10:01 AM Feb 15, 1994


Geneva 14 Feb (Chakravarthi Raghavan) -- The planned moves of the United States for unilateral trade sanctions against Japan for failure to open up its goods and services markets to US exports will figure prominently this week at the GATT when the Council undertakes the periodic review of US Trade Policy on 16 and 17.

The US arguments and explanations that Japan has much less of an import penetration than the US or the EC or that Japanese market is privately organized to discourage imports, and that the Japanese do not change their 'mores', and that the US actions are aimed at opening Japanese markets on an MFN basis may make the US actions sound almost altruistic.

But it does not change the basic thrust of US policy which is one of being above the law.

This will be the third time since the GATT TPRM exercise was instituted (in 1989) that US trade policies are coming up for review. The TPRM exercise though does not result in any GATT decision, but merely an opportunity for 'peer pressure'. Its critics see it as nothing more than 'hot air'.

The present review was originally set for last year, but with the preoccupation of the GATT and its members with the Uruguay Round negotiations, the review of US policy was put off for February.

The timing of the review now, after the conclusion of the Uruguay Round and its promises of a 'new trade order' and a strengthened multilateral trading system, brings to the fore the question of how far the US is ready to comply with the law that it wants to lay down for the rest of the world.

While technically it could be argued that the US threats and proposed actions against Japan are to be judged in terms of the current GATT and GATT law (which in the US, being a provisional agreement, cannot be cited in domestic courts), the US move (both in the pursuit of bilateralism and its enforcement), just two months after the adoption of the Uruguay Round texts as a package, will be hardly reassuring to its trading partners that it would change its behaviour in the future.

If anything it will strengthen the view that the present US administration is hard-nosed in pursuit of 'mercantilism' and using neo-mercantalist instruments for the benefit of its TNCs and their profits.

It will also bring home to groups in developing countries, critical of the Round and its consequences for them, that the 'free trade theology' of the GATT or the future WTO is one that will be preached to the weak, but will neither be practised nor can be enforced against the strong.

When the Uruguay Round negotiations were concluded just two months ago there was a great deal of self-congratulations by negotiators and the GATT chief Peter Sutherland about the rule-based system and the new trade order that will emerge.

A rule-based system may not be Dicey's "Rule of Law", but implies that under it the 'rules' will be clear, that adherence to rules by signatory-country governments will be the norm, that the rules will be the same between the weak and strong, and that the certainty of remedies and enforcement of rights of the weak will deter violations of rules.

The GATT was founded in 1947 to counter the inter-war years of bilateral trade diplomacy, agreements and conflicts through multilateralism. And the WTO and its GATT 1994 is supposed to enshrine these at a higher level of commitment and obligation in international law by making the WTO a definitive international treaty, unlike the provisional nature of GATT 1947.

Throughout the Uruguay Round negotiations, when the US was holding and threatening to use the panoply of its retaliatory legislations -- S.301, Special 301, and the Super 301 (which expired, but which President Clinton now wants to put in place by an Executive Order) -- a common refrain was that once the rules are laid down clearly, and issues like Trips etc were resolved multilaterally through rules, the US would no longer use these instruments nor need to have them.

During the six years of negotiations, the US (despite the standstill commitments in the Punta del Este mandate) used its unilateral trade sanctions threats to force many countries to yield ahead of the conclusion of the Trips negotiations in the Round -- something that the mandate specifically forbade.

But when some refused to yield, the US took action in the form of denial of duty free access under its GSP schemes -- an access viewed as a privilege and not a contractual right in the GATT and hence not open to dispute settlement - a view that some still challenge.

In the final stages of the negotiations, the idea of a Multilateral Trade Organization (which was not in the mandate of Punta del Este, but was brought in by stretching, to breaking point, the mandate for improving the 'Functioning of the GATT System). Tied to it was the requirement that participants in the Round must sign the agreements as a package.

All this was discussed and negotiated among a few and sprung on all the participants.

The developing countries became the most vocal advocates of the MTO (which was renamed at the last moment as the WTO), arguing that its emerging as an international treaty to which the US would have to subscribe, and providing for a quasi-judicial dispute settlement system, would provide them, as the weak trading partners, a fundamental protection against unilateralism within the trading system.

But the US unilateral threats against Japan must now raise questions about this.

Some GATT sources argue that the US is able to threaten and/or take action now because there is no WTO and its annexed agreements in force, but that things will be different under the WTO.

This is to assume that US propensity for exercise of unilateral power or pursue neo-mercantalist trade policies and instruments will be cured when the WTO comes into being and that when the Uruguay Round agreements and the WTO enter into force on 1 January 1995, the US overnight would become a good citizen and cease to use or threaten the use of unilateral trade instruments.

