10:08 AM Feb 21, 1997

US DISPUTES WITH EC, JAPAN HIGHLIGHT CONTRADICTIONS

Geneva, 21 Feb (Chakravarthi Raghavan) -- It is perhaps a measure of the dilemmas, and contradictions, in US trade policy and attitude to the multilateral system that US trade officials briefed the media in Geneva on their case against Japan at the WTO in the photofilm dispute, even while referring newsmen to Washington for reactions to the naming of the WTO panel on the Helms-Burton law.

On the latter, US Under-secretary for Commerce, Stuart Eizenstat, issued a statement, in which he expressed disappointment at WTO Director-General's action in naming the panellists, and said if the continuing bilateral efforts with the EU does not produce a solution, the US will advise the WTO head that the panel had no competence to proceed with the case since it was a matter involving US national security and foreign policy.

The US Mission's daily bulletin in Geneva cited unidentified Clinton administration officials as reacting 'angrily' to the establishment of the panel and that since WTO panels were not competent to judge the foreign policy and national security interests of the US, "we can't participate."

The panel, chaired by former GATT head Arthur Dunkel, within one week from Thursday has to fix the time for the EU (the complainant) to present its case (the rules suggest a 3-6 weeks time) and thereafter (2-3 weeks) for the US to reply (and raise the jurisdictional issue). Normally, the panels go to the merits of invoking of 'exceptions' (whether national security under Art XXI or General Exceptions under Art XX) only when the complainant makes out a case of nullification by the other party's failure to abide by obligations and rules.

The US-Japan trade dispute was initiated at the WTO in June 1996, and was referred to a panel on 16 October 1996, and the panellists named (by the WTO head, at US request, when the two sides could not agree on the names) in December or early January.

On Thursday the US presented to the panel, its first initial written submissions -- running into some 200 pages of single space typing and ten volumes of documentations. And promptly, US trade officials (who could not otherwise by identified) made available to the media a 14-page summary of the statement of the dispute.

Among other things, in the film dispute case the US brushed aside the argument that many of the impugned Japanese practices have been there since 1960s.

But Eizenstat has justified the anti-Cuba measures as one reflecting abiding US foreign policy and security concerns, and policies pursued by eight US Presidents from both parties for more than three decades.

In the film dispute, the WTO panel is seized of one aspect of the dispute (in the area of GATT rules on trade in goods). The US has a second complaint based on the GATS, the services accord, but is yet to seek a panel on it though bilateral talks have failed. It has a third string to its bow, namely, consultation request with Japan (under a decision of the 1960s) about the Restrictive Business Practices (Fuji's) in the Japanese market, where Japan has agreed to consult provided simultaneously the US too would agree to consult on the RBPs (Kodak's) in the US market. The US is yet to make up its mind whether it could agree to this.

The acting US Trade Representative, Ms. Charlene Bershefsky, held a briefing in Washington on the film dispute too, and said the larger issue was that countries don't take away concessions by subsequent government policy that nullify the concessions.

On the Helms-Burton law dispute, on Thursday morning, the WTO announced the composition of the panel on the dispute over the US Helms-Burton law penalising other countries and enterprises that have trade and economic relations with Cuba.

The US-Japan dispute, despite attempts of WTO officials, and some belated efforts of US officials, is known as the Kodak-Fuji dispute -- since the US Kodak photofilm company assembled the case and pushed the US administration into raising the dispute over its rival's domination of the Japanese market.

Even the WTO in its periodic updates to the media on disputes calls it in its index as the Kodak/Fuji matter.

The US sought to underline it was a US-Japan dispute, arising out of 'nullification' of US rights (through three trade rounds of tariff cuts) by Japanese government sanctioned non-tariff market access barriers and that the case is a test one with wider market access questions involved (the problem of access of toys was mentioned).

That the Kodak film company is doing the running was brought home to the media when earlier this week, Kodak, which has brought out a colourful volume with graphs and photographs, has been busy from London ringing up media in Geneva about its case and holding briefings.

