Mar 18, 1991

G77 ASSAIL "SINGLE UNDERTAKING" & MTO EFFORTS IN ROUND.

GENEVA, MARCH 14 (CHAKRAVARTHI RAGHAVAN) The Group of 77 has assailed in UNCTAD the attempts of major industrial countries in the Uruguay Round to compel the Third World countries to accept all the results of the Round or opt out of the multilateral trading system.

The G77 also criticised the attempts of the European Community to use the Round to establish a Multilateral Trade Organisation (MTO) and viewed it as outside the Uruguay Round mandate and be detrimental to the interests of the Third World countries and their developmental aspirations, besides legitimising cross-retaliations.

The Group's view on the Uruguay Round and developments in it was in a comprehensive statement Thursday by its spokesman on trade issues, Amb. Indrajit Singh Chadha of India, in the Sessional Committee of the Trade and Development Board during its consideration of the separate agenda item on the issue.

The OECD countries made no comments in the debate, confining themselves to a few general remarks in the discussion of the item on protectionism and structural adjustment.

Presenting la general assessment, Chadha said that the trends and outcome in various negotiating areas had to be seen in terms of whether they have been favourable to genuine trade expansion, correction of imbalances in the international trading system and rendering it more stable and beneficial to the Third World.

Earlier, speaking on the separate item on protectionism and structural adjustment Chadha had said that the "drift towards managed trade and market sharing arrangements" had substantially distorted trade flows and placed the Third World countries in "a more disadvantageous position".

"The trading system", he said, "continues to be characterised by lop-sided growth, progressive fragmentation, persistent instability and lack of multilateral discipline".

"These factors deepen the existing asymmetry between the developed and developing countries".

The documents before the Board showed that the bulk of the restrictions aimed at Third World countries before the launching of the Round remained in force and there had been no progress in implementing the rollback commitments. 1990 was marked by absence of any meaningful liberalisation measures favouring the Third World countries, but rather by selective discrimination against them in major export sectors - textiles and clothing, agriculture and other sectors where they had comparative advantage.

There was an increasing trend in use of antidumping and countervailing duty measures for protectionist purposes and, particularly in the U.S. and Ed, of measures directed against Third World countries. There had also been a persistent use of non-tariff measures against Third World countries on a selective basis.

Voluntary export restraints, with their non-transparent and bilateral nature, continued to be used by ICs as major policy instruments to protect domestic sectors and, through the "grey area" measures of the system, emerging competitive suppliers were denied market access.

"We are also concerned at the imposition of trade barriers on the pretext of environmental concerns", Chadha said. "We believe that the establishment of environmental standards should take into account the broader developmental needs of developing countries".

Developments like free trade agreements among ICs and grant of preferential status to countries in Eastern Europe had the potential of exacerbating the discriminatory disadvantages for Third World countries and had added to "the inequities between tariffs against developed and developing country exports to major markets".

The trade actions in Third World countries witnessed "a picture in contrast which needs to be emulated".

Referring to the changes in Eastern Europe, the G77 spokesman said there was need for an ad hoc intergovernmental mechanism in UNCTAD, which could be convened after UNCTAD-VIII, to review and promote trade and economic relations between Third World countries and those in Eastern Europe during this transitional period. There was also need for an ad hoc focal point in the secretariat to coordinate activities and analyse implications of economic reforms in Eastern Europe and of developments in East-West trade and economic relations on East-South trade.

(As a result of changes in Eastern Europe and the announcement of these countries that they had moved to market economy, the UNCTAD intergovernmental consideration of East-South and East-West trades as a separate item has been given up).

In the Statement on the Uruguay Round, Chadha said that it was clear that "the conduct of negotiations has not permitted broad-based participation in decision-making".

In overall terms, disregard of the general principles of the negotiations incorporated in the Punta del Este declaration on differential and more favourable treatment for the Third World countries, had characterised the negotiating process and the profiles that had emerged in most of the areas.

Linkages between different areas and issues which did not take account of this stipulation, about non-reciprocity of concessions, and of Third World countries not being asked to make concessions inconsistent with their individual developmental, financial and trade needs, continued to be made and asymmetries remained in the "progress sought" in and between various groups and issues.

In the case of the Least Developed Countries, there had been no full comprehension of the heavy social and political costs of structural adjustment undertaken by these countries. The ICs should make their recognition of the special problems of the LDCs clear through "unambiguous formulations" in each of the subjects and sectors in trade in goods and trade in services.

In the market access issues on the Uruguay Round agenda, while the special status of Third World countries had been recognised, in practice, and in violation of negotiating principles, they had been asked to make "reciprocal contributions" disproportionate to their capacities and inconsistent with their development, financial and trade needs. The negotiations had also been undermined by negative linkages with negotiations on rule making or new areas, demands for one-to-one reciprocity, limitations on coverage of products of export interest to the Third World and the non-fulfilment of standstill and rollback commitments.

The G77 spokesman provided the following assessments of the state of play and likely outcome in various areas:

Tariffs: The target of 33% overall reduction could be reached in mathematical terms in major markets, but the offer-request procedure followed had insulated tariff protection on products of priority interest to Third World. Special tariff concessions on these had been subjected to "satisfactory reciprocity by developing countries". The problem of tariff escalation and tariff peaks had not been sufficiently addressed.

Also, the possible benefits of tariff liberalisation could be undermined by and be contingents on developments in other areas, especially on non-tariff measures and in specific sectors such as tropical products, Natural Resource-based Products (NRBPs), textiles and clothing and agriculture.

Tropical Products: Industrialised Country offers have been inadequate in terms of depth of tariff concessions and ICs are also demanding reciprocal concessions. Trade liberalisation in this area should not result in trade diversion away from traditional Third World suppliers of tropical products.

