Oct 3, 1989

THIRD WORLD CRITICISM OF SWISS PROPOSALS ON SUBSIDIES.

GENEVA, OCTOBER 2 (BY CHAKRAVARTHI RAGHAVAN) Third world countries have rejected Swiss proposals for use of quantitative criteria to take countervailing actions on subsidies without application of an injury test.

Any such approach, a number of third world countries reportedly made clear at last week's meeting of the negotiating group on subsidies, would upset the balance of rights and obligations of contracting parties under the general agreement and could not be done the route of a Uruguay round agreement on subsidies issues.

The third world countries were reportedly commenting on a paper put forward by Switzerland.

GATT itself not prohibits subsidies as such, "but only calls for notification and consultation in respect of subsidies that increase exports or decrease imports. It also permits countervailing actions by a country against subsidised manufactured exports into its market that cause material injury to its domestic producers.

In primary products, GATT only calls for avoiding subsidised exports that result in a country getting more than their equitable in world trade.

Also, from 1958, developed CPS are to cease direct or indirect subsidies on any non-primary product exports.

The problems of interpretations and disputes about what subsidy is permitted or not, despite the efforts of the Tokyo round code, and what is "equitable share" have resulted in the effort to use the Uruguay round to clarify the situation and tighten "disciplines".

But any changes or amendments to GATT articles and provisions are a separate matter, to negotiate under a separate mandate in the round.

The mandate for negotiations on subsidies and countervailing (CV) measures provides for of the articles VI, XVI of the general agreement and the Tokyo round on this subject with the objective of "improving GATT disciplines relating to all subsidies and CV measures that affect international trade".

Under the mid-term accord, the ministers agreed on continuing negotiations, using the framework approach developed in the discussions in the group as guidelines, but without anticipating or prejudging any specific outcome.

The framework suggested use of three classifications to subsidies: prohibited, non-prohibited but countervailable or actionable, and non-actionable subsidies.

The framework approach for negotiations suggested in respect of prohibited subsidies calls for identification of such subsidies, normative criteria (E.G. - illustrative list of export subsidies), other criteria and remedies.

In none of the other cases the concept of "quantitative criteria" has been put forward even as a guideline in the suggested framework approach for negotiations.

The negotiations themselves are to be on the basis of specific proposals by participants (and not the framework suggested).

In a paper put forward, Switzerland has come up with some concepts for "quantitative criteria", which should be a mix of subsidy rate used and the import penetration in the domestic or third markets, and on this basis moving a particular subsidy or practice from a non-actionable to an actionable category, and from actionable to prohibited.

In effect, it will provide industrial countries a wide range of subjective discretion, despite provisions for consultations, to take action against emerging competition from the third world exporters, whether NICS or those industrialising and moving up the ladder of industrialisation and export oriented strategies.

In the discussions, India would appear to have opposed this, pointing out that the Swiss paper in effect sought by the backdoor to change the rights and obligations of CPS under article VI of the general agreement..

A number of third world countries - Brazil, Singapore, Mexico and Hong Kong among them - supported the Indian position and spoke in a similar vein.

The EEC too reportedly intervened to suggest that the Swiss approach went too far in terms of rights and obligations.

The third world countries would also appear to have been critical of the Swiss approach which disposed off the issue of special and more favourable treatment (S and D) to the third world in two or three lines, suggesting through limited duration variations (presumably for specific countries) in the time-schedule for implementation and adjustment of domestic subsidy regimes.

The Swiss suggestion to bring under the category of subsidies any measures of countries to safeguard environment, but place them under "non-actionable" also met with opposition.

(The Swiss definition of subsidy involves direct or indirect transfer of funds from public sources to the recipient - a definition that incidentally eliminates a fundamental subsidy for industry that the industrial countries are pushing for in the Uruguay round, namely enhanced and uniform intellectual property privileges for patent and trade marks, an intervention in the market to provide a statutory right that in pure economic theory is a state-ordained subsidy of the manufacturer by the consumer).

Several of the third world countries insisted that actions taken or support provided by the state on environment considerations (or cultural protection, etc.) could not be considered aid at all and hence not a subsidy.

The Swiss suggestion that structural adjustment assistance provided by countries to industries should be viewed as non-actionable subsidies would appear to have been received more favourably by some of the third world participants, with brazil, India and others arguing that assistance provided for infant

Industries by third world countries moving up the industrialisation ladder should also be similarly viewed and treated.

The United States would also appear to have made at the end, what one participant described as "a political statement", about its continuing its policy of negotiating voluntary export restraint agreements with countries exporting steel into its market, tying up its readiness to end this illegal and/or grey area measure, to agreements in the Uruguay round, satisfactory to the us on all export and domestic subsidies for industrial production.

Since the statement was made under any other -business and as the last item on the agenda, other participants did not comment but reserved their positions.