Feb 13, 1990


GENEVA, FEBRUARY 11 (BY CHAKRAVARTHI RAGHAVAN)- The European Economic Community will stick to its demands, in the Uruguay Round negotiations on "Trade-related Investment Measures" (TRIMs), for severe restrictions on the ability of Third World countries to regulate domestic and foreign investments by incentives coupled with performance requirements.

Also, the EEC proposals for "selective safeguards" is the price Third World countries are to pay for the EC single market in 1992 and consequent end to rights of EEC member-states, under Article 115 of the Treaty of Rome, to take measures against "deflection of trade" by imposing restrictions on imports of third country goods from territories of other member states.

These positions of the EEC have become know here after the meeting in Brussels last week between a group of Ambassadors of Third World countries and the Vice-president of the EC Commission, Mr. F. Andriessen.

Andriessen, the Commissioner for external relations, however tried to assured Third World diplomats that the EEC's intention was to use selective safeguards only on "rare occasions" and that in applying safeguard measures in Textile sector, the EEC would not take away with one hand what it was granting by way liberalisation on the other.

In the Uruguay Round negotiations, the EEC has called for incorporating as a permanent feature of the GATT provisions the right to take "selective safeguards". In the Textiles and Clothing sector, the EEC has called for a long transitionary period with its own safeguard arrangements, when MFA restrictions would be phased out and integration of the trade into the GATT would be achieved.

The EC official would however appear to have agreed with the Third World envoys that Uruguay Round talks would not succeed if "development considerations" enshrined in the mandate were ignored.

On agriculture, he underscored the fundamental differences between the positions of the EEC and the U.S. and hoped agriculture would not block the successful conclusion of the Uruguay Round. Andriessenís views were conveyed at luncheon meeting with Ambassadors of Algeria, Bangladesh, Brazil, Chile, China, Colombia, Egypt, India, Mauritius, Pakistan, Peru, Sri Lanka, Trinidad and Tobago, Tunisia, Tanzania, Uruguay, Venezuela, Yugoslavia and Zimbabwe, where Third World concerns over the Uruguay Round were conveyed to him

. The proposals of the EEC and other ICs in the various Uruguay Round negotiating areas and the likely outcome if these are accepted would be, not development, but impoverishment of the Third World, Indian Ambassador G. V. Ramakrishna said in a speech at the lunch on behalf of the group.

Placing the Uruguay Round negotiations in the content of the disastrous economic situation of the Third World in the 80ís, the Indian diplomat noted the fundamental differences in approaches of the ICs and the Third World in the negotiations.

The ICs felt that trade liberalisation, reduced tariffs, reduced recourse to Article XVIII (balance-of-payments provisions) and increased market access to foreign investment and foreign services would bring about the necessary changes in the Third World.

The Third World countries did not agree that mere liberalisation in all these areas without looking at other important aspects of economic development Ė finance, technology transfer, manpower development and market access in rich countries - would achieve the desired results. On the basis of past experience they were convinced that without the other ingredients, "further trade liberalisation will be a sure way of transforming the nineties and beyond into further decades of disaster".

The ICs undertook a number of commitments in the Punta del Este Declaration, including on the principle of the differential and more favourable treatment to the Third World.

Though Third World countries, taking these commitments seriously, have participated constructively in the negotiations, the commitments had not been reflected in the various proposals of the ICS.

Having participated in the negotiations, and having studied the various proposals in various areas including those of the EEC, the Third World countries felt that the "spirit and letter of the Punta del Este mandate no longer pervade the negotiations in Geneva", Ramakrishna declared.

Referring in this connection to the EEC's proposals in TRIMs, Ramakrishna said that almost every aspect of investment policies of the Third World was being viewed as "trade-related" and, not only foreign investments but also domestic investment policies were sought to be covered and brought under multilateral surveillance.

But no account was being taken of the restrictive business practices of TNCs, the need for technology transfer, or even the capacity of Third World countries to enable repatriation of profits.

Traditionally, foreign investment was seen as bringing in not only capital resources but also technology, management, marketing and modernisation of host country industries and make them competitive in world markets. Investment policies of Third World countries sought to achieve precisely these objectives.

In a reference to the EC's own restrictions against Japan, the Indian envoy asked: "If screw driver technology is frowned upon and local content insisted upon even in the advanced industrialised countries, how match more would these concerns be important in developing countries?".

