GENEVA OCT 30 (CHAKRAVARTHI RAGHAVAN) -- ON THE EVE OF MONDAY'S MEETING

9:19 AM Nov 1, 1993

GENEVA OCT 30 (CHAKRAVARTHI RAGHAVAN) -- ON THE EVE OF MONDAY'S MEETING
appeared to be slightly optimistic that the successful conclusion of the six-year old negotiations was within their reach and at the same time confessing to disquiet that new US positions could jeopardise these chances and that no serious negotiations are likely till after the Nafta vote in the US Congress.

These somewhat mixed assessments came in private conversations Friday at the GATT, after plurilateral consultations on market access in the group headed by Germain Denis of Canada and the meeting of the Group of Negotiations on Services (GNS) headed by Australian David Hawes.

The statements of the two at their respective meetings, and the further work programmes set there, appeared to lend strength to the view that there is a tacit understanding among key players to wait for the NAFTA vote and not bring things to a head before.

The NAFTA approval is expected to come to a vote in the US House of Representatives (where it is meeting serious difficulties) on 17 November. The vote in the Senate, where it is expected to have an easier passage, is expected on 24 November, though some sources say this could be put off till first week of December.

The Uruguay Round negotiations face the 15 December deadline set by the US fast-track authority.

This makes the whole thing very dicey, several of the GATT negotiators say.

In the market access group, Denis asked all participants to ensure that they have "comprehensive updated offers on the table as early as possible in the week of 15 November". The original target date was 31 October.

In the GNS, where a new revised text was more or less agreed upon -- with some important questions still unresolved and not commanding a consensus -- Chairman Hawes leading these negotiations said that a new round of bilateral negotiations on market access should start no later than 15 November, with 26 November as the deadline for submission of final MFN exemptions and final schedules.

The GNS meeting also saw a large number of countries taking the floor to strongly criticise the latest US positions -- for a two tier-approach to financial services and an attempt at a "tax carve-out" in the framework text for the General Agreement on Trade in Services (GATS).

These US positions, bared in Geneva over the last fortnight or so, are so fundamental that negotiators said unless the US changed its position either the entire negotiations risked failure or every participant would have to adopt a similar stance and a GATS framework and agreements would emerge that would virtually nullify the multilateral approach.

On Friday, the European Commission's chief official negotiator, Hugo Paemen, had said that the EC's negotiations with its trading partners other than Quad countries (Canada, Japan, EC, and the US) on the basis of its latest 'illustrative offers' was going forward smoothly, but that the negotiations with the Quad countries, and particularly the US was making no progress at all.

This view of the state of the negotiations between the EC and non-Quad countries was also cautiously endorsed Friday evening by some of the developing country negotiators, particularly those with both agricultural and non-agricultural interests.

The EC's offers, they said, did not advance negotiations far in the agricultural sector, but had been positive in the non-agricultural sectors, putting forward 'offers' in specific areas of interest to the particular Third World trading countries.

But with the US, things are at a standstill. The US seems unable or unwilling to move forward without first settling its negotiations with the EC -- and all this seem to be tied to the NAFTA, one of the leading Third World negotiators said.

The revised GNS draft text, and the statement of Hawes and others at the GNS, showed that while the large part of the text has been finalised, there are still some outstanding questions to be resolved.

These include the questions relating to integration groupings of developing countries and the kind of preferential arrangements that such groups could provide to service suppliers of their member-countries, the question of pricing of basic telecom where there is a requirement that countries should "endeavour" to ensure "cost-oriented" pricing and the taxation problems of foreign service suppliers where the US, despite the attempts of other participants to accommodate the US as much as possible, has now said that it would, in its schedules, take an across-the-board reservation for its taxing laws and administration to have an "opt out" of the GATS.

The revised text enables Parties to the GATS to have taxation measures that would differentiate between domestic suppliers and foreign suppliers provided such a differing treatment is aimed at ensuring the equitable or effective imposition or collection of direct taxes on services or service suppliers of other members.

Two footnotes have expanded on these provisions:

The first elaborates on the permissible kinds of measures discriminating between domestic and foreign service suppliers if the measures are aimed at ensuring equitable or effective imposition or collection of direct measures and which apply to:

* non-resident service suppliers in recognition of the fact that the tax obligation of non-residents is determined with respect to income, profits or gains derived from sources in the Member's territory; or

* resident service suppliers in order to prevent the avoidance or evasion of taxes; or

* non-resident service suppliers in order to ensure the imposition or collection of taxes on income, profits or gains derived from sources in the Member's territory; or

* consumers of services supplied in or from the territory of another Member in order to ensure the imposition or collection of taxes on income, profits or gains derived from sources in the Member's territory

The second spells out direct taxes as all taxes on total income, total capital or on elements of income or capital, including taxes on gains from alienation of property, taxes on estates, inheritances and gifts, and taxes on total amounts of wages or salaries paid by enterprises, as well as taxes on capital appreciation.

One of the key negotiators said: "All possible areas of tax avoidance and tax evasion have been brought in, both to spell out the rights of tax authorities and their legitimate interests. But beyond that, any blanket exemption, would really mean that a country providing a market access in a service area could take away the benefits through taxation or hit the foreign as against domestic supplier through taxation. The provision is the equivalent of the GATT provision against discriminatory taxes and levies etc on imported products, once they cross frontier and enter the domestic market."

The US, though the largest service supplier, is quite ready for a free-for-all on the taxation front since it is confident it can use its vast unilateral powers and its political and other leverages to get others to sign overall taxation treaties that would safeguard the interests of its TNCs and its tax base. But others would not have such a leverage in the absence of multilateral provisions.

In the two-tier approach, the US now wants to have basic MFN access to its financial services market on the basis of the existing access and standstill, but allow no expansion except in terms of negotiated reciprocal access which it hopes to use to pry open key markets abroad, particularly in the developing world in Asia and Latin America.

Hawes statement at the GNS also showed that no solutions have been found so far for the problem of Maritime Services which the US wants to exclude (except for some port and other ancillary services). Hawes said that plurilateral consultations on this question would be taken up in November and that 25 countries had so far indicted an interest in making commitments in this sector in response to a questionnaire from the European Community.

Meanwhile, in a published interview Friday, the Brazilian Foreign Minister (and former representative to the GATT), Celso Amorim, said that the Uruguay Round negotiations faced 'great risk' of failure if the US at the last moment sought more changes in the Draft Final Act. He had also complained that in the negotiations with the US, Brazil had so far got no market access offers in sectors of interest.

Amorim had said that the present DFA text had taken good care of the interests of the developing countries in reinforcing a system for multilateral settlement of disputes and clearly provides that countries could not have recourse to unilateral actions. The United States was exercising pressures for changes.

But Brazil and other developing countries as well as the EC would not agree to a final package on the basis of standards imposed by the US such as in the area of phytosanitary rules, anti-dumping rules etc. "These are basically unacceptable for us," Amorim said.

The market access negotiations among the industrialized countries, Amorim said, was not making any progress, neither on tariffs nor on non-tariff barriers.

The "offers" that had been made to the Brazilian requests were not sufficient. Brazil was interested in getting market access in shoes, orange juice and some textiles, he said. Brazil was also ready to enter into some sectorial negotiations, but for a zero-to-zero tariff cut.

Amorim said that a refusal by the US Congress to accept NAFTA would represent a hardening of the US conservative positions and would have negative effects on the Uruguay Round.