Mar 3, 1990


GENEVA, MARCH 1 (BY CHAKRAVARTHI RAGHAVAN) -- The European Community has put forward proposals in the Uruguay Round that in effect is aimed at restricting the U.S. continued use of its "grandfather" clause in GATT, as well as ensure that 1955 U.S. waiver, without any time-limitation, is now made a time-bound waiver.

The so-called "grandfather" clause privileges in GATT arises out of the fact that GATT was never made a definitive treaty, requiring ratifying countries to bring their domestic laws into conformity. Instead GATT was brought into being under the Protocol of Provisional Application (PPA), under which the contracting parties undertook to apply the various trade policy disciplines of Part II of the General Agreement "to the fullest extent not inconsistent with existing legislation".

GATT panels have interpreted this in a restricted way, to mean that while the original laws were thus saved, any subsequent amendments would have to move in the direction of conformity with the General Agreement and those moving in the opposite direction would be invalid.

The resort to PPA in 1947 was because everyone believed that the Havana Charter would come into being soon, that the GATT would be absorbed into it (as one of its provisions provides), and that the General Agreement to enable exchange of tariff concessions and necessary trade-policy disciplines, was a temporary affair.

But the Havana Charter never came into being, because the U.S. Senate would not ratify it.

Under the U.S. system, international treaties (ratified by the U.S. Senate) have the same status as the Constitution, and thus self-executing. All laws violative of the Constitution are invalid, and so would be those violative of the treaties. The U.S. Congress did not want its right to legislate on trade to be curbed.

In other systems, when countries ratify a treaty, they have to enact laws to give effect to the treaties.

For a while, the rest of the world hoped that the U.S. refusal to ratify was a temporary problem, and that the Havana Charter would come into being at some time, and in the meanwhile the GATT was kept going as a provisional treaty. But this never happened, and the GATT has remained a provisional treaty, with parties obliged to abide by Part II only to the extent that it was not inconsistent with their existing legislations.

While this "grandfather" clause privilege benefited the original signatories, those who acceded later, and whose protocols of accession did not require them to chance any existing law, also got those privileges. But this was much less.

There was a requirement that countries should notify their laws under which they were claiming this privilege. But there have been very few, if any, notifications.

The EEC was unable to say at its briefing which particular country or country’s laws of its trading partners would be covered.

The major benefit to the U.S. had been in respect of its trade law enabling countervailing duties against imports which had received a "subsidy" for exportation or even production.

The General Agreement requires that the CP wishing to impose such duty must show "serious injury" is caused to its domestic producers because of the subsidised exports of a CP into its territory.

After the Tokyo Round and its code on this, the U.S. applies the "injury" test to signatories, but not to others, mainly Third World Contracting Parties.

The EEC spokesman cited this discrimination against the Third World to justify the EEC proposal, but added that the U.S. continued refusal to apply the "injury" test was probably not even legal in GATT though no one had tested it.

In its communication, the EEC said that the continued use of the grandfather clause privilege under the PPA was a source of uncertainty and imbalance in rights and obligations of CPs and "fundamentally inequitable" for countries that had never claimed the PPA cover or had brought their legislation into conformity with GATT.

The EEC spokesman said that its member-states might still have such legislations, but had not notified them to GATT nor invoked them. The EEC itself had advised GATT that it would not invoke this privilege.

The EEC proposed that during the round a decision should be taken to phase out all such derogations for existing legislation, with a short transitional period to be the same for all CPs to be negotiated and established.

If a country found it could not amend a law to conform within the time limit, it could seek a time-bound waiver.

The EEC was unable to explain why it was not seeking to bring GATT into force as a definitive treaty.

There are some participants who feel that such an action would hit the EEC too, at least in some of its member-states, particularly in regard to its discriminatory trade policy regime against non-EEC states and in regard to its common agricultural policy trade restrictions which are maintained on the basis that GATT has not disapproved the Rome Treaty.

As for the waiver issue, the EEC move appeared to be aimed against the U.S. which in 1955 got a waiver without any time-limitation in respect of its agricultural policy and import regime.

The EEC noted that while most waivers had their own time limits, a few had become an almost permanent feature of the system. The EC therefore proposed certain criteria and principles to be applied for the grant of waivers, and for the termination of all existing waivers after X years (period to be negotiated).

The EEC principles would require:

* A specific time limit, which need not be identical in all cases, for any waiver,

* Grant of waiver to be linked clearly and precisely to a given set of criteria of economic justification, and with its continued application up to the maximum period to depend on criteria continuing to be in force,

* Annual review, and a determination by the GATT council whether the criteria for grant of review continued to be met, whether the country benefiting from the waiver respected the conditions, and whether the waiver should continue or be replaced by alternative measures consistent with the General Agreement.

It was not very clear what the EEC hopes to achieve by both or either of its proposals, on waiver and the PPA, or whether it is seen as a counter to the U.S. demands on the EEC over agriculture, etc.