Feb 10, 1988


GENEVA, FEBRUARY (IFDA/CHAKRAVARTHI RAGHAVAN)— Some of the proposals for a GATT trade policy review mechanism, under consideration in the Uruguay Round MTNS, could result in increased obligations for third world countries and put their entire range of domestic economic policies under GATT scrutiny, according to some third world sources.

A negotiating group chaired by former U.S. Assistant Secretary of State, Julius Katz, is considering various proposals for improvement in the "functioning of the GATT system" (FOGS).

The negotiating mandate in this area calls for development of understandings and arrangements "to enhance the surveillance in GATT to enable regular monitoring of trade policies and practices of Contracting Parties and their impact on the functioning of the multilateral trading system".

Two other objectives in this area are improvements in the overall effectiveness and decision-making of GATT as an institution, including through ministerial involvement, and increasing GATT contribution to greater coherence in global economic policy-making by strengthening its relationships with other international organisations responsible for monetary and financial matters.

The negotiating plan calls for establishment of "common working texts" on the basis of which understandings and agreements are to be negotiated.

On the question of enhanced surveillance and regular monitoring of trade policies, Katz reportedly has put forward a so-called chairman's discussion paper for "more focussed discussion" of suggestions made within the group last year in its first examination of issues.

The FOGS group which held its first meeting this year in the last week of January is to hold its next meeting in the week of March 21.

The Katz paper suggests a review exercise "to increase transparency and understanding" of trade policies of countries, and separate from the enforcement mechanisms of GATT in respect of specific GATT obligations.

The scheme of the general agreement is on the basis that countries could follow any domestic or external trade policy, except those they are specifically forbidden by specific GATT articles from doing.

The objectives of the general agreement recognise that countries should conduct their international economic relations to promote rising "standards of living", "full employment" and "growing volume of real income and effective demand".

But some of these Keynesian concepts have been increasingly distorted by the leading industrial countries and the GATT secretariat to further laissez faire policies.

Given the systemic asymmetries in the world economy and the institutions governing them, the proposed new review mechanism (though applicable in theory to all CPS) could increase the pressures on third world countries for changes in their domestic economic and development policies to suit foreign interests, and additional to existing pressures via IMF and World Bank, third world sources suggest.

As it is, third world trade policies are subject to scrutiny in GATT under the provisions relating to their right to impose or maintain restrictions on balance-of-payment (BOP considerations).

Over the last two years, there have been efforts by the industrialised countries, to use the BOP review exercise to pressure third world countries to open up their economics for consumer and luxury imports.

Apart from the GATT BOP review, third world monetary and finance and economic policies are also subject to separate IMF/IBRD scrutiny and "conditionality" (used again to change their domestic policies in favour of foreign capital), whenever they seek funds and loans from the IMF and the World Bank.

The proposed new GATT review exercise could increase this overall scrutiny and increase the instruments available to the industrialised countries (who control the GATT/IMF/IBRD institutions) to force changes in third world domestic economic policies.

The Katz discussion paper suggests that each country should report annually to the Contracting Parties, describing "the state of the trade policy" of its government, and "relating this to its particular economic circumstances and the principles and objectives of the general agreement".

The reports on "impending measures" would be in an agreed format, covering the objectives, approaches adopted, and recent and impending measures.

In some respects, these reports would probably provide greater information to foreign governments, and through them to their TNCS, about impending policy changes of countries than even their own domestic parliaments and public can now gets.

While all countries would be subject to periodic review, the Katz paper suggests that smaller trading countries with relatively low weight in world trade, including the least developed countries, could be subject to review at fairly long intervals.

But a "care" group of 30 trading entities (with the EEC treated as one) would be subject to regular review in a cycle of four years.

Within this four-year cycle, each of the four major trading entities (not spelt out, but presumably the U.S., EEC, Japan and Canada) would be reviewed every two years.

The reviews are to be based on information reported by the CPS and supplemented by a background paper of the GATT secretariat with the review carried out by a small number of government representatives with experience in trade policy questions.

While the focus of the "enquiry" would be the impact of trade policies and practices on the functioning of the multilateral trading system and their relationship to the principles and objectives of the general agreement, it should take account of "the implication of these measures for domestic economy and of the external trading environment facing the country concerned", the Katz paper suggests.

The review exercise itself could be carried out in Geneva or in the capitals concerned, and the review body would prepare a draft of "appropriate questions" to be submitted in advance to the country under review.

"Like on IMF or World Bank "inspection" team, we would all scan be having a GATT inspection team every four years, with the Secretariat operating behind same governmental "trade policy experts" and trying to inquisition domestic policies and test them against vague nations of ‘objectives’ of GATT", one third world source commented.