Nov 23, 1989


GENEVA, NOVEMBER 22 (BY CHAKRAVARTHI RAGHAVAN) In disregard of the provisions of part IV of the GATT and the 1979 "enabling clause", the United States is suggesting that third world countries exchanging trade preferences among themselves under the GSTP should extend it to all GATT contracting parties on an MFN basis.

The U.S. suggestion, which has also the tacit support of the European Community, was made at the meeting earlier, this month of the GATT Committee on Trade and Development (CTD), which is chaired by Amb. Rubens Ricupero of Brazil.

The Committee is to revert to the subject at its next meeting in 1990.

The discussions in the Committee on the issue of GSTP, "the global system of trade preferences among developing countries" is in its to the annual session of the GATT contracting parties set for December 4-7.

The GSTP, open to members of the Group of 77, was concluded in April 1988 and entered into force on April 19, 1989. It now has 29 participants (from Asia, Africa and Latin America), who have ratified the agreement.

While the first round of GSTP negotiations resulted in exchange of some very modest tariff concessions, it has opened the way for further rounds of negotiations involving tariff and non-tariff measures as well as other modalities specified in the agreement.

Twenty-five of the GSTP participants are GATT CPs and, on behalf of all of them Yugoslavia, which now chairs the GSTP Committee of participants, has notified GATT of the agreement and the tariff schedules established by the GATT CPs members of the GSTP.

This has been done under the 1979 "enabling clause" (a consensus decision of the GATT contracting parties in 1979 at their annual session) which enabled differential and more favourable treatment to third world countries without having to extend it to other contracting parties under the non-discrimination or most-favoured-nation (MFN) provisions of article one.

Specifically, the enabling clause permitted "regional or global" arrangements among the "less developed" CPs (GATT term for the third world countries) for mutual reduction of tariff and non-tariff measures.

While the right to exchange tariff preferences was without (qualification, the enabling clause has provided that mutual reduction or elimination of non-tariff measures would be in accordance with criteria or conditions "which may be prescribed by the contracting parties".

No such criteria or conditions have been prescribed.

The enabling clause in effect put the efforts of third world countries to integrate their economies and form preferential trading areas on the same footing as the customs unions and free trade areas and obviated the need for specific GATT waivers as was the ca before 1979.

At its meeting in November the CTD discussed the GSTP, as also reports from Asian and ALADI (the Latin American Preferential Trading Arrangement).

The U.S., EEC and other major ICS have never liked the GSTP since it would increase south-south links and enable the south to stand up collectively against the asymmetric trading system in GATT. For a while in UNCTAD the U.S. and others tried to block the GSTP, among other things demanding a right for Israel to participate in the GSTP, but reluctantly had to give way.

Commenting in the CTD on the GSTP, the U.S. "welcomed" it as evidence of third world willingness to undertake trade liberalisation and market opening measures and hoped this indicated the interest of these countries to participate fully in the Uruguay Round.

The U.S. representative further "hoped" that the GSTP participants "would bind on an MFN basis in the Uruguay Round the liberalisation measures undertaken in the agreement".

The effect of this suggestion would be that the GSTP participants would have to extend the preferences to all GATT CPs, and by binding it in GATT open it up for future GATT disputes if and when they modified it.

The U.S. also questioned whether the GSTP fulfilled the enabling clause's requirements about "regional or global" arrangements, arguing that the GSTP participants drawn from various third world regions were not regional, and were not "global" since Israel, China and Hong Kong (who with turkey are less developed countries in GATT) were not included.

Yugoslavia, responding to the questions, insisted that the GSTP was fully in accord with the "enabling clause", and GATT CPs who were members of the GSTP were fully aware of their responsibilities and GATT obligations.

The agreement was open to participation of members of the G77 only, and to their sub-regional, regional and inter-regional groupings. The participation of non-members of the G77 would however require modification of the GSTP agreement and this could be done only by consensus of all participants.

Cuba supported the statement of Yugoslavia, and pointed that the GSTP was conceived and negotiated in another organisation (UNCTAD) where the G77 was recognised on an equal footing with other regional groups. From the GATT point of view, the only obligation of GSTP participants who were GATT CPs was to notify the agreement and any further changes and comply with the provisions for consultations with other CPs as provided for under the enabling clause.

The U.S. also raised the issue whether GSTP would create trade barriers to non-participants and suggested that it should really be subject to approval of the GATT contracting parties (at their annual sessions), though posing this suggestion in the form of a question to the GATT secretariat. The U.S. also raised the issue of the relationship of the GSTP to the GATT protocol for trade negotiations among GATT less-developed CPs.

The GATT secretariat said that the contracting parties in 1980 had entrusted the CTD with responsibility of supervising the operation of the enabling clause. In practice the CTD took note of the notifications of the various arrangements and, on the basis of its examination reported to the contracting parties on the statements made. In the "GATT-legal" sense there was no relationship between the GSTP and the GATT protocol for exchange of concessions in GATT among its less developed contracting parties.

The EEC has said in the CTD that it was still examining the GSTP, that the issue should remain on the agenda of the CTD, and that the EEC was "interested" in receiving clarifications to the points raised by the U.S.

Third world observers noted that any attempt of the U.S., EEC or others to insist on formal approval by the contracting parties would be contrary to the GATT practice, and would raise the issue of the legality of the European Community's Rome treaty, the European free trade association agreement, and others like the U.S.-Canada agreement.

In all these cases, whether examined in the CTD (as all arrangements among third world countries or preferences to them are) for in separate GATT working parties, in practice they have functioned on the basis that what is not disapproved (which is to be done by consensus) is approved.