4:02 PM Aug 2, 1995

THE WTO, THE EU AND "OPEN REGIONALISM"

Geneva Aug (Chakravarthi Raghavan) -- It was perhaps just a coincidence that the last week of July, before the customary summer recess at the WTO, saw the EU at the center stage of the seven-month old WTO system.

The trade policy review of the European Union on 24-25 July at the WTO's Trade Policy Review Body (TPRB) saw the EU justifying and asserting the merits of its trade policy in forging a complex web of trade and cooperation accords with outsiders as an example of "open regionalism" and justifying the departure from the spirit if not letter of WTO rules on grounds of "geopolitics" and "political realities".

The week also saw, at Brussels, EU Trade Commissioner Leon Brittan outlining an initiative for "Transatlantic Economic Space" -- perhaps a counter to the Transatlantic Free Trade Area proposal of others. This was being done even as EU officials and the pro-EU business media, were boasting of the EU coup in wresting the "leadership" of WTO from the US, and "saving" the WTO by the interim financial services accord of 28 July.

While it was being presented as saving the WTO, and benefiting the developing countries by providing them access to key services for trade and production, in a CNN interview while in Washington it was however described candidly by EU Trade Commissioner Sir Leon Brittan as an inadequate but substantial one in terms of "offers" on the table from the developing countries, and one benefiting the industrialized world: a multilateral agreement "committing" the developing countries to those 'market access' offers benefiting the US and European banks and securities enterprises, insurance companies and pension funds. This dualism and citing political reality and drawing a line in the sand to try to ensure that any agreement being pushed on the "free-trade, free-market" arguments does not run counter to the neo-mercantalist trade interests is nothing new in the multilateral trade talks.

Both the United States and the European Union often invoke it. It is a fundamental right of sorts, an entrenched provision of the multilateral negotiating process and system, that seems available only to the United States and the European Union. But anything in the interests of either is presented as in the interests of the world, in conformity with the free-trade-free-market concepts, and for advancing global welfare

US negotiators often invoke the "political realities" and the need to have an accord that would be "acceptable" to the Congress, to reject any provisions that may work to the disadvantage of its TNCs. In the process the negotiators try to give the impression, to unwary negotiators on the other side, of the "reasonableness" of US negotiators and "unreasonableness" of the US Congress, but still a political reality if the US has to be on board.

And the EU's Executive Commission, negotiating for the 15 EU-members in the WTO, also uses the difficulties of convincing its member-States and the Council of Ministers, and more recently the European Parliament, to prevent or block any accord it doesn't like, but which can't be rebutted on rational arguments or reasons.

The United States, with its domestic transparent processes, is often blunt and frank to the point of rudeness, while the EU (with its non-transparent processes, both to its own public and outsiders) is more sophisticated.

The effect though is still the same.

As one trade observer put it, "political realities" are cited to prevail over the 'free trade rules' advocated by the majors, but other trading partners have no such privileges: if the Constitutional provisions or fundamental policies of a State come in the way of WTO proposals of the majors, then other countries are advised to change their constitution or national policy, and enter into WTO commitments to undertake such changes.

The Orwellian concept of "All are equal, but some are more equal than others" prevails in the WTO system.

In the EU's trade-policy review exercise, the first under the WTO, and based on a descriptive, almost anodyne, secretariat report spoke of the EU being among the "pace-setters" in the multilateral trading system, and of its recent accessions and new preferential arrangements having "further increased its influence on the system". The report though ducked some basic questions by adopting the descriptive approach which, if it presages a similar approach by the WTO secretariat in respect of the other majors, would make the entire exercise a costly 5-6 million dollar waste of scarce resources.

A major concern of the other trading partners that figured prominently, in the EU's trade policy review was the complex web of EU trade and cooperation accords.

The accords include those with the European Free Trade Area countries (now reduced to Norway, Iceland and Switzerland), the European Economic Zone accords (with Norway and Iceland in the EFTA), the differing agreements with the former East European socialists and including the three Baltic States (formerly in the ex-Soviet Union), the Mediterranean countries and Israel, with the former European Colonies in the Asia-Pacific-Caribbean group linked via the Lome accords, and with countries and groups of countries in Asia and Latin America.

