U.S. TRIES TO CIRCUMVENT CONSENSUS REQUIREMENT.

Sep 19, 1987

U.S. TRIES TO CIRCUMVENT CONSENSUS REQUIREMENT.

GENEVA, SEPTEMBER 17 (IFDA/CHAKRAVARTHI RAGHAVAN) – The United States appears to have tried unsuccessfully here this week to get around the consensus requirements for determining which of the GATT articles and issues involved could be taken up for negotiations in the subsequent phase of the Uruguay round.

The U.S. effort was reportedly made at this week’s meeting of the negotiating group on GATT articles, chaired by John Weekes of Canada, under any other business.

The group, in the initial phase of its work, has been mandated to receive requests from interested contracting parties for review of GATT articles, provisions and disciplines. On the basis of the requests, it has been further mandated to undertake a review of the articles "with a view to determining issues on which negotiations are appropriate".

The U.S. has put forward what is described by others as virtually a "laundry list" of GATT provisions that it wants changed or amended, and most of these are aimed at virtually rewriting GATT and take away the special rights and privileges of third world countries and their capacities to pursue their domestic economic development policies and objectives.

In particular the U.S. has called for review of articles XII, XV, and XVIII, and for changes in their provisions relating to restrictions that third world countries could impose for balance-of-payments (BOP) reasons.

Third world countries are opposed to this.

At this week’s meeting, the U.S. reportedly proposed that at the last meeting of the group in 1987, the GATT secretariat should "develop" a list of articles that had been tabled and discussed, and that this list "will constitute the articles which will be subject to negotiations, beginning at the group’s first meeting in 1988".

In the U.S. view, CPS would put forward requests of articles for review, and that the secretariat should then list the issues involved, and these would "automatically" by included as issues for negotiations.

India reportedly objected to the U.S. move, pointing out that this was an attempt to undermine the Punta del Este declaration and the negotiating plan decided by the Group of Negotiations on Goods (GNG), which clearly specified that the issues to be negotiated would have to be determined by the group and could not be automatic.

The EEC reportedly agreed that it was for the negotiating group to determine which issues should be taken up for negotiations, and that the request by any CP for review could not automatically mean listing the issue for negotiation. The determination of issues for negotiations would have to be made by the group by consensus.

Brazil, Philippines and Nicaragua were among those who took a similar view.

On the substance of the U.S. request, Canada supported de move for review of BOP provisions, while Japan felt that trade restrictions under BOP provisions in some cases had existed for a very long time, and there should be a review with a view to application of clear disciplines.

The EEC agreed there was need for effective procedures for notifications, surveillance, consultations, etc., while the Nordics felt there was room for improved procedures.

But a number of third world CPS opposed the move.

Egypt felt that these were very important provisions for third world CPS, and the U.S. arguments were not valid. The U.S. proposal appeared aimed at reducing the flexibility of third world countries. The changes in the monetary system, from the parity exchange to floating rates, far from obviating the need for the BOP provisions, had increased the need because of the high volatility in the system.

India reportedly felt that the U.S. arguments that the introduction of the floating rate system had obviated the need for BOP provisions were shallow and unconvincing.

While the monetary system had changed considerably since 1971, the entire issue of BOP provisions in the light of the floating rate system were in fact reviewed thoroughly during the Tokyo rounds negotiations. As a result "the declaration on trade measures taken for BOP purposes" was adopted by contracting parties in November 1979. This covered the principles, and codified the practices and procedures, with particular attention to the situation of third world countries and BOP actions taken by them.

Third world countries imposing such restrictions had been periodically subject to such consultations, and none of these had revealed any problems created by the operation of the provisions.

The reports of consultations had also been presented to the GATT Council, where they had been approved.

The BOP problems of third world countries could be cyclical, in which event they were dealt with under article XII, or they could be structural, arising out of the very process of development, in which case they were dealt with under article XVIII. The latter provided no blanket powers, but was full of conditions to prevent easy recourse to them.

It was "sheer hypocrisy" to describe the restrictions imposed by third world countries under article XVIII for structural BOP considerations as "trade restrictive" and "trade distortive" or that they should be ended because of their long duration, when none of the industrialised countries appeared to suggest that the MFA restrictions, in force in one form or another since 1961, and which unlike the BOP restrictions were imposed in violation of GATT and through derogation from GATT principles, should be ended.

The Indian view was supported by Chile, Mexico, Yugoslavia, Brazil, Nicaragua and Argentina.

Argentina said stricter procedures could not solve the structural problems faced by third world countries. Could agricultural trade problems be solved through stricter notification procedures, the Argentine delegate reportedly asked.

