EC’S NON-TRANSPARENT PROTECTIONIST POLICIES AND INSTRUMENTS.

Apr 17, 1991

EC’S NON-TRANSPARENT PROTECTIONIST POLICIES AND INSTRUMENTS.

GENEVA, APRIL 16 (BY CHAKRAVARTHI RAGHAVAN) – The European Community and its 12-member States (the world's largest trading bloc) operate behind a web of protectionist trade instruments evolved and administered in non-transparent ways on sector-specific rather than overall economic or trade policy considerations.

The EC conducts its trade with the external world under a complex hierarchy of preferential trade arrangements with individual and groups of countries (the EFTA, Mediterranean, Lome and its autonomous preferences under the Generalised System of Preferences, GSP) which in their totality, have made the GATT's fundamental MFN principle to contracting parties the least favourable to those not part of the preferential arrangements.

This picture of the EC has emerged in the GATT Secretariat Report and comments of contracting parties during the GATT Council’s Trade Policy Review of the EC and its 12-member States under the Trade Policy Review Mechanism (TPRM), in place on an experimental basis under the Uruguay Round mid-term accords of 1989.

For the TPRM review, the GATT Council had before it a secretariat report, a factual survey and analysis of the EC trade policy with the secretariat's summary observations and a report prepared by the EC Commission.

On Monday, the EC Commission Director, Roderick Abbot, made a presentation of the EC position, with some comments on the secretariat's summary observations, followed by statements and questions from several Contracting Parties. The discussions will continue Tuesday, when the EC will respond to some of the comments and questions, to be followed by a Chairman’s summing up.

Under the Rome treaty (under which member-states have ceded to the Community external trade policy), the GATT report brings out, the formulation of trade policy vests with the EC Commission (an executive body not responsible to or answerable to the European Parliament) which has to submit them (for putting into effect a common commercial policy) to the Council of Ministers where decisions are by qualified majority voting.

With the Council of Ministers frequently convening on issue related basis (involving the 12 Ministers in charge of the issue) sector-specific views carry considerable weight in formulation of trade-related policies as opposed to overall economic or trade policy considerations. Also, the day to day conduct of policies, where the commission consults or cooperates with member-states through a committee system (the so-called 113 committee) and covering a wide range of questions like management of agricultural markets, initiation of antidumping investigations or interpretations of rules of origin - what the secretariat calls by the expressive French term "comitology", have led to frictions in the decision-making process. The European Parliament's role is mainly advisory on trade related policies, though it has a certain supervisory role with respect to the Commission. But the Council of Ministers are not accountable to the European Parliament.

While individual members of the Council of Ministers are democratically accountable to their Parliaments, given the cession of external trade policy to the EC under the Rome treaty, in fact there is no parliamentary, and thus no public accountability, for the EC's trade policy or its administration.

At the Community level, there is no statutory independent body regularly reviewing trade-related policies and the Commission has indicated no intention of considering the establishment of such a body, the secretariat report points out.

(The setting up of such bodies was a part of the consensus on the Final Act of UNCTAD-VII, and UNCTAD has been repeatedly drawing attention to this). Policies distorting intra-EC trade and competition, including support to industry by member-States or anti-competitive agreements between enterprises are generally prohibited. Under Community law the Commission is authorised to vet such practices and, as necessary, to intervene.

However there are not independent institutions to oversee these decisions, such as the anti-monopoly offices of some individual member-States.

As for the outside, trading partners and enterprises, the entire policy and instruments present a picture of something evolved in a non-transparent decision-making process and administered in an even more non-transparent way.

The EC is the world's largest importer and exporter of merchandise, and including trade among its members (the internal trade within the customs union) accounted for 38 percent of merchandise traded internationally in 1989, compared to the 23 percent in 1958 when the Rome treaty became effective. Excluding the internal trade, one-fifth of world trade originated from or was destined to the EC, slightly less than what the 12-members as a group had accounted for in 1956.

GATT cites this to suggest the trade diversison involved in the EC common market and customs union.

The EC trade regime and trade-related policies have evolved in recent years in terms of the Internal Market programme, extension of preferential trade relations and efforts to develop a multilateral approach in the Uruguay Round. Abbot found little contradiction in these, arguing that policies evolved for internal unification would be reflected in the EC position in the Round and vice versa.

While the EC aims to achieve by 1992 the unified single market, and a number of implementing laws and regulations have been evolved, some hard core issues remain - future regime for "sensitive products" (such as passenger cars.). Under Art 115 of the Rome treaty, member-States maintaining restrictions against imports from outside, can operate measures to make sure that there are no indirect imports through an EC member. These intra-EC border measures have also to be reconciled, as also individual country-quotas replaced by EC-wide quotas. For the outside world, the concern is whether the most restrictive regime of a member would become the overall EC regime or whether there would be something in between.

Also of concern are proposals for harmonisation and mutual recognition of standards - such as for inter-working of telecommunication terminal equipment with the network could limit trade opportunities, particularly for new and innovative equipment.

