THE WTO AGREEMENTS - IMPLICATIONS AND IMBALANCES

11:50 AM Sep 23, 1996

THE WTO AGREEMENTS - IMPLICATIONS AND IMBALANCES
by Bhagirath Lal Das*

Geneva 13 Sep (TWN) -- One of the main objectives of the proponents of the Uruguay Round was to obtain commitments and concessions from the developing countries. It is no surprise that the final outcome is heavily weighted towards the fulfilment of these objectives.

Consequently, the contents of the Agreements have several imbalances with adverse implications for the interest of the developing countries. Hence an important aim of developing countries should be to try and correct these imbalances and make the WTO system more useful to them.

Dispute Settlement: The Dispute Settlement Understanding mechanism of the WTO has been hailed as a major achievement of the Round in terms of the enforcement of rights and obligations. The DSU has enhanced the effectiveness and curtailed the dilatory tactics by prescribing specific time schedules.

This process is ideally suitable for disputes between equally powerful partners, but may prove less effective when a weak trading partner is to get redress against omissions and commissions of a strong trading partner.

Under normal circumstances a member with a grievance may have to wait for nearly two years to get any redress. To wait for two years to get full relief would be a case of justice delayed by any standard. For a weak trading partner, like many developing countries, such delayed relief may sometimes be totally infructuous as their trade and economy would have suffered irreparable damage. Resilience of their industry is comparatively low and therefore they may not be able to sustain the adverse impact of wrong actions by powerful trading partners. Even the delayed relief could be illusory for weak trading partners, since the ultimate means of getting relief is through retaliation. While normally, moral and political pressure would work to persuade an erring Member to take corrective action in accordance with the recommendations of the Dispute Settlement Body (according to the panel rulings), in real difficult cases where domestic compulsions of the erring member makes renders implementation difficult or inconvenient, erring member may drag its feet or totally refuse to take corrective action, running the risk of retaliation. There will be more willingness to run such a risk where the affected member is not strong or an important trading partner - and developing countries are more likely to be exposed to such risks. And for an affected developing country it may be more risky to take retaliatory action.

The most serious weakness if the dispute settlement system is the severe curtailment of its role in anti-dumping (where) panels have been specifically restrained from pronouncing whether or not such a measure is consistent with obligations under the Agreement on Anti-dumping. The panels can only determine whether the establishment of facts has been unbiased and objective. Once these are established, the evaluation (of the facts) by the authorities will not be challenged, even if the panel comes to a different conclusion. And where the provisions of the agreement admit of more than one interpretation, the panel must declare the measure to be in conformity if it rests upon one of these permissible interpretations. The curtailment of the role of panels in anti-dumping cases is particularly harmful to developing countries.

Also, this provision is to be reviewed after three years to consider whether it should be made more generally applicable, and thus there is a possibility of extending this to other areas -- which will render the dispute settlement process totally ineffective and infructuous.

The work of the panels over the past few years has tended to intensely technical, with panels going into fine points of law, and it is becoming difficult for developing country authorities to prepare their cases and make representations. Often they have to employ lawyers and experts from developed countries which may prove costly.

[Recently, in the banana case, the Caribbean countries found even if they temporarily engage lawyers, they will be excluded from the panel proceedings, on the ground they are permanent government employees]

Market Access: It has been repeatedly said that developed countries have reduced their tariffs significantly during the Uruguay Round and have been credited with reducing their trade-weighted average by 39%. But their trade weighted average on industrial products has already been reduced from 6.3% to 3.9% (under the Tokyo Round). From this angle, all that the new reductions mean is that a product with a unit price of $100 will now cost $103.9 as against $106.3 earlier. This is a more realistic description. It is not only the industrial countries that have reduced their tariffs, but developing countries have also made significant reductions. But the average tariffs of developed countries on exports of developing countries are relatively high (such as on textiles, clothing and leather goods) and their tariff escalation continues to be high despite commitments on various occasions to reduce or eliminate them.

