7:12 AM Nov 16, 1993

LACARTE GROUP CLEARS MTO TEXTS

Geneva 15 November (Chakravarthi Raghavan) -- The informal group on institutional questions appears to have ended its work Monday after evolving a near clean text on the Multilateral Trade Organization (MTO and the text of an Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU).

At the final meeting of the Lacarte group Monday evening, when the texts were cleared and adopted, the US appears to have made clear that it was still maintaining its opposition to the concept of an MTO, preferring instead what it calls a protocol approach for an agreement of a contractual nature-

But in terms of the MTO text and the related Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU), most of the outstanding issues within them appear to have been resolved with compromises.

The US delegate and acting chief of mission to GATT, Andrew Stoler, told newsmen that subject to its stand on the conceptual nature of the institutional outcome, all the questions had been resolved.

The US, he added, would incorporate all these good points in a text of its own -- a protocol approach (as an alternative to the organizational approach of the MTO) and circulate them to delegations.

The United States in December 1992 (during the Rossi process) had come out against the MTO in the Dunkel Draft Final Act (DFA) and proposed a protocol approach through a "GATT-II".

Recently, it has circulated a revised draft, for what it calls a "General Agreement on Trade" (GAT), and clearly now plans to put forward a revised version of this.

In the Lacarte group, the US made clear that it was reserving its position on atleast two issues -- one relating to the creation of a Committee on Trade and Environment and its proposal for a Trade and Environment Committee of the MTO with its mandate spelt out, and another relating to the standard of review and powers of adjudicatory panels under the MTO's DSU, on both of which the US was pretty isolated -- and that it would take it up at a higher level of the Trade Negotiations Committee where outstanding issues over changes in the DFA are to be addressed.

The US has also made clear that it will press its views about standard of review in the DSU, particularly in relation to anti-dumping and countervailing rules and disciplines.

In the texts that have now emerged out of the Lacarte group, where compromises have been struck, while the US has gained some points, it has also had to give way on several others including on 'non-application', arbitrator's awards particularly in cross-retaliation cases.

Another issue where the Lacarte Group was unable to reach a decision, and thus has left open the possibility of this too having to be taken up at the TNC, is the question of what in GATT is known as disputes arising out of 'non-violation' actions -- where a Party to the agreement is not in breach of any of the provisions of the agreement, but whose measures taken or failed to be taken are claimed by another Party to be impairing or nullifying its rights and expectations.

India has been insisting that there could be no 'non-violation' dispute under the TRIPs agreement. The US wants to maintain such a possibility. Canada has a position similar to that of India.

The US for its part wants to make sure that the 'non-violation' disputes do not apply to the anti-dumping and countervailing duty rules.

The new text on MTO, while cleaning up the draft in the DFA as revised and worked on last year by the legal drafting group, has made some substantive changes on decision-making, on amendments and in relation to 'non-application'.

While the US 'gained' on some of these points, particularly over future amendments, it has also had to give way on others where the texts, read in conjunction with the provisions of the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) virtually illegitimise US unilateralism on trade policy in the various forms of its S.301.

On decision making, the MTO provides for continuing the practice of decisions by consensus (defined as a member not formally objecting to the proposed decision) in the GATT, but where it cannot be resolved by consensus by voting, with each member having one vote.

The text then circumscribes this.

In regard to interpretations of the MTO and its annexed agreements, a decision to adopt an interpretation has to be by a three-fourths majority of the Members. However this power is to be exercised in a manner that would not under-mine the provisions for amendments which prescribe varying majorities for varying amendments.

The Ministerial Conference of the MTO is empowered, in exceptional circumstances, to waive an obligation imposed by the Agreement on a member by a three-fourths majority.

The request for waiver in regard to the obligations under the MTO itself is to be submitted to the Ministerial conference for consideration and decision-making by consensus. If a decision cannot be reached by consensus within a stipulated period not exceeding 90 days, the waiver request is to be decided by three-fourths majority.

The requests for waivers under the various Agreements are to be submitted in the first instance to the relevant Councils (Council on goods for the GATT or trade agreements in goods, Council on Services for the GATS, and the Council for TRIPs in regard to the TRIPs agreement) with the Councils required to submit a report to a Ministerial Conference not later than 90 days.

Any request for waiver under an agreement, where the agreement provides a transition period for implemented, is not to be acted upon during the transition period except by consensus.

