Sep 22, 1988

NEW U.S. TRADE LAW TO FIGURE IN GATT COUNCIL.

GENEVA, SEPTEMBER 20 (IFDA/CHAKRAVARTHI RAGHAVAN) -- The recently enacted U.S. trade law, "the omnibus trade and competitiveness act", is expected to be raised in the GATT Council Thursday by the European Community and other delegations who see the legislation as a gross violation of the U.S. obligations under the general agreement.

Both before the enactment of this legislation, and since then, U.S. negotiators have reportedly made clear (in the Uruguay round negotiations) that the U.S. could not contemplate bringing its domestic laws into compliance with the general agreement.

This U.S. stand, as well as the latest U.S. trade law, are seen by other trading partners as violative of U.S. obligations to GATT as well as the standstill and rollback commitments undertaken at Punta del Este, when launching the Uruguay round.

Separately, the EEC is seeking a GATT panel to go into the U.S. restrictions on imports of agricultural products, acting under the waiver granted to the United States in 1955.

The latest U.S. law has a number of provisions that are contrary to GATT rules and principles, but the one that is the focus of major criticism from its trading partners, are the provisions in the law providing for U.S. "response to unfair international trade practices".

Under the provisions of this law, the U.S. Congress has taken upon itself, and has authorised the administration and domestic authorities, like the International Trade Commission, to decide what trade practices of other countries are "unfair", and on the basis of that take unilateral retaliatory actions.

These unfair and unreasonable actions range from subsidised exports or import restrictions to countries adopting positions contrary to U.S. demands in bilateral or multilateral negotiations covering areas like direct foreign investment, intellectual property rights, and services.

GATT Contracting Parties are expected to comply with their contractual obligations and obey GATT rules and principles in their trade relationships with other countries, and the way they treat foreign products imported into their country.

One such obligation, under article XXIII: 2, is to refer disputes to Contracting Parties (acting jointly), and for the latter to investigate such disputes (as is done through panels or working parties), and to make recommendations to the disputants for settling the dispute, and authorising retaliatory actions by suspension of concessions in "serious enough" circumstances.

Unilateral retaliatory actions, the bane of the inter-war trading system was thus ruled out.

GATT, though drafted as an international treaty, never became effective, and since 1947 has remained in force as a provisional treaty through the protocol of provisional application.

Under the protocol, the signatories agreed to apply in their territory part II of GATT (dealing with a range of trade policy measures) "to the fullest extent not inconsistent with existing legislation".

This is the so-called grandfather clause, under which pre-GATT laws that were violative of the general agreement continue to be valid.

But it has been GATT practice, affirmed by several panels, that any amendments or changes in pre-GATT laws should be in the direction of compliance with GATT and not go in the reverse direction.

The latest U.S. trade law is a clear case of retrogression.

GATT participants say that in the context of the Uruguay round negotiating group on dispute settlement, one of the issues that has arisen is improving the GATT dispute settlement processes and securing greater credibility for GATT by ensuring compliance with rulings and recommendations of GATT panels in disputes.

"In this connection, one of the proposals is that Contracting Parties shall strengthen their political commitment to abide by the dispute settlement rules and procedures, and shall have recourse to these GATT procedures for settling their international trade disputes and shall refrain from unilateral measures inconsistent with these GATT rules".

To give effect to this, according to the proposal, "Contracting Parties undertake to adjust their domestic trade legislation and enforcement procedures in a manner ensuring the conformity of all countermeasures with GATT articles XXIII: 2".

At the July meeting of the negotiating group (according to the minutes of the meeting that have been obtained by IFDA), the U.S. "strongly took issues" with this last formulation.

The U.S. said that "given its system of government and past actions of that government, it would be impossible to contemplate the enacting of domestic legislation requiring conformity with GATT article XXIII: 2".

The GATT document does not identify the U.S. or the other delegations including the EEC and Japan that strenuously disagreed with the U.S. The latter is identified only as "one delegation", and the others in similar terms. But GATT participants said the reference was to the U.S.

The EEC responded to the U.S. by pointing out that any commitment to dispute settlement "to be credible, had to be accompanied by an additional commitment to seek domestic implementing legislation".

Another country noted that its domestic legislation contained provisions beyond those contemplated, by incorporating the GATT and Tokyo round agreements into its domestic law.

Another delegation commented that it did not understand the views of the U.S. that it would be impossible to contemplate domestic implementing legislation, when the U.S. was apparently willing to implement domestically provisions for multilateral dispute settlement in its free trade agreement with Canada.

The issue would appear to have again cropped up at the meeting of the same negotiating group on September 6-7, when the U.S. reportedly repeated its strenuous objections to retaining on the negotiating agenda the proposal for introduction of GATT dispute settlement obligation into domestic law.

The U.S. reportedly sought deletion of this proposal from a GATT secretariat note of August 8, listing various proposals for strengthening commitment of Contracting Parties to dispute settlement.

However a number of other participants reportedly insisting that the proposal should be retained as an integral element of the negotiating agenda of the group.

Those who spoke critical of the U.S. stand reportedly included the EEC, Japan, Brazil, South Korea, Austria, Switzerland, Egypt, India, Mexico and Nicaragua.

The European Community representative asked how the United States would reconcile the entire Uruguay round negotiating exercise and any agreements flowing from it with the new U.S. trade law that was violative of the general agreement.

The U.S. however reportedly avoided the issue by arguing that the negotiating group on dispute settlement was not the forum for discussing the U.S. trade law.

Some GATT participants said that the EEC made clear that it would raise the issue in all appropriate forums, include the GATT Council and concerned Uruguay round bodies.

In other discussions in the negotiating group on dispute settlements, third world countries expressed their surprise and disappointment at the lack of response from industrial countries for application of the special and differential (S and D) treatment principle for improving dispute settlement mechanisms.

Such S and D treatment provided for in GATT and current GATT procedures, have been mandated by the Punta del Este declaration to apply to the entire Uruguay round negotiations.

The special procedures, including the invoking of the good offices of the GATT Director-General for speedy settlement of a dispute involving a third world and industrial country, were set up in GATT under decisions of Contracting Parties in 1966 and 1979.

Some of the proposals of the industrial countries before the negotiating group have sought to question the need for S and D treatment, and for its elimination.

Third world countries have opposed this, and have sought additional measures to ensure better dispute settlement mechanisms in cases where their GATT rights are violated.

Among the suggestions are proposals that any panel going into such a dispute should make recommendations on the amount of compensation due to a third world Contracting Party if the panelís findings are not implemented within a specified time-limit and recommendations by Contracting Parties (acting jointly) on measures of compensation for injury caused.

And where such recommendations are not implemented within a prescribed time limit (90 days was suggested), the Contracting Parties shall consider jointly what measures, further to suspension of concessions by the party affected, should be taken to resolve the matter.

These measures, in a case involving a third world Contracting Party, it was further suggested "may be of a collective nature".

A number of third world countries including Brazil, Nicaragua, Egypt, India, Mexico, Chile, and Argentina underscored the importance of appropriate attention to the various proposals made by third world countries on these issues.

They said that the proposals formulated in the group should be incorporated as an integral text in the secretariat note on the various proposals on the negotiating agenda, and not separately or in a subsidiary way.

The negotiating group ultimately agreed that the secretariat should revise its note in the light of the discussions.

The negotiating group is to held its next meeting on October 10-11, and its final meeting (before Montreal) on November 15.