INDISCRIMINATE USE OF CV MEASURES ASSAILED.

Jun 6, 1987

INDISCRIMINATE USE OF CV MEASURES ASSAILED.

GENEVA JUNE 3 (IFDA/CHAKRAVARTHI RAGHAVAN) -- The indiscriminate use of countervailing measures for trade harassment and as an instrument of protection by major industrialised nations, particularly against import from third world countries, was strongly criticised at this week's meeting of the Uruguay Round Negotiating group on subsidies and countervailing measures.

Participants said that the main thrust of the criticism was against the United States.

A number of participants, both from the industrial and third world countries, were critical of moves in the U.S. Congress to amend the U.S. anti-dumping and countervailing (AD/CV) duty laws that would violate the relevant GATT articles and the subsidies code, and make easier both initiation of proceedings and levy of duties through unilateral interpretations.

A number of participants are also reported to have stressed that before any new and improved disciplines could be negotiated and agreed upon, existing provisions of the GATT and relevant codes should be strictly and fully implemented by all the parties.

Several delegates reportedly underlined the balance involved in the GATT disciplines relating to use of subsidies in exports on the one hand and that on CV duty investigations and imposition of duties, and insisted that this balance had to be maintained and could not be upset by unilateral interpretations or domestic laws.

The U.S. proposals to cover not only export subsidies but all domestic subsidies, and to attack "industry targeting" through government plans also came in for opposition, participants said.

The negotiating group is reported to have discussed submissions, proposals and ideas for issues to be negotiated received from the U.S., Canada and other countries.

Participants reportedly have been given time till end of july to make submissions, and thereafter the GATT Secretariat is to prepare a check-list of issues, which would be considered at the next meeting of the group, tentatively planned to be held in the week of September 28.

Canada is reported to have suggested that the negotiations should review and address the whole complex of issues related to both the use of subsidies and application of countervailing measures.

The purpose of a CV duty was not to upset comparative advantage and indiscriminate use of CV duties was a form of trade harassment.

Article six of GATT clearly envisaged the establishment, before levy and any CV duties, of the existence of subsidization and its causal link to injury to domestic producers.

Similarly, article XVI of GATT recognised that subsidization of exports could cause serious prejudice to the export or import interests of other parties, and envisaged possibilities of limiting such subsidization.

If the negotiating objective of improving GATT disciplines relating to subsidies and CV measures was to be realised, "we must be prepared to envisage more symmetry and better meshing of rights and obligations of both articles VI and XVI", the Canadian delegate is reported to have argued.

If the unilateral right conferred by GATT to levy CV duties was not carefully circumscribed, such actions could become an instrument of protectionism and trade harassment, whether or not CV duties were actually levied.

More effective rules, which would be subject to less unilateral determination and provide more certainty for traders and investors, were needed particularly in the application of CV duties.

Brazil felt that the subsidies code and the relevant GATT articles had sought to ensure a balance: that use of subsidies by a signatory did not harm trade interests of another, and that CV measures were not used to unjustifiably impede international trade.

But over the years this balance had been upset, and more and more CV measures were being used as an instrument of protection by industrialised nations, particularly against imports from third world countries.

Brazil would not support any attempt to review the provisions of GATT and the code on subsidies and CV duties unless the review aimed at restoring the equilibrium of rights and obligations by reinforcing the disciplines on use of CV measures.

The U.S. proposals focused on regulation and proscription of subsidies, but with little or no consideration given to definition of more strict criteria for levy of CV duties, and this was not acceptable to Brazil.

The U.S. approach to eliminate the distinction, central to the Tokyo Round Code, between export subsidies and domestic subsidies was also not acceptable to Brazil.

The provisions in GATT against subsidization of primary product exports that secures "more than an equitable share" would also need clarifications, particularly in its application to third world CPS who might be new entrants in the market for a product.

There was also need for clearer definition of concepts of "injury", "serious injury" that would justify initiation of CV duty proceedings, and of "domestic producers" who could initiate such proceedings.

