Nov 10, 1989


GENEVA, NOVEMBER 8 (BY CHAKRAVARTHI RAGHAVAN)— The Uruguay Round "FOGs" negotiations should not be "misdirected" to seek further concessions and imposing greater obligations on the third world, but rather used to focus on actions of those whose policies had a major impact on the global economy, according to India.

Indian delegate Bal Krishan Zutshi was commenting in the negotiating group on the Functioning of the GATT System (FOGs), on a report of the GATT Director-General for an expanded secretariat role as he put it as a "junior partner of the Fund and the Bank".

India had "serious concerns and reservations" about many conclusions, both explicit and implicit, in the report, he said.

The only part of the report on which it was willing to have "a closer look" in the negotiating group were some suggestions on practical aspects of GATT/Fund/Bank cooperation for exchange of data, information and documentation, joint research activities, staff exchanges and institutional arrangements, though even here it would appear that the three heads had already decided on these.

In rejecting the major thrust of the report, Zutshi pointed out that the Fund and Bank secretariats performed "well-defined" functions in accord with their statutes, whereas the GATT secretariat had been given no "independent functions" by the GATT articles.

The original idea, he recalled, had been to set up the International Trade Organisation (ITO), with GATT only as a "halfway-house" pending the establishment of the ITO.

But when the ITO did not come into being "the institutional base of GATT was knocked out". This "shortcoming" had been sought to be removed by requesting the Interim Commission of the International Trade Organisation (ICITO), to perform the functions of the GATT secretariat.

And while it had become clear that the ITO would not come into existence, "the ICITO has been made to survive only to perform the function of giving an institutional base to the GATT secretariat".

The Director-General of GATT was only "a functionary" to assist the contracting parties, entrusted by GATT articles with the function of acting as the depository or a conduit for notifications by individual CPs and, from time to time, assigned specific functions by the CPs.

While working experience of the last 40 years had perhaps given the GATT secretariat "enough substance" to enable it to claim that it had become an "institution", there were still considerable differences between the institutional status of GATT on the one hand, and the IMF and the Bank on the other.

While in one part the report did seem to acknowledge this, "quite a different impression" was conveyed by subsequent sections of the report which contain proposals for "assigning advisory and monitoring roles to the GATT secretariat, roles alien to the present framework of the GATT", Zutshi commented.

GATT’s involvement with monetary and financial policies of individual CPs, he pointed out, was "both limited and carefully circumscribed" in terms of receiving reports from the IMF in respect of balance-of-payments provisions in GATT articles.

"Any suggestion that GATT’s involvement with macro-economic policies of CPs should be enhanced, be it under the Trade Policy Review Mechanism (TPRM) or otherwise, even if the focus be only on trade policy, would amount to enlarging the jurisdictional competence of GATT, and, more importantly altering the contractual nature of the agreement", Zutshi declared.

"This in our assessment would be to the detriment of developing countries. We view any prospect of the GATT becoming a junior partner of the Fund and the Bank with great dismay", he added.

The starting point of the mandate for achieving greater coherence in global economic policy making was "the identification of a number of contradictions between aims pursued by monetary, financial and trade policies". Some of these contradictions had been enumerated in the report. But on these the GATT Director-General and the executive heads of the Fund and Bank had come to the conclusion that problems of this kind were among those least amenable to improvement through actions by international agencies themselves.

"It is disappointing, to say the least", the Indian declared, "that the executive heads of these organisations have washed their hands off any need to undertake any joint measures for eliminating the above-mentioned inconsistencies which arise primarily from the actions of major economic powers whose policies have a significant impact on the multilateral trading system".

The Indian delegate also came out sharply against the views in the report that coordination between the secretariats of the GATT and the Fund and Bank would facilitate the process of multilateral resources being made available to support trade liberalisation, and that closer contacts between the three institutions would enable individual CPs to obtain credit in trade negotiations for liberalisation measures under Fund/Bank programmes.

"It is our considered opinion", he said, "that the GATT secretariat can hardly be expected to perform any useful function either for making multilateral resources available to support trade liberalisation or for enabling individual CPs to obtain credit in trade negotiations for liberalisation measures already undertaken".

"National governments", he added, "are quite capable of taking care of these aspects themselves and any intercession of GATT secretariat does not seem to be either desirable or necessary. It would be both inappropriate and inadvisable for GATT to advise individual CPs on macro-economic policies".

The Indian delegate was equally sharp on the proposal that when the Fund and the Bank consult with governments on a loan programme.