All international treaties are based on the concept in Art XXVI of the Vienna Law of Treaties that an international treaty involves "free consent, good faith and full implementation".

During the negotiations in the Lacarte group on the MTO, the group was advised that the US 'subscribes' to the Vienna Law of Treaties, but has not ratified it.

When the MTO/WTO text was being negotiated in that group, a crucial issue related to Art XVI:4.

The draft text, agreed in mid-November last, provided that "Members shall ensure the conformity of their laws, regulations and administrative procedures with the provisions of the annexed agreement".

The term 'with the provisions' was changed in the final version to "its obligations".

(Under the guise of protecting the environment, a number of Northern NGOs, and some claiming to advance the cause of the South, are now canvassing for getting rid of even this provision or changing it so that laws and measures for trade restrictions for alleged environment considerations would not be covered, and the planned WTO Trade and Environment work programme should result in such a change to the rules, so that the US could continue with its unilateralism!)

But behind all the arguments about compliance with the WTO agreement and annexes was the view that the U.S. government would be acting in 'good faith' and would abide by the WTO and its annexed agreements, and will ensure conformity of its "laws, regulations and administrative procedures" with its obligations.

It was also based on the assurances of US negotiators that while it might be difficult for the Congress to formally take off the statute books the various 301 provisions, there would be neither a need to invoke them nor would the US have recourse to them.

The US moves now would put these assurances into question.

US officials have also been publicly saying that the US would not give up its unilateral right to act -- whether to advance its trade interests or its view about protection of the environment -- so long as there is no GATT or WTO provisions to deal with them and settle disputes.

While State Department Official Timothy Wirth made such an assertion in testimony before Congress, President Clinton, US Trade officials and others have made no secret either of their intentions in public statements or in press briefings.

All this would imply that in the future too, the US would just prefix 'trade-related' to any one of its concerns, and arguing that these are not covered by the WTO nor is there an agreement to negotiate them, would entitle it to take unilateral sanctions.

There is probably considerable strength in the argument that whatever might say, in the future any trade restrictive or retaliatory measure against a WTO member would be feasible and legal only after the US gets a ruling in its favour under the DSU and gets the sanction of the WTO for the retaliation.

And whether the US seeks prior consent or not, if it acts without consent and thus in violation of the DSU procedures, that itself would become a ground for a complaint, and any aggrieved country could haul up the US before the WTO and its Dispute settlement mechanisms.

However, it is not quite clear whether this course of action for an aggrieved WTO member against the US would arise only after a measure is put into force, or even on the basis of a law on the US statute books or a US 'threat' to use that law.

While procedures and time-frames under the '301' family of trade law is different, generally the US or a US corporation invokes the law, a country is 'named' and the USTR and Commerce Department start an investigation. Under Special 301, relating to intellectual property issues, the US announces names of countries claimed by it to be engaged in 'unfair practices' by not providing 'adequate' intellectual property protection, starts negotiations under threat of sanctions, and gets the law changed.

In Super 301 cases (before that law expired), the US would target and name countries claimed by it to be engaged in 'unfair' trade practices and start negotiations with that country for ending those practices. It targeted Japan, Brazil and India.

The last refused to negotiate with the US. Japan in Super 301 protested, but ultimately arrived at the framework agreements for opening its markets in a number of areas. These supposedly are on an MFN basis, but the US has proceeded on the basis that given the kind of nexus between Japanese government and its industry and business, the business would favour US sources. The current dispute between the two is over how far Japan implemented the 'market-opening' agreements.

Whatever the merits, any US actions either in raising tariffs on goods imported from Japan (or any other targeted country) could violate Art I, and if the tariff is also bound, violate Art II.

But in the current GATT, the US could always block adoption of any panel ruling, while in the WTO it would not be able to block it.

And while the WTO and its DSU proceeds on the basis that the rulings should be implemented, if the US chooses not to, then the only remedy is for the aggrieved party to 'retaliate'.

In invoking or threatening trade sanctions, under the various forms of the '301', the US proceeds on a different logic and on the basis that if it announces a long list of trade measures it is contemplating against a country, putting off for some months the actual measure it will pick out of the list, all the trade interests in that country likely to be affected will run up to their capital to pressure their government to settle the problem and not allow the trade insecurity to continue.

It is possible that in a future WTO, and its virtually automatic dispute settlement system, the trade insecurity created to a country's trade by such threats might be viewed by a panel as a violation.

But this is at best an arguable issue, and one that could evolve in the long run into GATT law, after atleast more than a decade or two of disputes and precedents, and slow attempts of panels to expand their jurisdiction.

It will not provide the kind of trade 'security' and 'climate' where investors will rush in and set up production and export.