Jul 12, 1984

STAND-OFF ON NEW ROUND AND SERVICES ISSUES.

GENEVA, JULY 9 (IFDA/CHAKRAVARTHI RAGHAVAN) — Third World countries in GATT are resisting efforts from the United States and Japan to agree to negotiate on services and other areas of interest to the north in return for negotiations on issues of interest to the Third World.-

This assessment of the situation came from Third World sources following last week's meeting of the Consultative Group of 18 (CG-18) of the General Agreement on Tariffs and Trade.-

Consisting of important trading countries of north and south, the CG-18 is a forum for high-level policy discussions in GATT.-

Among the issues the CG-18 last week, at its meetings on July 5-6, were questions relating to implementation of the GATT work programme.-

It is now commonly acknowledged on all hands that there has been little or no progress in implementation of the work programme on agreed on by the GATT Ministers in their 1982 declaration.-

Third World sources say that as a result of the joint position taken, in May, by the Third world members of GATT on a new round of negotiations, and after the recent London western summit (where differences among the western countries themselves surfaced on this issue), the industrial countries have adopted a "more suitable" approach.-

All of them now lay emphasis on implementation of the GATT work programme, but viewing it merely as an effort to delineate negotiating issues in various areas, to enable the issues to be handled as one package in a new round of negotiations.-

The Third World countries have rejected such an approach, and in their joint position paper have underlined several areas, including standstill and rollback on protectionism, as also implementation of past commitments, as a priority before consideration is given to launching a new round.-

In the formal and informal consultations during the CG-18, Third World sources say, Japan has been to push for a new GATT round.-

The U.S., these sources say, has taken the posture that Third World countries were interested in progress in some aspects of the work programme, while the U.S. and others had interest in other parts, and "there should be some give and take".-

Third World countries however appear to have said that not all the items on the GATT work programme could be given the same priority.-

Priority should be given to those items on which there had been some relative progress in preparing the ground for negotiations and actions, and where these were of significance for a large number of countries and there was no doubt about the legal status of GATT in these areas.-

From this viewpoint, in terms of ground work, issues in agriculture, tropical products, Quantitative Restrictions (QRs), and textiles, were four major areas where work has advanced relatively, and ripe for negotiations and actions within the normal GATT framework.-

The European Community, in its remarks at the CG-18, is reported to have made no mention of either a new round of negotiations or of the services issue.-

The EEC would appear to have said that the Community was interested in doing something in the areas of tropical products and QRs (issues outstanding from the Kennedy Round), and reaffirmed the Community's sincerity in implementing the November 1982 Ministerial declaration on standstill and rollback of protectionism.-

However, the Third World should also reciprocate, in the EEC view.-

While the EEC did not spell out what "reciprocation" it sought, some Third World sources suggested this has something to do with the EEC’s desire to have some GATT negotiations on "counterfeit goods".-

Japan, apart from projecting a new round as part of the GATT framework of "continuous negotiations", is also understood to have stressed the need for negotiations for liberalisation of "trade in services".-

However, India and a few others were reported to have made clear that "services", where GATT had no legal status, could not be equated with other GATT issues, and a trade-off sought.-

The U.S. has been seeking the establishment of a GATT working party on the services issue.-

Another issue that would appear to have figured in the CG-l8 discussions was the issue of "counter-trade" raised by the United States, at whose instance the GATT secretariat had done a background study.-

While non-official studies based on "anecdotal experiences" have suggested that counter trade now accounts for 20-30 percent of world trade, the GATT study has estimated the "maximum" value of counter-trade to be no more than eight percent of the total world merchandise trade of about 1850 billion dollars.-

While viewing some of the counter-trade practices as not being in violation of GATT principles, the GATT study has said that counter-trade was indulged in to get around foreign exchange constraints and exchange rate problems, and to this extent there would have been no trade without counter-trade.-

And while not disapproving of such counter-trade when undertaken by private enterprises, the GATT study has frowned on such actions when mandated by government policies or by state enterprises, viewing them as economically inefficient.-

In the discussions in the CG-18, a number of Third World countries would appear to have viewed the GATT study as essentially "academic" dealing with symptoms in a theoretical way rather than looking at facts and the disease.-

While multilateralism in trade was no doubt a better arrangement than bilateralism, counter-trade was essentially a symptom of the deep-rooted disease in international trade arising from its asymmetric nature and the in-built adverse terms of trade for the Third World, the Balance-Of-Payments (BOP) constraints on the Third World, and the restrictive practices of private enterprises.-

The intra-firm transactions of the transnational corporations now accounted for as much as fifty percent of world trade, and while the theory of "maximisation of profits" for efficiency may be theoretically sound, such TNC trade practices too were no more than counter-trade.-

Equating the "maximisation of profits" of such TNC practices with social welfare benefits for the Community at large would not be correct, even according to economic theory.-

In the actual conditions of international trade, counter-trade by state enterprises could in fact ensure better terms of trade for the Third World countries concerned, and ensure better exports.-

To argue that practices indulged in by private enterprises were ipso facto good but become bad when governments or their state enterprises indulge in them did not even fit into economic theory.-

Rather than harping on theory, the way to tackle counter-trade was by attacking the underlying disease, by making the major trading partners abide by the GATT rules, and curbing the restrictive and monopolistic practices of the TNCs.-

Third World sources said there was clearly no meeting ground between the position of the Third World and the U.S.A., the main protagonist of actions in GATT against counter-trade, and there was not even a consensus to continue consideration of the issue in the CG-18 with a view to bringing it before the GATT.-