7:36 AM Jan 22, 1996

UNCTAD CAUTION ON NEW TRADE ISSUES

Geneva 22 Jan (Chakravarthi Raghavan) -- Proposals for new multilateral disciplines and extension of trade obligations into additional areas of domestic policy is a "hotly contested issue" and consensus-building in this area would need full understanding of development implications of various approaches and the interest of developing countries to be adequately taken into account, according to UNCTAD.

In terms of the investment issue being sought to be pushed at the WTO, with focus on initiating negotiations at the Singapore Ministerial Meeting, UNCTAD Secretary-General Rubens Ricupero says that irrespective of the forum any effort at consensus building on 'investment', has to take account of the fact that developing countries conceive of investment as part of a strategy for support of transfer of technology, industrialization and better standards of living and enable them to attract and channel investment to priority areas of national economic and social development strategy.

In presenting these views in his report to UNCTAD-IX, the UNCTAD Secretary-General says that the consensus over the functional complementarity between UNCTAD and WTO should enable the trade-related development concerns of developing countries and the transition economies to be addressed in a more comprehensive and balanced way.

This could be done by a working relationship between the two institutions evolving in several substantive areas of cooperation including on the implications of the Uruguay Round Agreements, Trade in Services, Trade and environment and the new and emerging issues on the international trade agenda, in particular trade and competition and trade and investment.

On the new and emerging issues, the report says that the Marrakesh agreement to set up a committee to deal with trade and environment, and the issues laid out in the Concluding Remarks of the Chairman of the Marrakesh Ministerial meeting on which no consensus could be reached -- relationship between trade and environment, investment, competition policy and labour rights -- could be seen as "components in the overall pursuit of deeper integration and 'level playing fields'."

The OECD Ministerial Report (of May 1995) for a programme of action for the post-Uruguay Round trading system was based on concepts of deeper integration and 'contestability of markets' -- ensuring provision of access and opportunities for foreign firms equivalent to domestic firms and making them open to global competition -- emphasizing firms rather than products and services, and building on some new concepts introduced into the General Agreement on Trade in Services (GATS).

Under these concepts in GATS, sales of foreign-controlled firms in domestic markets could be seen as 'exports' and foreign governments as having acquired rights on treatment of subsidiaries of foreign firms, while host developing countries could seek commitments from such enterprises.

These initiatives are related to the preparations of the agenda for the first Ministerial meeting of the WTO at Singapore which could be expected to address the issues raised by various Ministers at Marrakesh "to the extent that a consensus on how to deal with them can emerge".

But the process of consensus-building in favour of new multilateral disciplines in these areas would need to take into account existing international framework of obligations through bilateral investment treaties and cooperation agreements on competition policy, subregional and regional arrangements on some of these issues and specific trade-related disciplines to reinforce such agreements.

The proposals for new multilateral disciplines in these areas are aspects of the broader question of implications of a further extension of multilateral trade obligations into additional areas of domestic policy, including those pertaining to property rights.

The UNCTAD says in the report: "Such an extension, would imply that to a large extent global governance would be carried out within the framework of trade agreements. This at the moment is a hotly contested issue, with some developing countries indicating strong opposition to extending multilateral trade disciplines to non-trade areas. Further more, most of the initiatives on new and emerging issues to date emanate from fora in which developing countries are absent or only partially represented.

"Thus, the challenge facing the consensus-building process is to ensure that the development implications of various approaches and scenarios are fully understood, so that the interests of developing countries can be adequately taken into account."

On Trade and Competition policy, the report notes the process of convergence in objectives and application of national competition policies, but with continuance of significant differences in such policies. While there is convergence on prohibiting cartels and collusive tendering, most national competition policies don't apply to restrictive business practices (RBPs) affecting foreign markets, such as export cartels. Difficulties also arise

But there was now growing recognition that in an increasingly globalized world economy, national competition policies need to be complemented by action at the international level and that such action should strengthen consultations and cooperation among competition authorities to encourage better mutual understanding and possible convergence of national competition policies.

Such consultations and cooperation should "ensure that trade obligations and concessions are not frustrated by private anti-competitive practices and to bring trade rules more into line with competition principles, to reduce trade tensions among governments as well as tensions from enforcement of competition laws overseas, and to address competition issues arising in relation to foreign investors."

These, the report says, could be done within the framework of the Set of Multilateral Agreed Equitable Principles and Rules for Control of RBPs (The Set).

Apart from the mechanisms available under The Set, new mechanisms to coordinate approaches to the interface between trade, investment and competition policies may have to be conceived and multilateral trade agreements may need to be strengthened by incorporating additional and legally binding competition policy provisions.

Several of the Uruguay Round agreements -- GATS, Safeguards Agreement. TRIPs -- already recognise the relevance of competition policies for effective implementation of multilateral trade obligations.

The Third UN Review Conference on the Set has already recommended continuation of the RBP work programme at UNCTAD and it might be appropriate for UNCTAD to embark on preparatory work to clarify issues raised by the interface between competition and trade policy and help build consensus needed to integrate competition principles into the international trading system, the report adds.

On the Trade and Investment issue, the report notes that some aspects are already built into the future WTO work programme. The Trade-related Investment Measures (TRIMs) Agreement provides for review of its possible extension to include investment and competition policies.

