Jul 6, 1992

MUNICH SUMMIT UNLIKELY TO BREAK URUGUAY ROUND DEADLOCK.

GENEVA, 3 JULY (CHAKRAVARTHI RAGHAVAN) -- With the G7 heads due to hold another annual meeting, there is increasing talk, from everywhere except Geneva, of the prospects of the Seven cutting a deal and breaking break the deadlock over the Uruguay Round.

When the G7 meet at Munich, they will be doing so against the background of economies either stagnating or in trouble, and no real signs of a vigorous recovery. Thanks to the follies of their own dogmatic policies of the last decade, none of them are in a position to take measures to stimulate their economies.

And despite their attempts to strut about on the world stage and behave as if they are in control, all of them are politically weak and cannot take the steps necessary, individually or collectively, to pull the world economy out of its crisis, by acknowledging the failure of some past policies and reversing them.

This has led some to suggest that to show "success", the G7 could quickly agree upon and bridge their differences on trade and enable the early conclusion of the Uruguay Round of trade negotiations, now in its sixth year, presenting their agreement as an important contribution to spur world economic growth.

Whatever benefits a successful conclusion of the Round might bring in the medium to long-term - some of its claimed benefits have probably been over-estimated and over-sold - a successful conclusion of the Round will do little to provide any immediate impulse for growth in the world economy, or provide the leaders with a card to play in their domestic arena.

But so much of time and effort have been invested in the negotiations that, despite the very thin pickings in the likely final outcome, it has become a dogma that everyone asserts, namely, that a successful conclusion would boost the world economy and solve many of the economic ills of developed and developing countries and a failure or prolongation would prove a disaster.

For the record, and in public, officials in the capitals, as well as trade policy negotiators in Geneva, all talk about the Round and the successful conclusion of the multilateral trade talks being high on the agenda of the Munich summit and the "very small" gap dividing the leading protagonists which could easily be bridged by the summiteers.

But few negotiators say the same in private, even when underlining their view that all the technical elements for a decision are there and what is needed is a political decision.

Most of them agree that the elements needed for a political decision are such that neither the United States nor the European Community leaders can "bite the bullet" now - given the considerable change that has taken place in their priorities

There is thus little expectation in Geneva that the Munich meeting would in fact help the active resumption of the long-stalled negotiations and enable it to be concluded this summer.

Much of the talk about cutting a deal on the Round comes from those who believe that the deadlock is only over agriculture and that the U.S.-EC differences are now so small that it should be easy to clinch an agreement.

But the deadlock in the Round goes beyond U.S.-EC differences over agriculture, and covers other areas including services, rules and market access, even though a compromise in agriculture could open the way to deal with other difficult issues too.

The U.S. and EC are due to hold another round of talks on agriculture in London this weekend, but few expect any breakthrough at this meeting, or even at the Munich summit or of any early resumption of serious negotiations.

An indication that this is the assessment of several capitals comes from the fact that many negotiators of key countries, and their senior second level officials, are leaving Geneva on re-assignment back to their capitals or posting elsewhere.

For U.S. President George Bush, the highest and only priority is his re-election. Any decision or action by the administration is weighed against the touchstone of whether it will help or hinder the November elections.

Even if the miracle takes place, and the G7 agree (without ambiguity) on the deal they would cut on the various outstanding issues on the agenda of the Round, completing the detailed negotiations over them would take at least several weeks and bring it so close to the election days - on an issue where whatever the incumbent does, it will be assailed by his opponents and become another issue to be bucked in the electoral campaign.

For the Europeans too, the priority is now the completion of the ratification of the Maastricht treaty to enable it to become effective on 1 January 1993, the target date for the ushering in of the single market within the Community.

With Denmark voters having negatived the treaty, none of the EC Heads want to take the chance and provide focus for opposition to coalesce on this. This is particularly so in France, where Mitterand is calling for a referendum on the treaty in September, and where the farmers and their unions are already up in arms.

Before the recent Lisbon EC summit, there was talk that the issue would be on the agenda and the EC countries would agree on a compromise. But this proved baseless. Contrary to earlier reports, the Uruguay Round did not even figure on their official agenda - only in bilateral talks between German Chancellor Kohl and French President Mitterand.

At this meeting, when Kohl reportedly raised the Uruguay Round issue and suggested that France should lift some of its objections to the compromise proposals under discussion between the U.S. and EC, Mitterand reportedly said that the EC members should decide which was their priority: the ratification of the Maastricht treaty (for political and monetary union) or the Uruguay Round.

The answer was clear: "Maastricht" before "Uruguay".

In this situation, one GATT negotiator said, the bast that could be hoped for would be some signal from Munich to enable the talks to be kept going and for it to be reactivated and pushed vigorously after the November elections in the U.S. - hoping Bush would win.

In terms of its North-South dimensions, and demands by the North for market access and opening up of the economies of the South to their TNCS, it has been achieved in many of the major Southern economies - thanks to the "structural adjustment programmes" forced upon them by the International Monetary Fund and the World Bank.

Having already yielded, and opened up their economies, the developing countries would like to get some of the meagre benefits that might accrue to them, but have lost the leverage even to force the powerful industrial nations to bargain with them, unless they reverse their "liberalisation" policies - a step which cannot however be entirely ruled out given the major problems that the liberalising governments are now facing domestically.

But the major trading nations, particularly the U.S., EC and Japan believe that the developing country actions are irreversible, and are looking at each other's markets and judging how they could pry it open, giving away as little in return as possible, and benefit from the other - whether in agriculture and other exports of goods or in various services sectors (including telecommunication, financial services, shipping, etc.).

Here their differences are not so easy to bridge without some domestic repercussions for each of them.