Jul 30, 1986

BRINKMANSHIP IN MFA NEGOTIATIONS.

GENEVE, JULY 29 (IFDA/CHAKRAVARTHI RAGHAVAN) – Negotiations for extension of the Multifibre Arrangements (MFA) were described Tuesday as in a state of brinkmanship, because of tough new demands by the U.S. and resistance to it from the exporting countries.

On Saturday, just five days before the deadline for concluding the negotiations, the U.S. had put forward its demands for more drastic restrictions in the provisions of an MFA-4.

These included demands for extending the coverage to include "all fibres", introducing a new concept of "destabilising influence" of imports of a product or line of textiles and clothing products that would enable importing countries to restrict imports, and a unilateral right for importing countries to extend mutually agreed voluntary restrictions.

The EEC for its part, while generally striking a "liberal stance", has also put forward demands of its won, including for all MFA-signatories to take import liberalisation measures.

Third world participants said that after informal meetings that went beyond midnight Monday, several of the other elements, on which there was some understanding, though not on the language, have been remitted to smaller drafting sessions.

However on the important demands of the U.S. and the EEC, there have been no "meeting of minds", and exporting countries refused to agree to refer these issues also to a drafting group, as sought by the U.S., these sources said.

The current MFA-3 IS DUE TO EXPIRE ON July 31, and unless renewed or replaced, the trade in this sector would revert to normal GATT rules and principles.

The negotiations over future of the MFA were kicked off a year ago, but till now the U.S. has been vague and non-committal on what it seeks, beyond making general statements that an MFA-4 should not be "less restrictive" than MFA-3.

The EEC, which has been talking about a "liberalised" MFA-4, has also been vague hitherto.

Both have been trying to secure bilateral accords with the dominant and major suppliers to their markets, incorporating their ideas into the accords, and then use them normatively for an MFA-4.

So far the U.S. has been concentrating on getting "bilateral accords" form the dominant suppliers, but would appear to have been successful only in securing such an accord from Hong Kong, and Taiwan (which is not an MFA member, but a dominant supplier to the U.S. market).

Among the other major exporters to the U.S. market, the U.S. bilateral accord with Brazil, negotiated much before the negotiations for MFA-3 began, is apparently till 1988.

The EEC has managed to get bilateral accords with 16 third world countries, but is seeking accords with ten others, of whom seven (including India, Brazil, South Korea, China and Pakistan) are important suppliers to the EEC market.

Both the U.S. and EEC had been keeping up their sleeves the actual changes they seek in the MFA, in the hope that they could first get them accepted in the bilateral accords and then unveil them in the MFA negotiations.

It was only Saturday at the informal negotiations that the U.S. and EEC appear to have unveiled their proposals for change, with the EEC projecting a "somewhat liberal stance", and the U.S. seeking more restrictions on this trade.

The U.S. proposals, it would appear, involve extending the scope of the MFA to textiles and clothing made of "any fibre", and empowering the importing countries to unilaterally impose restrictions on imports that run counter to the very logic and concept of the current MFA and its protocols.

The MFA now covers tops, piecegoods, made-up articles, garment and other textile-manufactured products of cotton, wool, man-made fibres or blends thereof.

The U.S. now demands that the scope of MFA should extend to "products of any fibre".

And while "fibre" itself has not been defined by the U.S., it is reported to have made clear that the term is intended to include – besides silk, remy and linen it has been talking about – other fibres too, including jute, coir, glass fibres, etc.

Another demand of the U.S. is to introduce a concept of "destabilising increase in imports" that would enable an importing country to restrain imports.

In the U.S. view, a substantial increase in imports of a product or group of products from a particular source could have "a destabilising impact" on all or several lines of production in a key market, and exacerbate a situation of market disruption, and participants should cooperate to take measures to avoid such a situation.

Under the new U.S. concept, it could contend in future that imports into the U.S. of shirts from Say India or Sri Lanka has "a destabilising impact" on U.S. producers of shirts and blouses and other product or of the producers of textile fabrics used in such products, though there might be no actual or threatened "market disruption" in shirts themselves, and hence the exporting country should restrain its exports of shirts and/or any other product.

