9:08 AM Aug 5, 1996
US EXCLUDES MONGOLIA FROM WTO BENEFITS
Geneva 5 Aug (Chakravarthi Raghavan) -- The United States, after hard negotiations with Mongolia on its accession to the World Trade Organization (WTO), and extracting some 'initial negotiating rights', has invoked the 'non-application' provision of the WTO (Art. XIII.3) as between itself and Mongolia. This means that visavis the United States, Mongolia will not have any of the benefits of the WTO agreement. The WTO General Council on 17 July had approved the recommendation of the Working Party on the accession of Mongolia, and the accession is to go into effect 30 days after its approval by Mongolia. Mongolia is the first former socialist country that has negotiated its accession after the entry into force of the WTO, and the US action is seen as both setting up a precedent for the various pending accession negotiations of former socialist countries now in transition to a market economy. In briefing the media, the WTO press office had made no mention of the US action of non-application. But the fact has become known only subsequently, when the working party report and the US notification (which are restricted documents and not routinely available to the media) was obtained from trade sources. As required by the WTO charter, the US had notified (on 11 July, and circulated to the members by the secretariat on 17 July) the Chairman and members of the General Council about its invoking Article XIII, but presumably this was not mentioned in the actual meeting. The US non-invocation is reportedly related to its domestic law, the socalled Jackson-Vanik amendment, which is related to the emigration policies of these countries and needs an annual notification by the administration to Congress, and Congress right to decide on the most-favoured-nation treatment. Previously, under the GATT 1947, the non-application provision can be invoked only as between two contracting parties that have not entered into tariff negotiations with each other. This was on the principle that non-application threat should not be used for extracting trade concessions. But in the agreement on the WTO, a change was effected. Non-application could be invoked against GATT 1947 members only if this had been done under the GATT 1947. But for new accessions, invocation of non-application was made possible, subject to the member not consenting to the application notifying the Ministerial Conference (and thus of the General Council which acts between Ministerial Conferences) before the approval of the agreement on terms of accession. The Mongolia Working Party report, and the accession protocol, show that the US negotiated tariff and other concessions with Mongolia, and obtained "initial negotiating rights" (INRs) for tariff concessions on some 70 tariff-lines. While it shares these INRs with the EU15, Canada and Australia on several products, it is shown as having exclusive INRs on 30 agricultural product lines and on 12 'other' product lines -- which means on these particular tariff lines, the concessions were negotiated between the two. Under the earlier central planning regime, and trade relations, Mongolia's trade had been mainly with the Soviet Union and other CMEA countries and China. According to the World Bank's annexes to the World Development Report, 1996, Mongolia will rank as one of the poorest countries, with an annual per capital income of $300. One trade observer said that under the WTO rules, the US is fully entitled to invoke the 'non-application' clause at the end of the negotiations, but before formal approval of the protocol of accession, this particular provision was inserted in the WTO on the basis that without it some countries would find themselves unable to engage in bilateral, face-to-face negotiations, lest they are afterwards unable to invoke the non-application clause because of lack of concessions. While non-application threat as a negotiating chip would be bad enough between a strong and weak party, in this case when the non-application is related to the Jackson-Vanick amendment to the US domestic trade law (which would preclude the administration from giving MFN treatment to Mongolia whatever be the concessions it gives), there is a major anomaly, and issues of good faith negotiations involved, the observer said. Another source familiar with the accession talks, said the two 'big brothers', the US and Japan, "walked all over" Mongolia to get trade concessions that were really obscene. Having done that, the US used the non-application provision. This is mandated by US law, and thus from the beginning the US knew it could not extend WTO benefits to Mongolia. But it should atleast not have forced Mongolia to give concessions and bind them in the WTO before applying the non-application provision. There is a lack of good faith. As for the EU, the source said, it had first completed its own bilateral negotiations. But after the United States had extracted better concessions, the EU reopened these negotiations to get more concessions for itself. This EU action in fact created a row between the US and EU at the last meeting of the Working Party. It is not clear who advised Mongolia. While UNCTAD generally provides technical assistance to the developing countries and the transition economies seeking accession, Mongolia apparently did not seek such assistance. Some delegations believe that Mongolia had engaged outside assistance. That the Mongolians have been 'ill-advised' in their negotiations is clear from several of the provisions and commitments by them, as a result of which they have given up their 'rights' under the WTO. Under the WTO subsidies agreement, LDCs and developing country members (listed in an annex) with a per capita income below an annual $1,000 have been given special and differential treatment and enabled to use subsidies in exports. Mongolia with a $300 per capita has agreed to eliminate such subsidies before 31 December 2002 (a date applicable to several of the advanced developing countries in the medium- to high-income categories). There are other concessions extracted from Mongolia which are not in line with its status as a developing country or its per capita income. For e.g. Mongolia exempts the domestic output of its small firms from application of its general sales tax of 10% on all domestic and imported goods. It has now agreed to eliminate this 'discrimination' in national treatment between imported and domestic goods. It has also agreed to phase out, within ten years of its accession, export duties (of 30 percent ad valorem) on exports of raw cashmere. Mongolia has also agreed that if it sets up export promotion zones and allows operations there, goods produced there will not benefit from subsidies, e.g. income-tax exemption, nor subject to export performance or trade balancing requirements. In regard to the TRIPs agreement, Mongolia has undertaken to apply fully its provisions by the time its accession to WTO takes effect. It has also undertaken to seek observer status in the WTO Committee on Government Procurement, with a view to initiating negotiations for membership. A WTO member who did not want to be identified said that several of these harsh terms were pushed in the working party discussions by the United States.