8:34 AM Feb 21, 1995

SINGAPORE-MALAYSIA DISPUTE TAKES AN EDGE AT WTO

Geneva 20 Feb (Chakravarthi Raghavan) -- Singapore challenged Monday, at the first meeting of the World Trade Organization's Council for Trade in Goods (CTG), Malaysia's invoking of Art XVIII:C (enabling import restrictions on infant industry argument concepts) of the GATT 1974 to justify Malaysian restrictions on imports of two petrochemical products -- polyethylene (PE) and polypropylene (PP).

Singapore asked for consultations among the CPs to look at the validity of Malaysia invoking the provision and to disallow it.

While several members saw the issue as one having some "systemic implications" and calling for wide consultations among the GATT CPs (and not merely those having a direct commercial interest), the United States raised the question whether Malaysia qualified to be a country whose economy could support only a "low standard of living" and thus able to invoke Art XVIII:C or only an economy "in the process of development" that could invoke only XVIII:D.

The Chairman of the Goods Council, Amb. Minoro Endo of Japan, is to hold consultations on the issues raised by the United States as also the questions posed by Singapore.

The distinction posed by the United States, with some indirect support from the EU, is critical in that invoking XVIII:C would enable a developing country greater leeway in protecting a new industry or one undergoing restructuring and change, while under XVIII:D it can only be done after getting the concurrence of GATT CPs.

In either case, other contracting parties whose interests are affected by a bound concession of the country invoking these provisions are entitled to compensation.

On 13 January, Singapore notified the WTO of its intention to raise the dispute and seek consultations. On 10 February, it raised the issue in the Dispute Settlement Body of the WTO and invoked dispute settlement procedures for 'consultations' -- a preliminary step to set up a panel.

The two are now in the process of formal consultations under Art XXIII of the GATT. One round of consultations were held last week, and another is expected before 13 March when the 60-day period (from the date of Singapore notifying the dispute) would expire and, in the absence of a settlement, Singapore could automatically invoke and get a panel to adjudicate the dispute.

One delegates at the CTG meeting later said that there was a note of acerbity injected into the quarrel between two, members of the six-nation ASEAN subregional grouping and was "puzzled". The delegate hazarded a guess that something more than commercial interests could be involved.

The Malaysian restrictions/prohibitions on imports of PE and PP have been in force since 7 April 1994. There have been discussions between officials and later at level of Ministers between Singapore and Malaysia, but with no agreement (and some exchanges via the media).

On 6 February, Malaysia notified GATT of the restrictions and invoking Art XVIII:C and the 1979 Decision of GATT CPs on Safeguard Action for Development Purposes and said the licensing scheme was temporary and would be reviewed at end of two years.

On 15 February, Singapore strongly objected to the Malaysian notification and asked for its not being accepted as one under Art XVIII, since there had been no prior notification. The special provisions for developing countries in Art XVIII:C and the 1979 decision only enabled introduction of such measures on a provisional basis immediately after notification. Notification nine months after the restriction should not be accepted and allowed to be used in terms of Art XVIII:C, Singapore said.

In raising the question at the CTG, to challenge the Malaysian notification, Singapore said while it supported the "proper use" of Art XVIII as an important tool for development, in order to protect the interests of all WTO members, its provisions must be fully complied with. The CTG should ensure that Art XVIII:C being invoked by Malaysia on a bound tariff item wasn't applied in a manner that would open a big loophole in the WTO system.

The Malaysian notification, 10 months after restrictions, had not explained the conditions under which the import license would be issued nor the special difficulties preventing Malaysia from assisting its petrochemical industry through GATT-consistent measures. Due to lack of proper notification it was impossible for the CPs to examine whether no GATT-consistent measures were practicable.

In terms of the GATT provision, Malaysia had violated its obligation by introducing import restrictions unilaterally ten months earlier (to the notification) and without the concurrence of the GATT CPs. Malaysia could invoke the 1979 decision on safeguard measures only after demonstrating the fundamental circumstances in which delay in application of measures would cause difficulties in applying programmes of economic development.