The MFA, which itself is a departure or derogation from GATT principles and rules, is based on the "logic" – which has no basis in theories of free trade and comparative advantage – that imports of a particular product from a particular source into a particular market should cause "market disruption", and in that event the importing country could seek "consultations" with the exporting country for export restraints in that particular product.

If the two sides are unable to agree, they could refer the matter to the textile surveillance body for settling their differences.

The MFA also lays down in an annex the "factors" whose presence in combination could create "market disruption", and makes it incumbent on the importing country to show "demonstrably" that serious damage or actual threat thereof to domestic producers would be caused by the factors, and not due to technological changes or changes in consumer preferences.

The factors spelt out in the MFA are a sharp and substantial increase or a measurable imminent increase of imports of particular products from particular sources, and their offer at prices "substantially below" those prevailing for similar goods of comparable quality in the importing market.

Under the MFA now, when restraints are sought and imposed, it should be for limited periods not exceeding one year, subject to renewal or extension for additional periods of one year on the basis of bilateral accords.

If not agreement could be reached to extend the restraint for more than one year, the importing country seeking such restraints would have to go before the TSB.

A new U.S. proposal would empower an importing country to make unilateral adjustments in the existing quotas of the exporting country, if no agreement to extend the restraint beyond the one year period could be reached.

According to third world sources, the U.S. proposals to extend the coverage of MFA to "other fibres", and its new concept of "destabilising impact", came under sharp attack not only from the exporting countries, but even several of the importing countries, including the European Community.

In addition to these proposals, the U.S. is also reported to have brought in the concept of "protection of intellectual property rights", into the MFA, to enable an importing country that feels that an export country is not providing sufficient protection for intellectual property rights (like trade marks and patents) to restrict the imports from the exporting country.

The U.S. is also promoting a similar idea in connection with the proposed new trade round, but has been opposed there by a number of third world countries.

Apart from the U.S., Switzerland too is reported to have made a similar proposal relating to protection of intellectual property.

The EEC is reported to have tabled its own proposals for change, projecting a "somewhat liberal stance", even if vague.

The EEC proposals would appear to include changes to strengthen the provisions of the present agreement to provide more liberal treatment for least developed countries (LDCS), new entrants, small suppliers, and cotton producing countries.

At the same time, the EEC wants provisions asking "all participants" to contribute to liberalisation of trade, according to their levels of development and economic conditions, by opening their own markets for imports of textiles and clothing.

Another EEC proposal reportedly involves introduction of a "social clause" in the MFA, which in effect would enable imports to be restrained on the basis of the wage levels and other conditions of work in the exporting countries.

Both these EEC proposals also reportedly were opposed by the third world participants.

Third world participants in the MFA have already tabled a number of their own proposals for change.

In respect of coverage, they have sought exclusion from MFA of cotton yarn and non-apparel cotton piece goods.

They also want removal of all restrictions on imports from LDCS, and more favourable treatment for new entrants, small suppliers and cotton producing countries.

In respect of any "additional measures" (through customs practices, product categorisation, rules of origin, etc.) that might be taken by an importing country, the third world MFA exporters are seeking bilateral consultations and mutual agreement before any actions are taken.

They are also seeking a sharper definition of "market disruption" and "injury" that could trigger request for consultations and import restrictions.

Specifically, the third world exporters want to rule out scope for any unilateral action by the importing country and that the alleged factors threatening market disruption should be based on actual data (and not inferences or presumptions).

Also, a mere increase in imports from a particular source should not be a ground for action on basis of market disruption, and no restraints should be imposed on any particular source so long as imports from a non-restrained source is higher than that from the source whose imports are sought to be put under restraint.

No request for restraint could also be made by an importing country, if in the same or similar product the importing country itself is a substantial exporter.

Apart from the collective proposals on behalf of the group of third world exporting countries, individual countries have also put forward a number of proposals covering their particular problems.

India has also suggested provisions in the protocol of extension that would provide for a phase-out of the MFA regime, through progressive reduction or elimination of restrictions during the life of the MFA-4.

GATT sources said intense negotiations on all the proposals, in order to draw up a new protocol of extension, will go on over the next three days, to conclude them by July 31 midnight.

While provisions where there is more or less agreement, but with differences on actual wording, would be remitted to small drafting groups, while the areas of substantial differences would be thrashed out in further intensive consultation sessions, chaired by the GATT Director-General.