Jun 8, 1988


GENEVA, JUNE 6 (IFDA/CHAKRAVARTHI RAGHAVAN) -- Possible elements of a comprehensive safeguards agreement were reported to have been discussed by the Uruguay Round negotiating group on safeguards at its meetings here last week.

The group, chaired by Georges A. Maciel of Brazil, is expected to continue these discussions at its next meeting in July.

The Ministerial declaration mandates that the agreement on safeguards:

--Shall be based on the basic principles of the general agreement,

--Shall contain, inter alia, the following elements: transparency, coverage, objective criteria for action including the concept of serious injury or threat thereof, temporary nature, degressivity and structural adjustment, compensation and retaliation, notifications, consultation, multilateral surveillance and dispute settlement, and

--Shall clarify and reinforce the disciplines of the general agreement and should apply to all Contracting Parties.

Discussions at this week’s meeting reportedly centred around a paper presented by India.

Others papers before the group, tabled last year, include one by Brazil, and another by Australia, Hong Kong, Korea, New Zealand and Singapore.

The Nordic group of countries have also tabled before the group this time a paper outlining their views and opinions on a number of factors they consider relevant to the safeguards negotiations.

The safeguards or the "escape clause" in Article XIX of the general agreement outlines the conditions and circumstances in which a Contracting Party could take emergency action to restrict imports of particular products.

The issue of a multilateral safeguard system, particularly the modalities for application of Article XIX, has been on the GATT agenda since the 1973 Ministerial Declaration launching the Tokyo round MTNS.

But no agreement could be reached in the Tokyo round because of the insistence of the EEC and other Europeans to be empowered to apply safeguards "selectively", that is on a discriminatory basis, restricting imports from some but not all sources.

Third world countries have been opposed to "selectivity", viewing this as an effort to get GATT authorisation to extend the discriminatory import regimes of the Multifibre Arrangement to the entire GATT trade, and for use against third world countries.

The Punta del Este declaration has underscored that "a comprehensive agreement on safeguards is of particular importance to the strengthening of the GATT system and to progress in the MTNS".

Without saying so explicitly, the Ministers thus put a high priority on this issue.

Nearly two years into the Uruguay round, discussions do not seem to have made much progress on the central issue of "non-discrimination" vs. "selectivity", and there is perhaps even a sliding back.

Firstly, in recent years, the industrialised countries, instead of invoking the Article XIX provisions, have been taking increasing recourse to trade harassment actions against imports through use of Anti-Dumping and Counter-Vailing (AD/CV) procedures.

Initiation of these proceedings, or investigations to initiate, have themselves been sufficient to persuade trading partners, particularly the third world countries, to agree to Voluntary Export Restraints (VERS) and other such grey area measures to restrain their exports.

Secondly, the industrial countries are increasingly favouring the "selectivity approach" of the EEC, and either openly say so or refrain from mentioning the "non-discrimination" principle, which as enshrined in article one of the GATT has long been considered as the most basic principle.

The Nordic paper, for example, does not mention the first indent in the Ministerial Declaration on the subject, though arguing under "geographical coverage" for bringing within scope of a safeguards agreement all "grey area" measures which, it points out, have a common feature of all being "non-MFN".

The U.S. in the Tokyo round negotiations was in favour of non-discrimination and against selectivity.

The omnibus trade bill adopted by the U.S. Congress, and vetoed by the White House, in its mandate to U.S. negotiator on this issue does not mention the "non-discrimination" provision at all.

The Indian paper, which was reportedly discussed at some length this week, notes that the idea behind Article XIX is to enable CPS "to provide breathing space" to an industry faced suddenly with new conditions of competition, and not pass on the burden of adjustment to exporters.

During the period of temporary relief, India points, the industry could take a decision whether it was expedient to try to become competitive or vacate the line of products.

Safeguard measures also serve the purpose of "distributing equitably" the burdens of adjustment over producers and consumers.

"It follows from these twin objectives", the Indian paper says, "that safeguard measures can have justification only if they are temporary".

"Further it is difficult to derive from these objectives any rationale for discriminatory application of safeguard measures".

"The negotiating group on safeguards should therefore aim at a comprehensive understanding which ensures that all safeguard action is taken only temporarily and on a non-discriminatory basis".

To secure transparency, the Indian paper calls for all notifications (of safeguard actions) to contain all particulars to enable affected CPS to be satisfied that conditions and objective criteria for such action have been met.

There should also be notification of all existing measures not based on GATT but which act as substitutes – VERS, OMAS, price monitoring schemes, inter-industry agreements, export forecasting and similar arrangements.

The understanding should "explicitly prohibit selective safeguard action" whether taken overtly under Article XIX or by circumventing GATT through alternative measures.

"Very strong political and economic arguments exist in favour of reaffirmation of the MFN principle", India asserts.

"Departure from this principle will not only make recourse to safeguard action more frequent but also the weaker nations more vulnerable".

"In terms of economic efficiency, discrimination for penalising the most efficient supplying country does not make sense. It is also not equitable to selectively determine who should bear the consequences of the safeguard action".

In this view, India also suggests that VERS, OMAS and other discriminatory grey area measures and extension of the Multifibre Arrangement would become "impermissible", and all such measures brought in conformity with comprehensive understanding or eliminated.

The Indian paper also calls for precise elaboration of the concept of "serious injury" which would enable safeguard actions, and the factors to be examined to enable determination of the health of the domestic industry.

Not only the extent of market penetration, but the rapidity of increase in the market of imports, and a direct causal link between increased imports and serious injury should be established.

The temporary nature of the safeguards is also fundamental. Hence a short and specific time limit should be provided, and continuation of safeguards should be accompanied by implementation of domestic measures to induce structural adjustment and should not exceed a maximum time limit to be provided.

Once safeguards measure is temporary, the question of compensation or retaliation becomes less important, in the Indian view.

Nevertheless the possibility of compensation should be considered under certain circumstances, particularly when continued safeguard action would adversely affect the exports of the third world countries.

There should also be multilateral surveillance of safeguards action through a committee on safeguards.

Such a comprehensive understanding could be achieved either through an amendment to GATT, adoption of a code or adoption of an understanding by consensus.

India favoured the consensus approach, since this is the only way by which the adherence to the understanding by all Contracting Parties could be ensured.

During the discussions, Brazil, Mexico, Argentina, Czechoslovakia, Australia and Hong Kong reportedly expressed support for the ideas and proposals, while the EEC was "impressed" by the philosophy behind the Indian communication.

Japan reportedly questioned the provision for domestic structural adjustment measures, since adjustment was a matter for the market forces.

However, the U.S. saw logic in the Indian proposal that if the temporary safeguards action were sought to be continued, there would have to be positive measures to induce structural adjustment.