May 16, 1987


GENEVA, MAY 14 (IFDA/CHAKRAVARTHI RAGHAVAN) The GATT Council agreed Thursday to the terms of reference of its working party to look into the request from the Peoples Republic of China (PRC) for resumption of its status as a contracting party to GATT.

The GATT Council on March 4 had agreed to set up a working party on this issue, but it has taken more than eight weeks of prolonged consultations before the terms of reference could be agreed upon.

An agreement is still to be reached on the "presiding arrangements" for the working party - with the EEC pressing for a chairman and two vice-chairmen to run the working party, instead of the normal arrangement of a chairman running the working party.

Kuomintang government of China was a GATT CP from inception, but withdrew in 1951, soon after it had fled the mainland and was unable to ensure observance of its GATT obligations on the mainland.

The Peoples Republic of China never applied GATT rules nor made any moves towards GATT until 1984, when it spoke of its objective of "resuming" its GATT membership. It submitted a formal request in 1986, following it up early in 1987 with details of its foreign trade regime.

The PRC request for "resumption" of status as CP was widely welcomed, and the major trading blocs and the GATT secretariat appeared at one stage anxious to quickly settle the issue and make the PRC a CP.

Part of this was perhaps an effort to "lock" the PRC into the "system" during Deng's lifetime and "liberalisation" drives, before any successor could reverse China's course.

However the contractual rights and obligations of trading relationships involved, and the prospect that a hasty decision could, result in China entering GATT "without paying a price", appear to have been reponsible for difficulties over agreeing on the terms of reference.

In the case of any country applying to join GATT, the working party is usually asked to examine its trade regime and make recommendations taking relevant GATT articles into account.

The working party normally expresses its views on the trade regime, suggests any changes required to bring it into conformity with GATT, and side-by-side the new entrant negotiates tariff and other concessions with existing GATT CPS, and put its tariffs into a schedule to be incorporated into GATT.

The working party also draws up a protocol of accession, incorporating the agreed terms and conditions for accession, and this has to be approved by two-thirds majority vote of the GATT CPS, under article XXXIII before the new entrant could sign the protocol and become a GATT CP.

The effort to reconcile the PRC desire (back home) to be merely seen as taking the legitimate Chinese seat in another international body, and the need of others to secure their balance of GATT rights and obligations vis-à-vis the PRC, resulted in some prolonged consultations and negotiations over the terms of reference.

The chairman of the GATT Council, Alan Oxley and GATT officials conducted informal consultations, and later a high U.S. official would appear to have gone to Beijing to negotiate and agree on terms of reference that would be acceptable to all.

Under the terms of reference approved Thursday the working party is to develop a draft protocol for the peoples Republic of China "resuming its status as a CP".

The draft protocol itself is to set out the respective rights and obligations, provide a forum for negotiation of a schedule, and address as appropriate other issues concerning the PRC and the GATT "including decision-making by the contracting parties, and make recommendations to the Council".

At an early stage, to meet the PRC views about "resumption" rather than "accession", the GATT secretariat would appear to have ventured the view that the matter could be dealt with under a catchall article XXV, which refers to joint actions by contracting parties to further the objectives of the general agreement.

This left open the issue whether the PRC would have to negotiate the terms for its "resumption". It would also have meant that a decision could be taken by a simple majority vote on this issue.

The EEC was among those who contested this, and insisted that the two-thirds majority vote required for any new entrant should also apply here, and should be incorporated into the terms of reference itself.

The PRC was however reluctant, and this issue is now to be the subject of the working party' s recommendations.

The GATT spokesman said normal GATT procedures and practices would apply to the work of the working party and in the decisions it reached, but declined to spell out what these were.

GATT Council members however said the working party in effect would have to follow the GATT decision-making procedures of consensus, but would recommend which of the available options (simple majority vote, two-thirds majority vote or consensus) for taking decisions by the CPS would be most appropriate to approve the draft protocol and enable the PRC to sign and "resume" its status.

The decision in effect ensures that while the PRC would "resume" its status, it would have to go through the substantive procedures and negotiations that any country has to go through to become a contracting party, namely negotiate the conditions including exchange of tariff concessions with other CPS.

The terms also ensure that the PRC, as a non-market economy country, and thus a country whose trade will not be influenced by the response of the "market" to tariffs, provides sufficient safeguards to other CPS about its imports.

The PRC has been emphasising its status as a "developing" socialist economy, which means that it should not be required to make reciprocal concessions or commitments required of an industrialised country.

The EEC however is known to have reservations on this.