Textiles and Clothing: If trade liberalisation in the Round has to have any meaning, trade in the sector derogating from GATT principles for nearly 30 years must be relieved of its web of restrictions and reintegrated into GATT. Any agreement for reintegration should result in an appreciable decrease in scope of restrictions, acceleration of phase-out of the restrictive MFA regime and progressive elimination of selective safeguards and trade harassments.

Agriculture: The impasse at Brussels was largely due to failure to achieve the objectives of the Round in this area. For Third World exporters liberalisation of this trade was of crucial importance. Any agreement must also recognise the special role of agriculture in development, and provide to Third World countries flexibility and autonomy in use of measures for internal support, export subsidies and border measures.

NRBPs: The total paralysis in this area is due to "totally untenable and unacceptable demand of some developed country participants for concessions on access to supply".

Art. XVIII B: Nowhere is the attempt to deprive Third World countries of their rights under GATT more evident than in the move to review this article and abridge or deny Third World countries with BOP problems of a structural and persistent nature the right to exercise necessary flexibility in trade policies. This would have far reaching consequences for them and "neither any change in the article nor in procedures for its invocation would be acceptable to developing countries".

Safeguard: Any outcome in this area should not compromise on the question of "selectivity" nor seek to "differentiate" among Third World country exports on the basis of market share thresholds. It must also include a programme for elimination of "grey area" measures.

Anti-dumping code: Given its use as a surrogate for selective safeguards, these measures have significant implications for the Third World. Proposals including those for alleged circumvention, broadening of definition of "similar products" (for taking actions), "recurrent" ad treatment, flexible conditions for retroactive and provisional duties, have raised serious concerns about their "anti-development and anti-investment nature".

Subsidies and countervailing (CV) measures: Serious imbalances persist between demands for stricter disciplines on measures that could be taken by developing countries for their development and more flexible disciplines on internal subsidies applied by ICs. The flexibility currently enjoyed by Third World countries should not be circumscribed or undermined and there should be clear-cut rules and disciplines on CV measures.

FOGs: Repeated proposals (by U.S. and some others) for a small ministerial group to provide political guidance for GATT would militate against democratic functioning of the system and hence has been strongly opposed by the Third World countries.

Dispute Settlement: Proposals for an automatic process through an appellate mechanism would considerably reduce the role of contracting parties. The strong and effective role of the GATT Council in the modified dispute settlement procedures should be maintained.

TRIPs: The accommodation of technological needs and public policy considerations through flexibility in assumption of substantive obligations by Third World countries is an important prerequisite for a satisfactory outcome. The role and competence of national, legal and administrative systems should be respected in relation to mechanisms for observance of obligations and dispute settlement should not permit cross-retaliation. The international implementation of any agreement must recognise and guarantee the competence, functions and roles of international bodies like WIPO.

TRIMs: The prohibition approach sought by the ICs is an attempt to protect the "security" and increase the profits of foreign investment without reference to the interests of host countries. Third World countries have the right to determine whether, to what extent and on what terms they will permit foreign investment. Only then could they ensure maximum development and counter anti-competitive practices of TNCs. Hence Third World rejection of the "prohibition" approach and insistence on an "effect oriented" case-by-case approach that would enable them to deal with the RBPs.

Services: Negotiations have received a setback and could be resuscitated only on basis of automatic and unconditional MFN and for universal coverage of sectors to be included in the framework. There should be recognition of the basic asymmetry in the situation of Third World and Industrial countries in this sector and "no automatic right to market access, right of establishment or national treatment". Third World commitment on market access and national treatment would have to be confined to sectors and subsectors where they agree to specific concessions (positive list approach) and there should be symmetry in movement of factors of production.

For the outcome of the Round to be acceptable to the Third World countries as a whole, there should be a meaningful evaluation as called for in the Punta del Este mandates.

The concept of a "single undertaking" had been introduced at a "very late stage" and was tantamount to "breach of good faith". It was not part of the basis of negotiations and had been introduced to force Third World countries to accept all the results of the Round or opt out of the system. It would be prudent to avoid such an approach. The provision of flexibility for the Third World had not only to be in terms of time derogation but in absolute terms so that they were not forced to accept obligations inconsistent with their development, financial and trade needs.

Multilateral Trade Organisation: Proposals in this regard are not covered by the Uruguay Round mandate. Such institutional arrangements were limited in scope and not fully responsive to the needs of the international trading system, especially the developmental aspirations of the Third World. They could serve to legitimise retaliation over Third World policies on services, technology and foreign investment.

"What could perhaps be thought is progress towards establishing a universal, comprehensive, development-oriented international trade arrangements in the UN to cover both trade liberalisation and other issues which have a bearing on trade and development including control of RBPs, Transfer of Technology, Trade Financing and International Monetary policies having an impact on trade, etc.".

Switzerland, speaking for the OECD group in the discussions on protectionism and structural adjustment, noted the failure at Brussels "to bridge the gap between different positions on issues of fundamental importance". With the resumption of work, governments were in the process of examining their substantive positions, particularly in the most contentious areas of the Round and taking steps for the continuation and speedy conclusion of the negotiating process, the Swiss delegate said. While no new deadlines had been set, the Uruguay Round should be concluded as soon as possible, with the time available being used "efficiently and productively".

"The political and economic reality and life of international business and commerce will not wait for an unduly prolonged process", the Group B delegate commented.

The challenges and opportunities presented by the multilateral trading system pointed to the "necessity" for a successful and speedy conclusion of the Round, for its achieving significant global liberalisation of trade, with coherent set of clear and enforceable rules and disciplines and "better integration" (a code word for more obligations) of Third World countries and former centrally planned economies into the system.