Nov 11,

EEC SINGLE MARKET AND U.S.-CANADA AGREEMENT COULD DIVERT TRADE.

GENEVA, NOVEMBER 9 (BY CHAKRAVARTHI RAGHAVAN)ó While it may be too early to make a clear assessment of the likely effects of the regional integration arrangements - the EEC single market or U.S.-Canada free trade agreement - these could have trade diversionary effects and third world exporters might suffer, according to the UN Conference on Trade and Development.

A secretariat report before the UNCTAD Committee on manufactures now meeting here, notes that the EEC single market process could be at the expense of or in support of world integration.

The full implementation of the southward expansion of the EEC (by integration of Greece, Spain and Portugal) and a single European market without internal frontiers, UNCTAD says, could entail "some displacement of manufactured imports from developing countries".

The potential trade expansion effects of enlargement of the community in a single market could be considerably dampened by recourse to non-tariff barriers against products of export interest to the third world.

Also, adoption of various preferential trade agreements of the EEC by new members could displace traditional suppliers of the new members by third world economies having preferential access.

There could also be indirect effects of regional subsidies by EEC inducing an enlarged flow of investment in labour-intensive industries in the new members.

While it was difficult at this time to estimate the potential effects of the 1992 single market, estimates of the EEC Commission suggest that total merchandise imports from non-member countries, including EFTA countries, could decline on average by 2.2 to 2.6 percent, UNCTAD notes.

The EECís common external tariffs are low, but there are a host of bilateral trade restrictions by individual member countries in their trade with third countries. Besides textiles and clothing imports, more than 300 tariff lines have import quota restrictions.

The creation of a single market would require removal of individual country restrictions and their replacement by an EEC-wide regime.

If compromises are struck at the lowest common denominator (of restrictive regimes), it could lead to the adoption of the position of the most protectionist EEC government by the EEC as a whole, with the risk that EEC-wide border protection would substitute for loss of member-state's protection vis-à-vis particular third country exports.

While such extension of protection might be intended to be temporary, experience shows that protection, whatever its nature "has a strong tendency to become permanent".

UNCTAD notes there is also anxiety that the EEC would make its market access depend on fulfilment of reciprocal demands and quid pro quo agreements.

While private enterprises from major industrial economies are trying to meet this threat by investing and starting production in the community, third world countries, with few exceptions, did not have the final resources or global organisation of production and distribution to circumvent western European protection through local production units.

"Exporters of manufacturer in developing countries will be the main ones to lose, should protectionism in the EEC increase", UNCTAD adds.

As regards the U.S.-Canada free trade area agreement, UNCTAD suggests that trade diversion effects could be significant in certain industries or for trade relations with particular third countries.

Noting in this connection the existing high protection (tariff and non-tariff), in both Canada and the U.S., on imports of textiles and clothing, iron and steel, footwear, etc, UNCTAD says that the higher the protection against imports from the third world and the more extensive the liberalisation in the U.S.-Canada bilateral trade, the greater will be the potential for trade diversion, leading to displacement of manufactured goods from third world economies by the production in the free trade area.

Preferential access to various third world economies under GSP or Caribbean basin initiative could also be eroded.

Manufacturers in third world countries were as yet unable to complement exports to North American market by sales from product units located in the market and would therefore be hit by trade diversion to a greater degree than companies from industrialized countries, UNCTAD adds.