Aug 31, 1985

COMPLEXITIES IN GSTP NEGOTIATIONS.

BY CHAKRAVARTHI RAGHAVAN. GENEVA, AUGUST (IFDA) — Before Third World countries are able to start negotiating mutual trade concessions under the GSTP, the negotiators would not only have to agree on the overall legal framework within which they would extend concessions, but also agree on the approaches to be adopted in such negotiations.-

The 1982 declaration listed several possible approaches tariff cuts on linear, sectoral, or product-by-product basis, and/or combination of them.-

The New Delhi Ministerial meeting has suggested that in addition to the traditional product-by-product approach (that was followed in GATT for the first five or six rounds of negotiations), the GSTP negotiating Committee should also consider other complementary approaches.-

These include:

-- An across-the-board tariff reduction through a preference margin of up to ten percent,

-- Removal or reduction of non-tariff and para-tariff barriers, including a standstill undertaking on products for which concessions have been negotiated,

-- Integrated treatment for totality of tariff, non-tariff, and para-tariff barriers, with special attention to be paid to sectors of socio-economic importance in Third World like processed tropical products, non-textile handicrafts, textiles, and agricultural products, and

-- Organising product consultations to promote trade and development through greater degree of processing, distribution and marketing among Third World countries, through the modalities of long-term contracts, joint ventures, joint initiatives in marketing, etc.-

If the GSTP is to emerge as a basic south-south instrument, not only for trade liberalisation but for achieving larger trade and development goals that would over time reduce the current north-south asymmetries, the modalities of negotiations must both avoid some of the pitfalls of the GATT process, and undertake some imaginative new approaches.-

Unlike the Industrial countries that began the GATT process in 1947, the Third World countries are at more variegated stages of development.-

The intra-trade of about 55 billion dollars of the Third World is dominated by energy products which account for close to 60 percent of total imports from other Third World countries.-

An additional 28 percent or about 8.3 billion, is of manufactured goods, while basic food-stuffs account for 7.4 billion or 14 percent.-

Overall about 26 percent of total imports of Third World countries are from other Third World countries, and if energy is excluded this drops to about 19 percent.-

The trade regimes of Third World countries are extremely varied in their treatment of imports - the number, nature and forms of instruments used and their stability.-

A variety of tariff, para-tariff and non-tariff instruments are used in the Third World countries, some aimed principally to protect national production, while others have different objectives that impact on trade - balance-of-payments, raising taxes, regulating structures of consumption, distribution of incomes, reducing monetary liquidity or external dependence.-

Average tariff levels in countries range from as low as 0.4 percent to 77 percent.-

In individual countries, rates in tariff schedules also vary widely - for most countries from zero to over 150 percent, with a significant proportion of countries having rates in excess of 300 percent.-

In addition to tariffs, countries have surtaxes and surcharges, whose effects on imports are similar to tariffs, and which tax all purchases from abroad, or certain groups of goods.-

There may be charges to cover services rendered for import, or for equalising imported goods with domestic products on whom duties are levied.-

When tariffs are low (20 percent or less), the percentage reduction would be small or imperceptible, and the preferential margin will be limited or virtually non-existent.-

In case of goods subject to very high tariffs (say over 100 percent), though a percentage reduction could create preferential margin of 10 to 30 points, the absolute tariff levels would still be so high that the preference could be ineffective.-

Within these two extremes, the higher the level of existing tariffs, the greater the potential for stimulating intra-trade through tariff cuts.-

But if levels of existing protection in GSTP participants differ markedly, there would be differences in their import expansion potential through linear tariff cuts.-

The level and structure of existing protection will thus influence the distribution of benefits and costs from the GSTP through a mere linear cut.-

Countries with current low tariff levels will have less costs to pay, while those with higher tariffs will import more and thus pay more.-

According to recent UNCTAD estimates, a 20 percent linear preference tariff cuts could lead to an annual expansion of Third World exports of about three billion dollars.-

Of this, perhaps about 30 percent or 800 million would be due to trade diversion (replacing exports of OECD and Socialist countries), but about 2.1 billion would be trade creation.-

But the actual value of the benefits would be much greater.-

On the basis of a discount rate incorporating the approximate current spread between international interest rates and inflation, this annual three-billion dollar increase in exports would be worth approximately 55 to 60 billion dollars.-

Apart from direct trade gains, there would be increases in domestic economic activities in the countries in sectors like transport, finance, insurance, and complementary production activities with linkages to export sectors.-

ILO studies suggest that the value of these linkage activities will be about 50 to 75 percent of the trade increase, and on this basis an additional 30 to 45 billion would be added to the value of GSTP.-

On the benefit side, some of the advanced third world countries with a broad export base (Singapore, South Korea) are likely to experience an annual export expansion of seven to 12 percent, while for others with less diversified trade base, the gains may be of the order of one or two percent.-

Also some of the countries are likely to experience some deterioration in their trade balances, though of the order of two percent of their existing balances.-

This is particularly so for countries with currently high tariff values.-

In order to deal with this problem, and ensure that GSTP promotes sustainable trade growths, UNCTAD has been suggesting that the issues of trade finance should be tackled with priority.-