Feb 24, 1990


GENEVA, FEBRUARY 22 (BY CHAKRAVARTHI RAGHAVAN) -- The European Community's ideas about promoting "coherence" in global economic policy-making appears to have got a cool reception this week in the GATT.

The EEC proposals for promoting coherence on trade, monetary and financial policies were unveiled Monday at the Uruguay Round Negotiating Group on the Functioning of the GATT System (FOGs).

While seemingly supporting Third World countries in their opposition to the GATT Director-General's ideas for Fund-Bank-GATT cooperation and cross-conditionalities, the EEC put forward proposals that would enable informal "technical advice" from the GATT secretariat to the Fund and the Bank an trade policy loans.

Among other things the EEC proposal also calls for formal agreement among the three for "institutional cooperation" to provide for participation of each institution in general surveillance carried out by the others, for a joint report of the executives of the three "institutions" on coherence between trade, monetary and financial policies, and for technical cooperation among their staffs on preparation for country reviews (under GATT's Trade Policy Review Mechanism and IMF Article IV surveillance) and on trade policy component of loan programmes of the Fund and the Bank.

The EEC delegate, Amb. Tran Van-Thinh, claimed that the paper on coherence had been received "positively" by Third World delegations at the FOGs group meeting - when a questioner pointed out that while seemingly trying to "assuage" Third World concerns over GATT-Fund Bank cross-conditionalities, in fact the EEC paper would enable the secretariat to provide technical advice for this purpose to the Fund and the Bank, but without the GATT secretariat being accountable to the CONTRACTING PARTIES.

However participants at the meeting said that unless one mistook as "Positive" reaction, the normal diplomatic courtesies on such occasions (like delegates thanking the EEC for its contribution), there was little of it.

In fact, they said, Colombia underscored the fact that the EEC paper referred to everything concerning the relationship among ICs, but had nothing about "Development" in the context of "coherence", while the U.S., New Zealand and other ICs raised other questions (from an opposite viewpoint) on the Fund-Bank-GATT cooperation.

EEC delegate while briefing newsmen Tuesday on the EEC paper, sought to play down the reported EEC moves for institutionalising the GATT in the form of a truncated version of the Havana Charter's International Trade Organisation (ITO).

The EEC ideas became known here, after the Davos "World Economic Forum" meetings in January, and the subsequent Swiss hosted meeting at Neuchatel of some trade officials. Subsequently, the Italian Trade Minister, had announced this idea in Rome, adding that since the Uruguay Round was unlikely to yield much concrete results and could well end in failure, an institutional decision over GATT could help to mask the failure.

Though EEC negotiators have been privately saying the same thing to some of their colleagues here, the EEC has become embarrassed and has been trying to play down this idea.

Tran cited the reported remarks of the Vice-President and external relations Commissioner of the EEC, Mr. F. Andriassen, that efforts should be directed at achieving something substantial in the round before considering how to incorporate them into GATT.

A report, last November, by GATT Director-General Arthur Dunkel on his discussions with the heads of the IMF and the World Bank, had virtually dismissed demands for international institutional efforts at promoting coherence by suggesting that these should be done by countries at national levels and by governments through the various consultations processes.

Instead the report implied that the three heads had decided on cooperation among their staffs and put forward some proposals which were seen by Third World countries as securing a GATT secretariat role in the formulation of Fund-Bank loan programmes and their implementation, and in effect for the GATT secretariat to function as a trade policeman of sorts.

Though Dunkel later clarified that there was no intention of providing for any cross-conditionalities, Third World delegations have not entirely been convinced.

The EEC's communication, like the GATT Director-General's report last November, proceeded on the a priori assumption that the only international institutions and organisations involved in international economic issues are the Fund, Bank and the GATT.

The EEC said that the ideas in the group about promoting coherence should be translated into practical and operational proposals in the form of a Joint Declaration on Coherence between trade, monetary and financial policies which should be adopted at ministerial level by the GATT, IMF and the IBRD, as part of the conclusion of the Uruguay Round.

The Declaration would formulate "guiding principles" on coherence and set out "basic orientations", as well as provide for the formal agreement on institutional cooperation (on the lines of the one intended in the Havana Charter between the ITO, Fund and the Bank).

