10:06 AM Oct 18, 1993

GOING DOWN TO THE WIRE, WAITING ON US AND EC ?

Geneva 17 Oct (Chakravarthi Raghavan) -- A plurilateral stock-taking exercise at the market access group Friday, according to participants, showed that US-EC differences over agriculture and market access on industrial goods, and the differing interpretations among Quad countries on what was agreed at the Tokyo G7 summit in July, still bedevil attempts at speeding up the market access negotiations.

"The negotiations are way behind schedules and, reading behind the public and private comments of the majors, it is clear that any US-EC accords and compromises over market access, whether on agriculture and Blair House or on industrial goods, is unlikely till very close to the wire -- 15 December," one Third World negotiator said Friday.

While everyone, including the USTR and the EC Commission, seem committed to complete the negotiations by the 15 December deadline, the postponing of attempts at compromise till the very end could leave very little time for others, even to withdraw their "offers" on the table on the ground of inadequate response from trading partners, another Third World diplomat said.

Friday evening's plurilateral stock-taking exercise at the GATT was in the Market Access Group chaired by Canadian Germain Denis. It was preceded by informal consultations by him on agriculture and industrial products earlier in the day, and a Quad meeting at level of their official negotiators on Thursday.

The EC, at the Brussels talks, pressed for a Quad ministerial meeting, but so far the US has seen little utility in such an exercise in the absence of what it sees as the EC's failure to 'negotiate and deliver'.

The Quad official level meeting was an exercise by the US and EC to brief the other two members -- Canada and Japan -- on the Brussels talks earlier in the week, between USTR Mickey Kantor and the EC Commissioner for GATT-trade talks, Sir Leon Brittan.

But it became a forum for the US, Japan and Canada joining together against the EC, one source said.

Other trade diplomats, basing themselves on the briefings provided by both sides to their friends here, said that the US-EC latest Brussels meeting (between Kantor and Brittan) had been virtually a failure and was negative, though there had been apparently some progress between the two on the audio-visual sector problems.

But the two sides are still talking and plan to do so to find compromises and clinch an accord, but their attempts to postpone a deal being stuck till almost the end could be a gamble, one source said.

Though both sides talk as if they have other options (President Clinton over the weekend, speaking on foreign policy, suggested Europe was not so important and the US had to look to the dynamic far east asian markets), one had only to look at their trade figures to see how important each is to the other, whatever the potentials of future markets elsewhere, trade observers said.

For the US, it is difficult to reach any compromise or show willingness to accommodate France and the EC over agriculture, both because of the pressures from its own farm-lobby to expand its access to Europe and the uncertainties of the fight in Congress over NAFTA.

While there is some view that once the NAFTA fight is over (with the administration winning it), it would be easier for the administration to strike deals in the Uruguay Round, those more familiar with the US political scene and congressional-administration relationships doubt such a scenario.

At the Quad negotiators meeting on Thursday here, where an attempt was reportedly made to see whether the Quad could speak with one voice, it was apparently clear that there was considerable difference among the four on what was agreed -- whether it was a formula, a mere framework to be fleshed out by detailed negotiations and offers etc -- and whether the 'offers' made by the four since July meet the Quad agreement.

As a result at the Friday plurilateral exercise, the Quad countries all spoke separately.

The EC announced that it would be putting forward on Monday or Tuesday, its revised tariff-line "offers" -- though it was not clear whether it would be "offers" or mere 'exemplification' of the EC's interpretations of the Quad accord and one that it would undertake to do if others also agree to do the same.

Comments by others at the plurilateral, and outside to the media, showed that the other quad members still were disputing on what sectors should be covered in the zero tariff reduction, what in the reduction of peaks, what in harmonisation and what in the 'residuary' category of 30 percent reduction of tariffs -- differences that were there even at Tokyo and which in the 10 weeks since then remain unresolved.

Canada insisted that without including wood and pulp into the zero tariff area, it would not be satisfied.

The US wants zero tariff to apply to wood, and also paper, scientific equipment and non-ferrous metals.

Japan does not favour zero-tariffs on non-ferrous metals, but is for harmonization of tariffs at three percent.

None of the four touched upon fisheries sector -- an area of some importance to other trading partners.

The pre-Tokyo offers of the US had favoured a zero-tariff option but excluding the fisheries products of interest to developing countries like shrimps and tuna where the relatively higher tariffs were retained.

The EC's own offers did not cover fisheries either. Whether its promised new tariff-line offers would cover remains to be seen.

In other comments, Asean countries (who are being asked to match the market access openings and offers of the Quad) called for zero tariff offers to cover electronics.

On textiles, the Brussels talks and the statements here, showed that the US has not so far agreed to the EC view for deep cuts in the high peaks of the US tariffs. It is however portrayed as waiting for the talks going on between the US and EC industries.

