Mar 6, 1984

IS AN EFFECTIVE WORLD TRADING SYSTEM POSSIBLE NOW?

GENEVA, MARCH 5 (IFDA/CHAKRAVARTHI RAGHAVAN) -- Is it at present possible to devise and maintain an effective world trading system?

Judged by the discussions in the General Agreement on Tariffs and Trade on the "safeguards" issue, "a positive answer cannot be given" to this broader question, says the UN Conference on Trade and Development.-

In a report to the Trade and Development board, UNCTAD secretariat suggests that efforts in GATT for a "comprehensive understanding" on safeguards should first tackle the basic issue of structural adjustment.-

This, rather than continuing with the present limited but detailed agenda of the discussions on the safeguards issue, would be the "most productive course" for developing a comprehensive understanding, the secretariat suggests in its report.-

The problem concerning the rights and obligations under article XIX of GATT, under which "safeguard actions" are taken, UNCTAD argues, do not primarily relate to the wording of that article. It could hardly be improved.-

The problem is rather the willingness of governments to abide by the article XIX as it stands.-

This, it notes, has been made clear from the existence of the Multifibre Arrangement (MFA).-

The MFA was evolved simply because some of the importing countries wished to have a regime that would not involve them in the disciplines of article XIX, and would enable them to take actions against selected importers without having to pay any compensation for restrictions.-

Also, article XIX addresses neither the issue of long-term changes in industrial structures and in international competitiveness, nor the relationship of that article to the question of development.-

At the time of negotiating GATT, it was not envisaged that these broad issues would arise in international trading relationships, and even in an acute form, as is now the case in sectors like steel and textiles.-

The negotiators of GATT were concerned with international trading conditions as they then were.-

When they negotiated article XIX, they were primarily concerned with facilitating through an "escape clause", the negotiation of tariff reductions and removal of quantitative restrictions, essentially in the trade among the industrialised countries.-

"They took for granted the existing economic structure of a centre of industrialised countries and a periphery of others supplying them with most of their imports of food and raw materials. They did not take into account the possibility of structural changes affecting major industries, in both world demand and supply".-

There are now two closely related and dominant issues in the evolution of the world trading system.-

Firstly, there is the issue of adjustment to the profound changes in the structures of supply and/or demand for major products.-

Secondly, there is the issue of implications for development in how traditional suppliers react to such changes, in particular those resulting from the process of development in countries which are new entrants for the supply of particular goods.-

In the many discussions of article XIX, this issue of structural adjustment has been merged with the different issue of whether firms seeking relief from import competition should reveal their adjustment plans, and whether there should be an "adjustment option" in domestic laws.-

The issue of the respective rights and obligations involved in structural adjustment issue will be difficult, if not impossible, to compress into the more limited framework of article XIX.-

To date, major developed countries have, by and large, preferred to bypass article XIX in respect of major questions of import competition, both among themselves and as regards new sources of imports from developing countries, as in case of steel, textiles and agriculture.-

They have done this despite the fact that article XIX as it stands, and is interpreted, gives considerable scope for importing countries to take restrictive actions.-

But it has been the requirements of their domestic laws that domestic producers would not or could not meet, like compensation, which have induced the recourse to "grey area" measures.-

There is little evidence that they have yet perceived that their interests would be advanced by a more systematic observance of article XIX obligations, let alone obligations stemming from a revision of that article.-

The thrust of much of the negotiating effort of some of the major trading countries has been to weaken article XIX by introducing some form of "selectivity" and by limiting the obligation to provide compensation or accept retaliation.-

Such a weakening of article XIX would not be in the interests of smaller trading partners and specially the developing countries.-

Consequently, unless there is a radical change in the position of the major trading countries, there does not appear to be any basis for the negotiation of a "comprehensive understanding" leading to an improved and more efficient safeguards system.-

The thrust of some of the actions taken - as in the case of steel, textiles, and automobiles – has been to emphasise that article XIX cannot be addressed within the boundary of structural issues.-

Moreover, the current proposals, except for the notion that all surrogate measures be brought within the ambit of a surveillance body do not suggest an inclination to modify article XIX in such a radical fashion.-

"What is required is evidence that major trading countries are willing and able to address as the primary issue, the development of a framework of rights and obligations in respect of structural adjustment".-

This, UNCTAD suggests, would go beyond the discussion of interpretations of article XIX, and involve such issues as anti-dumping and countervailing duties, and the modification of schedules concerning renegotiations to modify or withdraw concessions.-

It would involve discussions of the broad issue of the criteria and conditions for protective action.-

Addressing the issues in such a fashion would lead to a situation where revision of article XIX would be seen as one part of a "comprehensive understanding".-

The question of how to react positively to changes in industrial structure and their effect on the Industrial countries is merely the obverse of how to bring development policy into the consideration of criteria for protective action.-

The minimum, as a matter of practice, should be that the impact of any proposed protective action on development programmes should be examined in multilateral surveillance bodies.-

In practice, the most that might be achieved is the acceptance of greater, or more onerous, obligations with regard to such matters as "degressivity" (progressive reduction of the restrictions), duration, and minimum import levels, where it can be shown that the increased imports were the result of the exploitation by new entrants of their particular comparative advantage.-

Also, to be effective, such radical new obligations would have to be incorporated in domestic law, and examined in public procedures in which all trading partners would have the opportunity to present their views.-