Apr 26, 1984

NEW CONCEPTS IN GSP "SERIOUS ADDITIONAL BLOW" T0 INTERNATIONAL COOPERAT1ON.

GENEVA, APRIL 24 (IFDA/CHAKRAVARTHI RAGHAVAN) -- Any new initiative by preference-giving countries to introduce concepts of "graduation" or "reciprocity" would be "a serious additional blow" to international economic cooperation, a senior UNCTAD official warned Tuesday.-

Colin Greenhill, officer-in-charge of the Manufactures Division of the UN Conference on Trade and Development, was speaking at the 12th session of the special Committee on preferences.-

The Committee, among other things, is reviewing the implementation, maintenance, improvement and utilisation of the Generalised System of Preferences (GSP).-

The Committee earlier elected Ernst August Horig, head of the Department of Customs Policy in the Ministry of Economic Affairs of the Federal Republic of Germany, as its chairman. Also elected were Ricardo Pena Alfaro of Mexico as rapporteur, and five vice-chairmen.-

Greenhill said that in carrying out the mandate of UNCTAD-VI, at Belgrade, "to study the operation of the GSP in order to assess its stability and effectiveness", the significant interlinkages between the functioning of the GSP and its contribution to global trade liberalisation process had to be underlined.-

Such a global trade liberalisation process, he said, was urgently needed "in the present deadlocked economic situation in which most developing countries are submerged".-

No one would deny the gravity of the situation prevailing in international trade relations.-

This called for solutions that would properly tackle the need for recovery and expansion of trade and maintaining the developing countries in the global process of development as a precondition for sustained economic growth and overall development.-

After the other preference-giving countries had completed the renewal of their respective schemes, the U.S.A. was now undertaking the process of renewal for an extended ten year period.-

The particular approach adopted by the U.S. in its renewal might affect the scheme’s transparency and enhance the insecurity in its application, Greenhill warned.-

"The reappearance of the graduation concept at the centre of the renewal process is a matter of serious concern".-

"If one adds to this the proposal by the administration to include an additional feature of reciprocity, then the picture is even more bleak", he added.-

The trade excluded under the renewal scheme would amount, on average, to as much as 35 percent of the present net trade entering under preferences into the U.S.A.-

For several beneficiary countries, some of whom were suffering a severe situation of indebtedness, the "exclusions" would reach a much higher level.-

In the past UNCTAD had referred to the fact that some important principles and elements inherent in the GSP were "being tackled unilaterally and circumvented by some important preference-giving countries".-

This had been more than confirmed by the various actions taken by some countries, either in the renewal of their schemes or in the practice of application of the existing ones.-

This revealed "the loss of perspective" of an International Community determined to undertake a process "without appraising fully the overall implications of adopting such a course of action and the possible retrogressive repercussions that such initiatives may provoke".-

The issue at stake in the concept of graduation was not simply that of determining an objective criteria for "differentiating" or "graduating" countries that might have reached a certain level in their development process.-

Another set of issues was the implication of graduation in the context of GSP, both for the country "graduated" and the country applying "graduation".-

The introduction of such concepts provoked an element of uncertainty, which was "even more unavoidable given the absence of a contractual perspective to the GSP".-

Such concepts as "graduation" and "reciprocity" had to be seen in the light of the International Community's efforts to bring about better access to markets for the developing countries.-

"The real test is that of reassessing continuously the dynamic dimension of the GSP, whether there continues to be an acceptance for respecting the commitments, undertaken both in UNCTAD and in GATT, with respect to the non-reciprocal principle and its full implementation.-

"Any new initiative that runs counter to these elements carries a serious additional blow to international cooperation as commonly agreed by both the developed and developing countries".-

The raison d’être of the GSP was, and continued to be, "to increase the export earnings of the developing countries, to accelerate their rates of economic growth and to promote their industrialisation".-

There was no other test for measuring whether or not the instrument had fulfilled the purpose for which it was established.-

"If the results have been positive, but insufficient, the answer is to improve the schemes vis-a-vis any beneficiary country and not to curtail its scope".-