During the Uruguay Round negotiations, it was the US (long frustrated with the EC's blocking of panel rulings on oilseeds, pasta and other disputes, arising out of the agricultural domestic subsidies) that pushed for a litigatory approach to the disputes settlement questions, and for automaticity, with built-in time durations, in naming panels, and adoption of their rulings etc.

The EC at that stage balked, arguing that such trade disputes could not be resolved by legalistic approaches, but a political process where the countries have to decide to accept a ruling and implementing it.

The legalistic, juridical approach, with a built-in automaticity from the time of raising of a dispute to the final adoption of a panel ruling, ultimately prevailed.

An Appellate body to hear appeals on legal interpretations was set up -- and the EC was very much in favour.

The final outcome has been pointed to as the most important achievement of the Uruguay Round -- a credible mechanism for settling bilateral trade disputes and enabling the weak to assert their rights.

As of January, there have been 64 disputes, with 10 withdrawn after the initial consultations.

The US is the major party involved -- as complainant in 20 cases and respondent in eleven others.

Former trade officials, familiar with the GATT system, such as Mr. Bhagirath Lal Das, have however suggested that while the DSU and its automaticity is a welcome improvement, it is a very costly process, and merely puts off the day of reckoning, and effort of the weak partner to assert his rights. For, if the other party is unwilling or unable to implement a recommendation, the only remedy is retaliation, a difficult enough instrument even for the strong, but almost non-existent for the weak. And any event, during the pendency of the dispute, the developing country complaining could already have lost its market by illegal restraints by the powerful.

In the Uruguay Round negotiations, it was the EC that wanted to end the provisional character of GATT (and the grandfather privileges that it gave to the US) and sought provisions that would make the multilateral trade rules prevail and be automatically applicable in countries.

But it was the United States, which wrecked the Havana Charter because of Senate objections to yielding sovereignty to an international body, and agreed only to an executive agreement, the GATT (whose 50th anniversary is to be celebrated next year!). And in the same pattern insisted that WTO rules would not automatically apply in the US (as a ratified international treaty, having the same effect as the US constitution), but only through domestic laws to execute the obligations.

And to rub the point in good measure, then Senate majority leader Bob Dole got his "three strikes and we are out (of the WTO)" proposition accepted by the Senate and the administration.

These contradictions in the US -- whose population and institutions are more litigious than others, and which collectively raise sovereignty issues whenever international law comes into conflict with the US interests -- are now at play visavis the WTO.

And the EC, which during the Uruguay Round, frowned on a legalistic approach to settling disputes, is now stressing its importance for maintaining the system.

EC Commissioner Leon Brittan, in a letter in the International Herald Tribune, said "if nobody challenges one country's self-proclaimed right to block trade between two others on unjustified grounds, extra-territorial laws could proliferate and the America, Europe and the WTO would be worse off". Brittan also rejected (the US view) that it was too sensitive a case for the WTO and the outcome might risk support for the WTO in the US, and said America has been the single user of the dispute settlement system, but America cannot expect to win every case.

The US, in the Helms-Burton case, has invoked the national security issue and says the WTO should not even look at the dispute.

But it was also the US, and the EC and most of the WTO members, who joined in declining to have any formal relationship with the United Nations whose Charter has provision that overrides all other obligations (before and after its entry into force) and makes it an obligation for all UN members to bring all specialized agencies into relationship with the UN. And the UN General Assembly, with increasing majorities every year, has held against the US on the trade sanctions against Cuba.

The Marrakesh Final Act and decisions require the Ministerial Conference of the WTO to complete, "within four years after entry into force", a full review of dispute settlement rules and procedures and take a decision at its first meeting after the completion of the review whether to continue, modify or terminate the DSU. And if as now being proposed, the 1998 Ministerial meeting is to be brought forward to May of that year, the DSU review is just about 15 months away.

An IPS report from Washington says the administration of President Bill Clinton is rejecting the jurisdiction of the World Trade Organisation (WTO) to decide whether a U.S. law aimed at discouraging foreign investment in Cuba violates international law.

The WTO "is not an appropriate forum for resolving differences over what is essentially a disagreement over foreign policy," said Undersecretary of Commerce Stuart Eisenstat.