But the US clearly wants to get something in return from others for cutting its peak tariffs on textiles and clothing, including the demand that developing countries should provide the US with market access in this area by harmonising their own tariffs and removing any restrictions they maintained for balance-of-payments reasons.

This last is principally aimed at India, Pakistan, Egypt and a few others. But India and Pakistan have rejected this suggestion, making clear that their actions would be dependent on changes in the DFA texts on textiles and clothing to front-load the integration process envisaged, and removal of quota restrictions against their exports, much faster than now envisaged (under the present text, the imports from these countries of apparel and other 'sensitive products' will face discriminatory quota restrictions until 2003).

The US however is reported to have indicated to the EC, the Quad countries and other trading partners, that it is willing to talk together on market access and related questions of agriculture, industrial goods and services -- so that trading partners could see an overall balance and trade offs.

Other trading partners said that while the focus for the deadlock is on agriculture, and with France being put in the spotlight as the spoiler, there are other issues that could prove equally difficult.

On the question of the future institutional framework -- the Multilateral Trade Organization and the integration dispute settlement mechanism -- the US is holding out against the current draft texts and wants substantial changes which, overall, could result in the new institutional framework which, while being a 'common house' for the secretariat and a forum, will remain like the present GATT, ensuring considerable leeway from compliance for the US.

The discussions on this is going on in the open-ended group chaired by Julio Lacarte-Muro, though in fact only a few key countries are attending the discussions.

Apart from the MTO issue itself, the US (whose number 2 at the mission, Andy Stohler, has been staffing the talks full-time) has been insisting that it wants dilution of the integrated dispute settlement mechanism, particularly the provisions relating to cross-retaliation.

Developing countries like Brazil, India and a few others (before the DFA was tabled) who negotiated on this with US, EC, Canada etc, agreed to the current texts on the basis of what was described by them as "civilized cross-retaliation".

This required that when a contracting party sought to retaliate for alleged infringement of rights and obligations say in Trips or Services, it must first seek possibilities within the sector concerned or subsector (in the case of Services) and only if this was not possible could seek authority for cross-retaliation against goods imports.

A provision, visavis developing countries, would enable them to seek 'arbitration' on this question of whether retaliation within the sector was feasible or not and whether cross-retaliation should be allowed.

The US is now demanding that the views of the "arbitration" (which for everyone would also cover the extent of damage) would not be binding and the GATT body to authorize the retaliation could reach an independent conclusion.

In effect this will preserve the substance of the US 301 trade law retaliatory powers and the US reportedly is saying that unless this was done the Congress would not accept any accord.

"The French threats over agriculture is attracting much media attention, but this US threat over its unilateral powers, is being ignored by the media since it is slightly technical," one participant said.

Meanwhile, in France, the Prime Minister Edouard Balladur and the EC President Jacques Delors publicly differed with each other over the GATT talks.

In a radio interview, Delors warned against the danger of France getting hysterical over the GATT deals and adopting a Maginot line mentality leading to French isolation and probable blame for failure.

However Prime Minister Balladur in a TV interview seemed to differ from Delors, vowing to stand firm and not sign the GATT accord if France did not get satisfaction over agriculture.

But Balladur also focused on the other questions and divisions with the US -- starting with the MTO, US unilateralism, and the audio-visual sector in services.

(French President, Francois Mitterand, was meanwhile quoted at the Franco-phone summit as talking in terms of American "cultural imperialism" in relation to the audio-visual sector.)

While France is being portrayed as the spoiler over agriculture, others note that several EC and Europeans are in fact taking shelter behind France.

Germany, for example, is at odds over the question of the 'green currency' -- the special ECU/national currency exchange rate for payments on agriculture -- which now works against the Germans because of the Deutchmark's appreciation and wider band of the EC currencies now in operation.

Also, the Germans have ignored (in former East Germany) the EC's restrictions on cereal production and sowing (the set-asides called for under the reformed CAP), with its farmers in the east having brought 347,000 hectares more under cereals.

This would require the offset payments and subsidies to them to be cut, but the Germans (who like the British want the EC budget to be cut) are resisting it, and are saying that they would themselves compensate their farmers for any penalties they incur on the CAP payments.

In agriculture itself, there are also the problems of Japanese and South Koreans on rice imports etc, though there is some talk of compromises being found for them, though nearer the final stages.

In strict terms, any such compromise (Japanese and western press reports over the last week have spoken of the two countries accepting full tariffication, maintaining existing access levels, but getting a moratorium on further cuts in tariffs etc for six years) would need changes in the Blair House texts, which the US and Cairns groups insist can't be touched.

However, there is a clear attempt at accommodating South Korea and Japan, as one Cairns group put it, through 'constructive' solutions -- the two reflecting the compromise in their actual schedules and others not challenging it!

This attitude, different from the stand against France, is justified on the ground that the Japanese or South Koreans are not dumping subsidized products on the world market, but only protecting their domestic markets and need time to change course.