Like the EU's own Rome Treaty, none have been positively "approved" by the old GATT in terms of their compliance with the GATT's Art. XXIV. But none have been "disapproved" either -- with the old GATT operating under the 'consensus' decision-making elevated to a doctrine, the EU can always block a decision of disapproval by any working party.

These have been far-ranging and numerous, with varying provisions and variegated preferences in tariff and non-tariff measures, but all seeming to have one common thread: ensuring the EU's dominance and the dependency-relationships of the other partners with the EU.

The compatibility of the ever-increasing regional and sub-regional blocs and accords with a multilateral system has been very much in the minds of the membership, and in the recent past, this has always come up very prominently, with the secretariat itself raising obliquely some doubts and questions.

But a recent secretariat report, which in its final form coincidentally was published on the same day as the TPR exercise of EU, on "Regionalism and the World Trading System", had taken the position that while some issues of concern remained for those not part of these accords and may need clarification that the Uruguay Round failed to produce, regionalism and multilateralism can co-exist and regionalism strengthens multilateralism.

One argument that was constantly used for the launch of the Uruguay Round and during negotiations was that otherwise the multilateral system would be eroded, while majors would seek to forge regional agreements.

The secretariat itself acknowledged that since 1990, and after the conclusion of the Uruguay Round too, there had been a proliferation of regional agreements, and that by 1 January 1995 (when WTO came into existence) nearly all its members, except for Japan and Hong Kong, were members of atleast one regional/subregional accord notified to the GATT (under its Art. XXIV or the 1979 Enabling Clause allowing non-MFN preferences for developing countries and for preferential trade among them). By this process, the secretariat managed to put everyone into the same box, almost of everyone being guilty of the "original sin", without differentiating between the nature and quality and quantity of mutual trade and relationships with world trade.

In the trade policy review of the EU, the comments of many delegations who spoke and the many written questions addressed to the EU, apart from those relating to specific trade problems of specific countries, focused on the EU's web of accords, their compliance with the letter and spirit of GATT Art XXIV, and the EU, including in the EU's own enlargement (by addition of Austria, Finland and Sweden) facing others with a fait accompli in terms of the renegotiation of the applicable tariff schedules and any compensation for trading partners.

The various accords of the EU seemed to have a common thread, atleast in result: the very complex preferences, and the non-transparent processes of the EU's administration of these -- within the EU Commission, the EU Council of Ministers and even the EU Parliament -- made it very difficult for outsiders to fathom their consequences for themselves and quickly adjust.

In relation to the enlargement of the EU and the renegotiation of the tariff schedules and compensation for trading partners affected by the increase in many low tariffs of Austria, Finland and Sweden, and the restrictive quotas under the EU's Single Market approach to the textiles and clothing quotas were raised by many members who complained that the EU had left very little time for them to negotiate the new tariff bindings before they came into force when the three accessions became effective on 1 January 1995. Only the US was compensated with an interim accord, while others have been left out in the cold.

In responding to the many questions and comments, the EU's representative, senior Commission official Roderick Abbot, was described by the TPRB Chair, Colombia's Nestor Osario Londono, as having been candid and frank, and presenting a "political perspective", a process of "liberalisation within political realities" and the TPRB exercise itself as a "geopolitical" one.

During the Uruguay Round negotiations, there was an attempt, initiated by India, to clarify and ensure some disciplines, in relation to the integration and free trade area agreements purported to be under Art. XXIV.

But many of the major proposals got dropped on the wayside in informal discussions and never even being actually tabled, and with the EU blocking many that would have limited its scope. Some of these proposals included those for requiring a specific WTO/GATT "approval" for such accords (and not merely presumed by the lack of disapproval), for more specific provisions and procedures to ensure that any such accord does not increase the protection against outsiders and/or for negotiation of compensation and tariff schedule revisions.