Negotiations in the Uruguay round should focus on major problems of world trade, and not such issues, he reportedly added.

In other discussions, a number of countries, individually and collectively, put forward proposals for review of article XXVIII which deals with modification of tariff schedules bound in GATT, and the procedures including those for negotiations with CPS with whom the concession was initially negotiated, and with principal suppliers, as well as for consultations with CPS with a "substantial interest".

Countries accounting for ten percent of the market of the importing country have been considered to have a "principal" or "substantial" interest.

A number of third world countries, and some of the smaller European trading nations, have suggested that there is a need to review this concept of "negotiating rights". A country might be supplying much less than ten percent of an importing market, but this could be a major export item for the exporting country.

And if the importing country changed its tariff without consultation and/or compensation, the "small" supplier would be affected considerably.

South Korea and Japan have also raised the issue of "potential" suppliers and their rights.

Chile, supported by the U.S., sought a review of article XVII relating to state trading enterprises (STES).

The EEC reportedly agreed on the need for a common interpretation of the article, which over time had suffered "an erosion in clarity". In the EEC view, it was necessary to have a clearer definition of a STE and for better notification and surveillance procedures.

Japan reportedly agreed on the need to improve transparency.

While reserving its position, India reportedly suggested that the starting point of review should be the 1970-71 report of the GATT Committee on Trade in Industrial Products, where it had been agreed that existing provisions in the article, and the interpretative notes on them, seemed reasonably adequate, and that any problems that arose were implementation.

India however rejected Chile’s suggestion that the concept of "national treatment" be applied in respect of STES engaged in marketing operations, or as import/export monopolies.

Issues relating to government procurement should be considered and reviewed in the context of the code on government procurement, and not in terms of STES. Similarly, the issue of "compensatory" or counter-trade was a generic one, and could involve state enterprises as also amongst private enterprises. There was hence little justification to review article XVII for this purpose.

Japan and South Korea in separate submissions have sought review of article XXIV relating to operations of customs unions and free-trade areas.

In its request, Japan has noted that inherently such agreements are discriminatory to non-members, and agreements like those of the European community or the proposed U.S.-Canada free trade zone would have a great impact on other CPS. The articles should be reviewed and changed to provide for positive requirements by such arrangements to improve market access for non-members.

The current practice of such agreements coming into effect as "faits accomply", without sufficient consultations with CPS, should be ended, and entry into force should be conditional on explicit approval of the CPS by a simple or two-thirds majority vote. A time-limit of ten years should be fixed for interim agreements.

Japan also felt that associate agreements should also be subject to the same provisions like the customs union or free trade area agreements.

At earlier meetings, a number of Latin American countries have also called for review of these articles and provisions for such arrangements.

The Nordic countries felt that some of the Japanese ideas were "problematic". The Japanese view against such agreements also appeared to be "too negative". Such arrangements did not only have traded diversion effects, but also trade creation effects.

India supported the review of the entire provisions of article XXIV, arguing that when GATT came into being, no one had imagined that customs unions and free trade zones would cover a substantial part of world trade as now.

When GATT was drafted, there was the belief among economists that customs unions would be a step towards global free trade, but the result in practice had been the opposite. The provisions of the article had provided the route to CPS to depart from the norms of non-discriminatory trade for a large proportion of world trade.

Economic integration schemes now involved important trading entities, and of late there was a tendency for "proliferation" of free trade area agreements between importing trading partners (like U.S. and Canada) and even sometimes on mainly political grounds (as between the U.S. and Israel).

India also agreed with other complaints that there had been a general relaxation of observance of conditions for such integration agreements. Also, large differences in interpretations had led to controversies, and such arrangements had now become a major source of conflict, with inability of CPS to agree or make recommendations being interpreted as presumption of conformity of such arrangements with GATT.

The EEC said it was prepared for a review of the article.

The EEC has sought a review of the protocol of provisional application, as a result of which after 40 years, GATT is still only a provisional treaty, and enables the U.S. still to depart from GATT provisions under the so-called grandfather clause of the protocol.

India supported the review, and also review of article XXV: 5, under which contracting parties grant "waivers" from GATT obligations in "exceptional circumstances".

The major waiver granted, and a sore point for many, has been the permanent waiver granted to the U.S. from its GATT obligations in respect of agriculture. A number of other CPS, like Switzerland, have also negotiated waivers from obligations on agriculture, etc., at the time of their accession.

At the time when waivers are negotiated and granted, CPS affected have the right of consultations and secure compensations.

But in respect of U.S. or Swiss waivers, for CPS that joined GATT later there is no recourse, and they have neither the opportunity to have their rights vis-à-vis the waiver examined or to get the waivers modified.