No. 2797 - FRIDAY, 13 MARCH 1992.

WARNINGS OVER U.S. MOVES FOR REGIONAL PREFERENTIAL TRADE.

GENEVA, MARCH 11 (TWN) The new regional groupings and preferential trading arrangements being pushed by the U.S. would have some "significant implications for the multilateral trading system and could adversely affect its trade with other countries, the GATT secretariat warned in a report on U.S. trade policies".

"The attitudes and policies of the U.S. in the forthcoming months with respect to regional initiatives, domestic legal processes, and sectoral arrangements affecting both imports and exports will show how firmly the U.S. remains committed to the principles of the multilateral trading system", the secretariat says in a report for the GATT Council's review of U.S. trade policy under the Trade Policy Review Mechanism (TPRM).

This is the second time that the U.S. policies come up for review since the establishment of the TPRM after the mid-term accord in the Uruguay Round. The last was in December 1989.

The TPRM exercise provides for review over a two-year cycle of the trade policies of the first four major trading nations (U.S., EC, Japan and Canada) and of other countries at less frequent intervals.

However, U.S. Ambassador Rufus Yerxa, at a press briefing today said that the U.S. will continue to pursue future preferential arrangements "in a manner compatible with GATT principles", but did not raise any other details that would indicate that such moves would not lead to the erosion of multilateralism as expressed by GATT.

As the GATT report points out, "it remains to be seen whether the rights and obligations of third parties under GATT agreements are directly or indirectly affected ... by the regional groups".

Apart from raisin warning signals over the U.S. push for regional pacts and preferential trading arrangements, the GATT report has also drawn critical attention to the U.S. pursuit of unilateralism and Section 301 proceedings and threats in bilateral trade relationship and the use of anti-dumping measures and voluntary export restraint agreements negotiated with other countries as a means of protecting the U.S. domestic industry.

The fundamental framework of U.S. trade policies has not changed since the last review, GATT notes, while drawing attention to a number of new measures and initiatives with significant implications for the multilateral trading system that have been taken since then.

On the positive side, the report lists the extension of the "fast track" authority until 1 June 1993 for negotiating trade agreements, the adoption of measures (such as the Super fund tax, custom user fees and sugar import quotas) in line with GATT provisions, and provisional tariff cuts on a number of products.

But the single most visible, and perhaps most important, development over the last two years is the U.S. Administration's attitude towards preferential regional trade arrangements, the report notes.

The movement towards a North American Free Trade Agreement (NAFTA) among Canada, Mexico and the U.S. - negotiated under the "fast track" authority have been swift and decisive. In addition to NAFTA, other regional initiatives aimed at an eventual free-trade or preferential conditions for Latin American countries are also being currently considered in Congress.

The impact of these new groupings on world trade, the report warns, may be "far-reaching".

NAFTA countries with a total population of 360 million account for six trillion dollar output, and Canada and Mexico already are the biggest individual trading partners of the U.S.

The size of these economies points to a "possibility that the free trade arrangements could, through trade diversion, adversely affect third parties' trade with the U.S.", GATT warns.

"In particular the possible emergence of a complex network of preferential programmes covering the American continent could further undermine the most-favoured nation principle".

"On the one hand, expectations have been mounting for the successful conclusion of the Uruguay Round and for the GATT to play a central role in consolidating and sustaining the economic and trade reforms being undertaken in central and Eastern Europe, Latin America, Asia and Africa. On the other hand, concern about the erosion of basic GATT principles by regionalism, bilateralism, unilateralism or various forms of managed trade is increasing.

"The United States has a major responsibility for maintaining and reinforcing the faith of the international business community in the open, liberal multilateral trading system", the report adds.

Based on its perceived need to respond to fierce competition from subsidised exports by other competitive agricultural exporters, the U.S. has continued to subsidise its own exports of major agricultural commodities, while seeking in the Uruguay Round major reductions in export subsidies.

And while the U.S. over the last two years has avoided major disputes with trading partners where feasible, and in dispute cases has used GATT or other multilateral procedures where they exist, "the possibility of unilateral action under S. 301 and related provisions remain", GATT notes.

U.S. trading partners would like to see a firm commitment from the U.S. not to use retaliatory actions without first completing multilaterally agreed dispute settlement procedures under a much strengthened and expanded GATT system "a key part of the negotiations on dispute settlement in the Uruguay Round".

The report notes in this regard that at the last TPRM review of U.S. trade policy, many of GATT Contracting Parties (CPs) had expressed strong concerns over U.S. unilateralism. The U.S. actions under S. 501 was particularly controversial and CPs pointed out that the General Agreement did not allow for any unilateral interpretation of rights and obligations of CPs nor for any unilateral action by one CP against another in order to bring its trade policies into conformity with the General Agreement.

No new investigations have been initiated under "Super 301" and the six cases initiated in 1989 were terminated or suspended and super 301 itself had since expired in 1990. The number of S. 301 investigations had also declined and no retaliatory actions had been taken since January 1989. Fourteen S. 301 investigations have been terminated or suspended. But in April 199 1, China, India and Thailand were named as "priority" countries under Special 301.

This more restrained approach may not suffice to dissipate concerns over potential impact of S. 301 and its related laws, and CPs are seeking a clear commitment from the U.S. not to use S. 301 authority without first completing the GATT dispute settlement process.

However, "So far the U.S. has given no such undertaking", the report notes. Moreover, where a foreign practice judged "unfair" by the U.S. is not covered by multilateral rules, the U.S. intends to continue to use S. 301 for leverage in bilateral negotiations.

The report points out that the U.S. has been "one of the most frequent users" of antidumping and countervailing duty actions. While the number of new investigations were relatively small in the first half of 1990, they have since grown rapidly.

"Frequent recourse to such provisions generates a considerable degree of uncertainty for exporters, let alone considerable legal costs incurred in defending cases".

Although the share of imports directly affected by such actions is relatively small - less than one-half of one percent "the uncertainty generated may have induced trading partners to voluntarily restrain their exports to the U.S. or price their goods 'defensively' or conclude bilateral arrangements with similar aims", GATT points out.

In some sectors such as steel and semiconductors "there appears to be a strong correlation between the frequency of antidumping investigations and emergence of VRAs or similar arrangements as a basis for the termination of investigations".