May 27, 1988


GENEVA MAY 25 (IFDA/CHAKRAVARTHI RAGHAVAN)— The news of the veto of the U.S. trade bill by President Reagan, though expected, was nevertheless received here favourably by U.S. trading partners.

However, major uncertainties remain.

If the outcome means that the U.S. will have no 'trade policy' and U.S. negotiators will have no negotiating authority, it will at the minimum slow down the negotiating processes in the Uruguay Round.

Most of the GATT diplomats here have not actually seen the details of the vetoed trade bill.

The bill itself, they note, has been vetoed by the President for reasons unconnected with international trade policy.

The two reasons cited, namely the legal provision of notice for plant closures and Alaskan oil issue have nothing to do with the trade policy issues with which the U.S. trading partners, big and small, are concerned.

The administration has said that it would be ready to sign a trade bill that eliminated these two provisions, and has expressed the hope that congress would enact a bill to give U.S. negotiators the authority to negotiate in the on-going Uruguay Round processes.

But U.S. trade partners are hoping that the congress would not take the administration at its word, and enact a new trade bill minus the two objected portions.

Such a trade bill would contain all the provisions to which the trading nations in GATT are strenuously objecting and would inevitably create a confrontation and trade conflicts.

But if congress does not enact any bill, the U.S. negotiators would have no authority to negotiate - neither on tariffs, nor an non-tariffs, nor even on other major themes and objectives being pushed by the U.S., such as in agriculture, services, intellectual property rights and investment issues.

Under the U.S. system, any trade agreement thus negotiate might have to get senate concurrence - where one third of the senate could block it - and/or go through the congressional legislative processes, for enabling laws where the agreements could be sought to be changed or modified, etc.

This would result, at least for the weaker partners, the beginning of a new round of negotiations, with the earlier compromises as the starting point to give concessions to the U.S. to get congressional approval.

In an effort to encourage the administration, and discourage the congress from quickly adapting a legislation (without the two objected portions), some of the U.S. trading partners like the EEC are expressing here the view that the 'Lack of negotiating authority for the U.S. would not slow down the Uruguay Round negotiating process.

But other GATT diplomats, including several from the Third World, suggest privately that this would only be formally true.

None of the negotiating partners in the Uruguay Round, they note, would like to create a confrontation with the U.S. or congress by declining to go on with the negotiating process on the ground that the U.S. negotiators had no authority to negotiate.

Nevertheless it is difficult to see any of them committing their countries to any positions in the negotiations.

This is seen as even more relevant in the context of the drive for some 'early accords' that could be clinched at the planned mid-term review at ministerial level, set for Montreal in the first week of December.

Even as it is, GATT diplomats note, the Uruguay Round negotiating processes have not made much headway in the substantive areas, since there is no agreement on a negotiating basis, a pre-condition for actual negotiations.

This is simply because the U.S. objectives being pressed are outside the framework of the Punta del Este mandate.

The U.S. trade negotiators in these matters are already trying to act according to the vetoed trade bills negotiating objectives and are running into problems.

For example, in the area of intellectual property rights, the U.S. is pushing in effect for establishing standards of protection in areas where none exist or enhancing existing standards. The U.S. also wants better enforcement through GATT.

This really means using the international. trade policy mechanisms to force states to intervene in domestic processes on behalf of the foreign holder of intellectual property rights who claims his rights are being violated.

This is contrary to customary practice where any one aggrieved or asserting a right to property has to go to the court and seek relief, with the state having no role except to provide a judicial process and enforcement mechanism of court judgements.

The U.S. demand and negotiating objective in this area is not covered by the mandate, and hence the U.S. is finding it difficult to get agreement to move to the next stage of negotiations.

There are similar problems faced by the U.S. on investment, services and other areas.

This is perhaps the reason why the U.S. negotiators want most of the discussions to be carried out in informal meetings of negotiating groups - where no records are kept, and the U.S. does not have to constantly try to show how its proposals are related to the linkage and force others to repudiate it. But such informal processes cannot go very far.

In another area of great importance not only to Third World delegations, but even the smaller industrial trading nations, namely a comprehensive safeguards agreement (to strictly define the conditions under which any temporary protective action against imports can be taken), the bill omits any reference to the basic principle that has blocked agreements so for - the principle of non-discrimination which is fundamental to GATT.

Also, under the vetoed U.S. trade bill, the U.S. negotiators have no authority to negotiate in the area of textiles and clothing and for evolving modalities to phase-out the Multifibre arrangement and bring this trade under GATT rules and disciplines.

Also, while the Punta de! Este declaration specifically reaffirms the applicability of the principle of special and differential treatment to Third World countries in the trading system; one of the U.S. negotiating objectives is exactly contrary:

'Developing countries' is the title of one of the negotiating objectives. This calls for Third World countries 'assuming the fullest possible measure of responsibility' for achieving and maintaining an open trading system, by providing 'reciprocal benefits and assuming equivalent obligations with respect to their import and export practices'.

Another objective under this head is 'to establish procedures for reducing non-reciprocal trade benefits for the more advanced developing countries' - the concept of graduation.

All these are based on the theory built by the neo-classical school of economists about Third World countries being 'free riders’ in the trading system.

It ignores the wealth of economic facts and logic that show that Third World countries, in the trading system as in other international economic areas, are not only not 'free riders', out bearing an inequitable burden as a result of the built-in asymmetries in the systems that help the industrialised countries at the expense of the Third World.

Whit such negotiating objectives conflicting with the mandate and the interests of the Third World, it is difficult to see how the negotiating processes here can move forward.

The best that could be hoped for now would be for no one to rock the boat too much, and just keep marking time to see what emerges out of the cauldron of the U.S. presidential year electoral politics.