Nov 1, 1990

TRIMS ISSUE STILL STUCK ON "MEASURES" VS "EFFECTS" APPROACH.

GENEVA, OCTOBER 31 (BY CHAKRAVARTHI RAGHAVAN) The Uruguay Round negotiations on "Trade-related Investment Measures" (TRIMs) is still stuck on which approach is to be followed: prohibiting and otherwise disciplining investment measures as such or dealing only with individual cases of measures with trade-distortive or restrictive effects, participants in the talks reported wednesday.

A number of Third World countries have refused to accept as a basis for talks a draft text for an agreement prepared by the chairman of the negotiating group, Tomohiko Kobayashi of Japan, who they complained has consistently ignored their views and adopted the "Prohibition" approach to forge an international investment regime, the sources said.

Besides Third World delegations, Australia too reportedly has been taking the view that the negotiations should deal only with "effects" of measures, and not with investment measures as such or with prohibiting any measure.

The basic differences within the group - between U.S., Japan and other leading ICs on one side and a number of Third World countries on the other side who insist upon strict adherence to the Punta del Este mandate - could not be bridged in the "green room" consultations Tuesday, and the issue is to go back to the negotiating group for further consideration on the basis of a new draft to be prepared by the secretariat, the sources said.

Third World sources said that throughout the consultations in the negotiating group, the chairman had been insisting on his line of approach, and arguing with Third World delegations against their proposals and viewpoints in a way that often it appeared they were negotiating with him rather than with other delegations.

They recalled that in 1987, when the chairmen of various negotiating groups were being chosen, Kobayashi had secured the chairmanship of the negotiating group only after his private assurances to key Third World delegations that Japan and he had no particular views on the issue.

But since then, and more so after the Montreal mid-term review, it became clear that he had very strong views of his own for an international investment regime and was pushing a Japanese line in this matter.

Over the last few weeks (when he has put forward four revisions of his draft, all of them ignoring Third World positions) some of the Third World delegations have been reportedly quite critical of him at the informal meetings.

At the last round of consultations, when he insisted on his approach of disciplining investment "measures" per se, and India put forward amendments to deal, in such an approach, with not only "measures" of governments but also of private operators in the market, Kobayashi took the position that it was not covered by the Punta del Este mandate.

Third World delegations reportedly objected to this and insisted that just as interpretations of GATT articles was a matter for the contracting parties, interpretation of the scope of negotiations was a matter for participants to be agreed upon by consensus and the chairman of a negotiating group could not decide this.

Only the U.S. reportedly supported the Kobayashi position and objected to the tabling of the proposals, while the EEC agreed that actions of private operators would also need to be dealt with.

It was only with great reluctance that Kobayashi would then appear to have agreed to "forward" some of the proposals of the Third World countries to the TNC chairman (for the green room consultations), but not as a part of his text.

In the Koboyashi scheme of things, the draft agreement (in eleven chapters) deals with "coverage" and "provisions for avoiding adverse trade effects of TRIMs on a case-by-case basis" in the first two chapters.

All the other chapters provide for prohibiting a number of investment "measures" per se, some transitional arrangements and provisions for Third World countries (to oblige them to have recourse to the provisions of Art XVIII: C of GATT and its requirement to provide "compensation"), and for application of GATT provisions about "nullification and impairment" of rights, consultations and dispute settlement (and thus enabling trade retaliations).

Third World sources said that Kobayashi had adopted a simple approach: wherever the proposals of the U.S. and Kobayashi had met with objections from the Third World he had included them, just placing square brackets to indicate disagreement, but wherever Third World proposals were not acceptable to him or the U.S., he has eliminated them on the ground that they were outside the mandate.

In his covering note to the TNC chairman, Kobayashi has said that the text forwarded by him reflected "a continuing, deep division of opinion" among participants over the issue of prohibition of certain TRIMs, and that he had tried to "reflect" these differences by playing square brackets around the chapters dealing with prohibition of certain TRIMs and provisions and procedures for their elimination over a transitional period.

On the proposals of participants that he had not included in his text, Kobayashi has reportedly said that he had done so since "they fall, in my view, outside the immediate scope of the negotiating mandate given by Ministers in Punta del Este", and that each of them had provoked strong comments.

Two of the issues, he said, concerned investors and investment flows and another concerned restrictive business practices on which, Kobayashi noted, the TNC chairman at Punta del Este had said there was no consensus to negotiate.

In Tuesday's "green room consultations", India, Philippines, Brazil and a number of others reportedly said the Kobayashi text could not be a basis for the discussions. While some of them outlined their substantive and other objections, some reportedly took note of Kobayashi's own covering note acknowledging the deep differences and said that only an approach that could provide a consensus was possible.

In this view, further consultations should be only on the ideas in the first two chapters of the text, namely dealing with the "effects" should be pursued.

Kobayashi reportedly tried to resist this, arguing that the structure of his paper would not enable the first two chapters to be separated from the rest, but this did not impress or persuade those who had been opposing his paper, sources said.

Only the U.S. and Switzerland reportedly tried to push strongly for negotiations on the basis of the text and the prohibition approach and against inclusion of measures of private operators.

The EEC reportedly took a low-key approach and intervened only to make the point (in response to Third World participants who insisted that countries adopted investment measures for achieving industrial policy objectives and promoting development and only direct trade-distortive or restrictive effects could be dealt with) that if industrial policy measures violated GATT obligations, they would be covered.

Third World sources said that while the EC's low key approach was partly due to its present problem of isolation over agriculture, it also reflected its situation in terms of promoting outward investments by its TNCs and dealing with inward investments of Japan (like screw-driver assembly plants).

Some participants said that Dunkel tried to discourage the idea of referring the texts to the Brussels Ministerial meeting for decision, pointing out that it would be difficult for Ministers to deal with these detailed and technical issues, but that the U.S. insisted that the issue was not "technical" but "political".

The U.S. also objected to the restrictive business practices issue on the ground that it had been laid aside at Punta del Este, and that if RBPs were now to be dealt with workers' rights should also be brought in.

However, India and others insisted that at Punta del Este the idea of an investment regime was given up, and there was agreement only to deal with the trade-distorting or restrictive effects of investment measures.

But if they were now to discipline investment measures of government on the ground of their trade-distortive or restrictive effects, the "measures" of the operators which had the same effect, and to counter which Third World governments had to adopt their investment regulations, would also have to be dealt with.

On the view of Switzerland and U.S. that some of the "measures" were already prohibited by the provisions of Art III and XI of GATT, a number of Third World participants said that if it was already covered, there was no need for new provisions, and if they were not and changes and amendments to GATT were being sought, they could not be dealt with under TRIMs.

Sources said that the secretariat, under the guidance of the Kobayashi as chairman, was to prepare a new draft on the basis of which the negotiating group would hold further discussions (till November 15) to see whether any consensus was feasible.