As long as foreign investment provided access to international markets better technology, and greater domestic competition, it would be welcomed by most Third World countries.

"But transfer of technology cannot take place if the foreign investor does not encourage local manufactures of graduated and increasing proportion of the finished product.

FDI usually also came in with commercial bank lending, and the burden of servicing profit remittances and bank loans could be met only by export earnings. But the most pernicious of the RBPs was not merely the refusal or reluctance to accept export obligations, but prohibition of exports from the host country to third country markets, Ramakrishna pointed out.

"In these conditions of foreign investment, where does the balance of advantage lie for the developing countries either in terms of trade or finance or development which are all recognised in the Punta mandate as important objectives?".

This was just one example of the relative negotiating positions of the ICs and the Third World. The same differences in approach persisted in several other issues too.

"On balance", the Indian envoy added, "the developing countries are convinced that a combination of import liberalisation through stricter surveillance of use of Article XVIII, tariff cuts, foreign investment with full repatriation without any assurance of technology transfers or exports on the one hand, and continued protectionism, safeguard measures, NTBs including textile quotas and dwindling ODA on the other, is sure recipe not for development or for external viability or solution to debt problems or increasing financial flows or reducing negative transfers, but for the deterioration of the terms of trade, worsening trade deficits, increasing debt burden and increasing negative transfers and the impoverishment of the poorer countries".

In his response, Andriessen reportedly said that the EEC viewed foreign investment as essential for economic development of the Third World and hence would not moderate its stand.

Apart from the TRIMs issue, Intellectual Property, Agriculture, and Textiles were among the issues raised by the Third World participants with presentations by Brazil, Egypt, Bangladesh, Pakistan, China and Mauritius.

On the "selective safeguards" issue, Andriessen could only assure the Third World envoys that such measures would be taken "only in rare cases" and that such an instrument was necessary "to preserve the overall integrity of the GATT arrangements".

The EEC proposals, he is reported to have said, should also be seen in the light of the revocation of the Art. 115 of the Rome Treaty as a consequence of the 1992 single European market. Third World observers in Geneva said the response implied that the burden of adjustment to structural change within the member countries is to be passed on to Third World countries.

On TRIPs, the EC Vice-president is reported to have said that the EC would be "flexible" and was open to apportioning an important role in setting substantive norms and standards to the WIPO and that the EC would adopt "a middle path" between the U.S. and the Third World countries.

While this position might help to resolve the institutional battles between WIPO and GATT, Third World observers noted that so long as the attempt to impose certain uniform international standards on areas of patents and other rights, the term of patents and issues like process and product patent, and trade sanctions as a measure of enforcement, was maintained, the EECís moderation would not be of much benefit to the Third World.

On Textiles and Clothing, Andriessen reportedly agreed on the importance of this sector in the export earnings of Third World countries and that the MFA would have to be phased out. The Commission, he reportedly said had been facing some resistance from some of its members who would be "disproportionately affected". But the Commission had "substantially reconciled these internal differences" and agreed on the need for liberalisation in this area. For these reasons they were opposed to the U.S. proposals for transitional arrangements including the imposition of global quotas.

Also doubtful whether the amendment procedure could be used to incorporate into GATT obligations in areas which, it could be argued, fall outside the scope of GATT. Also, any amendment if it involves changes in Article I (most-favoured-nation treatment provision) would need unanimity.

An idea being canvassed informally and sought to be pushed through is to create an international trade organisation - not through the normal process for adoption of a treaty or convention, namely, summoning an International Conference by a few sponsoring States or a UN Conference summoned by the UN General Assembly, to negotiate and adopt the new treaty and throw it open for signatures and ratification - but through the non-transparent GATT Uruguay Round processes. The intention appears to be to get Ministers, at the final meeting in Brussels in December 1990, to agree to this as part of the overall package of Uruguay Round agreements and open the agreement for signature. The new institution, though it might evoke the image of the Havana Charter and its International Trade Organisation which were aborted by the U.S. refusal to ratify, would be nothing of that sort. It would not, for example, deal with the restrictive business practices and other anti-competition activities of the TNCS, nor deal with commodity policies and stabilisation of markets and earnings, nor provide for development.

It would in fact be an organisation guaranteeing the rights of TNCs and spelling out the obligations of governments and providing for trade sanctions to enforce these rights.