CHANGES IN GATT BOP PROVISIONS MOST IMPORTANT FOR EEC.

Mar 3, 1990

CHANGES IN GATT BOP PROVISIONS MOST IMPORTANT FOR EEC.

GENEVA, MARCH 1 (BY CHAKRAVARTHI RAGHAVAN) -- Changes in the existing GATT provisions permitting trade restrictions by Third World countries for balance-of-payments purposes is "politically most important" for the European Communities, as for other Industrial Countries, and the Community would take the issue right up to the final Ministerial meeting of the Uruguay Round in Brussels.

The Community spokesmen made this clear Thursday in a press briefing to explain the EEC proposals put forward in the Uruguay Round negotiating group on GATT articles.

Third World countries, both those invoking the provisions and those who are not, rejected the EEC's proposals as that of others to change the BOP rights, and made clear that they were not ready to negotiate it.

Some of these participants said that the EEC move appeared to be part of its general effort to toughen its stand against the Third World, and keep it up right till the end - as part of its attempts to fend off demands on it or get concessions.

Two other proposals put forward by the Community appeared to be aimed mainly at the U.S.: a proposal to do away with the "grand-father clause" privileges under the protocol of provisional application of the General Agreement, by requiring countries to bring their domestic legislations in line with the Agreement, and another proposal to require time-limits on all waivers (present and future).

The BOP proposals, the Community spokesmen explained, were not one for changing the articles themselves or take away "inherent rights" of Third World countries, but to streamline the procedures and ameliorate the difficulties.

The suggestion, he said, was "sensitive and politically important" for the U.S., the EEC and a number of ICs as well as for the majority of Third World countries.

The proposal, he claimed, did not challenge the "right" of Third World countries to take BOP measures, but was merely trying to introduce better disciplines and ensure that they were "temporary" and did not remain permanent and used as a protective measure.

There are two provisions in the General Agreement about BOP that in Art. XII (general provision, now applicable to ICs, but rarely invoked after the floating exchange rate system) and Art. XVIII: B, applicable to Third World countries. Introduced in 1955 as an amendment, it became effective from October 1957, and specifically recognises the structural, as different from cyclical, nature of the BOP problems of the Third World countries.

Asked whether the Community was seriously saying that because of the chances in the monetary system, from fixed parity to floating exchange rates, the structural nature of the BOP problems of the Third World countries, for which Article XVIII: B was put in place had changed and had become "temporary", the EEC spokesmen would merely say that they were not challenging the right of Third World countries to invoke these provisions, but that border trade measures were not the most efficient and BOP problems should be tackled by domestic measures.

This last (about tackling BOP problems through domestic measures rather than border trade measures) appeared to be a direct challenge to the provision in Art XVIII: B: 11 which stipulates that "no Contracting Party shall be required to withdraw or modify restrictions on the ground that a change in its development policy would render unnecessary the restrictions which it is applying under this Section".

The Community, he claimed, was merely trying to improve the working methods and secure multilateral control of a big exception in the General Agreement, which, in economic terms, was a "significant" loophole.

If BOP restrictions had to be imposed, they must be price-based, and thus transparent, and there should be no prohibitions.

Asked whether, by demanding restrictions of equal intensity on all imports, the EEC was not in effect suggesting for e.g. that a Third World country with BOP problems should cut down imports of food to the same extent as a luxury like TV sets, the EEC negotiator claimed that this was not the EEC proposal, but did not explain the specific provision in the proposal requiring application of restrictions with equal intensity across all products.

Third World countries, generally have not agreed to negotiate changes in the GATT BOP provisions, and in the negotiating group have said that no case had even been made out.

The EEC proposal, while described as procedural and to be adopted as a declaration, seemed to be an effort to get around problems that would be created if the GATT articles were sought to be amended: it would need the yes vote of two-thirds majority of countries, and even then would bind only those who accept it.

By proposing it as a declaration to be adopted as part of the Uruguay Round agreements, and insisting on taking it up to the Brussels final meeting, the EEC was keeping the issue on the table till the end and either get some other trade off for not pressing it at the end or use it to deny other concessions, particularly in market access areas, sought by the Third World countries.

The EEC proposal envisages that economies with "a high level of development" (which it says should include all OECD members and other CPs whose economies have a "comparable level of development") should undertake "to avoid" having recourse to restrictive trade measures for BOP reasons. If they felt the need for imposing trade restrictions, in order to restore equilibrium in the short term, they should consult with CONTRACTING PARTIES, and unless they agree no restrictions should be maintained for more than a time-period of months to be negotiated and fixed.

In the case of others serious BOP difficulties, they could impose restrictive import measures, but subject to several criteria:

* The overall level of import restrictions is not to exceed what is necessary to avoid BOP situations,

* A "reasonable" time schedule is Publicly announced for elimination and progressive relaxation of restrictions applied for BOP purposes,

* Restrictive measures are applied at same level of intensity across products and without discrimination among CPs, should be administered in a transparent way, and in no way linked to existence of domestic production capacity,

* Trade in any specific item should in no circumstance be prohibited or more than one restriction applied on same product,

* Give preference to "price-based" measures and avoid introduction or intensification of quantitative restrictions.

CPs maintaining currently such QRs for BOP reasons, or who consider it absolutely necessary, "shall" indicate to the CONTRACTING PARTIES the reasons why recourse to QRs is viewed as necessary, and present a plan for their elimination within a specified timeframe.

Except in the case of least developed countries, this timeframe is to be fixed at "X" years, "X" to be negotiated in the Round.

Apart from tightening up various "procedures" for the surveillance of countries invoking the BOP provisions, the EEC proposal provides for the GATT BOP Committee making recommendations, and for the GATT Council to act on them.

The BOP Committee could recommend that the BOP situation does not justify application of restrictions, or that the restrictions applied are inconsistent with the GATT provisions or the proposed Declaration or that the restrictions are in conformity and that the country concerned is in compliance with the GATT obligations.

If the GATT Council makes specific recommendations, the rights and obligations of CPs are to be assessed in the light of the recommendations.

The implication of this would be that if the Council does not adopt recommendations that the BOP restrictions are justified and in order (and this could happen because of lack of consensus in the BOP Committee or the Council), any CP could claim that there has been a nullification of its rights and seek compensation or retaliate.

For if there is no finding of justification and the restrictions being in conformity, the restrictions would be deemed to be in violation, and anyone could claim "nullification" of rights without having to show that its trading interests had been affected.

While even under the current procedures, CPs affected by a BOP restriction could seek "consultations" and have recourse to dispute settlement, the claims of nullification or attempts to claim compensation would be more complicated.