Jun 2, 1987


GENEVA MAY 29 (IFDA/CHAKRAVARTHI RAGHAVAN) -- In what was described as a mixture of "filibuster and obfuscation" of issues in the safeguards negotiations in the GATT MTNS, the EEC is reported to have insisted this week that it would never agree to outlawing "grey area" measures.

The EEC position was reportedly given at the Uruguay Round Negotiating Group on Safeguards when it discussed working papers put forward by Brazil and a Group of Five countries (Australia, Hong Kong, South Korea, New Zealand and Singapore).

While third world countries underscored the importance of concluding a safeguards agreement as a matter of priority, the EEC commented on various points in the two working papers and tried to obfuscate the issues, but without indicating what it had in mind, participants said.

The other two major trading powers, the U.S.A. and Japan were even less forthcoming than the EEC, and merely indulged in generalities and preaching the virtues of "pragmatism", which is essentially a code-word to advise the third world countries to compromise GATT principles like non-discrimination and most-favoured-nation treatment to accommodate the EEC and reach an accord.

The Brazilian delegate, Amb. Paulo Nogueira Batista however had warned earlier that if the safeguards issue was not adequately dealt with in the Uruguay Round it would be "even more problematic to conceive of additional liberalization results".

Without a comprehensive safeguards agreement that would secure "a predictable framework of rules, operating in a non-discriminatory manner", third world countries would be unable "to pursue export oriented policies and to accept greater integration in the world trading system by binding or deducing their tariffs", Batista said.

"There will be no incentive for them to engage in this direction, in their exports, whenever they become competitive, are to be subject to arbitrary and discriminatory actions which negate free trade and against which, individually or collectively, they have no possibility of exercising any effective countervailing power".

Non-discrimination, the Brazilian delegate stressed, was "the most central principle of GATT", and this obligation not to discriminate "overshadows any other objective ... including that of liberalizing trade through reduction of tariff and non-tariff barriers".

A fundamental engagement deriving from GATT was each Contracting Party (CP) must accept external competition which observed GATT principles, and "let domestic producers adjust naturally to such competition".

GATT envisaged a number of situations where the CPS could depart from this rule, and governments were entitled to intervene and deviate from observance of general GATT rules or specific obligations assumed of trade liberalisation.

In cases of unfair competition, a CP could take action through levy of anti-dumping (AD) and countervailing (CV) duties, which by their very nature were "selective" and intended to penalize the exporter not observing the GATT rules. The MFN rules could not apply in such a case.

But a country could face adverse internal market situations even as a result of fair competition from foreign suppliers, and GATT did envisage safeguard actions in such cases.

Article XII enabled countries to impose import restrictions to restore BOP equilibrium, and these measures were of a general macroeconomic nature, and had to be applied without discrimination as to source of import.

But the type of safeguard actions envisaged under article XIX, relating to particular products, stood on a different footing, and required demonstration of injury and a causal link between unexpected rise in imports and verified injury.

"Given this inner logic of article XIX, safeguard action permitted under it cannot be applied on a discriminatory basis, since no exporter in particular can be held responsible for the situation created", Batista pointed out.

Bur under pressure of "micro-economic fair competition situations", industrialised importing countries had been increasingly resorting to selective actions -either by misuse of AD/CV duties or forcing on exporting countries grey area measures like VERS and OMAS, "which were not foreseen in GATT if not openly inconsistent with it".

In the textiles and clothing sector, the importing countries had succeeded in obtaining legal cover to depart from their general GATT obligations and the specific duty to take only article XIX safeguard measures.

There should be no effort, Batista declared, to solve the question by broadening the scope of article XIX in a manner that would give "legal coverage in future to safeguard actions of a selective nature, in the form of VERS and OMAS".

Explaining the Brazilian ideas for domestic adjustment support measures, Batista argued that it would not be consistent for governments to maintain that they should not interfere with the market by granting such assistance and at the same time defend "not only the right but the duty of governments to impede operation of free and fair trade by adoption of measures at the border".

