Feb 3, 1989

U.S., EEC OPPOSE PROSCRIPTION OF "GREY AREA" MEASURES

GENEVA, FEBRUARY 1 (IFDA/CHAKRAVARTHI RAGHAVAN) The United States and the European Communities are reported to have made clear their opposition to any agreement on "safeguards" in the Uruguay round, which would ensure non-discrimination and proscribe "grey area" measures.

The U.S., EEC positions reportedly came out at this week's "green room" consultations in GATT - part of the post-Montreal efforts to get the negotiations move forward.

Besides their opposition to any limitation on "grey area" measures, the two - the EEC more openly, and the U.S. less so reportedly also made clear that they were not ready to commit themselves to a safeguards agreement based on the fundamental principle of non-discrimination enshrined in article one of the GATT.

Third world countries for their part reportedly made clear that any safeguards agreement not be based on this principle would change the nature and direction of GATT and thus unacceptable to them.

The issue of safeguards, they underscored, had been pending in GATT for over 15 years now, and without a firm political commitment and direction on the principles there could be no progress in the negotiations, and no balanced outcome in the round.

"Safeguards" is the term used for emergency protectionist actions that countries are authorised to take under article XIX of the general agreement, but subject to specified conditions and limitations set out in that article.

"Grey area" measures is the term for such arrangements like "Voluntary Export Restraints" (VERS), "Orderly Marketing Arrangements" (OMAS), and other bilateral government or government sanctioned agreements among exporters and importers.

The high level consultations, Tuesday and Wednesday, on the issue of "safeguards", is part of the post-Montreal efforts at GATT to get the Uruguay round negotiations moving forward again.

The Montreal mid-term review meeting-failed because of deadlocks on textiles, agriculture, safeguards, and Trade-Related Intellectual Property Rights (trips).

GATT Director-General Arthur Dunkel, in his personal capacity as chairman of the official-level meetings of the Uruguay round Trade Negotiations Committee (TNC), has been asked to hold high-level consultations in these four areas.

Last week, consultations were held on textiles. TRIPS consultations are due to begin Thursday.

The consultations on safeguards are to resume on February 20 when Dunkel is expected to put forward a draft of his own.

The Punta del Este declaration mandates conclusion of "a comprehensive agreement on safeguards" and stipulates that it "shall" be based on the "basic principles" of the general agreement, and "shall" clarify and reinforce the disciplines of the general agreement and apply to all Contracting Parties.

The mandate also sets out some elements that the agreement on safeguards "shall contain": transparency, coverage, objective criteria for action including concept of "serious injury or threat thereof" (one of the conditions stipulated in article XIX), temporary nature, degressivity and structural adjustment, compensation and, retaliation, notification, consultation, multilateral surveillance and dispute settlement.

The issue of a safeguards agreement was on the agenda of the Tokyo round, but no agreement could be reached because the EEC and other Europeans sought an agreement that would enable them to take "selective" or discriminatory actions against particular but not all sources of imports. The third world countries, victims of such actions, refused to agree.

The issue was subsequently put on the 1979 GATT work programme as "a matter of urgency", and for agreement to be-reached by July 15, 1979. But no agreement could be reached, and the issue was again given high priority in the 1982 work programme, and is now one of the 14 items on the agenda for trade in goods.

By implication, the Punta del Este declaration has envisaged early results in this area. However, in the two years of negotiations, there has been no progress on this issue.

The recommendation for the Montreal meeting out of the negotiating group was merely a procedural resolution authorising the chairman of the negotiation to draw up elements for inclusion in the draft text.

But India, Brazil and a few others did not agree to a mere procedural draft. They put forward a three-point proposal for Montreal, for clear Ministerial commitments and direction. But the industrial countries would not agree, and the proposals were forwarded by the Group of Negotiations on Goods (GNG) to Montreal.