The decision to deal in parallel with investment and competition policies under TRIMs flows from the recognition that many conditions are imposed on foreign investors to pre-empt their anti-competitive practices that would otherwise be difficult to deal with under national competition laws, and the recognition that competition policy might interference with investment flows in certain cases.

The GATS also has a framework to negotiate commitments on investment within the multilateral trade obligations -- with commitments on investment (commercial presence) being able to be traded off against reciprocal commitments on other service sectors, other modes of supply (e.g. movement of natural persons) or even, in a broader round of negotiations, on market access for goods.

The progressive liberalization negotiations in GATS are aimed at promoting interests of all parties on a mutually advantageous basis and for securing an overall balance of rights and obligations, while respecting national policy objectives. The GATS also recognizes the right of developing countries to seek commitments from service enterprises over access to technology, distribution channels and information networks in return for the market access granted.

The interface between trade and investment covers a spectrum of issues ranging from those which are closely "trade-related" such as export performance requirements to "pure" investment issues such as taxation, transfer-pricing practices, the extent of legitimate exercise of extra-territorial jurisdiction, obligations of home countries with respect to the behaviour of the firms and compensation for expropriation.

"Any efforts towards building a consensus for multilateral action in this area, regardless of the forum chosen, will also have to take account of the fact that investment policies in developing countries are conceived of as part of a strategy supportive of transfer of technology, industrialization and better standards of living, and are designed to enable developing countries not only to attract investment but also to ensure that it is channelled to activities that have been given priority in the national economic and social development strategy."

On Trade and Environment, and the concerns in the developed countries that trade and investment might be lost to those with less stringent environment standards, the Report points out that available empirical evidence shows that competitiveness effects of environmental policies have not been significant on developed countries.

For developing countries, the competitiveness effects of external environment policies, standards and regulations could become more significant for small-scale firms and firms in sectors such as textiles, footwear,, electronics and furniture. Their efforts to conform to environmental standards would frequently increase production costs.

The report suggests that UNCTAD-IX could recommend that activities on positive measures should focus on building consensus on principles and propositions to better integration trade and environment policies within the context of sustainable development and propose policy measures for alleviating potentially negative trade and competitiveness effects of environmental policies.

The positive measures issue is closely linked with broader question of national policies and strategies for sustainable development and the kind of international cooperation that could provide a favourable environment for their success.

Towards this end, the Conference could examine how to promote systematic integration of environmental aspects in on-going international debates on measures to promote investment in infrastructure, on specific measures for small- and medium-enterprises (SMEs) and specific sectors and measures for improvement in trade policies such as promotion of export diversification and elimination of trade-distortive subsidies.

As for trade measures in Multilateral Environmental Agreements (MEAs), the report suggests that the appropriateness of trade measures for environmental purposes should be examined on a case-by-case basis.

As for harmonizing environmental standards, an issue closely related to the increase pace of globalization and liberalization in the world economy, and concerns that differences in standards might give unfair trade advantages, the report draws attention to the consensus that has emerged that the case for trade measures to offset differences in costs arising from differences in environmental standards is weak.

The UNCTAD Ad Hoc Working Group had firmly rejected demands for socalled green countervailing duties or other protectionist or WTO-inconsistent trade measures.

Referring to the continued debate on whether border tax adjustments should be allowed to compensate for differences in process-related standards and for differences in use of non-physically incorporated inputs, such as energy, the report notes that while border-tax adjustment was permitted for product taxes, a consensus was building around the view that such adjustments might not be of significant environmental benefit if applied to processes or non-physically incorporated inputs and that these could serve protectionist purposes.

In terms of the functional complementarity between UNCTAD and the WTO, the Secretary-General's report suggests a working relationship between the two in the areas of:

* implications of Uruguay Round Agreements, particularly on new trading opportunities for developing and transition economies arising from the implementation process, and assisting countries to take full advantage of such opportunities;

* specific problems and challenges faced by the LDCs and net-food importing developing countries and the transition economies in their integration into the international trading system;

* trade in services including measures to assist developing countries to benefit from GATS and issues to be addressed in future negotiations;

* trade and environment;

* new and emerging issues on international trade agenda, in particular trade and competition and trade and investment;

* technical cooperation particularly in strengthening the capacity of developing countries and transition economies to participate effectively in the international trading system, accession to the WTO and capacity-building to deal with new issues on the international trade agenda;

* continuation of joint responsibility of WTO and UNCTAD for operation of the International Trade Centre.

The Secretary-General's Report said that new and expanded cooperation between UNCTAD and WTO was already under way in the framework of the general arrangement for cooperation between the UN and the WTO.

In particular the WTO Director-General and UNCTAD Secretary-General had agreed to hold meetings, chaired jointly by them, every six months; to improve the working relationship between the two organizations at all levels in areas of research, trade and investment, trade and competition, trade and environment and trade and development;

The two heads have also agreed to work for greater complementarity in technical cooperation not only between UNCTAD, WTO and the ITC, but also with other agencies whether in the UN system, Bretton Woods institutions or regional bodies to improve coordination across the board and make better use of resources. The two have also agreed on the high priority that must be given to Africa in the cooperative work of the two organizations.