The GATT secretariat should be given a role to comment on contents of trade policy reform programmes before it was formalised "in order to ensure that such reforms are fully consistent with GATT obligations".

Governments negotiating such financial accommodations with IMF and the Bank were already subject to "harassment" because of conditionalities and cross-conditionalities, and "we cannot contemplate GATT secretariat joining the other two institutions in this exercise", India declared.

"None of the CPs", India added, "would subscribe to the view that individual CPs are unaware of their obligations under the GATT and would not recognise a GATT-inconsistent element (if it came across one) in any reform programme", Zutshi said.

"A certificate in this regard from the GATT secretariat is not required", he sarcastically commented, adding: "this proposal is hence unacceptable to U.S. The most one can say of this proposal is that it is not relevant to the mandate of the group". Equally "unacceptable", he said, was the suggestion that countries undertaking trade liberalisation under Fund/Bank programmes should also "bind" them in GATT.

"The insistence on bindings would appear to prejudge whatever procedures might be agreed upon in the relevant negotiating groups in the current and future rounds".

"Such insistence on bindings, over and above policy changes as a result of Fund/Bank programmes, would result in double jeopardy for developing countries i.e. involving extraction of additional concessions from them without corresponding trade concessions under the GATT from the developed trading partners, in addition to making developing countries more vulnerable in case their external environment worsens".

In what he called some "general observations", Zutshi said their hopes and expectations out of the mandate given to the Director-General had been belied. What had been left "unaddressed and hence unsaid" in the report was the mandate about bringing about greater coherence in global economic policy-making.

"It is disheartening to note", the Indian delegate said, "that the executive heads of the three institutions have not really addressed the issue which lies at the very heart of the present difficulties nor the question whose solution is the key to the stabilisation and further growth of the international economy".

It was "obvious" that the current degree of incoherence in global policies could be rectified "only through policy changes in the major industrialised countries, which in the GATT context would involve a genuine commitment to halt and reverse protectionism".

The implementation of the policy recommendations in the GATT Director-General's report would only result "in worsening the situation of developing countries without in any way contributing to achieving greater coherence in global economic policy making that would improve the external environment for the developing countries".

"The opportunity provided for discussions in this negotiating group should not be misdirected to seeking further concessions and imposing greater obligations on the developing countries, but to seriously and boldly face and tackle the issues confronting the international economic order by focussing on the actions of those countries whose policies have a major impact on the global economy".

The Brazilian delegate, Antonio Jose Ferreira Simoes said the main reason, in the mandate, for strengthening the relationship between GATT and other organisations such as the IMF and the Bank was "to tmprovf the trade environment".

Instead, the report had put more emphasis on trade liberalisation than on the international environment in which trade took place the main area in which "greater coherence" was needed.

The report's analysis might lead to the conclusion that mere reinforcement of cross-conditionalities together with a new role of the three institutions on the area of policy prescription mainly third world countries would contribute to "greater coherence".

"In reality", the Brazilian said, "we all know that the major disequilibria between the U.S. on one side, and Japan and West Germany on the other, is the root cause of the lack of ‘coherence’ expressed not only by the lingering uncertainty in the world economic outlook, but also of the escalation of protectionism and unilateralism".

About the suggestions for further institutional cooperation, brazil said the negotiating group must first discuss the substantive issues involved, namely the trade-finance link and ways to improve the international economic environment for reducing the major disequilibria.

It was only afterwards that ways of reflecting these decisions in terms of institutional links between GATT, Fund and the Bank could be developed. But it would be quite "inappropriate" to model GATT, where decisions and contractual obligations were taken by consensus, on the structure of the Bretton Woods institutions where decisions were by weighted votes.

No doubt the level of involvement of GATT in trade issues had increased, especially by the adoption of the Trade Policy Review Mechanism (TPRM).

"However, GATT does not reach the complex degree of influence in national macro-economic policies of member countries as the IMF and the World Bank do. The central reason is that the TPRM mandate is to ‘review trade policies and practices’ against the background of external environment, not for adding to the mandate a role on other national macro-economic policies".

As for credits to third world countries for unilateral trade reforms undertaken by them, and the conditions for this (such as GATT bindings) suggested, Simoes underscored the importance of a uniform approach in the various negotiating groups.

In the agriculture negotiations, he noted, it had been agreed to give credits to reforms undertaken by countries and without any preconditions - even to OECD countries which spent 300 billion dollars a year to build one of the most "trade-distortive" sectors in the world economy.

"Developing countries undertaking hard reform programmes to liberalise various economic sectors deserve at least equal treatment if not a special one", the Brazilian wryly commented._