Jun 30, 1988

U.S. EEC COOL TO AUSTRALIAN PROPOSAL ON TARIFFS.

GENEVA, JUNE 28 (IFDA/CHAKRAVARTHI RAGHAVAN) -- An Australian proposal, backed by Canada and Switzerland, "to demonstrate" progress in Uruguay Round Tariff Negotiating group has been received coolly by the U.S. and EEC, according to GATT sources.

The chairman of the negotiating group is also an Australian, Lindsay Duthie.

Almost two years into the Uruguay round, the Tariff Group (as other groups on issues of interest to the third world countries) has made little progress, and so far there is no agreement even on a common negotiating basis.

While successive GATT MTNS, and particularly the Tokyo round MTN, has succeeded in effecting substantial reductions in general level of tariff rates in industrial countries, these have concentrated on industrial tariffs and products mainly exchanged among themselves.

According to UNCTAD studies, in the three main markets (EEC, Japan and the U.S.), while the average Most-Favoured-Nation rate have fallen respectively to 5.6, 5.5 and 4.8 percent respectively, third world non-fuel exports face higher incidence of average MFN in these three markets than exports of the other industrialised states.

Also, according to UNCTAD, in EEC, Japan and the U.S., tariffs above ten percent still account for 21.5, 17.1 and 16 percent of all tariff lines respectively.

Most of these higher tariffs are concentrated in food and textiles and clothing areas all of export interest to third world countries.

There is also the problem of tariff peaks and tariff escalation.

Another complicating factor is that third world countries enjoy some preference in the industrial markets such as through the generalised system of preferences, or other preferential arrangements as for the Lome countries in the European Community.

A MFN approach to tariff cuts means erosion of these preferences.

There have been several ideas and proposals before the group, but so far there has been non consensus in sight around any of them.

As early as June 1987, Brazil propose that industrialised countries should bind at zero level all their tariffs on all products, to be implemented for the benefit of third world countries for a period often years and thereafter automatically extended to industrial countries.

In return Brazil envisaged third world countries binding their tariffs on a substantial number of products and reducing them as appropriate.

When a country "binds" its tariff in GATT at any particular level, it cannot raise it in the future without paying compensation to affected Contracting Parties.

Brazil put forward its proposal on the ground that the non-contractual nature of the GSP, the increasing exclusion of products and countries from the benefits of GSP, and the arbitrary administration of GSP schemes, have underscored the need for a formula approach at tariff cuts.

Such an approach as that proposed by it, Brazil said, would also benefit third world countries and thus assure the Punta del Este promise of special and differential treatment for them.

Other proposals before the group include a general formula approach to deal with tariff peaks and tariff escalation, a proposal by the U.S. that those CPS who had not carried out a general tariff cut approach in the Tokyo round should do so now while others who had done so should deal with tariffs on "request" and "offer" basis.

There have also been Canadian proposals for an integrated approach, dealing with tariff and non-tariff barriers, and viewing the two together in terms of increasing market access.

The Australian proposal, supported by Canada, Hong Kong, Hungary, South Korea, New Zealand and Switzerland, argues that tariff liberalisation remained a central element of the Uruguay round and there was need "to demonstrate progress" in the tariff area by the time of the Montreal Ministerial Meeting (set for the first week of December).

It suggests a formula approach, such has been put forward by Switzerland, to encourage the broadest possible participation and liberalisation, and secure harmonisation of tariffs, particularly in relation to high average tariffs and tariff peaks.

The negotiated tariff concessions, Australia suggested, should start form January 1, 1988, in the case of bound MFN rates, and for countries and products where tariffs are not bound, at the MFN rate normally applicable on that date.

The Australian proposal also envisages that where countries have made autonomous or unilateral changes before January 1, 1988, the base rates that prevailed on the date of the Punta del Este declaration would apply.

This would give credit to several third world countries who have undertaken unilateral tariff cuts and liberalisation efforts, as part of the IMF stabilisation programmes. It would also benefit Australia and New Zealand who have recently announced tariff-cutting programmes of their own.

The Australian paper has also proposed formula to deal with low-duties suggesting their elimination or reduction.

The reduced tariffs should be bound, and third world countries could "contribute" to the Uruguay round by binding their duties, Australian paper suggested.

The Australian proposal has also suggested, in terms of the special and differential treatment for third world countries, that they could have "longer phase-in periods" in applying any formula approach, bind their ceilings at higher levels and have "a lesser proportion" of their tariffs bound.

Participants said that in initial reactions, the U.S. was quite lukewarm. It was disappointed that its won proposals and ideas had not been addressed, and expressed its continued preference for the request/offer approach suggested by it.

Some third world participants suggested that the U.S. reaction, coupled with the fact that the administration has no negotiating authority on tariffs, appeared to preclude any meaningful progress in the tariff area by the time of the Montreal mid-term review meeting.

Even if Congress enacts a revised trade bill (eliminating the portions over which President Reagan had vetoed the previous one), participants said the tariff cutting formula sanctioned by Congress was very circumscribed and would not enable the U.S. to agree to deal with its tariff escalation and tariff peaks on products imported from the third world.

Third world participants said that the EEC also made no substantial comment, but made what one participant called some snide comments about Australian tariffs that reportedly received a sharp retort from the Australian delegate.

The Australian proposal reportedly received some support in principle form a few third world countries like Colombia and Pakistan, but did not attract the wide measure of support that its sponsors had hoped.

India reportedly sought clarifications whether support of Canada to the new paper meant that it was no longer pressing its previous "market access" approach in dealing with both tariffs and non-tariffs.

India also reportedly noted that the special and differential treatment envisaged for third world countries appeared to be in terms of the "contributions" they would have to make, but there was nothing in respect of benefits they would get.

India also noted that preferential access (through GSP or other schemes) was still important for a number of third world countries, while the Australian proposal went purely on the basis of the Most-Favoured-Nation formula.

Participants said that any substantial progress on the Australian proposal would now not be possible until the next meeting of the group, tentatively fixed for October 13-14.

This itself they said might preclude any real progress in the tariff area in time for the mid-term review, unless agreement at the Ministerial review for a general approach to the negotiations in tariff is to be shown as "progress".