Like the Dunkel report on the views of the three heads, the EEC communication also laid emphasis on national policies in trade, money and finance to promote coherence, and said that while these responsibilities increased with the size of each economy and the consequent impact of its domestic policies on the world economy, "even the smallest of countries has its role to play in supporting the multilateral system".

The guiding principles for coherence should involve commitments from governments to pursue policies, at national levels and in the framework of competent international institutions, that would enhance complementaries between trade, monetary and financial aspects of global economic policy-making.

In trade, the conclusion of the Uruguay Round should ensure expansion of market access for the benefit of all, as well as a framework of strengthened multilateral disciplines both for goods and services.

A strengthened GATT should among other things ensure a firm commitment to multilateralism in the conduct of policies and warn of the negative implications of restrictive and unilateral trade policies for overall process of adjustment and development.

Efforts would have to be pursued in the international monetary system for greater exchange rate stability, multilateral surveillance, and for better coordination and consistency of domestic monetary and budgetary Policies, in particular in large industrialised nations.

As for finance linked to development, there should be cooperative efforts to ensure that adjustment programmes in indebted countries was adequately supported by flow of real and financial resources. The Uruguay Round would provide an opportunity for trade liberalisation measures undertaken by Third World countries under Fund-Bank programmes to be brought into the GATT framework, and for the Fund and the Bank to provide funds to meet short-term costs of such liberalisation.

The major complaint of the Third World countries that it is the failure to tackle the imbalances, structural and otherwise, within and among the major ICs that have produced coherence in the entire international systems including trade, and the issue of Third World indebtedness are thus disposed off with this declaration of hope.

The entire EEC communication proceeds on the basis that the liberalisation measures have to be undertaken by the Third World, that their trade (import) liberalisation would result in development - a theory that has now been shown to be fallacious - and that the responsibility of the Fund and the Bank, and the ICs who control them, is merely to ensure financial flows to take care of short-term costs of adjustment and liberalisation.

On institutional cooperation, the EEC paper does not favour the joint ministerial meetings of the three institutions, arguing that this might lead to "over-bureaucratic" structures. Informal contacts among the staff would not also be sufficient, and hence its idea of a formal agreement on institutional cooperation.

This would provide for the heads of these three institutions acting as the representatives of their institutions in the meetings of the higher governing bodies of each, and adequate representation at working levels when questions of interest for the other institutions are being discussed.

The current exercises like the IMF's multilateral surveillance in connection with the World Economic Review Outlook exercise and the GATT's annual overview of developments in the trading system should be complemented by a biannual Joint Report by the heads of the three institutions, on their own responsibility, on Coherence between trade, monetary and financial policies.

The EEC paper does not explain how the cooperation of the three two institutions with managements representing the weighted decision-making processes and the GATT, seemingly based on consensus and equality of all but whose secretariat reflects the "green room" decision-making reflecting the coercive power of the major economic giants - would work or enhance coherence.

Referring to the need to "assuage any concerns" of Third World countries about the proposals of the GATT DG leading to any "cross-conditionality", the EEC agrees that it would be "entirely inappropriate" and against the nature of GATT as an institution for the GATT to seek to define trade policy conditions in loan programmes.

"Nor would it be adequate for the IMF or the Bank to seek to impose their own criteria on the exercise by the GATT of rights and obligations or for the GATT to dictate the conditions for the use of the IMF and World Bank resources", the EEC states adding that the concept of cross-conditionality was nowhere implied in the Director-General's report.

The EEC then goes on to add: "Consultations with the GATT Secretariat in the context of trade policy loans, provided that these are limited to technical advice, should be helpful to a borrowing country and give no rise to concern".

Third World observers said that in fact this EEC proposal would result in something more than formal cross-conditionalities.

Even as it is, they said, the Fund and the Bank in their loan programmes and policies, promote the general interests of their larger and controlling shareholders and their ideologies of the time and the transnational systems of production and distribution. With the informal advice of the expertise of the GATT secretariat, which is even more amenable to these insidious influences, the negotiators from the "borrowing" countries would find themselves in a worse situation, with the GATT secretariat not being accountable to the CONTRACTING PARTIES for the informal "technical advice" it provides to the Fund-Bank staff.

And since none of the ICs now seek the help of the Fund or the Bank, the GATT's secretariat's role would thus be solely on the Third World countries, increasing the very asymmetries of the system that they have been complaining against.