Jul 13, 1985

MANAGED TRADE AND DISCRIMINATION INCREASE.

GENEVA, JULY 11 (IFDA/CHAKRAVARTHI RAGHAVAN)— Recent developments in international trade relations point to an acceleration of tendencies towards "managed trade", legal and illegal departures from GATT rules, and discriminatory practices against Third World.-

A note by the secretariat of the UN Conference on Trade and Development circulated to the UN Economic and Social Council (ECOSOC) session here provides this assessment of "developments in the international trading system relevant to the position of Third World countries".-

The erosion of principles and rules of GATT, UNCTAD notes, began in GATT from inception - when for example the major trading partners decided that social and political questions relating to agriculture should take prudence over agreed rules.-

The process was extended, through major departures from principles of non-discrimination, to textiles and clothing sectors when new entrants on the world market appeared, and has now spread to sectors such as ship-building, steel and automobiles.-

Some of these have been within GATT framework, while for others it has been outside through concepts like "market disruption", and "Voluntary Export Restraints" (VERs).-

This tendency has resulted in "managed trade" - where there is control of prices, quantities and sources of imports through a variety of mechanisms of either exporting or importing countries.-

Despite declarations and statements to the contrary, "the trading system is still moving in the direction of managed trade, and adequate and urgent action needs to be taken to arrest and reverse this trend", UNCTAD adds.-

Third World countries have been most affected by such tendencies to "managed trade" that seek to preserve the traditional market shares of domestic and established suppliers and discriminate against new entrants.-

After the Tokyo Round tariff cuts, and the reduction in importance of tariffs as a trade regulatory device, there has been accompanying increase in use of non-tariff measures (NTMs), which are now widespread and affect particularly exports of the Third World.-

UNCTAD estimates that 65.3 percent of OECD imports of key manufactured goods coming from the Third World were subject to NTMs in 1983-84, compared to only 22.7 percent on same goods coming from other Industrial countries.-

The NTMs enable use of bureaucratic discretion and are discriminatory in nature.-

Their application is not subject to public scrutiny and, therefore, not transparent.-

Many of the NTMs are not amenable to negotiated reduction through exchange of concessions in Multilateral Trade Negotiations (MTNs), UNCTAD points out.-

Coupled with decline in importance of tariffs, the NTMs have resulted in "marked decline" in importance of the price mechanism in forming consumer preferences and distributing resources.-

A growing n umber of highly specialised arrangements have emerged whereby governments "administer" trade that in the market economies are supposed to be "administered" in the market place.-

Production and trade, and thus of prices and quantities for sale, are controlled by Quantitative Restrictions (QRs) in agriculture products, textiles, clothing and steel.-

GATT disciplines do not apply to a major part of agricultural trade.-

Apart from the exceptions in the general agreement itself, there is also the waiver to the U.S., the common agricultural policy of the EEC, the residual Japanese QRs on agricultural products.-

"In fact all Northern Hemisphere industrial countries maintain protectionist agricultural policies, at least in certain sectors".-

In the textiles and clothing sector, "despite the economic recovery in Europe and the U.S., and the recent increases in protection that have already occurred, protectionist pressures are accelerating".-

The restrictive measures already imposed by the U.S. have come at a time of economic recovery.-

Though explained as having been provoked by sharp rise in imports, the increased imports into U.S. from the Third World members of the Multifibre Arrangement (MFA) have taken place within the negotiated access levels contained in the bilateral accords under the MFA.-

As these limits were reached, and the growth of imports from the restrained countries slowed downs there was a surge of imports from unrestrained sources.-

In the case of the cotton textile sector, imports from MFA countries between the last quarters of 1983 and 1984 actually declined by five percent, while those from the EEC increased by two-thirds and those from EFTA (European Free Trade Association) trebled, UNCTAD points out.-

The restrictive measures were being imposed when there was some growth in the textile industries of industrial countries.-

According to the U.S. president’s economic report, one-third of all clothing and textile establishments in the U.S. were not in the industry six years earlier.-

But in the Third World, due to balance of payments difficulties, investment in the textile industry has faltered.-

In the case of steel, the management of trade in the U.S. has been "institutionalised" through the steel import stabilisation act, under which the U.S. Congress has said steel imports should be limited to between 17 to 20.2 percent of the U.S. market.-

At the end of 1984 the new U.S. agreements with seven steel suppliers, together with the 1982 agreements with the EEC, covered 75 percent of all steel imports, and talks are under way with several smaller suppliers.-

In the EEC, since 1978 steel imports are regulated through bilateral agreements, and now cover about 80 percent of imports. The European Commission has now been asked to conclude new agreements for 1985 to limit import levels to ten percent below the 1980 level.-

In Japan, where there is no formalised management of imports, nevertheless share of imports in domestic consumption has always been low, and despite liberalisation import penetration has only increased from 1.1 percent in 1980 to 4.9 percent in 1983.-

Since the Tokyo Round, there has been a "dramatic increase" in use of Anti-Dumping and Counter-Vailing Duty (AD/CVD) measures, particularly against imports from Third World countries.-

The U.S. law already discriminates against Third World countries by not extending to them automatically the "market injury test" in AD/CVD proceedings.-

The 1984 U.S. trade and tariff act has widened the possibilities of recourse to AD/CVD action, by facilitating the initiation of petitions for such action.-

The EEC has adapted regulations to expedite such investigations, while Canada has expanded its coverage. In Australia the stringency of the application of the anti-dumping law has been increased.-

UNCTAD notes that one of the main effects of the Tokyo round was the "de facto resurrection of the ‘conditional’ MFN clause" despite the decision of the GATT Contracting Parties, while incorporating the Tokyo Round agreements into the GATT framework, that the MFN principles of article one would be respected.-

The arguments of industrial countries justifying the conditional application of Tokyo Round agreements "would seem to have rather ominous implications for negotiations within GATT of issues presently outside the scope of the general agreement", UNCTAD comments.-

The UNCTAD note points out that counter-trade was "emerging as a permanent feature of international trade".-

The roots of counter-trade lay in severe shortage of foreign exchange in some countries, and a reflection of balance-of-payments difficulties and protectionism affecting the trade of Third World countries concerned.-

While an anti-thesis of an open and liberal trading system, "counter-trade is a symptom of the shortcomings of the monetary and trading systems, and its practice will not diminish unless the roots of the problems are addressed".-

At Bretton woods, financial flows were seen as the "lubricant" of international trade, and trade as an "engine" of growth in the Third World, and trade policies an inherent component of overall development strategies.-

This relationships between money, finance and trade has now been "dramatically reversed" and there is a subordination of trade policies to financial considerations.-

This is even more pronounced in the Third World, where trade policies are not being determined by development objectives but as a reaction to shifts in exchange rates, interest rates and financial flows.-

And not only trade policy, but vital development programmes and projects are being curtailed to conform to adjustment programmes imposed for external financial reasons.-