SOUTH SHOULD FOCUS ON WTO'S IMBALANCES, DEFICIENCIES

7:15 AM Apr 11, 1997

SOUTH SHOULD FOCUS ON WTO'S IMBALANCES, DEFICIENCIES
New York 10 Apr (TWN) -- The basis on which the World Trade Organization and its trade system is founded and operates has enhanced the natural and inherent imbalances of the system, and developing countries should direct their energies to prioritize attention for removing the deficiencies and reduce the imbalances, a Third World trade expert suggested here last week.

The expert, Mr. Bhagirath Lal Das, a former Indian Representative to the GATT and former Director of UNCTAD's Trade Programs Division, advised South countries to concentrate on this issue, and formulate proposals to changes the rules, and bring them up at the next Ministerial meeting to be held in 1998 in Geneva.

Das was speaking on 'Deficiencies in the WTO Agreements and System' at a round-table on 'Globalization, Sustainable Development and the South', organized by the Third World Network and the Group of 77.

The Uruguay Round accords had some good features - liberalisation in agriculture, introduction of some certainty and reliability in the dispute settlement mechanism, and some objectivity in various rules. "But this should not blind us to the basic weaknesses, asymmetry and deficiencies," Das said.

The WTO and its predecessor GATT, Das said, had provided a framework for international trade and a favourable environment - for about a half a century in the post-war period - for development of trade and industry of the Industrialized World. While a few developing countries had been able to take advantage of the system, in the late '70s and '80s, to promote their own trade and development, these limited positive features had clouded the basic deficiencies and imbalances of the system, Das said.

While it could be an efficient and effective system among countries at almost similar levels of development, with a membership spread over a wide spectrum of economic and political strength, the WTO system suffered from basic inadequacy and weakness.

"The various rounds of multilateral trade negotiations in the GATT have ended with massive publicity exercises proclaiming the benefits of the results, and any opposite voice is often considered almost a sacrilege. As a result, the weaker members of the system generally remain mute, and those who venture to speak are normally ignored," the former GATT negotiator for India said.

The WTO agreements are based on principles of free operation of market forces and supremacy of price in international trade. Countries with strength and productive capacity (whose principal determinants are big capital, high technology and technically trained manpower) to produce and supply goods and services at cheap prices would benefit. But with the wide gap in factors of production between developed and developing countries, the latter were constantly at a disadvantage, and developing countries were being pushed more and more to the margin in the present international trading system, Das said.

The WTO system was based on contractual arrangements on the basis of reciprocal concessions and, hence, those who have little to offer don't gain much, while developed countries benefit greatly. The system has thus a built-in mechanism that widens the gap between the haves and have-nots.

And since the ultimate means of enforcing rights and obligations in the system is retaliation against the erring country, economically and politically weak countries hesitate to take such action, and thus are unable to enforce their own rights.

A vast proportion of the international trading transactions were also outside the GATT/WTO rules -- intra-firm sale and purchases, preferential trade among regional trade blocks and trade in sectors covered by special rules as in textiles. An important element of trade in goods and services from the perspective of developing countries is not even covered by the system.

As exporters of commodities, commodity-based products and lower-technology manufactured products, developing countries find their export prices continuously declining in relation to imports from the developed world and the WTO system provides no corrective or relief.

"In fact, the WTO/GATT does not consider such issues at all," Das commented.

The GATT has proved to be a "fair weather system": whenever there have been strains in international trade, countries have the tendency to circumvent disciplines, if not violate them outright. The system had not proved to be strong enough to resist such tendencies particularly of major developed countries.

During the recession of early 80s, Das pointed out, several of them resorted to import control measures with scant regard to GATT disciplines. Even earlier, when their textile industry found it difficult to face competition from developing countries, special trading regime, in derogation of GATT disciplines, was established, and this has continued for more than three decades. Similar special arrangements have been made in the steel sector.

The system has no inherent strength to control these tendencies, but rather sways with the winds, particularly when major developed countries are involved.

These imbalances were anticipated in early '60s, and as a result Part IV of the GATT was introduced, but it was never taken seriously, and though still operative, have remained almost totally ignored and ineffective. Some efforts were made at UNCTAD in the 70s to deal with commodity and commodity-related products and low-technology manufactures, but these have been almost totally forgotten even in UNCTAD, while GATT/WTO continues to be totally unconcerned.

And while the textiles trade was being sought to be brought into the normal trading rules, the issues of intra-firm and preferential transactions as well as upholding rights of weaker partners have been ignored. Nothing has been done to enhance the inherent strength of the system either.

The general impression thus is that the system is meant only to take care of the interests of developed countries, and "this impression has been reinforced by the vehemence with which major developed countries have pursued their own agendas... (while) subjects of interest to developing countries have been ignored or at best given passing consideration."

