GATT BOP RIGHTS NOT UP FOR NEGOTIATIONS

Mar 6, 1990

GATT BOP RIGHTS NOT UP FOR NEGOTIATIONS - THIRD WORLD.

GENEVA, MARCH 2 (BY CHAKRAVARTHI RAGHAVAN) -- The attempts of the U.S., EEC and other Industrial Nations to limit the GATT rights of Third World countries facing BOP problems has run into the united opposition of Third World countries which have said that no case has been made out for changes in existing provisions and that this was not an issue for negotiations in the Uruguay Round.

The Third World position was made known at the negotiating group on GATT articles Friday, when the EEC introduced its proposal for changes, purportedly of procedure but in reality of substance, to be adopted as a Declaration by the Contracting Parties in the Round. The U.S., Canada have also put forward formal proposals for limiting rights of countries invoking the GATT BOP provisions to restrict imports.

Brazil, India, Peru, Egypt, Philippines, Pakistan, Chile, Argentina, Israel, and Yugoslavia, were among those who expressed their opposition to changes in the BOP provisions.

While the EEC in the negotiating group reportedly claimed that it was not going as far as the U.S., Third World participants said that the EEC view that restrictions should be "price-based" and that the BOP problems are "temporary" was not different from that of the U.S. or the other ICs.

Some Third World participants said that the EEC which has now demanded in the round the right to impose quantitative restrictions "selectively" against particular sources of imports for "safeguard" purposes was hypocratic in preaching the virtues of "price-based" restrictions to the Third World and presenting it being more sympathetic than the U.S.

Without exception, Third World participants in their comments reportedly made clear that any effort to erode their rights was not negotiable, that there had been no change in the situation which had necessitated the special GATT BOP provisions for Third World countries, introduced in 1955, and reiterated in 1979 by the Contracting Parties, after a through examination in the Tokyo Round. If anything the situation of the Third World had worsened and not improved.

Except for Egypt and Israel, which, while taking the same position said they were willing to discuss the issue, all other Third World countries said that as far as they were concerned this was not an issue for negotiations.

While the ICs expressed their concern about the position of the Third World countries, and the EEC insisted that it would take the issue right up to the Brussels Ministerial meeting for decisions, Third World participants said that the limited time of the negotiating group should be better spent on dealing with those articles and provisions where the discussions had shown some common ground.

In opposing the moves for changes in the BOP provisions, Brazil said that the time was not opportune for changes. The Third World countries were yet to recover from the crises of the 80s - a lost decade for the development hopes of the Third World when their economies lost dynamics, the standards of living of their peoples fell considerably and their total share in world trade diminished.

With protectionism in the Industrial markets expanding in coverage, intensity and sophistication, the only practicable means for countries like Brazil to service the overburden of their immense foreign debts was through import cuts.

The EEC proposal, like that of the U.S. and Canada, did not redress this picture, ignored the serious deterioration in world trade and finances for the Third World and, in effect, demanded unilateral concessions.

Recalling to last week's collective statement of the informal Third World group about the imbalances in the negotiations in market access areas, the Brazilian delegate reportedly said the EEC proposal now added to these imbalances and failed to address the basic question whether or not there was any need to change the existing provisions and why.

In 1955, the Contracting Parties agreed to the present text in Article XVIII: B because they agreed that the BOP problems of the Third World were different in nature from those of ICs and were structural and chronic - acceleration of development calling for more capital inflows and imports or instability in terms of trade.

While the share of the Third World in world trade now was more than in 1955, the bulk of export earnings still came from primary products - 80 percent of all exports of middle-income countries and 50 percent of higher-income countries in 1985.

The price elasticities of these products continued to be limited. Fluctuations in the stronger world currencies to which Third World currencies tend to be pegged or fluctuations in international prices for primary products created strong disequilibria in their BOP.

This common understanding of the Third World situation led the CPs, in the Tokyo Round, to adopt the Declaration on the Third World BOP problems, and this had introduced some equity and flexibility into the provisions.

These had not lost their validity.