The justification often given that developing countries have for long enjoyed fruits of the MFN treatment is only a partial truth. In their development process, developing countries have absorbed vast quantities of products of developed countries and thus supported their industrial production, particularly during periods of recession. In all fairness due credit must be given to these. Hence the less attention paid to products of export interest to them is not justified. Instead of putting developing countries on the defensive, the developed countries should recognize this contribution and concentrate on further reducing tariffs on products of export interest to the developing world.

Contingency trade measures: While significant improvements have been made in safeguards, subsidies and dumping rules, particularly by enhancing objectivity and the de minimis clauses, it is clear that in the area of subsidies it is developing countries that have made significant concessions. Earlier, it was recognized they could use subsidies as a tool in their development process. Now, except for a few measures like freight subsidy, they are now generally debarred from using subsidy as a tool of development.

While the new rules on safeguards do not permit targeting a country or a set of countries, and any action has to be on a global basis, in allocation of share of global quotas there is provision for deviation from normal practice. This enabling provision may be used to reduce quotas of developing countries. Special care needs to be taken to ensure that they are not used in a discriminatory manner to disadvantage of developing countries. Care is needed particularly in initial stages when practices develop into accepted interpretations.

It is desirable to develop clear criteria for conditions and extent of departure from normal practice in allocation of share of global quotas.

On safeguards, developing countries have the benefit of de minimis provisions, but it is not at all clear how they will operate. If a member takes tariff-type measures, it is not clear how a developing countries falling within de minimis provision will be excluded from higher tariffs. And if quantitative restrictions are adopted, it is not clear either whether a developing countries falling within de minimis provision will be totally excluded from the quotas.

Since developing falling with de minimis are totally excluded from safeguard actions, it is desirable to stipulate clearly that neither the higher tariffs nor any limits to exports will apply to these countries.

Subsidies: Commonly practised subsidies of developed countries (such as for R & D, development of backward regions and adoption of environmentally friendly technologies have all been included in the list of non-actionable subsidies. But subsidies that developing countries generally apply have been generally excluded from this category.

The industrial and trading firms of developing countries generally suffer from natural handicaps -- and don't have advantages of large scale of operations, availability of technology and finance, entry to international networking. Therefore it is sometimes necessary to provide subsidies so that there is diversification and upgradation of production and entry into new markets. These needs have been totally ignored by the Subsidies Agreement.

It is desirable to recognise these needs, as has been done in the case of subsidy practices of developed countries. Developing country subsidies for upgradation and diversification of production, absorption and adaptation of higher technologies and for entry into new markets should be made non-actionable.

Dumping: These provisions have become very complex in the process of the agreement adopting practices of major developed countries, and very often involve calculation of costs of production. Other expenses are also involved in preparing the case on either side. Authorities and trade in developing countries are not well equipped in this regard and very often services of law firms of developed countries have to be employed and this is a very costly process.

Considering the vast differences in resources, the process of anti-dumping enquiries both at importing end and exporting end becomes very much tilted against the developing countries. The only way out is to have simple procedures, taking care that the process does not become too subjective. It is also necessary to bring the dispute settlement in this area into the folds of the common dispute settlement process.

Agriculture: While there has been significant progress in bringing agriculture within the general discipline of GATT 1994, and countries maintaining import restraints, domestic support and export subsidy have been obliged to reduce them to some extent, substantial portions of these would continue in the future. But countries that did not have such measures in the past are prohibited from introduced them beyond the de minimis levels.

This is patently unfair in that those maintaining import restraints, domestic support and export subsidy are allowed to continue them, though at reduced levels, but others are prohibited from undertaking such measures in future.

The agreement is based on the assumption that totally free movement of agriculture products across borders is the most ideal condition and that it is desirable for a country to import food from other countries if it is cheap compared to its own cost of production. This may be valid for most developed countries that have enough foreign exchange all the time. But most developing countries are short of foreign exchange most of the time, and if they depend for food on imports, their populations may have to starve sometimes as they may not have enough foreign exchange to buy food.