Other officials said Washington will likely ignore the panel, which is supposed to issue a decision on the case no later than six months from now. Officials here say they hope they can work out a settlement with the European Union (EU) before the panel completes its work.

At stake are key provisions of the 1996 Helms-Burton law whose extra-territorial reach over foreign firms and individuals investing in commercial property in Cuba has provoked anger and retaliation from some of Washington's closest allies, including members of the EU.

But Washington's refusal to accept the WTO's jurisdiction in the case threatens the power and authority of the two-year-old agency which was set up with strong US backing precisely to put more teeth into international trade agreements.

As the New York Times editorialised earlier this week, "The American economic strangulation of Cuba ...is now threatening to upend a carefully constructed international system for resolving trade disputes."

As laid out by Eisenstat, top administration spokesman on Helms-Burton troubles, the US-EU dispute comes under the "national security" exemption of the WTO rules.

"The WTO was established to manage trade relations between member governments -- not diplomatic or security relations that may have incidental trade or investment effects," according to Charlene Barshefsky, the US Trade Representative (who is still awaiting Senate confirmation)

"If we did in fact use (the national security) defence," Eisenstat said earlier this month, "we believe it is self-defining and that no panel would be competent to judge it."

The EU contends that countries cannot be allowed to simply assert a national security interest to avoid the WTO. They must be compelled to make their case to the WTO panel whose decision should be binding, according to Sir Leon Brittan, the EU's trade commissioner.

"If countries can just say this or that policy or law is motivated by national security interests more than trade interests, and thus block a case from going forward, the WTO is going to have a hard time establishing itself as a credible forum," one western diplomat said here.

In naming very prominent figures to serve on the panel, which was first requested last November, WTO director-general Renato Ruggiero, appeared to be raising the stakes.

The Helms-Burton law, which swept through Congress after Cuban warplanes shot down two civil aircraft piloted by Miami-based, anti-Fidel Castro activists almost exactly one year ago, includes two major provisions to which US allies vehemently object.

Its Title Three, gives to US nationals whose commercial property in Cuba was nationalised during the Cuban Revolution the right to sue foreign companies and individuals who have gained some interest in that property.

While Clinton has so far waived the implementation of this provision and has suggested he would do so indefinitely, Title Three's existence still has the intended effect of discouraging foreign investment in properties that could be claimed by US nationals.

While Title Three has not yet taken effect, Title Four of the law has already been applied against a number of individuals, including Canadians and Europeans. This provision prohibits entry into the United States of foreign officials whose companies "traffic" in disputed property.

As the price for withdrawing the WTO case, the EU reportedly wants Washington to make its waiver of Title Three permanent and to offer assurances that it will not use Title Four to prevent European executives from coming to the United States.

It is not at all clear that Clinton feels sufficiently politically secure to meet those conditions, and Helms-Burton backers can be expected to put on the heat if he shows any signs of backing down.

In a letter to Barshefsky last week, key members of the Florida Congressional delegation, House of Representatives Speaker Newt Gingrich, Senate Foreign Relations Committee Chairman Jesse Helms, and his House counterpart, Rep. Benjamin Gilman, urged Clinton to use the national security exemption to avoid the WTO's jurisdiction.

"The administration and Congress are in complete agreement," said Helms, one of the law's authors and a staunch isolationist, Thursday. "WTO is not competent to judge American foreign policy."

Even the New York Times, a long-time free-trade champion, has urged the EU to forge a back-room compromise and not involve the WTO. "The Europeans," it wrote, "would be wise to hold their fire".

"A victory for Europe, giving it the right to impose trade sanctions against the United States, would undermine support for the WTO in Congress and might encourage Senator Jesse Helms and others to campaign for American withdrawal," said the Times. "Skirmishing over Cuba is not worth the potential risk."

But the Europeans see more than Cuba potentially at stake. They have also expressed grave concern over new U.S. laws to penalise foreign companies which invest in oil and gas projects in Libya and Iran whose trade with Europe are more extensive.

The EU has similarly voiced concern that local US governments, such as states and cities, are adopting selective boycotts against companies investing in Burma, Indonesia, and other countries accused of human rights abuses.