These called for ministerial agreement on three "key principles" for any safeguards actions: limited duration, non-discriminatory character, and proscription of "grey area" measures.

The proposals were initially dismissed as merely the views of "one delegation". But at Montreal it was found that it had support of a number of other third world countries.

In the result, no agreement could be reached, and the entire proposals and recommendations were remitted back for high-level consultations in Geneva.

In the Tokyo round, the EEC was the only major protagonist of the "selective" approach. Subsequently, it has also been taking the position that "grey area" measures are not prohibited in GATT and hence valid.

Such grey area measures have proliferated in recent years and now cover the sectors of footwear, steel, automobiles, steel, electronics (consumer goods and otherwise), and the more recent cartel-like arrangements between the U.S. and Japan over semi-conductors.

The 1988 omnibus trade and competitiveness law of the U.S. has even gone further and virtually has asked the administration to negotiate more grey area measures as in the steel sector.

In the "green room" consultations this week, participants said a large number of third world countries reportedly expressed themselves in favour-of clear commitments on the three principles as the only way of moving the negotiations forward.

India reportedly pointed out that one of the major objectives of the Punta del Este declaration was strengthening of the multilateral trading system, which in recent years had degenerated because of the proliferation of "grey area", measures.

A comprehensive safeguard agreement had hence become crucial for the preservation and strengthening of the system.

There had been inadequate progress in the negotiations before Montreal, and this was what had impelled India to underscore the need for some ministerial actions at Montreal that would give a political impetus to the negotiations and give it a high priority.

The procedural draft of the chairman of the negotiating group would not have provided the impetus.

The Ministers, in their mandate at Punta del Este, had already called for an agreement based on the "basic principles" of the general agreement. Hence what was needed was to spell out the "basic principles".

Also, since some major trading partners were asserting that they could take recourse to grey area measures, and since such measures would merely circumvent GATT provisions and article XII, it was necessary to proscribe such grey area measures.

A clear distinction had to be drawn between "the basic principles of the general agreement", mandated by the Ministers, and the various elements, which are to be negotiated and on which the agreement should be based.

The three points put forward dealt with the "basic principles" of the general agreement.

Before Montreal, it had been argued that the principles were "good", but they had come too late and governments did not have time to consider them.

The proposals had been already before governments for three months, and hence at the TNC meeting in April, governments should be ready to agree on these "basic principles".

A number of third world countries - Argentina, Brazil, Colombia, Mexico, Pakistan, Uruguay and Yugoslavia reportedly spoke making similar points to underscore the need for agreement on the basic principles in the high level consultations.

Australia and a few others reportedly supported the substance of the principles, but felt that acceptance would involve changes in the U.S. trade law and hence third world countries demanding proscription of "grey area" measures should be realistic.

Japan, Hong Kong and a couple of others reportedly agreed that these principles were crucial and if a decision could be taken at the April TNC meeting, it would enable the negotiations to move forward quickly and agreements to be reached.

However, as Japan reportedly put it, these issues had been pending for ten years and it was unrealistic to believe that agreements could be reached in the next two months.

But third world countries said that if after so much of technical preparations, they could not agree on the basic principle, no agreement could be reached on this issue in the round, and this would jeopardise the emergence of a balanced package.

Some suggestions about use of language to suggest priority for the negotiations, but without any commitment on the principles, were however reportedly turned down by the third world participants.

Uruguay reportedly remarked that use of language to sweep under the carpet the basic differences would not be very useful. The same issues would come up within two months in the negotiations, and it was better to decide on the principles now.

Any opposition to the "non-discrimination" principle would radically change the direction of GATT and the contents of article XIX and the government of Uruguay would not be able to support it, the delegate reportedly remarked.

In other remarks third world participants also reportedly said that they would have no objection to any use of language that would "merge" the points about "non-discrimination" and "proscribing" of grey area measures, but would not agree to "submerging" these principles and making them part of the "elements" of the agreement to be negotiated over the next two years.