The Uruguay Round agreements have particularly enhanced these deficiencies and imbalances and one could easily identify nearly 50 such examples, Das said. But some major ones are:

* discrimination in subsidy categorisation under the subsidies agreement whereby subsidies mostly applied by developed countries (on R & D, disadvantages regions, and environmental adaptation) have been made non-actionable, while those commonly used by developing countries for upgrading and diversification of production and trade have not got this dispensation.

In all fairness, Das recommended, subsidies normally applied by developing countries for development of production and trade should also be made non-actionable.

* cases relating to anti-dumping actions have been excluded from the dispute settlement process in which normally panels are asked to pronounce whether or not the action complained of violates provisions of the relevant agreement. In anti-dumping cases, the role of the panels has been curtailed, and limited to determining whether the national authorities have established the facts in an objective and proper manner, and whether the evaluation of facts is unbiased and objective. But whether the Member taking AD action has observed rights and obligations properly is outside the role of the panels. This is particularly adverse to developing countries, who are subject to a large number of antidumping actions in the past, and the pace of this is still continuing.

This special provision should be scrapped and all AD case disputes brought within the folds of the normal dispute settlement process.

* in agriculture, those using import restraints, domestic support and export subsidy, have to reduce these levels from 20-36 percent during 1995-2000. This means countries using these measures will be able to retain a big proportion of them even up to end of 2000. But those who were not using these measures earlier, are almost totally prohibited from using them in future beyond the de minimis levels. Very few developing countries have notified such measures; the few who have, won't be able to use them in future for development of agriculture.

Developing countries who have not taken such measures in the past should be enabled to introduce them in the future up to limited extent beyond the de minimis limits.

* the agriculture agreement is also based on commercial considerations, and does not harmonise well with the non-commercial agriculture which is very much prevalent in developing countries, where farmers take to agriculture on land inherited as ancestral property or when they have no other source of income, and it is not a commercial proposition.

Developing countries should be permitted to take measures beyond de minimis levels if they are necessary in the interests of small and household farmers.

* the restraints on action against subsidy in the agriculture has two different sets of provisions. Those subsidy practices of developed countries (government services, direct payment to producers, income insurance and crop insurance programmes, structural adjustment assistance etc) have been exempt from countervailing duty and dispute settlement process. But practices commonly used in developing countries have no such exemption.

This discrimination must be removed.

* the textile rules, which backloads the liberalization to enables the developed countries to liberalize nearly 50% of the trade at the very end, and has no provision obliging these countries to undertake structural adjustment, would prove a sudden burden for the industry of the North, and there is an apprehension that the domestic industry of the North would bring pressures on their governments to continue the restraints. It is these types of pressures that prompted these governments in the past to move for derogation from normal GATT rules

There should be obligations to undertake structural adjustment, and a WTO body should monitor them.

* The balance of payments situation is now judged on the basis of foreign exchange reserves and net inflows, ignoring the nature of the reserve or inflows. Unstable and volatile part of reserves (e.g. investment in stock markets and short-term deposits) are taken into account in judging the BOP situation of countries. This is unreasonable. The nature of the reserves and flows should be taken into account, and the uncertain and unstable parts excluded for BOP considerations.

* The services agreement (GATS) has an imbalance in treatment of capital and labour. It makes it obligatory on Members to allow movement of capital across borders, if it is part of supply of services that are in the schedule of commitments. Members are also obligated to allow unrestrained transfers and payments on current transactions relating to services. But there is no such right for movement of labour.

* while GATS provides that developing countries undertake commitments and liberalise only fewer sectors and fewer transactions, or attach conditions and have flexibility, in practice major developed countries are ignoring these and insist on higher commitments from developing countries.

* the TRIPs agreement is imbalanced and does not take care of interest of all parties, but merely protects interests of holders of IPRs without any significant balancing factors to protect interests of users or of new and small innovators who try to innovate on the margin.

* Trips sets out a number of important and relevant objectives -- promotion of technological innovation, transfer and dissemination of technology, contributions to mutual advantage of producers and users of technological knowledge and conducive to social and economic welfare. Apart from promotion of innovation, other objectives have not been translated into specific provisions.

* the dispute settlement process and procedures are such that there is scope of delay of about 27 months after the start of the process before a complaining party can get full relief. For developing countries, with weak marketing links, such a delay can cause total disruption of exports and, even if a country wins a case, there will be no real relief since the country would have irretrievably lost its market.

There should hence be a substantial reduction of the time span - it could easily be halved - and the time for implementation should also be substantially reduced from the present permissible 15 months.

* the ultimate tool for enforcement of rights is retaliation and it is an illusory tool for developing countries. To overcome this, there should be provision for joint action by all Members against the offending country, particularly if the complaining party is a developing country and the erring country is a developed one.

* the dispute settlement process has also a major handicap even in the best scenario of prompt and immediate implementation. All that an erring country has to do is take action prospectively. There is no provision for compensating a country for the loss suffered during the period. There should hence be provision for compensation by an erring country for actions or omissions found to be wrong by the DSB.

