Feb 3, 1990

EEC UNVEILS PROPOSALS FOR "SELECTIVE" SAFEGUARDS.

GENEVA, FEBRUARY 1 (BY CHAKRAVARTHI RAGHAVAN)ó The European Community unveiled in the GATT Thursday its proposals for empowering importing countries to introduce "selective safeguards" or discriminatory protective measures against imports from some but not all sources.

The EECís proposals would in effect also legitimise voluntary export restraints and other grey area measures, which have already brought the GATT system into disrepute and which Third World countries want to outlaw by the measures either being brought into conformity with GATT disciplines or phased-out.

Instead the EEC would provide for multilateral surveillance to ensure that the exporting countries implement them.

The EEC proposal, which has the indirect backing of the U.S. and some other Europeans, if accepted even in any modified form, would incorporate into the GATT the pernicious and discriminatory features of the special arrangements, now viewed as am exception and maintained in derogation of GATT.

The proposals were put forward in the Uruguay Round Negotiating Group on Safeguards, but met with strong opposition and criticism from a number of Third World countries including Brazil, Chile, China, Hong Kong, India, Pakistan, Korea, Mexico, Egypt, and Yugoslavia. Among the Industrial countries Australia, New Zealand, Japan and Switzerland also opposed "selectivity". However, the EEC got some indirect support from the U.S., which spoke of the need for realism and pragmatism, and congratulated the EEC for bringing on the table what had so long been under the table in the negotiations.

In a paper outlining "ideas" tabled last year, the U.S. in fact had flagged the issue of "selectivity", though it was done in such a way as to give the impression that the U.S. was merely taking note of suggestions of others.

The group has been mandated to negotiate a "comprehensive agreement an safeguards" and such an agreement, according to the Punta del Este Declaration "shall be based on the basic principles of the General Agreement".

The most basic principle is the principle of "non-discrimination" and "most-favoured-nation" treatment that each contracting party to GATT is obliged to accord to any other contracting party.

The EEC's scheme will violate this fundamental principle.

In justification, the EEC has argued, in its communication, that it would be "unrealistic" to rule out the possibility of taking "selective action" which would be accompanied by "adequate guarantees" for the exporting countries and that such action would be justified when a sudden increase in imports from a limited number of suppliers was causing serious injury, and that it would be in the "objective interest" of both importing and exporting countries to agree an a specific remedy designed specially for the situation.

The issue of a comprehensive safeguards agreement has been on the GATT agenda since the 1970ís. It was on the Tokyo Round agenda as a priority issue, but no agreement could be reached because of the EEC demand for "selective safeguards". At that time the EEC was alone in this view. Now some of the other Europeans as well as the U.S. seen to be in support, though while the EEC wants to have the right to take unilateral selective safeguard actions the U.S. wants "consensual" selective safeguards.

In either case the parties that would be affected would be the Third World countries who are too weak to retaliate. It would not only become a powerful instrument against those in the Third World who are now competitive, but would preclude any newcomers too.

If the selective safeguards concept, whether consensual or otherwise, is put into the agreement, it would make the General Agreement a Super-MFA applicable to all goods.

Given the current proliferation of "grey area" measures and other harassment actions against the Third World, if there is no comprehensive agreement based on non-discrimination in the Uruguay Round, none of the likely gains in the "market access" groups would be worth anything, and the outcome of the entire round will become a negative factor for the Third World.

The EEC proposals would provide for what is characterised as "interim precautionary action", even before "injury" to domestic producers of like goods is established.

Under the EEC scheme, if the importing country in the course of an investigation reaches a "provisional conclusion" that a large increase in imports of a given product from "certain identified sources" was taking place in circumstances causing serious injury to domestic producers, the authorities of the "supplier" country could be asked to hold "immediate" consultations, within ten working days.

The purpose of the consultations would be to examine the situation with the supplier countries and reach an agreement. But if no agreement could be reached, the importing country could take a "interim precautionary" measures and restrict imports from the supplier countries.

In informal consultations, the EEC was asked whether in the case of a product where there are four or five suppliers, it would take action against the fourth or fifth supplier, without any action against the first or the second. The EEC had reportedly no reply. In the EEC scheme, the interim action is to be promptly notified to a GATT Committee on safeguards, and could last for a maximum period of eight months if the investigation is not completed before that.

Countries "injured" by the precautionary measure, under the EEC scheme, would be free to retaliate, by suspending application to the trade of the country taking action substantially equivalent concessions or obligations.

However, as several participants reportedly pointed out at the meeting of the negotiating group Thursday, this remedy would not avail for the weaker trading partners.

There is also stipulation that if an investigation does not establish "serious injury", the interim action is to be forthwith ended. However, there is no provision for any "compensation" to the supplier country in such a case.

If the investigation did establish "serious injury" to domestic producers due to large increases in imports from some sources, the authorities of the importing country could apply safeguard measures, but before doing so should enter into consultations with the supplier countries.

In the consultations, the parties are to reach an agreement to minimise the trade damage to the supplier country, but if no agreement could be reached the injured supplier country could take retaliatory actions by withdrawing substantially equivalent concessions from the importing country taking safeguard actions.

If after the safeguard actions against some suppliers, it was found that imports from unrestrained sources were increasing, the supplier country against whom action had been taken "may request, an grounds of fairness, the extension of restrictions to other suppliers", another part of the EEC proposal states.

The Safeguards committee is also to monitor compliance with "specific obligations" of the special safeguard regime "including any obligations entered into during consultations".

In effect the EEC scheme would thus not only legitimise "grey area" measures (like voluntary export restraints and orderly marketing arrangements, etc.), but make the compliance with such measures a GATT obligation of sorts that would be enforced through multilateral surveillance.

Long time observers of the GATT said that if the EEC scheme goes through, not only would be Third World countries not gain anything in the Round - what they gain in some market access groups being likely to be constantly threatened under the selective safeguards - but would lose so much that there would be no gains but only obligations through their membership of GATT.