The GSP should seen as an instrument for the expansion of trade through improved access to the main trading partner countries and, as a qualitative tool for an outward development strategy in the beneficiary countries.-

This had to be borne in mind, particularly by the preference-giving countries.-

"A reasonable question is whether the economic situation – as far as access to markets through the continuing emergence of protectionism, or even, indebtedness, or lower commodity prices and the low economic growth that persists in developing beneficiary countries - warrants, or not, the need for maintaining and improving the pursuit of the objectives for which such system was established".-

"Another set of questions" Greenhill added "relates both to real trade imbalances of the trading partners as well as certain concepts such as "serious injury" in preference-giving countries that need to be balanced against concrete analysis of overall trade relations.-

"Nobody can deny the need to maintain and improve the GSP for allowing it to play the role for which it was established in the current world economic situation, which calls for solutions tending to reinforce the fragile economic recovery and spread its benefits to developing countries".-

With respect to intentions to introduce reciprocity, Greenhill said that the realities of the trade flows showed that "to the extent that the GSP has led to increase exports from the beneficiary countries, it has also led, through the latter’s import demand, to an increased trade surplus with them".-

Beneficiary countries had increasingly become the main markets for the expansion of exports, particularly from the three main preferences—giving countries (U.S.A., EEC and Japan).-

Paradoxically, among such beneficiary countries, it was those most subject to restrictions on preferential access which had shown the greatest tendency to become the most dynamic markets for the exports of the preference-giving countries.-

For every dollar increase in the non-oil imports from beneficiaries of each of these preference-giving countries, their non-oil exports in the reverse direction grew.-

For every dollar of such imports from GSP beneficiaries, U.S. exports grew by 1.12 dollars, EEC exports by 1.81 dollars and Japanese exports by 1.69 dollars.-

This was not "an unhealthy phenomenon", but precisely what was ought by encouraging the developing countries to play a more important role in the world economy and allow them to achieve the desired trade and industrialisation goals.-

"The need for maintaining and improving their ability, in particular to earn foreign exchange, should be reinforced and widened. The role of trade dynamism of developing countries should be the number on objective of preference-giving countries.-

"Any other objective under present conditions will not be a self-sustaining one".

Mayor preference-giving countries, Greenhill said, had continued to differentiate or discriminate between GSP beneficiaries by excluding certain products or establishing a priori limitations on preferential imports originating in specific countries or what was know as "graduation".-

"The increasing number of contradictions in evaluating the contribution of the developing countries to the dynamism of world trade is leading to a deadlock situation in international trade relations", the UNCTAD official warned.-

A preliminary analysis of the facts relating to one major preference-giving country showed that "most of the original reasons behind the introduction, have proved to be unsubstantiated by realities".-

The analysis had showed that:

-- Trade excluded by graduation measures had increased considerably, from nearly 545 million dollars in 1981 to approximately 876 million dollars in 1983.-

-- The introduction of such measures had not led to increased imports from other beneficiary countries but, on the contrary, restrained imports from those subject to the measures, and had paradoxically encouraged increased imports from developed country suppliers.-

-- The declining market share of the previous beneficiaries indicated that without the preferential margin they were no longer competitive.-

-- Such initiatives had not achieved the purpose sought, namely, that of providing protection to domestic suppliers.-

"Under these circumstances, graduation appears as a reflection of the clear attempt by the developed countries to force concessions from the developing world. This is a denial of the great effort that developing countries provided in supporting the trade system in crisis through their dynamism in international trade relations".-

"In acting thus, can we expect any serious multilateral understanding on the future aim of the system in crisis, when one of the main mechanisms of it, the GSP, is downgraded from one of the main instruments that could contribute to improving market access for developing countries - one of its initial objectives?

"If the answer is negative we should be aware of the dangers that such a situation may produce and try, from today on, to initiate a serious reflection on the negative implications that narrow approaches to the GSP can produce".-

"In the light of present trade realities, we might consider the selection of alternative ways of action that will, undoubtedly, be more in line and contribute to the revitalisation of a consensus on development with the GSP and its initial objections as one of its integral parts".-