Dec 2, 1987


GENEVA NOVEMBER 30 (IFDA/CHAKRAVARTHI RAGHAVAN) -- The General Agreement on Tariffs and Trade (GATT) celebrated its 40th. Anniversary Monday, with daylong events that perhaps showed, more than anything else, that GATT is still a richman’s club.

The day’s event included reminiscences by three personalities associated with the founding of GATT, a keynote address by the former U.S. Federal Reserve chairman, Paul Vocker, and an afternoon of so-called "round-table debate" involving Ministers, three chosen journalists and Prof. John Jackson, a U.S. law professor and authority on GATT law.

Of the 19-ODD Ministers or equivalent rank participating, there were non-from Africa, and only two each from Asia and Latin America.

According to reports current among third world delegations, the entire format, including choice of journalists to put questions, had been made by the Secretariat in close consultation with the U.S. delegation here.

GATT itself had issued no invitations to Ministers to attend, as is customary in other organisations. Even if they had it was doubtful in African countries could have afforded the luxury of coming here for "celebrating" GATT, which refuses to address their major problems – commodity trade.

"We will have a critical celebration" of the 40th. Anniversary, GATT spokesman David Woods had told newsmen last week in explaining the events planned.

"It is in no sense a meeting to signify self-satisfaction or complacency, but an effort to present some kind of public face of GATT. So much of our work is complicated and often unreportable, but we believe our work is not appreciated and we need the support of the business community and the general public", Woods had said.

In the day’s events there was also considerable talk of need for "transparency" in government policies, and at one stage the U.S. Trade Representative Clayton Yeutter asked whether it would not be to the world’s advantage if any restrictions any country imposed on import of "services" were made transparent?

Yet GATT itself as an international institution has the least transparency and functions most opaquely.

No GATT meeting is held in public – neither the press nor business or consumer NGO’s are permitted to be present. GATT documents are all "restricted", and released to media only when they present a better image of GATT.

Those reporting GATT must depend on their own lobbying or the briefing that GATT press officers give – and these mainly reflect the Secretariat views and those of the three major trading blocs.

GATT itself was found as a temporary arrangement until the international trade organisation envisaged under the Havana charter came into being.

But the U.S. Congress ultimately made clear it would say "no" to the Havana charter, and the ITO never came into being, and GATT has remained for 40 years now a provisional treaty.

"It is only a treaty, and that too a provisional one, not at all a ‘contract’ that it is claimed to be", Prof. Jackson said Monday at the round-table, and none of the Ministers or GATT officials present challenged him.

The ITO, and its provisional version in GATT, were part of the post-war economic system that owe their origins to the Keynes economic theories, modified by Dexter White to wuit U.S. interests.

But neither of them were "liberals" in the economic sense meaning laissez faire economists. They and their governments believed in and saw the importance of state role and intervention to make the market function efficiently, and honestly.

There was little reference at the 40th. Anniversary of GATT to any of these, and everyone present talked of and assumed that the GATT order was intended to be, and should be "a liberal order".

Paul Volcker perhaps went the farthest in this when he referred two or three times to a "liberal trade and investment order" that GATT should usher in to survive and be relevant.

While Volcker’s speech did not allow for questions, none of those in the afternoon debate challenged him either.

Some among them, notably the Pakistan Minister Mahbub Ul-Haq and the Indian journalist Prem Shankar Jha, raised some inconvenient issues in terms of the neo-classical economics (in areas where third world has now comparative advantage).

But the phalanx of industrial country Ministers never answered them or evaded them when they were specifically asked.

There were many references to the problems of the monetary and financial system that were impinging on and damaging the world trading system, and the need to address them.

In introducing Volcker, the keynote speaker, GATT Director-General Arthur Dunkel made many laudatory references to his achievements as U.S. Federal Reserve chairman.

Volcker during his stewardship of the U.S. Federal Reserve won plaudits from the central bankers of Europe, and perhaps even more the transnational banking community for the huge profits they made, as a result of the hiking of nominal and more relevant "the real interest rates" in their loans to the third world, and the fees they charged for renegotiating the loans.

But if Volcker deserved all these plaudits, he surely also bore responsibility for the aftermath of these policies – the debt crisis, the high interest rates that have made investment in production unprofitable, and an inevitable consequence the October 29 crash.

But no one in the afternoon debate raised these questions.

And in the last ten minutes, when a questioner from the floor, Jamaica’s Anthony Hill, asked whether GATT and Trade Ministers would have been better off if there had been joint meetings of Trade and Finance Ministers, he got a reply from the New Zealand Minster, Michael Moore, to the effect that Trade Ministers and their Geneva representatives ought to meet more oftener. The moderator did not ask any other Minister to respond either.

On they key issue of money and finance and exchange rates, Volcker had little to say except his acknowledgement that the floating exchange rate system had belied all its promises – of better equilibrium in national trade and current accounts and reduce a protectionist argument, and in practice "floating" would result in "pretty steady" rates in practice.

Volcker added: "health and vitality of an international trading order will be importantly dependent over time upon the willingness of governments of large trading countries to reach some realistic collective judgements about the broadly appropriate level of exchange rates. Those judgements will, in turn, need to influence the design and implementation of domestic policies if they are to be meaningful and durable".

This wisdom has come two or three years too late, a third world delegate later commented.

Volcker spoke of the inter-linkages between the trade liberalisation efforts in GATT and the measures needed in the monetary and financial system, but even here merely underscored the real politic in multilateralism.

There was an impression in the U.S., he said, that the U.S. had "the most open markets" of any major economic power, and there was a feeling of "unfairness" about this.

"Given those circumstances, I think we have to accept that American negotiators, in contrast to the past, will be unwilling and unable to offer concessions not visibly and fully matched by other countries".

