Geneva 2 June (TWN) -- A clear North-South divide on regional integration moves within the South and how they are to be examined in the GATT, which came to a head over the MERCOSUR agreement (among Argentina, Brazil, Uruguay and Paraguay) has been resolved by an agreement to look into it through a working party established by the GATT Committee on Trade and Development (CTD).

While both sides insisted this would not be a precedent, the CTD appears to have agreed at its meeting last week to have a working party, open to all members, to look into the Mercosur agreement in terms of the 1979 Enabling Clause as well as other GATT provisions, namely Art XXIV relating to the customs unions and free trade areas.

The 1979 Enabling Clause allowed developing countries to enter into regional or global arrangements to extend mutual tariff preferences, without necessarily having to extend it to other GATT cps (the developed countries) and to provide non-tariff preferences.

And subject to criteria and conditions prescribed by the CPs, they were also enabled to enter into preferential arrangements for non-tariff preferences.

So long as the regional integration moves of the developing countries, seemed to be more rhetorical than substantive, the developed countries in the GATT did not really bother.

In the early 80s, their institutions, the World Bank and the IMF had been propounding the dogmatic view about global free trade and against regional arrangements and preferences as being less efficient.

But now that in various developing country areas, regional and subregional agreements are coming into play, and even the Bank and the Fund are getting less dogmatic, given the need of countries to expand trade in an era when the Northern markets are growing less strongly, a change has come.

The developed countries want to ensure their markets and market shares in the South, and politically are still wary of allowing independent sources of growth and with it power in the South.

When the Mercosur was notified to GATT in 1992, the US wanted it to be looked at through the GATT Council, while the Mercosur countries, supported by other developing countries, insisted on the CTD framework and the Enabling Clause.

The EC compromise suggested that the working party could be set up in the CTD but look at all the issues, noting that even under the enabling clause other affected contracting parties and their rights had not been abrogated.

The US had been resisting it all along, but ultimately agreed to the compromise.

At the CTD, after it agreed to the compromise, all the industrialized countries took the floor to make the point that this was to be without precedent, namely, that they reserved the right to insist on future regional integration agreements being considered and looked at in terms of Art. XXIV.

The developing countries for their part, led by Asean, also took the floor to insist that the compromise is not to be a precedent, meaning that as far as they are concerned, all developing country preferential or free trade agreements should be looked only in terms of Enabling Clause.