Mar 6, 1987


GENEVA MARCH 5 (IFDA/CHAKRAVARTHI RAGHAVAN) -- The GATT Council agreed Wednesday to set up a working party to consider the "status" of the Peoples Republic of China (PRC) as a Contracting Party to the General Agreement.

The chairman of the Council was asked to conduct consultations on the "presiding arrangements" for the working party, terms of reference, and others matters. The chairman is to conclude the consultations within 15 days and report to the next meeting of the council, scheduled for April 15, when it has to be approved by the council.

China (then the Republic of China ruled by the Kuomintang regime) was one of the founding signatories of GATT in 1947.

But in the early 1950s, (after the PRC came to power in Beijing and "the Republic of China" set itself up in Taiwan), the KMT regime notified GATT of its decision to withdraw, and with it the tariff concessions it had given and other obligations that had been assumed.

The Peoples Republic of China, which in those days battled for the Chinese seat in International Organisations, neither applied to GATT to take its place, nor did it continue to observe the obligations assumed, when the Kuomintang Government had signed GATT in 1947. The PRC did not make any such move even after it took the Chinese seat in the UN and other international bodies early in the 1970s.

In 1984, the Peoples Republic of China advised GATT of its wish to resume its membership, and as a preliminary step wanted to be "associated with the work of GATT".

The PRC did not seek "observer" status as such, but it was granted this, though the U.S., EEC and others while agreeing to this reserved their positions on the legal position about "resumption".

If the Peoples republic of China were merely to "resume" its seat, it would in effect be paying no price for the benefits of trade liberalisation that had taken place in successive GATT rounds, and with the "resumption" enjoy all the benefits by the application of the GATT MFN clause.

And unlike at the time of "accession" - when any CP could invoke article XXXV and exclude benefits of GATT vis-à-vis itself and the new entrant, if the entrant does not exchange "satisfactory concessions" - the PRC would have full benefits.

But if it was to "accede" to GATT, it would have to negotiate and exchange concessions with existing members, when existing CPS could ensure a balance of rights and obligations for themselves vis-à-vis the PRC within GATT.

But while flagging the issue obliquely at the time of granting the PRC "observers" status, the major industrialised countries, who saw some political and strategic advantages for themselves (vis-à-vis the Soviet Union) by befriending PRC, did not bring the issue into the open or be specific about this.

Rather, they indicated they were willing to oblige the PRC by acquiescing formally in the concept of "resumption", provided the PRC paid the commercial price by granting them concessions.

In 1986, the PRC formally made a further move over its "resumption" of membership, in the context of the launching of the Uruguay round (which would be open only to those who were GATT CPS on announce their decision to negotiate accession), and has since submitted a lengthy memorandum outlining its economic and trade policy.

According to GATT data, the PRC exports about 31 billion dollars worth of goods and imports about 43 billion dollars.

According to GATT sources, in the extensive informal consultations over the last several days on how to deal with the Chinese request, the question of "legal basis" or "status" -- whether the PRC is merely "resuming" or seeking "accession" -- has figured, with U.S., EEC, Japan, etc., willing to accept the "fiction" of "resumption" but wanting to secure the price for "accession".

The PRC itself is reported to be trying to avoid paying any price, or paying as low a price as possible, and has been underscoring in this context its status as "less developed" (GATT terminology for third world) country.

The legal basis of acting on the Chinese request, and the normal GATT procedure of setting up a working party to examine this, would appear to have come up in the informal consultations.

The GATT Secretariat would appear to have suggested that the legal basis for accepting the Chinese request could be found by invoking article XXV of the General agreement, which deals with joint and collective actions by Contracting Parties to further the objectives of the agreement.

Such an action would need only simple majority vote, whereas "accession" under article XXXIII would need two thirds majority concurrence, apart from negotiating the terms of the accession, even if it be termed "resumption".

The PRC itself, and Pakistan, felt action should be taken under article XXV. However, this did not find favour with several of the important trading nations - both because of the economic implications for themselves of China getting a "free ride", and also in terms of setting a precedent for future invoking of the article for other purposes.

At one stage in the preparations for the Uruguay round, when the basis for discussion of "services" in GATT was being challenged, the GATT Secretariat had proposed invoking article XXV, and using a simple majority vote, to bypass the opposition of countries like India and Brazil.

The Secretariat's suggestion for invoking the same provision now for China was also seen by countries like India in the context of this past, and future, efforts of the Secretariat to oblige the U.S. or EEC against the third world.

When the issue came up before the GATT Council Wednesday, the Chinese request was "warmly supported" by over 30 CPS who spoke, a GATT spokesman said.

But some of the informal discussions, and the legal and other issues raised there, were hinted at by India, which said these had to be clarified before the working party was set up.

Indian delegate, Parampreet Singh Randhawa said that in setting up the working party or setting its terms of reference, it was essential to be clear about the legal basis of such a decision.

Article XXV, "mentioned in informal consultations in this connection", Randhawa is reported to have said, "does not furnish an appropriate basis, either in terms of its provisions or its negotiating history, or its application".

The substantial and procedural requirements of article XXXIII, the Indian delegate reportedly added, would need to be fulfilled in dealing with the issue.

Also, in order to achieve a "satisfactory balance of rights and obligations", India would enter into negotiations with the government of the PRC with a view to securing "suitable safeguards and adequate concessions".

No one else openly referred to the issue, though privately EEC, U.S. and others seemed to agree with this, and felt relieved that India had raised the issue and saved them the political embarrassment of doing so.

But the EEC's spokesman, Tran Van-Thinh, in supporting the Chinese request, said that it should however be recognised that when China became a CP, "nothing would be the same again in GATT", an hence a way had to be found for integrating China into the GATT contract.

While a GATT spokesman did not clarify the reference to "presiding arrangements", other GATT sources said that EEC and some others were not happy with the U.S. proposal that the working party should be chaired by the Swiss representative, Pierre-Louis Gerard.

In view of the enormous implications for others - with the PRC being seen not merely as a market of one billion, but also as producer and exporter of manufactures and goods by one billion - the EEC appears to be pushing for a "Troika" of sorts, the working party being run by a bureau of chairman and two vice-chairman.

The chairman of the GATT Council, Australia's Alan Oxley is to hold consultations on this, and terms of reference and legal basis, and report back to the Council at its next meeting.