SHARP DIFFERENCES IN FOGS GROUP

Mar 28, 1988

SHARP DIFFERENCES IN FOGS GROUP

GENEVA MARCH (IFDA/CHAKRAVARTHI. RAGHAVAN)— Sharp differences between third world countries and the industrialised countries, and even among the latter, would appear to have emerged at this week's meeting of the Uruguay round GATT Negotiating Group on the Functioning Of the GATT System (FOGS).

Chaired by Julius Katz of the United States, the group met from march 21-23, and will hold its next meeting in week of May 2.

Participants said that there was a basic difference in how the chairman and the industrialised countries viewed the negotiating objectives, and how the third world countries saw it.

The former, third world participants said, were distorting the mandate to try to change the GATT framework, so that GATT could be used to bring third world economic policies and objectives in line with IMF/IBRD view of development, which favoured transnational rather than autonomous development.

Third world participants an the other hand saw the work of the group as resulting in agreements that would ensure that trading policies and practices of the major trading nations, which impacted an the world trading system, were in line with their GATT obligations and commitments.

The Punta del Este declaration mandates negotiators to develop understandings and arrangements:

--To enhance the surveillance in GATT to enable regular monitoring of trade policies and practices of Contracting Parties and their impact an the functioning of the multilateral trading system,

--To improve the overall effectiveness and decision-making of the GATT as an institution, including, inter alia, through involvement of Ministers, and

--To increase the contribution of the GATT to achieve grater coherence in global economic policy-making through strengthening its relationship with other international organisations responsible for monetary and financial matters.

The group, this week, would appear to have discussed the chairman's informal papers for a "trade policy review mechanism", and for "greater Ministerial involvement".

The EEC and Canada would also appear to have put forward papers on measures to improve the functioning of the system and increasing GATT-IMF-IBRD co-operation and co-ordination.

Third world participants were reported to have questioned the "status" of the Katz texts, since they had been put forward without a mandate from the group. A number of third world participants were also concerned that the chairman's texts were "selective" and had not reflected the viewpoints expressed in the negotiating group, particularly those of third world countries.

Katz reportedly clarified that the texts had no "status", that they were informal or "non-papers", and that there was no agreement to use them as a basis for negotiations in the group.

A number of third world participants reportedly noted that the Katz paper talked about "a trade policy review mechanism", while the negotiating objective had spoken of "enhancing the surveillance in GATT to enable regular monitoring of trade policies and practices of CPS", and had not mentioned "surveillance" at all.

The use of the words "enhanced surveillance" in the Punta del Este mandate reflected the serious concern of ministers since 1982 over the erosion of the credibility of GATT and the undermining of the system because of lack of adherence to its rules and disciplines through trade measures and the proliferation of "grey area" measures, much of it through actions of the major industrial nations.

While the "enhanced surveillance" was not intended to be an enforcement or dispute settlement mechanism, it should enhance awareness in countries of their GATT obligations.

Strengthened surveillance, to be useful, should be able to prevent departures from GATT like use of discriminatory quota restrictions, grey area measures, or other bilateral and non-transparent actions.

Several third world delegates reportedly questioned the concept in the Katz paper that the trade policies and practices of CPS should be reviewed "in the light of the economic policies and objectives" of the CPS concerned.

The negotiating objective, they noted, only spoke of "monitoring trade policies and practices", and not economic policies or objectives.

Malaysia wondered what yardstick or criteria would be used in assessing economic policies and objectives, while Yugoslavia felt that the only yardstick that could be used would be the GATT obligations. Third world participants also reportedly expressed similar concerns over the "reporting" requirements proposed in the Katz paper.

The paper would have the CPS provide full reports on their "policies and practices bearing on trade", and relate them to "national economic objectives and circumstances (including the external trading environment)".

Several of them wondered why the "external trading environment", which was the main focus of GATT, had been put in brackets in the Katz text.

China reportedly noted that policy objectives of CPS would not be the same, but could be different. For some "trade liberalisation" could be an objective, but for others like China "development" was the objective.

There were also criticisms of the ideas about the frequency of review.

The Katz-paper suggests regular reviews every two years of the four major trading entities (treating the EEC as one), a care group of 20 to 30 entities every four years, and the others every six years.

Japan reportedly said that for such a review, the EEC should not be treated as a single entity, but there should be review of each EEC member country, while the commission objected to this.

Third world participants noted that while the commission for the review wanted to be treated as one, for small meetings like the CG-18 or the proposed Ministerial steering group, the EEC wanted all its member states to be represented.

India and other third world countries reportedly criticised what they termed the "missing element" in Katz’s paper and concepts, namely the existing asymmetry in the surveillance.

As noted in the paper itself, third world countries were currently subject to very detailed review of their trade policies and measures under the balance-of-payments (BOP) consultations and procedures. The only concession in the Katz paper was that the two reviews should not take place in the same year.