Food production has too much social and human compulsions associated with it than can be tackled by pure economic considerations. Yet the agreement in this sector aims at abolishing all support for food production and all restraints on imports. This will particularly affect developing countries with chronic problems of foreign exchange shortage.

Agriculture is not considered a commercial activity in many developing countries. Farmers take to agriculture sometimes because they have land and have nothing else to do. It will be extremely difficult to harmonise these special characteristics with purely commercial and price considerations.

The problems of net food importing countries has been recognized, but with no concrete mechanisms to tackle this problem.

And in the process of tariffication, several countries, particularly major trading countries have overvalued the tariff equivalents of their non-tariff barriers, with the result that their base levels of tariffs have been recorded at very high levels.

These problems have to be given serious consideration. Some can be raised during the review process. But it may be preferable to start work with some of them even before that.

Textiles: While the final demise of the special arrangements in year 2005 is an important event in international trade relations, the main problem is over the process of liberalisation where several major developed countries claim to have fulfilled their obligations without actually liberalising the items under restraint -- taking shelter under strictly technical interpretations of the agreement.

An immediate review of the implementation is thus needed to decide on a revised schedule of liberalisation. Also, recent experience has shown that the TMB has not proved quite effective in checking unreasonable use of transitional safeguard mechanisms and in one case the TMB has failed to make a conclusion, even though it is obliged to give a finding on matters brought before it.

Services: This is just a framework agreement. An obvious imbalance is in the treatment of labour and capital. There is a specific provision for cross-border movement of capital, if it is an essential part of the market access commitment or if a commercial presence is involved. There is no such explicit provision on movement of persons on similar lines.

In respect of developing countries, while the GATS makes clear their participation in world trade must be facilitated through appropriate negotiated specific commitments, in actual practice this has not been much respected. In financial services, for e.g., some major developed countries have insisted on very high levels of commitments from some developing countries.

The process of sector by sector negotiations is basically flawed, since the interests of countries may not converge in the same sector. Based on the difficulties experienced so far, there is a clear case for rethinking of this issue. TRIPs: The basic imbalance lies in the fact that it provides for minimum protection levels for holders of IPRs, but there is hardly much concern explicitly shown in the agreement for users of the intellectual property. A balance can be attempted by countries in their legislations within the limits of the discretion allowed in the agreement.

New Issues:

The proposed agreement on investment seeks to ensure free entry of investors in a country without any concern for needs and priorities of the host countries.

Some proposals on environment seek to justify trade restrictions without adequate objective examination in the frameworks of GATT 1994.

Proposals on social clauses are thinly veiled attempts to neutralise advantage of developing countries in respect of their low labour costs -- totally forgetting there is no means of neutralising the advantages of developed countries in the form of cheaper and easier availability of capital, access to high technology and highly developed infrastructure and networks.

Consideration of competition policies may be targeted at clipping the wings of comparatively stronger firms in developing countries so that don't stand in competition with well establishing firms of developed countries.

The consideration of corruption may be aimed at attacking the credibility of authorities and institutions of developing countries.

Conclusion: This illustrative list of problems in the existing WTO agreements suggests that the review process in the successive ministerial meetings for a few years can remain busy tackling them and finding out solutions. These and similar other problems should be listed out to form the agenda for ministerial meetings. The recent experience has shown that these issues of existing agreements are more likely to be ignored and further fresh issues are likely to keep the ministerial meetings busy. This trend can be changed only by a concerned action of a group of developing countries that find their interests ignored in the WTO.

[* Mr. B.L.Das formerly India's Ambassador and Permanent Representative to GATT. Subsequently, he was Director of the International Trade Programme of UNCTAD. The above is based on a presentation by him at the Third World seminar on WTO and Developing Countries, 10-11 September]