Oct 18, 1988


GENEVA, October 14 (IFDA/CHAKRAVARTHI RAGHAVAN)—The latest U.S. trade deficit figures and injection of trade policy issues into the U.S. presidential race, have added to the prevailing uncertainties of the Uruguay round negotiating processes, due to be reviewed by ministers at a meeting at the trade negotiations committee (TNC) at Montreal in week of December 5.

Both Bush and Dukakis, while slanging against each other, have promised aggressive actions against trading partners involved in "unfair" trade practices.

Reflecting a sentiment that also underlies the U.S. trade and omnibus act of 1988, both candidates, and U.S. legislators, as well as U.S. industry, workers and the general public, appear to see the burgeoning trade deficits and problems as due mainly to the unfair trading practices of the U.S. trade partners.

But the UN conference an trade and development in its 1983 trade and development report has concluded that these have not played a determinant role in U.S. trade deficits and loss of markets.

"For an understanding of the U.S. trade deficit, it is hardly necessary to look beyond an analysis of the underlying macroeconomic causal factors", UNCTAD said.

"The dramatic deterioration in the external balance, reflecting for the most part the widening trade deficit, can be shown to have been brought about by a significantly higher rate of demand expansion in the U.S. than in its trading partners, an the one hand, and by the large appreciation of the dollar during the first half of the decade, on the other".

"To these factors", UNCTAD said, "must, of course, be added the drastic reductions in imparts by indebted developing countries which were traditional markets for U.S. exports of both capital goods and agricultural products".

"More peripheral factors, such as practices which infringe on fair trade among countries, and which are thought to be evident in the observed skedwness of bilateral trade flows, do not appear to have played a determining role".

Neither candidate seems to have a policy to tackle these fundamental macroeconomic elements.

Over the next four weeks or so, the Uruguay round negotiating groups are due to hold their final pre-Montreal meetings to finalise their reports for the ministers, with clearly indicated areas for ministerial decisions to reach some early agreements.

So far none of the groups appear to be able to do this, except in vaguely worded statements to show some cosmetic progress.

When the mid-term review idea was broached early in 1988, a number of EEC countries as well as many third world nations were doubtful about the usefulness of such a meeting in December.

Several of them, including the French for example, had openly suggested that the meeting should be set for a date well after a new administration, republic or democratic, had taken over in Washington, and had had time to assess its position.

However, for domestic political (republican) reasons the U.S. trade representative Clayton Yeutter insisted an setting a meeting in December, and he was supported by Japan, and some of the Cairns Group members, as also the GATT secretariat.

Yeutter’s private argument was that whoever wins, the U.S. trade policy he was pursuing had bipartisan support, in congress and of both presidential candidates.

Since then, the U.S. Congress has enacted the U.S. omnibus trade and competitiveness act - a measure that the EEC recently described in the GATT council as a "time bomb" that could blast the entire trading system.

There are others who see the law - with its provisions totally contrary to GATT obligations, to enable the U.S. administration to pursue bilateral steps to remedy "unfair" trade practices of its partners, by threatening or imposing unilateral retaliatory actions - is more in the nature of an aids virus without cure and certain to destroy the system, unlike a time-bomb that could be defused.

A measure of the damage being caused already is the U.S. refusal to agree in the Uruguay round negotiating group on dispute settlement that contracting parties undertake to adjust their domestic trade legislation and enforcement procedures in a manner ensuring their conformity with the general agreement.

This proposal, supported by a very large majority of the CPS, has been opposed by the U.S., since it would involve drastic changes to the U.S. law, authorising unilateral determination of "unfair trading practices" of partners and enabling sanctions.

In deference to the U.S. position, Canada has omitted the proposal from a paper that it has presented to the disputes settlement group and hopes could be the basis for agreement at Montreal in this area.

The Canadian paper, also sponsored by eleven other countries belonging to what south Korea has called in GATT "the peace group", has been criticised by Japan an this very scare of omitting a key provision to secure strengthened commitment of CPS to the GATT.

In the area of agriculture, where the U.S. is pressing for early agreements at Montreal, the European community is unlikely to be in a position to take any position until its meeting of foreign ministers of its member-states, which would be in the third week of november, well after the U.S. presidential elections.

In the agricultural negotiations, the U.S. has now said that it would be willing to consider short-term measures, but only in terms of d firm commitment to eliminate all government subsidies over the long-term.

In terms of short-term too, the U.S. has suggested that existing quantitative and other restrictions (which it feels includes the community system of variable levels to protect domestic prices), should be converted into tariffs.

The community talks of its willingness to negotiate reduction of government subsidies in the long-term, but not total elimination. It is also not willing to consider the tariff ideas suggested by the U.S., since it would involve end to its variable levy system, an integral part of its common agricultural policy

In areas of concern to the third world, the U.S. has said any early agreement and its implementation in tropical products would depend upon agreements in agriculture.

It has so far not been willing to discuss the issue of phasing out of the Multifibre arrangements (MFA) in textiles and clothing, as the modality for return of this trade to strengthened GATT rules and disciplines.

Yeutter reportedly told the recent informal Islamabad meeting of some trade ministers that he might be willing to discuss this issue only after the U.S. elections in November. But both candidates are known to have pledged privately to U.S. industry the continuance of the MFA regime.

In other areas of concern and interest to the third world, like safeguards etc, there is not even an agreed basis for further negotiations.

The U.S. has been pressing for actions or agreements to put into GATT substantive norms and procedures for their enforcement in respect of intellectual property rights.

This is a move being resisted by third world countries.