The US had wanted elimination of any waiver even being sought for an agreement with a transition period (and it had TRIPs in mind), but ultimately agreed to provide for this but subject to decision only by consensus.

The three Uruguay Round agreements with transition periods for implementation are those on TRIPs, on Textiles and Clothing and in Agriculture.

Any waiver by the Ministerial Conference has to state the exceptional circumstances for the decision, the terms and conditions of the waiver, and the date on which the waiver will terminate. Any waiver for more than a year would be subject to review by the Ministerial Conference no later than a year afterwards, and annually thereafter, on the basis of which a waiver can be extended, modified or terminated.

Decisions on waivers and interpretations of plurilateral agreements (like that on civil aviation, government procurement etc) are to be governed by the provisions of that agreement.

On Amendments, the draft text on MTO had provided that amendments can be proposed by a Ministerial Conference only on the basis of consensus, but once proposed for consensus, it would be adopted by a twothirds majority of the members and thereafter bind everyone.

The US had steadfastly opposed this.

The compromise that has now emerged provides for:

* any MTO member may initiate a proposal for amending the MTO or the multilateral trade agreements under it and submit the proposal to a Ministerial Conference.

* the Council administering an agreement could also similarly submit proposals for amendment.

* for ninety days after a proposal has been tabled formally before a Ministerial Conference, any decision for submitting the amendment for acceptance is to be by consensus, but subject to some further provisos.

* If a consensus is reached, the Ministerial Conference is to submit the proposed amendment to the members for acceptance; but if a consensus is not reached within a stipulated period, the decision to send the amendment for acceptance is to be made by twothirds majority of the members.

* amendments to the MTO's decision-making provisions, to Articles I and II of the GATT (MFN and National treatment provisions), Art II:1 (MFN requirement) of the GATS, and Art IV of the TRIPs (MFN requirement) can take effect only upon acceptance by all the members of the MTO.

* amendments to the MTO or the multilateral agreements under it on goods or TRIPs (other than those specified above) that would alter the rights and obligations of members shall take effect, upon acceptance of the amendment by twothirds of the members, but only for the Members that have accepted it. However, the MTO could decide by three-fourths majority that an amendment like this would be of such a nature that anyone not accepting it shall be free to withdraw from the MTO or remain only with the consent of the Ministerial Conference.

* there are also similar provisions relating to the GATS agreement and its annexes.

These provisions are more or less analagous to those of the present GATT.

* amendments other than those of an entrenched variety or those not involving rights and obligations shall be effective for all members upon acceptance by twothirds majority.

* amendments to the TRIPs agreement, for enhancement of standards, "for adjusting to higher levels of protection of IPRs achieved, and in force, in other multilateral agreements and accepted by all Parties" and accepted by the TRIPs council could be adopted by the Ministerial Conference without any further formal amendments.

In effect, these provisions make virtually impossible, except by consensus, any amendment to the TRIPs which would dilute or reduce those in the Uruguay Round agreement, and would be seen as a further negative element by those opposed to the accord in the developing world.

The MTO's "non-application" provisions in Art XIII, now provide that the non-application clause cannot be invoked against any existing GATT member, who becomes a original member of the MTO, unless the non-application provision had been invoked in regard to the GATT (1947) at the time either of them became parties.

Under the GATT, non-application was possible only if either of the two parties had not entered into tariff negotiations with each other and either of the contracting parties, at the time of becoming a cp, had not consented to such application.

The power has been exercised in GATT only for non-economic reasons. The US had wanted a more general non-application clause for the MTO and any of its agreements or combinations and it was thought to be attempting to have this as a reserve against the major Third World economies -- if they exercised this option on GATS, TRIPs etc visavis the US, or even if it found their other "offers" not satisfactory to it.

But the US was isolated on this and ultimately gave way.

Art XVI:4 of the MTO, relating to miscellaneous provisions, has a bracketed text now which stipulates that "Members shall ensure the conformity of their laws, regulations and administrative procedures with the provisions of the annexed Agreements".

During the negotiations, several participants had wanted such a provision in the Disputes Settlements text to ensure that Parties accept and implement panel rulings accepted by the Contracting Parties. The US at that time had said such a provision should be in the MTO and thus cover all the rules and agreements.

The original MTO draft only provided for Members to make the 'best endeavour' to this end, while the US GATT-II had only a 'best endeavour' as part of the Ministerial Declaration and thus of no consequence afterwards.

The MTO text now is much stronger and definitive, but is square bracketed because of the US reservations, as also that of some others.