The U.S. idea of attacking "industrial targeting" would also need discussions on the criteria to be used to judge them.

The U.S. efforts to include this, as well as widen the definition of "domestic industry" (that could be said to be injured and thus warranting CV duty actions) was linked to U.S. domestic legislative developments of a protectionist character, Brazil complained.

The U.S. ideas, including for the deletion of the code provisions for special treatment of third world countries in relation to subsidization would result in a major upset of balance of rights and obligations in GATT and thus not acceptable to Brazil.

The EEC reportedly argued that before new disciplines in the area of subsidies and CV measures were established, it was necessary to ensure that basic principles of articles VI and XVI were applied fully, and by all CPS.

The negotiations should first focus on some of the key principles agreed upon in the Tokyo Round, but which some signatories (a reference to the U.S.) were not fully implementing.

Some of the fundamental conceptual and definitional issues, left unsolved in the Tokyo Round MTNS, would also have to be first tackled, and basic concepts and definitions, such as of "subsidy" and its "measurement", would need to be agreed upon.

Implementation of CV duties should never be mandatory, and should be subject to a "public interest clause". Also CV duties should be less than the total amount of subsidy. If such lesser duty would be adequate to remove injury to the domestic industry.

Petitioners for CV duty relief should be strictly limited to domestic producers of a like product.

While under the subsidies code a number of prohibited subsidies had been listed, difficulties of interpretation and debate had arisen over the non-prohibited list of subsidies, particularly those "widely used as important instruments for promotion of social and economic policy objectives" (and which were permitted).

Generally available subsidies, like tax concessions or other governmental measures available to all enterprises (and not sector-specific or particular industries only), and regional subsidies used to achieve a better structural balance by overcoming dislocation disadvantages, should not be considered to be prohibited subsidies.

Structural adjustment aids given to help industry to positive restructure business by reducing capacity should not also be prohibited, nor should subsidies on inputs subsequently incorporated into a product traded internationally.

Singapore and Colombia complained that many third world countries had been unable to accede to the subsidies code because of its unilateral interpretation by one major CP (the U.S.) which required "bilateral commitments" as a precondition for accession to the code and application of its benefits.

Singapore agreed that importing countries had been using arbitrary and unilateral practices in implementing CV actions.

There was need for agreed definitions of "countervailable subsidies" and its measurement, as well as definition of "domestic industry" that could be said to be injured, and could initiate proceedings for CV duty relief.

The determination of material injury (before CV duties could be levied) should be on a case-by-case basis, and there should not be use of concepts like "cumulative injury" and "cross-cumulation" (as in now being done in the U.S.).

Singapore also opposed the U.S. proposals for review of article 14 of the code (containing special provisions applicable to third world CPS) in relation to their application to the "more advanced developing countries" or economic sectors in which an industry in a third world country was "internationally competitive".

The U.S. proposals in this regard in effect seek to "graduate some third world CPS as a whole, and sectors of industries within others, out of the special provisions of the code.

The Singapore delegate reportedly warned that moves in the U.S. Congress to amend the anti-dumping and countervailing duty laws, violating the fundamental principles of GATT articles and the subsidies code, would adversely affect negotiations in the group.

Singapore was particularly concerned with moves to expand coverage of countervailable subsidies, expansion of the definition of domestic industry.

Hong Kong reportedly supported the Singapore vies.

South Korea reportedly stressed the linkage between provisions for anti-dumping and countervailing duties, and drew attention to its proposals for agreed definitions of concepts like "like products", "domestic industry", "injury", etc.

Australia and New Zealand are reported to have underlined the need to strengthen the GATT disciplines on subsidies to cover exports of primary products, and particularly for curbing and eliminating agricultural subsidies.

India rejected the U.S. concept of "graduation", and reportedly noted that discussions in the subsidies code committee had clearly shown that work there had come to a standstill because of lack of political will to implement the provisions of the code.