He had little to say on the third world debt that he helped to aggravate through his interest rate policies, excepting for the view that efforts to restructure existing debt, finding new money, and restoring sense of financial stability would continue to be of concern to Finance Ministers and central bankers, and that IMF and the World Bank would have to play a leadership role they had been thrust into, but that financial arrangements however cleverly devised could not substitute for more fundamental economic change, and this could only be brought about by role of international trade in economic development.

He also referred to the many restrictions on third world exports –the "GATT sanctions" Multifibre arrangement, the not so sanctioned "grey area" measures of voluntary export restraints, and the increasing reliance of "safeguard" clauses, and the non-application of GATT to agricultural trade.

While making these points to advocate the need to open up industrial country markets to third world exports, Volcker also called upon the newly industrialising and middle income countries to open up their markets and for GATT rules to provide criteria for "graduating" these countries out of the ranks of "developing countries" to whom the GATT principles of reciprocity would not apply.

Volcker also called upon international financial institutions to provide needed financing for countries liberalising trade, "or conversely, by withdrawing finance" from those who did not.

Of the three Latin American Ministers present, Brazil’s Paul Tarso and Uruguay’s Enrique Iglesias flagged the issue of Latin American indebtedness, though neither of them (given the format of the meeting) got the opportunity even to outline the measures proposed by the eight Latin heads of states at Acapulco in Mexico over the weekend.

Iglesias however stressed the vital link for third world countries between trade and development, and the need to find solutions to the third world debt problem through trade. The Latin debt servicing problems would be much less if only GATT rules were observed, Iglesias bemoaned.

While the Ministers from the north suggested that there was no need for rewriting the GATT charter, but only need to make it relevant by extending it to new areas (like services, investment and intellectual property rights), Mahbub Ul-Haq challenged this and said structural changes would be needed, and among these would be grater enforceability and sanctions.

If the industrial countries, he said at one point, had been forced to listen to the IMF and Bank advice and carry them out in relation to their budget or trade deficits, there would not be this current mess in the north (over the U.S. borrowing in excess of its savings and budget and trade deficits).

The industrial countries could ignore the IMF and the World Bank since they did not need credit from them, but they still needed GATT, and GATT could exercise some control over them, he suggested.

He also supported extension of GATT to new areas, including "services", but said that any services framework should cover also movement of labour and capital, and with built-in assurances that when third world countries acquired comparative advantage and ability they would not be subject to discriminatory provisions as in the textiles and clothing sector through MFA or by VERS and in footwear and other labour-intensive manufactures.

Haq also noted that different sectors of services were already being addressed by other international organisations, and before services could be brought under GATT the GATT would have to earn third world confidence.

Haq also called for end to the MFA as part of the Uruguay round, but got no response from his industrial country colleagues.

Haq also raised the issue of "universality" vis-a-vis GATT, and said he could not see GATT being effective unless the Soviet Union and other Socialists Countries come in.

But Willy De Clerc of the European Economic Commission rejected this by taking about the GATT’s basis in "free trade" and the need for homogeneity in a contract whose enforceability depended on acceptance by the parties involved.

In effect, De Clerc made clear, the Soviet Union could not be allowed to become a GATT Contracting Party.

The only socialist country Minister on the panel, Hungary’s Foreign Trade Minister Peter Veress, did not respond or challenge De Clerc on this.

Jackson and some others raised the issue of enforceability of GATT, and putting teeth into GATT, and how to make powerful countries carry out their obligations.

But none of them raised the question that the only "sanction" in GATT is the authorisation to the Contracting Party affected to "retaliate" – a power that the weak don’t have, and even the strong like the EEC and Japan find difficult to use against the U.S.

The GATT provisions in article XXIII themselves envisage joint actions by Contracting Parties, namely collective sanctions. This has never been put into practice. But none of the Ministers present or the journalists who were questioning them raised this.

The issue of U.S. sanctions against Nicaragua and the U.S. invoking the GATT article XXI (relating to national security exceptions) was raised by a journalist on the panel, and the Swedish Minster to whom it was directed referred to the ruling of the panel (that went into this case) and need for enforcing it.

Clearly, the Minister was unaware that the terms of the panel precluded it from going into the issue of article XXI, and the journalist did not correct her on this.

Yeutter said that no country, and no major country like the U.S., could be expected to submit its "national security interests" to GATT judgement, and there was no way the GATT could be changed in this regard.

In the final stages of this "debate", the Nicaraguan delegate from the floor came back to the issue to correct the Swedish Minster, and noted that the organs competent to go into this question (the UN Security Council and General Assembly, and the International Court of Justice) had clearly ruled against the U.S. and in favour of Nicaragua, and wondered whether GATT could survive if it did not tackle such matters.

But Professor Jackson, to whom the question was addressed, in effect said that since GATT could not force the U.S. to obey, and it was not in the GATT interest to encourage evasions, it was best to solve the problem by expanding the scope of article XXXV, which enable a CP to exclude another from benefits of its concession at the time of accession, to enable countries to withdraw concessions from other CPS even after accession.

Another major third world trade issue, liberalisation of trade in tropical products on the GATT agenda since 1963 and a priority item on the Uruguay round, figured only marginally in relation to discussions on agriculture.

Both the U.S. and EEC in the current Uruguay found have been trying to merge the separate issue of tropical products into the agricultural negotiations, and the moderator from the BBC brought up the issue at the end of the discussions on agriculture trade, which was addressed as basically a temperate zone issue.

The Indonesian Minister, Rachmat Saleh, who got a few minutes to deal with it, but only as part of the agricultural issue, underscored that the way the tropical products issue was dealt with would be the touchstone of the Uruguay Round for the third world, but did not point out the different issues involved.