve of the new round, governments had also committed themselves to try hard and reach agreement about the future, with the new round serving as a forum for preparing for the trade after MFA-4 ends.

In the first chapter of their annual survey and prospects for international trade, the GATT economists have warned against continuance of present trends and policies.

"At this juncture, and in the perspective of the GATT Ministerial Session ... governments need to demonstrate the same capacity for major policy changes in the area of trade as they have in other areas when the costs of inappropriate economic policies became too high", the economists add.

The danger in the current situation, the economists stress, is that policies centred on subsidies and discriminatory quantitative restrictions (QRS), "Whose bankruptcy is evident" from the experience in agriculture, textiles and clothing, would continue to spread to other parts of the economy.

And even if current policies did not lead to open warfare, "continuing down the road of managed trade and market sharing would invite a prolonged stagnation, or decline, in world trade through the cumulative effect of distorted competition on investment decisions and business confidence".

"There is little need to add that such a development would cripple efforts to deal with such pressing problems as servicing debts, creating jobs and promoting economic growth", the economists warn.

Dunkel underlined that trade policy measures alone would not solve the world economic problems - debt, low-growth, and the fundamental imbalances among major trading nations.

"Other inter-related actions are also needed to correct the present situation in the world economy".

In the report the economists have pointed out that in recent years the world trade and trading system have come under increased pressure from problems originating outside the trade area proper - the debt service problem, frequent and large movements in exchange rates, and unusually large trade imbalances in the world's three largest trading nations.

At the same time pressures for protection originating within the trade area had also been on the rise.

Efforts to solve the debt problem through a combination of adjustment and international financing, in an environment conductive to trade expansion, had not worked out that way.

Adjustment had involved mostly import contraction, affecting future export potential to debtors, as well as affecting trading partners of the indebted countries, where lower sales have depressed production and employment in export industries.

"Longer-term pro-growth strategies, including import and export expansion, are badly needed for solving the debt problem. These include changes in financial and trade policies, and reductions in border restrictions in indebted countries to enable more efficient use of resources".

A combination of increased net capital inflows and increased export earnings would facilitate these changes.

"It follows that most-favoured-nation liberalising actions - and reduced subsidies in agriculture and manufacturing - by the industrial countries are critical elements of this process".

But trade imbalances, exchange rate developments, and the debt problem, together account for only part of the pressures on the trading system.

The vast majority of trade restrictions and subsidies are due to traditional pressures for protection, rooted in micro-economic concerns of individual firms and industries.

Developments in other areas are merely adding to these strong protectionist pressures.

The trading system was being eroded by the drift away from the principle of non-discrimination, increasing reliance on QRS and other non-tariff measures, growing use of market-sharing arrangements, and spread of subsidization.

GATT rules themselves provide for protection through bound tariffs and various temporary increases in import barriers, and the current problem is thus not the mere existence of protection, but rather the forms they are taking, and their lack of consistency with GATT rules.

The GATT system itself is having increasing difficulty, not only in furthering trade liberalisation, but also in safeguarding previously negotiated levels of market access.

"The most blatant and firmly entrenches" examples of disregard of GATT rules and principles are in the areas of agriculture, textiles and clothing in the industrial countries.

The hope that policies in these areas would be exceptions, and would improve over time have proved to be an illusion.

If the exceptions had been confined to these three areas, that alone would be cause for considerable concern, since trade in these products accounted for 20 percent of world trade.

Artificially high prices and extensive subsidies have proved a heavy burden on industrial country consumers and taxpayers.

It is also cutting the foreign exchange earnings of the exporting countries, in turning reducing sales to these countries, and depressing employment and profits in efficient export industries of the protecting countries.

Despite their heavy costs, these protectionist policies are not also succeeding in raising incomes of farmers or saving jobs in the textiles and clothing industries in industrial countries.

"The danger in the present situation is that these policies ... will continue to spread to other areas", the economists warn, and point to the proliferation of bilateral agreements in steel, automobiles, consumer electronics, machine-tools, and semi-conductors.

Calling for an end to such policies, the economists note that the willingness of the public in industrial countries, in the 1980s to support the fight against inflation, shows that countries can "bite the bullet", and take hard decisions when the costs of bad economic policies become too high.