Oct 19, 1989

U.S. SEEKS TO CAST WIDE GATT NET OVER STATE TRADING.

GENEVA, OCTOBER 17 (BY CHAKRAVARTHI RAGHAVAN) The United States has put forward proposals to apply all GATT disciplines to state trading enterprises, including to all types of marketing boards, in addition to existing GATT provisions relating to these bodies.

The U.S. view that existing GATT provisions about state trading enterprises in article XVII should be viewed as "complementary" to provisions in other GATT articles, and for extending definition of "state trading enterprises" to the more widespread marketing boards, was reportedly presented Tuesday at the Uruguay round negotiating group on GATT articles.

The general agreement's current provisions on state trading enterprises are aimed at preventing misuse of such enterprises for discrimination against trading partners or as a protective device or substitute for tariffs (through mark-ups on imported goods) or for quantitative restrictions (by restricting quantum of goods purchased or sold abroad).

Since such activities by these enterprises could be carried out without formal governmental regulations, the general agreement provides for some disciplines in article XVII.

These provide for the obligation of to act in accordance with the general principle of non-discrimination.

The interpretative footnotes provides that operations of marketing boards established by CPS and engaged in purchasing or selling would be subject to the "general principles" of non-discrimination and acting "solely" in accordance with normal commercial considerations.

But marketing boards that do not engage in purchase or selling but only laying down regulations covering private trade are to be governed by the relevant articles of the agreement.

The provisions about "general principles" of non-discrimination and "normal commercial considerations" have been interpreted to mean that state trading enterprises and the marketing boards concerned, in any purchases or sales involving imports or exports, should act in accordance with normal commercial considerations.

If such considerations would require selling or buying in different markets at different prices - as private corporations do depending on what they believe the "market can bear", depending on price elasticity of their goods - this would be seen as non-discriminatory.

There are also provisions about "transparency" to ensure that import mark-ups on products subject to tariffs are not greater than what is provided in schedule of concessions.

In its proposals now, the U.S. has said that all these should be considered merely "complimentary" to normal GATT rules.

In particular, the GATT requirement about "national treatment", prohibition of QRS (formal or informal) and subsidy disciplines should apply to state trading enterprises, the U.S. has said.

This would mean that a state trading enterprise in its operations inside a country should treat an imported and domestic product on the same footing.

Since under other proposals in other groups, the U.S. is seeking to extend the GATT "national treatment" principle not only to products after they cross the border, but also to capital and investment, the U.S. proposal would appear to have some far-reaching consequences.

In effect the U.S. is using the provisions and proposals for change to attack the general concept of "state trading" and the capacity of the state to take measures to safeguard a country's economy in the face of the vast market powers of TNCS.

The current interpretative notes to article XVII make a distinction between marketing boards that purchase or sell and those that merely lay down regulations covering private trade.

The U.S. contends that it is not easy to make such distinctions, and hence all GATT disciplines should apply to all marketing boards.

It also wants to set up a GATT working party to develop "an illustrative list" of practices associated with state trading, and undertake periodically comprehensive review of notifications by contracting parties on their state trading enterprises.

The overall effect of the U.S. proposals would appear to be that while the activities of transnational corporations which spread across markets and exercise oligopolistic or oligophonic powers would be have full freedom.

However, where state entities are set up to deal with this situation, they would be brought under GATT discipline, and home states of the TNCS could raise in GATT disputes on the activities of state enterprises and marketing boards.

In many third world, and even some industrial countries, the state has intervened to set up such entities to deal with situations where one or two corporations abroad have considerable market power as purchasers or sellers of commodities.

The U.S. proposals would restrict such state intervention.