On the Art XXIV issue, and the question of negotiating the revisions with contracting parties affected before entry of the agreements, the EU in what it described as "direct and robust reply" said:

* the EU this time too had followed the same procedures as in the past (1973, 1981 and 1986 enlargements of the Community) had never been told that its procedures were incorrect;

* that Art XXIV did not require tariff negotiations to be completed (emphasis in original) before duty changes were made, whereas the article customs unions to apply "substantially the same duties", or a common external tariff, by each of its members;

* that the WTO understanding on Art XXIV had made no change in this regard, and only provides "that the Art XXVIII procedures (for negotiating bound tariffs) must be 'commenced' before the tariff concessions are modified;

* that it would have been extremely simple (in the WTO understanding on this article) to make it an obligation to begin substantive negotiations, or to complete them before any duty changes; but this was not negotiated, and we would have opposed it on both legal and practical grounds;

* that while the WTO Understanding by quoting Art.XXVIII:5 implies that negotiations should aim to reach agreement within a reasonable period, but that if it was not possible, the customs union is free to notify tariff concessions and its partners may retaliate; this is precisely the objective of the EU's Art. XXIV:6 negotiations;

* that while the EU had accepted, prior to 31 December 1994, to make some temporary arrangements of an erga omnes in their effects, it was in no way an obligation, but one aimed merely to avoid a serious dispute on a matter of GATT interpretation that would have had a damaging impact on WTO just when it was being established.

A point that the EU did not make though was that such a dispute, once the WTO came into being, and the rulings with the panel's own interpretation of the Article would have been though binding on the EU, and would have needed either a consensus to set it aside or at the minimum a collective interpretation for the future disagreeing with the panel interpretations.

Abbot though conceded that there was "a clear conflict" between the substantive requirements of Art XXIV - a common external tariff - and the procedures indicated in Art. XXVIII which were originally designed for much more limited negotiations.

Abbot referred in the EU's written reply to the questions on the impact on the Trading System by the EU's trade relations with Third Countries.

He recalled that in his opening statement at the TPRB exercise, he had referred to the "geopolitical aspects of our own network of agreements, with Central and Eastern Europe, the Baltic States and the Mediterranean countries in mind".

He then added that the TBRB exercise was not the forum for looking at the question of WTO consistency of any such agreement (which must be done elsewhere), but an opportunity for "broader reflection on the way in which Art XXIV should be interpreted".

The EU official then asked: "In blunt terms: will the WTO members want to adapt to the economic and political realities which are likely to emerge? Or will Art. XXIV be a straitjacket to be imposed on any partnership or cooperation agreement in which free trade is a basic objective?"

Abbot said he posed the question not to justify any particular approach but to underline a more general point.

"There is clearly a wide distinction to be made between the traditional free trade area, focused on tariffs, quotas, original rules and so forth, and now also encompassing the area of trade in services, on the one hand and the more general concept of regional integration (emphasis in original), an idea which includes also wider economic cooperation, financial assistance in some cases, approximation of laws in the economic area, competition policies, even cooperation in matters such as political dialogue and migration. In such a case free trade is only component together with free movement of capital and of persons," he said.

While the EU was wrestling with these issues in Central and East Europe and in the Mediterranean, others will soon confront the same issues in Latin America and the Asia Pacific region, he said, in a clear reference to the US moves to establish a hub-and-spoke free-trade agreements with Latin American countries and via the APEC free trade proposals pushed by the US and its ally Australia.

One of the discussants in the EU trade policy review, Ambassador Srinivasan Narayanan of India, posed the issue in a response of sort, when he suggested that the proliferation of various accords -- with many developing countries trying to forge such a link with or other or all major trading entities -- must be examined from the point of whether they were "defensive" to other accords which would discriminate against them or something else. Each one of the parties to an individual accord could justify the regional and subregional accords by pointing to others. But it was perhaps time to look at these things collectively in terms of the WTO multilateral system and the question that arose, namely, if regional approaches are so good why then a global WTO multilateral system and its MFN rules?

(The above is one in a series reviewing the 7-month old WTO, its promises and realities)