Also, the negotiating objective spoke of "enhanced surveillance" in terms of trade policies and practices of CPS and their impact on the multilateral trading system.

Third world countries, whose policies were already subject to BOP reviews, had only a marginal share in the world trade and thus had only a marginal impact on the system. A detailed review of their policies (over and above the BOP review) would thus be counter-productive.

It was the trade policies, measures and practices of the major trading partners, which affected the trading system and needed to be carefully scrutinised and subject to surveillance.

Some third world countries reportedly said that the number of countries to be subject to detailed review should be reduced to ten (if the EEC were to be treated as one) or twenty (if the EEC member states were to be examined individually).

On the issue of a review body, there was reportedly widespread support for the view that this should be done under the existing GATT special council format, and the review body should be open to all Contracting Parties and not a limited body.

The Katz paper envisages a "mission team" or a "review team" visiting capitals to hold discussions, and the review to be carried out in Geneva by a "review body" of two or three CPS and leader of the "mission team".

Argentina, Brazil, India, Mexico and Yugoslavia were among those who reportedly questioned the concept of GATT "mission" teams going to capitals. They also objected to the concept that the review could cover not only trade policy but "other areas of policy" considered to be relevant.

The chairman reportedly noted the sharp differences and promised to revise his paper in the light of the comments.

A number of third world participants were concerned that their views were not being reflected, and called upon the Secretariat to update its note summarising the views expressed on surveillance.

This was reportedly agreed to.

On the issue of Ministerial involvement in the work of GATT, there was widespread concern over, and opposition to, the idea in the Katz paper of a smaller Ministerial Steering Committee. Not only third world countries but also several industrial countries too like the Nordics reportedly shared these concerns.

GATT, it was emphasised, was a democratic institution functioning on the basis of consensus, and this character should be maintained.

A number of participants noted that the negotiating objective spoke of improving the "overall effectiveness and decision-making of GATT as an institution, including, inter alia through involvement of Ministers".

The Katz paper had ignored this and instead had looked at a Ministerial meeting as an end in itself and focussed on meetings of a small Ministerial group.

Switzerland reportedly supported the idea of a small group, arguing that otherwise there was the danger of such meetings outside GATT (as at FRG hosted recent meeting at Constance).

Israel and Singapore however suggested that even with a mechanism as mooted by Katz, no one could prevent Ministers meeting outside. Meetings like at Constance, Singapore reportedly noted, had no relationship to GATT.

On the question of strengthening GATT relationships with other international organisations, the EEC and Canada would appear to have expounded the viewpoints in their respective papers.

The EEC in its paper has called for reinforcing procedures for mutual consultations between IMF and GATT on trade and exchange restrictions, for closer co-operation an IMF surveillance exercises and use of each other's surveillance information, enhancing GATT’s role in the interim and development committees and inviting IMF and IBRD to participate in GATT' s proposed annual trade policy review, and setting up of a GATT liaison office in Washington.

The Canadian paper, and an annex attached to it, speaks mainly of enhancing GATT/IMF/IBRD co-operation and collaboration. The EEC paper refers to the problems of trade, money, development finance, and need to develop mechanisms to deal with problems arising outside trade area but affecting trade.

In the discussions, third world countries reserved their comments on both the papers, but underscored the negotiating objective, namely increasing GATT’s contribution to achieving "greater coherence global economic policy making".

India reportedly welcomed the references to inter-connection amongst trade, money, development and finance in the EEC paper, and the remarks of industrialised countries on the inter-relationship of these issues.

"But we should not try to re-discover the wheel in GATT, and ignore the fact that issues of inter-relationships and inter-dependence have been the subject of debate in international forums like UNCTAD for the last two declared", India reportedly remarked.

Brazil and Yugoslavia, supporting this view also underscored the role of UNCTAD in these areas.

India reportedly pointed out that the mandate called for enhancing GATT contribution to "greater coherence in global economic policy-making", and not to change the structures and frameworks of GATT.

The aim was not to make GATT more responsive to what the fund and the bank wanted, but make the fund and the bank more responsive to the needs of the macro-economic situation that adversely impact on trade, such as through volatility of exchange rates, India reportedly pointed out.

A starting point for assessing how GATT could contribute to overall coherence would be the Ministerial declarations of 1987 and 1986. The negotiating objective was to achieve greater coherence in "global decision-making" and not to "national policy-making", and global policy was not the sum of national policies.

The macro-economic trends affecting trade, like volatile exchange rates, were not due to all national exchange policies, but only national policies of a few key countries.

Greater coherence could not be achieved by greater control of policies of non-core countries that had no impact an the trading system, and whose policies were already subject to advice and influence of the fund and the bank, through their conditionally lending, but by influencing the policies of those who were not now subject to surveillance or, even when subject to surveillance, could not be influenced to change their policies. Argentina in this context cited the lack of policy advice and influence on these countries in respect of their policies in agriculture or textiles._