May 8, 1991

QUARTER OF GSP-COVERED PRODUCTS AFFECTED BY NTMS.

GENEVA, MAY 7 (TWN) Almost one-quarter of the Third World export covered by the GSP schemes of preference-giving countries ($33.3 billion in 1986 trade terms) are estimated to have been affected by Non-Tariff Measures (NTMs). Outside the GSP schemes applied in 1989 by the 10 OECD preference giving countries, according to a study for UN Conference on Trade and Development.

NTMs constitute an important deterrent to imports of GSP-covered products and improved utilisation of GSP could be achieved if preference-giving countries exempt GSP covered products from the NTMS, according to the study by Don P. Clark, Associate Professor of Economics of the University of Tennessee (USA).

One might expect imports of GSP-covered products to be relatively free of NTMS, since many import-sensitive items were statutorily excluded from GSP-eligibility under most schemes.

However this was not the case and the study shows that GSP covered products face a wide variety of NTMs in the markets of preference-giving countries which seem to use "hard-core" NTMs to limit imports eligible for preferential tariff treatment.

Use of variable levies by the EC, quotas and non-automatic licences in Japan, voluntary export restraints and non-automatic licences in Canada, and restrictions under the MFA in the EC, Canada and Finland are cited as examples by the UNCTAD report.

Some of the preference-giving countries placed heavy reliance on use of "hard-core" NTMS.

Quantitative restrictions non-automatic licensing, quotas, prohibitions, voluntary export restraints, single channel or state monopoly in imports and restraints under the Multi Fibre Arrangements (MFA) or similar arrangements - along with variable levy on imports are commonly referred to as "hard-core" NTMS.

The broad definition of NTMs or measures applied at the border includes para-tariff measures, import deposits and surcharges, variable levies, anti-dumping/countervailing (AD/CV) duty actions (including investigations, duties and undertakings), quantitative restrictions (QRs), import surveillance, automatic licenses and certain price control measures.

A narrow definition of NTMs excludes from this broad group para-tariff measures, import deposits and surcharges, AD/CV duty actions, automatic licensing and import surveillance measures. The excluded NTMs are viewed as having a potential to restrain imports but as being less restrictive than those in the narrow definition.

(However, AD/CV actions, because of the uncertainties created, are often viewed as more inhibiting and potentially greater effect by discouraging investments and export trades of countries).

The incidence of NTMs on GSP-covered products differs among the schemes depending on each country's trade policy orientation and the GSP product coverage in import-sensitive areas.

Except in case of Austria, beneficiaries most affected by NTMs also tended to be the major beneficiaries under each GSP scheme.

Using the broad definition, incidence of NTMs was lowest in the case of Austria (only two percent of GSP covered imports were affected) while it was highest for Canada where 63.9 percent of GSP covered imports were affected.

Canada also placed heavy reliance on use of hard-core NTMs in manufacturing sectors of export interest to the Third World and also placed heavy reliance on ad actions to influence imports.

A large share of Canadian imports of GSP-covered products in 1986 was subject to NTMs - about $935 million worth or 63.9 percent of GSP-covered products under the broad definition of NTMS. Hard-core NTMs relied upon by Canada included restraints under MFA, non-automatic licences, anti-dumping actions and voluntary export restraints and affected by.

The use of NTMs was concentrated in iron and steel products and in some manufacturing sectors. Automatic licences were used to monitor iron and steel imports. Manufacturing sectors of considerable export interest to the Third World were affected by hard-core NTMs: non-automatic licences were applied to imports of clothing and bilateral restraint agreements covered imports of textiles originating mostly from Hong Kong, Taiwan, South Korea and China.

VERs were used to regulate imports of certain footwear from South Korea, Hong Kong and China. Imports were also strongly affected by ad actions, which were primarily associated with imports of iron and steel from South Korea, Brazil and Mexico and shoe imports from South Korea, China and Hong Kong.

Imports of GSP-covered products in 1986 into 10 EEC countries were affected substantially by NTMs (broad definition) and applied to more than one-half of total value of such imports. Trade coverage for these NTMs was $4.2 billion and affected more than 9000 trade flows. A wide range of individual NTMs were applied both to agricultural and manufactured goods including automatic licences, AD/CV actions and hard core NTMs such as variable levies, quotas, MFA restrictions and VERs. Under CAP the measures taken included price Actions (price surveillance, reference prices and variably levy), non-automatic licences, automatic licences and quotas.

The NTMs were the most important deterrents to imports of iron and steel and included automatic licences, price actions, VERs and AD/CV actions. VERs affected imports primarily from South Korea, Brazil, Venezuela and Romania. MFA restraints covered imports of certain textile products. Valued at $3.7 billion, the MFA restraint agreement had the greatest trade coverage of any "hard-core" measure used by the EC.

Trade coverage of U.S. NTMs (broad definition) was about $1.6 billion or 12 percent of total value of GSP-covered imports, and affected more than 300 trade fows.

Under the U.S. scheme, most import-sensitive products from iron and steel, textiles and clothing, certain chemicals, and leather products are excluded from GSP-eligibility.

MFA products are also legally excluded from the U.S. GSP schemes and thus NTMs did not affect them.

With most sensitive products already excluded, imports of most GSP-covered products were not affected substantially by (narrow definition) NTMs and little emphasis was placed on use of "hard-core" NTMs in manufacturing.

AD/CV actions constituted the most important NTM group in terms of value of trade coverage in the U.S. Cut flowers, iron and steel products and non-ferrous metal products were major targets of such actions, which were invoked to a lesser degree in chemicals and in selected manufactured products.

The UNCTAD report commends Canada for its procedures under the GSP before application of "safeguard" (emergency protective action) measures and suggests this is a model which other ICs could consider adopting themselves.

"The objective and transparent procedures and legal nature" of the Canadian scheme, the report says, is a "notable exception" and appear to come close to the intent of the Special Committee (on Preferences) when it urged preference-giving countries to reduce a priori limitations and restrictions and apply safeguard measures on the basis of objective criteria and transparent procedures.

Safeguard provisions under GSP schemes were originally conceived in the UNCTAD Trade Board Decision (at is fourth special session) on GSP as the main tool, along with a priori limitations, for retaining some degree of control by the preference-giving countries over the trade generated by their GSP schemes.

However, the report points out, over time the GSP schemes have become less transparent and predictable in their administration as a priori limitations vary from scheme to scheme and are operated under different subjective criteria and determination.

The resort to safeguard actions rather than to permanent and discretionary product/country limitations would enhance the transparency and value of the system for beneficiaries.

When improving their schemes for the 1990s, preference-giving countries should take this into account.

While the GATT Art. XIX (a safeguards provision that is now seldom resorted to by the ICs who prefer less transparent "grey area" measures) provided the model in shaping safeguard clauses in the context of most GSP schemes, the implementation of these clauses and their application differ widely from scheme to scheme, creating a further element of instability in addition to a priori limitations. The wording of the safeguard clauses in the schemes also varies, especially in regard to injury determinations again creating problems of legal certainty.

The existence of safeguard clauses based on independent criteria and varying from scheme to scheme poses a further potential threat to increased GSP utilisation by beneficiary countries.

Also, the present lack of "objective and transparent procedures" in the application of safeguard clauses hampers any action to expand product coverage.

The effectiveness and stability of the GSP, the report says, could be greatly enhanced if the provisions relating to safeguard in the agreed conclusions of the Board are strictly adhered to by the preference-giving countries and, particularly if multilaterally agreed, objective and transparent criteria for injury determination could be adopted.