5:59 AM Nov 11, 1994


Geneva 10 Nov (Chakravarthi Raghavan) -- A GATT disputes panel is to hear and rule on an Indian complaint over Polish actions, related to its preferential trade agreement with the European Union, that have hit imports of Indian cars to Poland.

The dispute, and the panel ruling on it, will have some important implications for the European Union's various association agreements with East European countries as also other countries -- all purporting to be agreements towards free trade under Art. XXIV of the GATT.

The complaint is over Poland's import duty on 800 cc Indian-made cars and duty-free quota to car imports from the European Union in terms of the December 1991 Interim Agreement on Trade Related Matters between Poland and the European Union, which entered into force on 1 March 1992.

According to the Indian complaint, in April 1991, an Indian company (Maruti Udyog Ltd, which produces the Japanese Suzuki cars) had an agreement for selling 13500 Maruti cars to Poland. In January 1992, Poland raised the import duty from 15% f.o.b.price or $800 per car (whichever was higher) to 35% f.o.b. or $1500 per car. Also, from March 1992 Poland under its agreement with the EU allowed a duty-free quota of 30,000 cars to the EU. As a result of both these actions, Indian exports were hurt -- the car exports falling from 4568 units in 1991-92 to 1000 in 1992-93, to 504 units in 1993-94, and none in the current year.

The Polish import regime on automobiles contravened the MFN provisions of Art. 1 and were also inconsistent with, and lack of justification under, Art XXIV provisions about free trade agreements.

India told the Council that the examination of the Poland-EU agreement under Art. XXIV had not been completed and the legality of the agreement could be neither presumed or prejudged. But the justification under Art XXIV also could not be invoked, India said, since Poland's actions in increasing the duties on automobile imports from 1 January 1992, prior to entry into force of the agreement with the EU, violated Art. XXIV.5 which required that duties and trade regulations with those not parties to an interim agreement towards free could not be more restrictive than those that prevailed (in Poland) prior to the formation or conclusion of the interim agreement.

The Indian complaint got strong support from a number of contracting parties.

Japan said that the regional arrangement constituted a major derogation from the MFN principle and had direct import on Japanese exports, while Korea said regional arrangements should not be justified under Art XXIV.5. Hong Kong complained of the proliferation of such agreements. The Asean countries, Australia, Chile, US, Mexico were among those supported India. Besides these countries, the EU, Australia, New Zealand, Sweden, Canada, Brazil, Switzerland, Finland and Turkey said they had a third party interest in the dispute.

In other issues before it, the Council put off, at the instance of the EU itself, the request of the EU and ACP countries for a waiver of GATT obligations in respect of Lome-IV agreement. Amb. Lang for the EC told the Council that the decision to seek a waiver was an important political turning point, since Lome agreements were an important cornerstone of EC development policy. The EC felt encouraged by the informal discussions it has had with its trading partners and the bilateral consultations were continuing.

Jamaica's Amb. Richard Pearce, speaking for 70-strong ACP countries, 50 of whom are GATT cps, stressed Lome-IV was not solely concerned with preferential access for ACP countries on the EU markets, but covered a wide area of development cooperation including environment, agriculture, food security, rural development, fisheries, commodities, industrial development, manufacturing and processing, mining, energy, services, cultural and social cooperation and regional cooperation.

The EU-ACP request for waiver, he said, was in accord with views of several members in Council discussions over the past two years that no matter how laudable the aims of Lome, they did not fall within GATT provisions and a waiver should be obtained. The two banana panel rulings had also recommended that a waiver should be sought.

The US said that many cps, including the US itself, had suggested the waiver route, but the US had problems now about its timing. The US had no objection in principle to the waiver request, but wanted some changes in the wording of the request. Substantial amounts of trade were involved and there was need for more time to sort out the technicalities of the draft decision to be taken.

Morocco said Lome was not a trade, but economic agreement. Japan said the arrangements were inconsistent with MFN requirement, while Australia said further consultations were needed.

The EU agreed to further consultations, but said this problem should be resolved as soon as possible, and certainly by the time of the annual session of the Contracting Parties in December.

The Council put off actions on a number of panel rulings, many old. Among the old ones were the two banana panel rulings, whose adoption have been held up by opposition from the EU and ACP members, and the tuna panel ruling (whose adoption is held up by the US).

On the banana panel rulings, Guatemala said the subject should remain on the agenda of the next GATT Council (which would be in the New Year). The others would come up at the December meeting of the GATT CPs.

The panel rulings on the US restrictions on foreign automobiles, on environmental grounds, was put off at the request of the EU (the complainant) which said the panel report was complex and the EU had not had time to complete its review.

The EU complaint had been against three measures which it said discriminated against imported cars:

The first related to the excise tax on some luxury products (cars, boats, aircraft, jewellery and furs) amounting to 10% over a threshold value (of $30,000, now raised to 32,000). The panel held that a domestic car selling below that threshold was not a 'like' product of an import selling above that figure, and thus not covered by the national treatment requirement.

The second EU grouse was over the gas guzzler tax which exempted car model-types with a 22.5 miles per gallon or more fuel efficiency, but levied taxes ranging from $1000 to 6400 on models with fuel efficiency of 22.5 mpg to 12.5 mpg, and $7700 tax on models with fuel economy below 12.5 mpg. The fuel efficiency of each model is tested by using different versions (containing minor design variations that might influence the fuel economy) and averaging the results on a sales-weighted basis. The EU contended that the levy and the way fuel economy was calculated on a sales-weight basis discriminated against imported car sales. But the panel rejected this too, arguing that there was no 'likeness' criteria established to attract Art III, and the US actions corresponded to a "plausible policy purposes other than affording protection to domestic production".

The US CAFE regulation was however held to violate the GATT obligations. This regulation requires every car manufacturer to maintain a minimum corporate average fuel economy (CAFE) of 27.5 mpg for the fleet of cars it manufactures in the US. Failure to do is unlawful and attracts a civil penalty of $5 for every tenth of a mpg fleet average below 27.5 mpg multiplied by the number of cars in the manufacturers fleet. As for imported cars, the levy applies, but on basis that the CAFE standards are calculated separately for imports and domestic manufactures by the manufacturer or importer.

The panel ruled that the CAFE regulation was not an internal tax, but a requirement that violated Art. III:4 in that the domestic and foreign fleets of a manufacturer had to be calculated separately for averaging. To the extent that the CAFE fleet averaging requirement gave less favourable treatment to imported cars based on factors relating to control or ownership of producers or importers, this too violated Art. III:4. While the CAFE measure could be seen as a policy to conserve an exhaustible natural resource -- and thus falling under Art.XX (g) exception, the separate fleet accounting rule was not primarily for conservation and hence was not covered. It could not be saved by Art XX (d) exception either since only any underlying measure to secure compliance with laws and regulations consistent with the General Agreement could be saved.

Earlier, the Council granted observer status to Georgia and Sudan.

Action on a waiver request of the EU over transitional measures following German reunification was also put off.