In these circumstances, Singapore said, Malaysia should not be allowed to invoke para 14 of Art. XVIII:C, but ask Malaysia to consult with the CPs in terms of para 15. This last would result in Malaysia being able to depart from its GATT obligations only if the CPs agree that a GATT-consistent measure could not be applied to achieve the same objective.

The CTG, the Singapore delegate added, should not add to the "injustice" done to it by Malaysia by neither rejecting Malaysia's invoking that article nor by asking Malaysia to consult with CPs (to justify its actions and get concurrence of CPs before acting), "thereby condoning Malaysia's clearly illegal measures".

In response, Malaysia stressed the bilateral consultations being held on the issue in the GATT framework and the argument of Singapore that by invoking Art XVIII:C Malaysia was trying to delay Singapore's request for consultation was "totally not correct".

The WTO had entered into force only on 1 January, and Malaysia was assuming its responsibilities and notify the WTO/GATT as required. The Malaysian restrictions had been notified in its official gazette on 16 March last year and thus all traders and interested parties knew about it three weeks before the restrictions took effect.

Malaysia repeated its willingness to look into all permutations to find an amicable solution.

Indonesia, on behalf of the other Asean members, suggested that Chairman ENDO conduct consultations to find a solution.

The US said that before any such consultation, the question of the eligibility of Malaysia to invoke Art XVIII:C provisions should be decided through consultations. The EU seemed to support this view, adding that it was unfortunate that the Malaysian notification came so late.

Art. XVIII:C has seldom been invoked in the GATT and there is no agreed multilateral definition of "low standard of living". The WTO's subsidies agreement has now categorised countries based on their annual per capita income. But its applicability here is not at all clear and this explained perhaps the number of developing country interventions in the CTG Monday stressing the systemic issues.

According to the World Bank Atlas, in 1993 Malaysia's per capita was US $3160 and Singapore's $19310. In terms of purchasing power parity (a concept also now being used by the IMF and World Bank, but conceptually challenged by some others) the respective per capitas are $8630 and $20470.

Several countries including Hong Kong, Australia, Japan, Brazil, Argentina, Canada, Norway, Mexico, Egypt, Pakistan, Korea, India, Morocco, Colombia, Switzerland and New Zealand stressed the 'systemic issue', needing consultations beyond countries having a commercial or trade interest. In other actions, the CTG named the persons to chair various committees and subcommittees under the CTG. These included J.Ruiz (Argentina) for the Committee on Safeguards; Amb. D.Tulalamba (Thailand) Committee on Agriculture; J.St-Jacques (Canada) Committee on Market Access; Amb. K.Bergholm (Finland) the Committee on Sanitary and Phytosanitary measures; O.Lundby (Norway) Commmittee on Subsidies and Countervailing Measures; Mohan Kumar (India) Committee on Anti-dumping; V.Notis (Greece) Committee on Trims; C. Osakwe (Nigeria) Committee on Rules of Origin; Miss C.Guarda (Chile) Committee on Technical Barriers to Trade; P.Palecka (Czech Rep.) Committee on Customs Valuation; and C. Mbegabolawe (Zimbabwe) Committee on Import Licensing.

A.Shozer (USA) is to head the Working Group on Notification obligations and procedures and P. May (Australia) the Working Party on State Trading enterprises.

The CTG also agreed on the various international organizations to be invited to meetings of its subsidiary bodies. The IMF and UNCTAD are to be invited to the Committee on Antidumping, Subsidies and Countervailing, on Market access (along with FAO, World Bank and the Customs Organization), Import Licensing, Customs Valuation (with the Customs organization), TBT (with ITC, ISO, IEC, FAO/WHO Codex Alimantaire). The IMF and the Bank are to be invited for the TRIMs Committee. The Committee on Agriculture at its first meeting is to adopt its rules of procedure and decide on the international organizations to be invited as observers.