The GATT concepts of special and more favourable treatment to third world countries should form an integral part of the new article XIX proposed by Brazil, rather than a mere exception or after-thought to rules considered reasonable for governing trade relations among industrialised trading partners.

The EEC delegate, Tran Van-Thinh is reported to have expressed the EEC's "worry" that the proposals did not take into account "the realities of the situation".

Without specifying what the EEC wanted in such an agreement, Tran reportedly made long interventions criticising the various aspects of the papers of Brazil and the Group of Five.

The wording of article XIX, in the EEC view, showed that there could be safeguard measures "other than tariffs".

The EEC would never agree to outlaw "grey area"" measures, which were actions of sovereign governments. Negotiators should try to tackle the causes that led to such measures.

Tran also contended that even article XIX as it stood enabled a CP to take measures suspending its obligations under article one (most-favoured-nation clause).

The creation of a surveillance body in the EEC view would increase safeguard measures. Also, governments could not be expected to know about or act against industry-to-industry arrangements.

Tran also questioned the concept of "compensation" by a country imposing safeguard actions to CPS supplying those products.

Though this was a "GATT practice", there was no provision for this in article XIX, which only envisaged retaliation or withdrawal of equivalent concessions.

The U.S. reportedly said it was firmly committed to reaching a safeguards agreement as early as possible, but felt there should be "practical and programmatic solutions based on compromise and reasoning".

Japan said the only question was whether they should have a "rigid-type of safeguards system", and if so how they would deal with "the real world and the U.S. Congress".

In other comments, a number of third world countries found fault with the paper of the five on the ground that it was modelled on the Multifibre Arrangement (MFA) while introducing the MFN concept.

Hong King is reported to have explained that there was a basic difference between their approach and that in the MFA, in that in their paper there was no concept of "market disruption" due to substantial increase in imports with a price differential.

Australia reportedly underscored the view that the safeguards agreement must cover all products with no exceptions - agriculture, textiles and anything else.

Any safeguards action must conform to four cardinal principles - MFN treatment to all imports, payment of compensation, mechanism for structural adjustment, and commitment to phase out grey area measures.

Hong Kong reportedly commented that the EEC had at-least addressed the issues, though it had not stated its own, but the U.S. and Japan had not even attempted to do this.

Canada reportedly agreed that article XIX did envisage not only "tariff measures" but also others, and thus enabled QRS also.

New Zealand felt that there could be some "cross-fertilization" between the two working papers. It wondered whether there was nay distinction between domestic adjustment measures and border measures, since the former could affect imports.

A number of third world countries underscored the importance of establishment of a causal link between the imports and the "serious injury" to domestic producers.

Malaysia preferred the tariff approach to border measures in the Brazilian paper rather than the QR-based approach in the paper of the five. Also, the agreement should be comprehensive and should incorporate the special and more favourable treatment to third world countries, and establish the causal link.

Argentina underscored the need for a comprehensive approach. Uruguay supported the paper of the five, while seeking clarifications on the Brazilian ideas.

India argued that in terms of the Punta del Este declaration this was one area which called for an early agreement. Such an agreement would also enable resolution of differences in other areas.

India favoured the approach of an amendment of the GATT article, with the proviso for provisional application, rather than any collateral approach through agreements and understandings.

Only actual serious injury to domestic producers should lead to actions under article XIX. All others, including "threat" of such injury should be dealt with under article XXVIII for renegotiation and modification of concessions.

The safeguards agreement should cover all products, and there should be a "sunset approach" for VERS and OMAS, and they should be quickly phased out.

China stressed the need for comprehensive solutions and felt both the Brazilian and the paper of the five merited consideration.

The next meeting of the group is to be scheduled for September, with the chairman holding informal consultations before the meeting in order to discuss a basis for negotiations.