The Industrial Countries had not lived up to their commitments in that declaration, namely for taking measures to alleviate the BOP problems by taking measures for enhancing their export earnings.

Third World countries still faced structural imbalances and the international financial system had not responded to their needs. This, combined with slow growth in world trade and its concentration among ICs, had endangered overall situation. In this environment, the restrictive trade measures had helped control outflow of capital and generate trade surplus to service debts.

National authorities had no control on financial flows, which depended on exogenous factors, and could thus only control imports.

There was hence no case or need to rewrite the rules or change the obligations. Also, GATT should not discuss policies not within its competence or monitor implementation of economic measures under "liberalisation" plans or "time frames" of some CPs only, while others were free to pursue their protectionist policies, determine limits of technological transfers or flow of resources.

The current provisions and procedures, India said, had enough flexibility to take account of the interests of both the users of the provisions and their trade partners.

While GATT was based on the merits of a price-based system, it was recognised, when the BOP exceptions were put in, that price-based restrictions would not be enough. This situation continued for Third World countries.

Price-based measures had also their limitations for countries line India with skewed income-distribution and vast pockets of poverty. A 60% import tariff or surcharge on imports of executive jets and kerosene would not have the same effects.

No government dependent on majority democratic support in a poor country could afford to raise prices of necessities like kerosene, nor could the limited foreign exchange resources be used to cater to the needs of the microscopic minority through luxury imports while starving the people of basic requirements or industry of its inputs.

The structural nature of BOP problems of the Third World countries was due to their need for import of capital goods for development while exporting primary commodities. One hoped that the BOP problems of the Third World were "temporary" and would cease at some time. But "temporary" should not be mistaken for "transient".

Peru pointed to the deterioration in the situation of the Third World countries in the '80s and said that much of the solutions being suggested were based on the analyses of the experience of the Industrial Countries.

Egypt, while making the point that no case had been made out for any changes, posed a number of questions, but added that it was prepared to discuss the matter. Israel took a similar position and said it could not accept the proposals for change in BOP provisions, though it was willing to continue the dialogue.

Philippines, supported by Pakistan, saw the EEC proposal as one attempting to introduce further imbalances in the Uruguay Round. The liberalisation measures undertaken by it had some staggering results on the BOP. Price-based measures would not work in the type of skewed income-distribution in the Third World. In addition they were generally inflationary in effects.

Rejecting the view about the "temporary" nature of the BOP, Philippines referred to the external trading environment for the Third World - with no implementation of rollback, and use of safeguards and grey area measures against Third World exports.

Argentina also rejected the moves for change arguing that the trade and economic circumstances of the Third World had become more negative now than in the past.

Yugoslavia fully agreed with the viewpoints of India and Peru and underscored the already serious imbalances in the Round.

Sweden, Switzerland, Hungary, Australia, New Zealand, Poland and Japan gave general support to the EEC proposal, with Sweden and Switzerland expressing concern over the refusal of the Third World to discuss the issue.

The U.S. viewed the EEC proposals as supplementing its own proposals. Since 1965, the U.S. said, 19 countries had invoked the BOP provisions, and the restrictions had been perpetuated.

In the recent past, the U.S. said, several problems of interpretation had also arisen and there had been difficulties in reaching consensus in the BOP Committee.

India however pointed out that the difficulties in the BOP Committee had arisen only after the Uruguay Round was launched when several of the ICs trying to create a situation in the BOP Committee that would justify or buttress their case for change.

Those who argued for change should show what were the changes in the situation of the Third World countries since 1979 to warrant their proposals. Had developments in the area of commodity prices, terms of trade of commodity exporters or on the debt crisis improved substantially to change the BOP situation?

The proposals would not restore any balance of rights and obligations but tilt the scales even more in favour of the ICs in a situation of emerging imbalances in the Uruguay Round. The group had been discussing the issue for three years but no common or convergent view had emerged, and it was no clear none would either even if it was discussed more. The negotiating group would do better to use the limited time available to take up the articles and provisions where some common view had emerged.