ELEMENTS FOR SAFEGUARDS AGREEMENTS OUTLINED IN GATT.

Jun 2, 1987

ELEMENTS FOR SAFEGUARDS AGREEMENTS OUTLINED IN GATT.

GENEVA MAY 27 (IFDA/CHAKRAVARTHI RAGHAVAN) -- Measures to end what the Brazilian delegate has described as "the corruption" of the GATT system, namely the increasing abuse of its provisions for "safeguards actions" to maintain discriminatory import regimes against third world countries have been outlined to the Uruguay Round negotiating Group on Safeguards.

At the meetings of the Group this wee, chaired by Georges Maciel of Brazil, two working papers were presented: one by Brazil outlining its preliminary views on the safeguards "understanding" through an amendment of article XIX of the General Agreement, and the other by five Pacific Rim States (Australia, Hong Kong, South Korea, New Zealand, and Singapore) on the elements for an agreement on safeguards.

The two papers have some common elements outlining the specific conditions and criteria to be satisfied before an importing country could take such protective actions to safeguard its domestic producers, including the setting up of a GATT surveillance body to monitor the application of such measures.

Both would outlaw "grey area" measures like Voluntary Export Restraints (VERS) and Orderly Marketing Arrangements (OMAS), though one does it implicitly with a phase-out of existing ones and the other explicitly and without a phase-out period.

But there are also some points of divergence.

The Brazilian paper would permit an importing country to take domestic adjustment assistance measures, which could include production subsidies or tax incentives, and would restrict border control measures specifically to tariff measures.

The paper of the five does not envisage such domestic support measures, but would permit both tariff measures and Quantitative Restrictions (QRS), a measure which in the event of import restrictions would result in "freezing" existing market shares.

The Brazilian paper has said that the "understanding" should be in the form of an amendment to article XIX of GATT, and until such an amendment comes into force the "understanding" should be made operative through a protocol of provisional application.

The understanding should be based on GATT's central principle of non-discrimination, and should outlaw bilateral and selective actions and grey area measures.

The Brazilian paper envisages two types of "safeguard" actions that could be taken by an importing country in specified circumstances and conditions.

While the Brazilian paper has not spelt out some details of the criteria, etc., it promises a more precise formulation later of definitions like "serious injury", and the causal link between "unforeseen, sudden and substantial increase in imports" and "serious injury" warranting safeguards action.

The first and preferred type of safeguards proposed by the Brazilian paper is for the importing country to undertake "domestic adjustment assistance measures", involving direct production subsidies or tax incentives to the sector affected.

In the second type of action, import relief measures in the form of tariff increases would be put in place for a maximum specified period to be agreed upon, and applied on an MFN basis.

A country taking safeguard actions by way of providing domestic adjustment assistance, or import relief measures for a period not exceeding the maximum to be specified in the "understanding", would not be called upon to compensate its trading partners who are affected.

Nor could it be hauled up for violation of the GATT's subsidy provisions in article XVI or those relating to nullification and impairment of rights of other CPS in article XXIII.

Under the current scheme in GATT, any CP taking "safeguard actions" has to consult with CPS with "substantial interest" in the product and reach agreement, and often this is achieved by providing "compensation" or concessions for equivalent value of trade in other products.

If no agreement is reached, the affected CPS can take "retaliatory actions", withdrawing equivalent concessions from the CP taking safeguard actions.

The Brazilian paper suggests that safeguard actions under a revised article XIX would cover emergency situations having solely to do with "serious injury" to domestic producers deriving from unforeseen, sudden and substantial increase in imports of specific products traded in accordance with GATT rules.

Where there is only a situation of "threat of injury", and "injury" could thus be foreseen, there should be appropriate negotiations under article XXVIII of GATT (for modification of the tariff schedules), the Brazilian paper suggests.

The domestic adjustment measures could be resorted to on the basis of a determination by the importing CP concerned "of the existence of 'serious injury' caused by 'unforeseen sudden and substantial increase in imports' of a given product".

The programme of such domestic adjustment assistance measures should be notified before they are actually implemented.

Import relief measures, on the other hand, could be resorted to only after determination by the surveillance body of the persistence of a situation of "serious injury" caused by "unforeseen, sudden and substantial increases in imports", not remedied by implementation of a programme of domestic adjustment assistance measures.

Individual CPS who are members of a customs union would not be entitled to resort to import relief measures under article XIX. Only the customs union acting as a collective entity could take such action.

The maximum period for use of import relief measures would be specified in the understanding. If this period is exceeded, the CPS affected by such measures would have the right to get equivalent compensation in other products or take retaliatory measures of equivalent trade value.

Third world CPS would be able to apply import relief measures for longer periods of time.

Domestic adjustment measures and import relief measures adopted by a CP would have to be notified, and any affected CP would also have the right of "counter-notification".

Safeguard measures in force under article XIX as well as VERS and OMAS being applied when the protocol of provisional application enters into force would have to be immediately terminated, if such measures had been in force for a period longer than the maximum period allowed for such measures by the "understanding".

If they have been in force for a lesser period, they would be allowed to continue till the maximum permitted period.

A special surveillance body would be set up in GATT to monitor application of domestic adjustment assistance measures and import relief measures. This body would also monitor the termination or continuation of safeguard actions being applied at the time of the entry into force of the protocol of provisional applications.

Import relief measures under the Multifibre Arrangement (MFA) would be phased out, after the expiry of the MFA, "over a period of time to be agreed upon" in order to bring the trade in textiles and clothing under the GATT rules and disciplines, and in particular of the new article XIX.

The paper of the five does not appear to envisage any amendment of article XIX, but provides for an agreement, specifying that all (protective) measures not specifically justified under other GATT articles should be taken in accordance with article XIX and the provisions of the agreement.

Like the Brazilian paper it requires a causal link between increased imports and the serious injury to domestic producers. it also sets out some objective criteria by which these can be tested.

All safeguard measures are to be applied erga omnes without discrimination among CPS, and only to particular products and not through any devices to produce "a narrow and selective definition of source".

While the paper of the five calls for safeguard actions "normally" taken the form of tariffs, it also enables QRS to be imposed, but not below the average level of a recent representative period.

There are provisions to secure transparency of actions through notifications, including a time-table for phase-out of the restrictions.

The paper of the five also requires that all protective measures not based on GATT (the so-called "grey area" measures including VERS, OMAS, industry-to-industry arrangements, administrative arrangements maintained by governments an including on inter-governmental basis having a safeguards effect)m, unless justified by "conditional exemptions" in GATT, should be brought into conformity with article XIX or be eliminated.

All safeguards measures should be temporary and not applied for a period exceeding three years. Where the measures taken exceed a period of 12 months, they have to provide for "degressivity" and progressive liberalisation during the period of application.

The paper of the five also enables the extension, beyond the original three-year period, of the safeguard measures provided specified conditions are fully met.

Dit also calls on the CP taking safeguards action to provide "equitable compensation" on a non-discriminatory basis, rather than the suspension of substantially equivalent concessions envisaged in article XIX.

Where exporting third world countries are affected, the special situation of these countries are to be taken into account, and if the parties fail to reach an agreement the surveillance body is to make recommendations for compensation.

The paper of the five requires that prior to taking any safeguard measures or extending measures in force, the consultation procedures now set in article XIX "shall be strictly observed".

Where there are "critical circumstances" forcing a CP to act even without prior consultations, such an action should be limited to three months, during which period the consultation and agreement procedures should be complied with.