Oct 20, 1988


GENEVA, OCTOBER 19 (IFDA/CHAKRAVARTHI RAGHAVAN)—Third world countries have been continuing their trend towards autonomous measures of trade liberalisation, while disguised protectionist actions in the shape of anti-dumping and countervailing duties as well as grey area measures have been proliferating in the industrial countries.

This overall picture of the state of the GATT trading system emerges on a reading of the secretariat’s report to the special session of the GATT Council on developments in the trading system, covering the period april-august 1988.

The report notes that during the period the U.S. and EEC have extended the application of anti-dumping measures to parts and components of electronic appliances and equipment.

This, according to the report, is aimed at ensuring that the domestic industry or its future development was not damaged through growth of so-called "screwdriver assembly" operations.

The U.S. and the EEC have also been adopting retaliatory measures or threats of such measures to secure improved protection by trading partners of intellectual property rights (IPRS) in such areas as patents and copyright.

There were also persistence of difficulties in the area of informatics where industrial policies have been particularly concerned with protection of the domestic market and conditions of international competition.

On the plus side, there were a number of measures of trade liberalisation, particularly in the sector of agriculture by Japan.

There was also some slackening of tensions in agricultural markets associated with changes in production and marketing conditions thought underlying problems remained.

Several third world countries, as also Australia and New Zealand, maintained their trend towards autonomous measures of trade liberalisation.

Significant moves towards liberalisation of tariffs were made by Australia, Brazil, Colombia, India, South Korea, Mexico, New Zealand, Pakistan and Poland.

Many third world countries still continue to be confronted by balance of payments and debt servicing difficulties and uncertainties connected with movement of interest rates and commodity prices.

Nevertheless trade growth accelerated to an annual average of five percent for 1988, and the world economy as a whole is now expected to grow at an annual 3.5 percent rate.

In the area of quantitative restrictions, third world governments that liberalised their restrictions included India and South Korea (on some agricultural products), and Brazil, Pakistan, and Yugoslavia.

However, the existing stock of QRS, GATT Secretariat points out, remains substantial.

Industrial countries no longer have recourse to QRS for balance-of-payments purposes, and the QRS maintained by them show less variation.

However, in some of the industrial countries, the application of physical controls to regulate access to their markets have increasingly taken the form of measures restraining exports negotiated with individual supplying countries instead of QRS.

An updated list of such export restraint arrangements in an annex to the report shows that a very small number of countries continue to account for a very large percentage of these measures.

The product categories affected by the VERS (Voluntary Export Restraints) include textiles and clothing, where 71 arrangements have been concluded outside the MFA, apart from those maintained legally under the MFA.

Other VERS include 58 such arrangements in agricultural and food products, 52 in steel, 23 in electronic, 20 in automobiles and transport equipment, 15 in footwear, 13 in machine tools, and 25 other miscellaneous arrangements.

The majority of such arrangements, GATT notes, protect the EEC market or that of one of its member-states, followed by the U.S. market.

These two account for just over three-quarters of the measures listed.

The arrangements mainly limit exports form Japan (38), South Korea (35), the EEC (15), and Taiwan (13).

Most of the operations listed, GATT notes, have come into operation since 1985.

During the period there were also unilateral restraints on Japanese automobile shipments to the EEC and Sweden, EEC (French) import restrictions on footwear from South Korea and Taiwan, and voluntary restraints by South Korea on knitwear exports to Japan and on video-cassette recorders, colour TV sets and microwave ovens to the EEC.

A small number of countries, all of them industrialised, actively use anti-dumping and counter-vailing (AD/CV) duties, and for these countries the AD/CV duties continue to be important instruments.

The U.S. and the EEC have modified their anti-dumping procedures and these have been controversial, GATT notes.

The EEC has adopted new legislation "to clarify" its existing anti-dumping procedures and strengthen what it calls "measure to combat evasion of duties".

The US omnibus trade law also contains provisions that tighten and extend the scope of existing law and facilitate use of AD/CV duties to deal with alleged unfair competition.

The total number of ad cases initiated during the period by Australia, Canada, EEC and the U.S., as well as investigations involving imports coming from third world countries and centrally planned economies showed a slight increase.

As of December 1987, there were seven price undertakings and 145 ad measures in force in Canada, while in the U.S. there were 154 ad findings and orders (of which 40 were on Japanese products) and five price undertakings.

In the area of CV actions (against subsidised exports), a total of 28 investigations had been initiated during the period, of which 24 were in the U.S.

Referring to the enactment of the U.S. omnibus trade and competitiveness act, the report notes that while its mandate to the president to negotiate trade agreements have been welcomed, some governments have expressed concern over the effect on the trading system of other provisions.

In their view some of the provisions would have an adverse effects on development of trade while others contravene the international obligations of the Unites States.

Also, the high degree of automaticity in some other provisions increase the risk that actions would be taken by the U.S. inconsistent with its obligations.

In a separate section, the report highlights, but without comments, some portions of the voluminous U.S. law.

In the area of trade negotiating authority, the president’s authority to proclaim tariff reductions have been extended till May 31, 1993. However, the authority is limited to 50 percent cuts – except when the tariffs are five percent or below or there is no competing U.S. domestic industry.

While the report is silent on this, the restrictions would have considerable bearing on third world hopes of tackling tariff peaks and tariff escalations on their exports depending on stages of processing.

Unless, a trade agreement specifically requires application of the MFN (most-favoured-nation treatment) principle, the president has to recommend that its benefits and obligations would apply solely to parties to the agreement.

This would be a violation of article one of the GATT, though the report does not specifically mention it.

In the context of efforts of China to resume GATT membership, of Bulgaria to join, and Soviet interest, another provision requires the president to exclude from GATT benefits any country whose state trading enterprises plays a significant role in its foreign trade.

The report also spells out the more mandatory actions required under the new section 301 (which most contracting parties consider to be a violation of GATT obligations).

These include the provisions for mandatory actions for "unjustifiable practices" of trading partners, and discretionary actions against "unreasonable practices", which includes export targeting, denial of specified workers rights and denial of market opportunities by a government’s tolerance of cartels.

The report also brings out some of the new powers for unilateral actions to enforce intellectual property rights of U.S. enterprises and owners, new procedures under AD/CV investigations to monitor "downstream" products with components previously found to be subsidised or dumped (the equivalent of the EEC’s "screwdriver plant" actions).

The report notes that counter-trade transactions in the five month period of present report has exceeded those in the previous six months.

Among the reasons it cites the scarcity of hard currency in certain countries, the debt burden of many third world countries, and the depressed demand for some of the raw material exports of third world countries.

Among the schemes for counter-trade, it notes, are those tying debt-equity swaps to counter-trade arrangements (as in Brazil), and an increase in the quantity and range of manufactured exports sold by the third world on counter-trade basis – textiles and clothing, vehicles and parts, construction projects, etc.

It also notes the change in U.S. policy, establishing an office in the commerce department to assist companies seeking counter-trade opportunities.