Developing countries, Das said, had failed to take these issues to the Singapore Ministerial Conference, the first meeting of the supreme WTO body after WTO's entry into force and one devoted to assessment and implementation. The next meeting has to take place in 1998 in Geneva, and developing countries should take these issues to that meeting.

Mr Martin Khor, director of Third World Network, said the WTO had become the world's most powerful institution because of the increasing number of issues coming under its purview, and its strong enforcement capability through its dispute settlement system.

Yet the WTO was also one of the most non-transparent organisations, with major decisions decided upon by the Quad developed countries, and with the help of the Secretariat, channelled through "informal groups" and "informal processes", until the majority of developing countries had to go along with a process they had little say in or knowledge of.

This undemocratic decision-making process was clearly at play at the Singapore Ministerial Conference, during which most developing country delegations were in the dark while a small "informal group" of countries negotiated the WTO's future work programme. On the night before the Conference closed, all Members countries were requested to agree to texts which until then most of them had not seen and in whose negotiation and formulation they had no part.

The WTO has now been mandated to set up three new working groups and there was a strong likelihood that the new issues of investment policy, competition policy and government procurement, and these new issues thus brought into the WTO would produce agreements that would be detrimental to the developmental space and prospects as well as economic sovereignty of most developing countries.

The expressed intention of major countries was primarily to open up all remaining national economic spaces in developing countries by removing their present legitimate barriers and safeguards that were now in place, so that the big corporations of the North could have greater and greater "market access" in the South.

The investment agreement sought by the North would prevent governments of the South from regulating the entry and operations of foreign companies, thus allowing them total freedom to operate in all sectors in developing countries.

Under a competition rules, major countries sought to institute domestic competition policies in the South, based on "contestability of markets" . This approach would break down the large state-owned or private-sector enterprises and distribution systems, to enable the large Northern companies to have easier access to developing countries' markets. But their own Restrictive Business Practices and cartel arrangements would escape international disciplines.

The government procurement agreement proposed by the US and the EU would enable foreign companies the same rights as local companies to win contracts from the whole range of government expenditures, and bring a very large portion of developing countries' GNP under WTO rules of national treatment. While the interim measure is for the procurement discussion to be confined to greater transparency and information about government procurement, but the eventual aim was to bring procurement practices under WTO disciplines.

Khor said the WTO system and rules were already weighted heavily against developing countries and constrained their development options and prospects. If on top of this, the major countries are able to get their way on the "new issues" introduced at Singapore, the future prospects for the South would be bleak indeed.

The Social Darwinian principle, "survival of the fittest" and "disappearance of the weak", would be fully operational, and the poorer countries or even the middle-income countries would have few policy instruments with which to protect or build up their national capacities.

Khor said it was thus urgent that governments of developing countries pay much greater attention and put in more human and financial resources to the negotiations in the WTO on both the in- built agenda (reviewing existing agreements) and in the three new working groups. They should insist on their full rights as WTO Members to participate fully in all relevant negotiations and these should be conducted in an open, transparent and democratic way, and prevent a few major countries from manipulating the decision-making process.

Developing countries could ignore or neglect happenings at the WTO only at their own peril, concluded Khor.

In the discussions that ensued, a representative from Chile said the WTO should be viewed more positively and praised in particular the dispute settlement system and the agricultural reforms.

A multilateral trading system, Das said, was better than bilateral arrangements and a rule-based system is better than one based on power. But the system is only as good as the rules, and when the rules are asymmetric, iniquitous and deficient, the outcome would be asymmetric and inequities.

Mr. Chakravarthi Raghavan of the South-North Development Monitor, pointed out that while in year 2000, there will be zero tariffs on Information Technology Products, and continuing pressures for liberalization of financial services and basic telecom and other sectors where the US and Europe have advantage, those where developing countries would compete would continue to have tariff and hidden barriers.

Textile and clothing quotas may disappear in 2005, but developing country exports will still face high tariffs. Steel, footwear etc would also continue to face tariff barriers and tariff peaks and escalations. And agriculture in 2000, would still be protected in the North by over 60% of the 'dirty tariffs' on product lines, and there would be no zero tariffs even by mid-21st century, he suggested.

As for the dispute settlement system, any relief after 27 months of the process, and perhaps another 15 months for implementation would mean the markets would be irretrievably lost. He cited the examples of Brazilian and Venezuelan gasoline supplies to the US markets, the number of illegal textiles and clothing quotas by the US on developing country exports, and many blatantly illegal EC measures (such as on anti-dumping).

And while the Singapore meeting, and the preparatory process led by the WTO head had paid all attention to the demands and agendas of the US and EC, except for Ministerial speeches to empty halls, no attention whatsoever was paid there to the major problems and issues of the developing countries.