The long-term trend in the EC's external trade relations are towards diversifying conditions of access to its markets, and this is being done through a complex hierarchy of preferential arrangements - Free Trade Agreements (with six EFTA members and Israel), association agreements (with Turkey, Malta, Cyprus and ACP countries), cooperation agreements (with Mediterranean countries) and unilateral preferences under the GSP. Some 60 percent of the EC imports from outside originate in countries participating in one form or another of the EC's hierarchical and complex preferential trade arrangements. Negotiations for new agreements with several eastern and central European countries, as also with the Gulf Cooperation Council, are pending. While individual arrangements differ, imports from preferential sources benefit only partly. Sensitive imports like most agricultural imports are excluded or limited by seasonal arrangements or quantitative ceilings, or subject to safeguard provisions (for industrial products), or voluntary restraint arrangements (as for textiles), origin requirements including restrictions on regional cumulative processing. The last operates as an inhibiting factor for the less advanced Third World countries trying to take advantage of the GSP. The EC's customs tariff is only one of its many policy instruments, and not the decisive one.

Other instruments, whose overall importance cannot be quantified according to GATT, include import prohibitions, non-automatic licensing, import quotas, variable levies, minimum price regulations or export restraint arrangements. These are applied on a wide range of product areas. In mid-990, data based on a breakdown of some 9500 tariff items in 108 product categories show that about two-thirds of all categories of imports of at least one item in at least one member-state were affected by such measures. The EC has also a propensity for sector-specific solutions, resulting in large differences in levels of protection across industries. Coal and steel are regulated under a separate legal framework, while agriculture has a special status under Rome treaty. The bulk of agricultural commodities produced and consumed in the EC are decoupled from the world market through variable levies. And "reflecting the restrictiveness of the system", GATT says, the product categories subject to the levies account for no more than 12 percent of extra-EC food imports in 1988.

The variable levy does not apply to some leading import items - coffee, soybeans, oil cakes, bananas, crustaceans and molluscs. Oils and fats enter under low levels of protection, but the internal production is heavily supported through compensatory payments to processors. A range of products outside the variable levy face substantial tariffs. The variable levies complemented by export subsidies are major trade measures in Agriculture.

In 1989, the EC's CAP cost EC consumers some ECU 49 billion and EC taxpayers ECU 40 billion - or a total of ECU 89 billion transfer to farmers.

Tariffs play a more prominent role for other primary products and industrial goods. The average EC tariff protection, at 7.3 percent in 1988, was moderate, but there were a number of tariff peaks: 20 percent on motor vehicles and footwear, 26-117 percent on tobacco. On resource-based manufactures, EC tariffs increase by stage of processing.

All industrial tariffs are bound, but their economic value has been eroded by sector-specific bilateral arrangements, frequently targeted against the most competitive foreign suppliers, GATT says.

EC textiles and clothing industry is shielded by 19 bilateral restraint agreements under the MFA, covering 46 percent of external EC textile imports. Imports from Mediterranean countries, partly under self-restraint, cover another 22-1/2 percent.

As the GATT Textile Surveillance Body has said, while on balance there has been some relaxation and increase in flexibility in EC under MFA-4, the product coverage is comprehensive and total sum of restraints high.

As in agriculture protection in textiles and clothing has been at substantial cost to foreign suppliers and domestic consumers. The annual cost to consumers of protecting one job in the industry is estimated to exceed three times the average annual earnings of a clothing worker.

The EC has extended the selective approach to import-related adjustment in the textiles sector to a wide range of sectors, including traditional and technologically advanced sectors. Some 50 bilateral restraint agreements are known to be in place and there are some (on Koran exports of frozen squid, footwear and videotape) of which the EC commission says it is not even aware.

The EC network of bilateral restraint agreements have reduced the transparency of the multilateral trading system and introduced strong discriminatory measures, and have tended to promote cartelistic behaviour at home and abroad. GATT points out that unlike under XIX, where increase in import restrictions in a particular sector have to be compensated by liberalisation elsewhere (for the trading partner), VERs have no such requirements and hence checks on domestic requests for protection have been eliminated. In several sectors, individual member states applied measures to insulate domestic markets or otherwise distort competition.

In mid-1990, France had 71 quantitative import restrictions covering food products, control instruments, clocks and watches, consumer electronics, transistors and integrated circuits. Italy maintained 48 such measures. Total public support for coal produced in Germany is four times in UK. Banana imports from non-ACP sources have zero tariff in Germany but 20 percent duty in Benelux countries, Ireland and Denmark, and individual quota restrictions in others. There are also measures of questionable legality taken at national levels to keep out indirect imports. Subsidies are also granted by member-states for industries, and for development of technologies and technology-intensive sectors, and support through public procurement programmes.

The EC ranks among the most intensive users of anti-dumping measures. During 1980-1989, a total of 256 measures, mostly in form of price undertakings, were implemented. In 1989, 120 measures were in place and 27 new cases initiated. EC law requires anti-dumping duties to be limited to the amount necessary to remove injury. Only in two-fifths of all cases between 1987 and 1989 were definitive duties less than the full margin of dumping - the public interest clause having apparently no major impact on EC antidumping practices. While the EC Commission has rejected public criticisms of its anti-dumping practices, pointing to the less than 0.9 percent of total EC imports subject to anti-dumping duties, GATT points out that the uncertainty generated and signals sent by frequent resort to such procedures are likely to affect larger volume of trade.