Sep 3, 1985

GSTP NEEDS IMAGINATIVE APPROACH TO BENEFIT ALL.

BY CHAKRAVARTHI RAGHAVAN. GENEVA, AUGUST (IFDA) — Studies by the UN Conference on Trade and Development suggest that for GSTP to be a dynamic instrument of south-south trade, and of benefit to all participants, it would be necessary to adopt some imaginative approaches.-

A key principle for GSTP negotiations, according to the 1982 Ministerial declaration, is that it should benefit equitably all participants, taking account of their respective levels of economic and industrial development, their patterns of external trade, and their trade policies and systems.-

UNCTAD studies show that while an across-the-board tariff cut of 20 percent would stimulate south-south trade, and create about three billions dollars of trade (of which about 2.1 billion would be new trade), the benefits of this would not be equally spread over all participants.-

A tariff cut by countries with a high level of tariff would stimulate more imports, while those who have a relatively low level of tariffs would not draw in similarly imports from others.-

Thus in order to ensure equitable benefits, across-the-board linear preferences would have to be complemented by special treatment - deeper than average cuts in tariffs - for countries that would otherwise gain only marginally.-

Other alternative possible approaches to tariff cuts include linear reduction with harmonisation, full tariff disparity formula, and the "stepwise" approach.-

The linear reduction with harmonisation approach would achieve some tariff harmonisation among participants by reducing high tariffs by a greater percentage than low tariffs.-

In full tariff harmonisation formula, each duty is reduced by a different percentage with the largest percentage cuts borne by the highest tariffs.-

In the tariff disparity formula approach, the effort is to reduce to the maximum extent disparity in tariffs between countries.-

In the "step-wise" approach to deal with tariff disparities, there would be a level of duty (say of about five percent) below which there would be no preferences, and different ranges of tariffs that would be subject to linear reductions.-

Along with any agreed formula for tariff cuts, a negotiating approach could also involve different formulae or procedures to be used in broad product sectors - foodstuffs, agricultural raw materials, manufactures, etc.-

This is because of the wide differences in national tariffs for various categories of goods, differences in the sensitivities of various sectors to trade liberalisation, and differences in national policies and priorities.-

A sectoral approach to preferences involves negotiating both the formula to be used and the sectors to which they are to apply.-

An additional problem could arise because of the ability of vested interests in any particular sector to try to restrict concessions offered by their countries.-

The traditional product-by-product approach would enable negotiations to accommodate differing national interests.-

But it would make the negotiating process very complicated.-

It also provides great potential for vested interests to limit or exclude any concessions on products of interest to them.-

And focussing as it does on diverse view and interests of participants at a very disaggregated industry or product sector level, such an approach also reduces the changes for a successful completion of any trade liberalisation effort.-

But when a product-by-product approach is used in conjunction with a general or sectoral model, it can be useful.-

In any general approach to trade liberalisation, countries would often seek to exclude or except certain products.-

This could be due to interest of the participants in maintaining a certain domestic production - because of the industry' s infant status, or because the production is viewed crucial for national defence, etc.-

But for any successful negotiating process, such exceptions must be kept to a minimum.-

If the GSTP participants agree in advance on a relatively small number of products to be given special treatment, in these exceptional cases a product-by-product approach could be useful.-

The number of exceptions in a country list could itself be limited, or a country enabled to select goods to be excepted but on basis of agreed criteria or conditions.-

These conditions could include issues relating to the importance of the goods in the import trade of the country, so as not to permit inclusion of products that together might represent over 50 percent of total imports of the country concerned.-

Apart from tariff preferences, the negotiators would also have to agree on complementary actions to liberalise Non-Tariff Measures (NTMs) that might be applied to the imported goods along with tariffs.-

Without such complementary actions, the preferential tariffs might not result in any expansion of trade.-

The frequency of use of NTMs on various import items range from a low four percent in some countries to a high 50 to 55 percent in others.-

Hence any tariff liberalisation must be accompanied by preferential actions on NTMs on that sector or product.-

Some of these NTMs could be also be dealt with preferentially, namely their removal or reduction on imports from countries enjoying a GSTP preference tariff, while being maintained against others.-

The NTMs could also be reduced or eliminated on the basis of specific types of barriers, namely exchange of bilateral or multilateral concessions for each type of barrier for preferential liberalisation of these measures.-

An alternative approach could be to agree on "codes" on use of such specific NTMs - that would increase the transparency of such NTMs, and provide for surveillance.-

However such efforts would take time to negotiate, and hence, it has been suggested, that at least to start with the tariff cuts should be accompanied by a standstill on new NTMs or increase of existing NTMs on imports from GSTP participants.-

Apart from these tariff and non-tariff measures, the GSTP concept calls for other complementary policies to promote intra-trade.-

These could involve long-term contract to guarantee market access, establishment of joint export credit facilities, or counter-trade arrangements where there are financial constraints to expansion of trade, and making information on import needs more broadly available to other GSTP participants.-

There could also be special efforts to eliminate measures that actually discriminate against intra-trade.-

For example, fixed charges per unit of import generally have an adverse incidence on products from Third World countries.-

For various reasons, the Third World products are typically at the lower end of the price range in tariff classifications, and a specific per-unit tariff has a higher ad valorem incidence on them than on products from Industrial countries.-

A duty based on the value of the product imported from the Third World would thus benefit the GSTP participants.-

A different set of discrimination in south-south trade arise out of the valuation base used for assessing import tariffs - Free-On-Board (FOB) or Cost-Insurance-Freight (CIF).-

The use of CIF procedures involves inclusion of the transport costs on the imported product.-

Third World countries are often at a transport disadvantage vis-a-vis Industrial countries in their trade on similar goods to other Third World countries.-

This is due to various institutional factors - north-south patterns of established liner shipping routes, lack of adequate national fleets, smaller-size shipments that prevent realisation of economies of scale in transport, etc.-

Studies have shown that in Latin America, extra freight costs on intra-trade range from 50 to 200 percent more than on imports of same goods from the north.-

For example, in the late 70's, it was estimated that freight rate on lumber shipped from Mexico, to Venezuela was 24 dollars per ton compared to 11 dollars per ton for lumber shipped from Finland to Venezuela, though three times longer distance.-

Similarly, from Buenos Aires in Argentina to Tampico in Mexico, ocean freight on chemicals was 54 dollars per ton for direct shipments.-

But when it was trans-shipped in New Orleans, the rate was only 46 dollars, while trans-shipment via Southampton (in U.K.) brought the rates down to 40 dollars, despite the tremendous increase in distance.-

In cases where the transport costs provide a bias against south-south trade, a way to get around it could be to adopt the FOB valuation procedures for customs purposes.-

The U.S., Canada, Australia and New Zealand use FOB valuations.-

The use of CIF valuation for imports from Industrial countries and FOB for imports from the Third World, would automatically reduce any tariff bias in intra-trade and generate tariff preferences for other Third World countries.-