Jul 4, 1988


GENEVA, JUNE 29 (IFDA/CHAKRAVARTHI RAGHAVAN) -- The United States has proposed virtual rewriting of the GATT rules on subsidies as well as the provisions in the Tokyo Round code relating to subsidies.

The U.S. view was reportedly put forward at this week’s meeting of the Uruguay round GATT Negotiating Group on Subsidies and Countervailing (CV) measures.

The U.S. proposals in effect would prohibit all types of subsidies and aids, for production or export, and would apply both to manufactures and primary products.

The U.S. proposals also called for bringing third world countries firmly under the disciplines of GATT prohibition of subsidies.

The Tokyo round code on subsidies provides a differential treatment to third world countries in the area of subsidies.

The U.S. paper would appear to have met with some sharp criticism from both industrial and third world countries for its one-sided approach, concentrating on the subsidy issue and ignoring the problems of counter-vailing measures.

The EEC was among those who sharply differed from the U.S. approach, agreeing with the U.S. only in the aim of bringing third world countries under the disciplines of GATT provisions on subsidies.

The general agreement does not per se prohibit subsidies but in article XVI discourages their use in exports, even here making a distinction between primary and non-primary products.

Article VI of GATT enables an importing country to levy countervailing duties to offset bounties or subsidies granted on the manufacture, production or export of a product.

The Tokyo round code clarified and expanded some of these provisions, but very few third world countries are members of the code, despite its special provisions for third world countries.

Among other reasons, this is because the U.S. has been refusing o extend the benefits of the code to third world countries unless they enter into bilateral agreements to phase out any subsidy provisions within an agreed time-frame.

The Punta del Este mandate on subsidies and CV measures calls for review of the GATT articles VI and XVI and the Tokyo round code on subsidies and CV measures, and for negotiations "with the objective of improving GATT disciplines relating to all subsidies and countervailing measures that affect international trade".

The negotiating group, chaired by Michael Cartland of Hong Kong, reportedly discussed this week (without reaching any conclusions), the U.S. paper as also a Swiss paper.

The Swiss paper suggests defining subsidies into three categories, in what is known in GATT parlance as the red, yellow and green light approach.

One category of subsidies would attract procedural safeguards and unilateral countermeasures without legal requirements of material injury or threat.

A second category would be deemed actionable subsidies would be lawful, but subject to countermeasures to the extent they caused material injury to domestic producers in an importing country.

A third category of subsidies would be non-actionable and tolerated, even if they caused negative effects to trading partners.

In the last category, the Swiss paper suggested inclusion of governmental measures for long term structural adjustment assistance given to industry.

In discussions on the Swiss proposal, Singapore reportedly disagreed with the Swiss idea that structural adjustment assistance should get the green-light from GATT while incentives for exports would call for actions.

Canada felt that the Swiss paper did not deal in depth with the issue of CV measures.

The U.S. also reportedly expresses some reservations about the basic approach in the Swiss paper, and particularly about structural adjustment subsidies not being actionable.

South Korea however welcomed the Swiss paper as having a logical approach that should be examined.

The U.S. paper argues that GATT rules and codes should be rewritten to prohibit subsidies, not only those that are used in exports and cause serious injury in the importing country, but production subsidies that result in import substitution or has a negative effect in third markets on the exports of others.

The U.S. also wanted the practice of "industrial targeting", which now fall under most international definitions of subsidies, to be tackled in the group.

In comments on the U.S. paper, the EEC reportedly complained that it was entirely devoted to strengthening disciplines on subsidies but had nothing in it about CV measures.

The U.S. paper, the EEC reportedly added, even reinforced the right of a country to use CV measures.

It would also radically change the GATT dispute settlement procedures and mechanisms.

The U.S. paper has suggested that any panel going into a complaint and giving a ruling should also determine the amount of compensation and provide (after an agreed time limit for exploration of agreed compensation) that the aggrieved party could take (retaliatory) actions to rebalance the level of concessions by way of compensation.

These actions, the U.S. suggested, should not be subject to any blocking under GATT’s rule of consensus.

The EEC strongly criticised these proposals.

The EEC also felt that often CV measures taken by a country had been more trade distortive than subsidies.

The entire U.S. approach, the EEC reportedly added, was contrary to the GATT philosophy.

The EEC favoured clarification of the Tokyo round code. But the negotiating mandate covered both subsidies and CV measures, and the negotiating group must address the unfinished business of the Tokyo round in this area.

The group must address the issue of defining the subsidies, and agreeing on which on them should be subject to disciplines.

The EEC also insisted that the issue of agricultural subsidies should only be addressed in the overall context of negotiations on trade in agriculture, and in the separate negotiating group on agriculture.

In the EEC view the Tokyo round code agreement had not worked for lack of political will, and the effort to use dispute settlement mechanisms in lieu of negotiations.

Brazil in what was termed as preliminary comments, reportedly viewed the U.S. paper as one sided effort at reinterpretation of the Punta del Este mandate.

The U.S. proposals about third world countries, Brazil reportedly commented, was not in conformity with the Punta del Este mandate on special and differential treatment for the third world.

Brazil’s trade interests were being damaged by the wide misuse of the CV measures, the Brazilian delegate reportedly added.

The U.S. paper, in the Brazilian view, could not be uses as a basic for further work of the group.

Japan also saw the U.S. paper as "lacking in balance", and dealing only with subsidies and not CV measures. Japan also agreed that agricultural subsidies should be discussed only in the group on agriculture trade.

The U.S. proposals on dispute settlement, Japan reportedly added, went against the GATT provisions about retaliation, where a Contracting Party could retaliate only after receiving authorisation from the Contracting Parties.

Australia however reportedly supported the general thrust of the U.S. paper, and its call for abolition of the distinction between primary and non-primary products in regard to subsidies.

Hong Kong stressed the need for equal emphasis on CV measures, which caused significant distortions to international trade.

Argentina agreed that the U.S. paper aggravated existing imbalances by addressing only the subsidy issue.

India agreed that the U.S. paper lacked balance in not dealing with the CV measures. It had not also made any reference to the proposals or submissions in the group by other delegations, or even to the checklist of issues before the group. The U.S. approach could not lead the group to formulate a common negotiating basis.

The U.S. approach, India felt, also called for rewriting the GATT rules on subsidies. This was contrary to the negotiating mandate, which only called for improvement of existing GATT disciplines.

The U.S. would however appear to have justified its approach, arguing that countervailing was only a second-best remedy, and focussing on CV measures was like focussing on symptoms rather than the disease.

The negotiating group also reportedly took note of a Canadian paper in effect calling for a general framework approach to the issue of subsidies and CV measures, to be agreed upon before the Montreal mid-term review meeting.

The Canadian proposals appeared to be in line with the recent agreement at the OECD Ministerial meeting which call for a framework approach in all the negotiating groups before the mid-term review.

The Canadian proposals are expected to be discussed at the next meeting of the group.

The group is expected to meet twice, after the summer recess, before the Montreal meeting.