SOUTH'S URUGUAY ROUND GAINS MAY BE MUCH LESS

6:38 AM Oct 7, 1994

SOUTH'S URUGUAY ROUND GAINS MAY BE MUCH LESS
Geneva Oct 7 (Chakravarthi Raghavan) -- Post-Uruguay Round Trade gains to developing countries in the two key areas of importance to them -- agriculture and textiles and clothing -- may on closer scrutiny appear to be less than claimed, if the totality of tariff cuts, rules changes and other elements of the Marrakesh package are taken into account, according to experts.

The experts view, came at a seminar on Trade Prospects for the Developing Countries upto year 2000 and beyond, held on 27-28 September here. The seminar with Swiss funds was jointly organized by UNCTAD and the Geneva Centre for Applied Studies in International Negotiations as part of UNCTAD's 30th anniversary events.

The seminar brought together, in their individual capacities, the protagonists from the GATT, IMF, World Bank and the OECD, but also academics, experts and a few NGOs who have been doing their own assessments.

A few of the participants presented to the Trade and Development Board on 29 September their individual perceptions of the seminar and UNCTAD's future role.

The writer, a participant in the seminar, found that the wide-ranging discussions had no real consensus -- neither overall nor in details, with several of academics and experts starting with a positive assessment of the outcome adding many qualifications and reservations.

The writer came away from the seminar with the overall impression, arising from the presentations and the discussions as well as the individual views of the outcome, given at the subsequent meeting of the Trade and Development Board by a few panellists, that neo-liberal theologists projecting the "gains" from neo-classical trade policy theory are finding it difficult to face up to the negative aspects and "losses" and seek to reconcile this by talk of long-term welfare gains, based on econometric modelling and projections.

As Bhagirath Lal Das, a former Indian representative to the GATT (and who headed UNCTAD's Trade Division till mid-1991), put it at the seminar: "These quantitative projections of billions of dollars in gains are very uncertain, as all these economic models are..." and one can judge the outcome only in qualitative terms of the balance of rights and obligations of developing countries before the Round and after the Round. In this latter perspective, the outcome was highly imbalanced for the developing world, he said.

Some of the experts also questioned the view that there would be 'trade security' as a result of the rules and the dispute settlement mechanisms of the WTO and said that the rules, particularly in subsidies, safeguards and anti-dumping had in effect been written by the two majors, the US and EU, aimed at protecting themselves against competitive imports coming from individual developing countries or individual enterprises.

Other rules like those in Trade-Related Intellectual Property Rights would be negative for the late industrializers.

Also the general framework in the GATS had no immediate economic benefits for the South, though it could have some potential benefits, depending on how the industrialized nations acted in the continuing negotiations (on financial services, movement of natural persons, telecommunications and maritime services) as well as in future round.

When account is taken of all these, they said, projections of the benefits to the developing countries would be in the future and much less, though there would be some gainers in Asia, they said.

Even protagonists of 'gains' through trade liberalization, like Ms. Naheed Kirmani (Chief of IMF's Trade Policy Division) and W.Martin (World Bank's International Trade Division) agreed that there was some short-term costs for developing countries, but argued that the liberalization and more efficient allocation of resources would bring medium to long-term benefits.

The OECD's Director of the Trade Division, Mr. G.Abel, sought to play down the 'winners' and 'losers' assessments, arguing that the failure of the Round would have been worse for the developing countries, and that trade liberalization by bringing about 'efficiency' would produce welfare gains in the long run.

Anwar Hoda, Deputy Director-General of the GATT, said that in industrial products developing countries would benefit by a trade-weighted 40 percent average reduction in tariffs by developed countries and duty free access in some sectors of 20-44 percent.

Though the point was often made that reductions were much less in labour-intensive product sectors, developing countries were no longer concentrating on a few labour-intensive product lines and that their exports were sufficiently diversified, he claimed.

But Sheila Page of the British Overseas Development Institute, said that this may be true for a few like the Asian NICs, but not for the very large number of developing countries. Also, presenting the tariff cuts in percentages made it sound large. But when an actual tariff of 6 percent is cut by 40 percent, the actual reduction was only 2.4 percentage points -- of far less significance compared to the fluctuations in exchange rates.

It was also brought out that Agriculture was the only area where the importing countries have been allowed to protect their domestic markets against exchange rate fluctuations -- a benefit not available to developing countries for e.g. on industrial products.

Hoda also did not see any of the 'rules' as affecting 'significantly' the development options of developing countries.

But in a paper made available at the seminar, three Latin American economists and trade policy experts -- Manuel Agosin, Diana Tussie and Gustavo Crespi -- said: "As a result of the Round, developing countries will face considerably more stringent restrictions on their ability to conduct development-oriented trade and industrialization policies, and their access to foreign technology will become more uncertain and costly. The Round also resulted in a significant erosion of the international consensus in favour of special and differential treatment for developing countries in the international trading system".

"The results of the Uruguay Round," the three also said, "do not represent a good deal for developing countries. On the key question of improved market access for developing country exports, tariffs on products of interest to developing countries have been cut, but they will remain at higher levels than those applied to products traded mainly among developed countries; tariff escalation will be reduced, but not significantly. The Round will bring about only marginal improvements in market access in the crucial areas of agriculture and textiles.

"Market access will also depend on the abolition of grey area measures, their replacement by transparent and clearly temporary safeguard provisions, and the disciplining of anti-dumping practices. The new safeguards mechanism is due to replace grey area measures. However it legitimizes quantitative restrictions, directed at individual exporters, albeit with fairly stringent limitations as to duration and proof-of-injury procedures. On the other hand anti-dumping agreement can be considered the major loophole of the Final Act and may well lead to a recrudescence of protectionism in both developed - and by imitation - developing countries".

Hoda conceded that the complaint of 'dirty tariffication' in agriculture -- conversion by developed countries of their domestic support and border protection into tariffs, with most of them tariffying them at tariffs as high as 300 percent in many key sectors. But Hoda said that there would still be 'significant' market openings: about 1.75 million tonnes additional in coarse grains, one million tonnes in rice.

However, Prof. Ulrich Koester, of the Agroeconomics Institute of the University of Kiel (Germany) said that in fact these accesses would be much less. For e.g., he said, while the EU was providing for wheat imports and quotas, it could easily specify imports of high quality wheat from Canada, and thus other exporters from the South would lose out. Many of the products also were classified at an aggregate level, for raw and processed products where in actual implementation the benefits would prove to be much less than projected or claimed. In Koester's view there will be no positive effect for the developing countries.

But most participants were agreed that the disciplines on export subsidies would help some of the competitive exporters of the temperate zone products as also grains in third markets, though even here there was a carving out of sorts of markets -- with the EU/US understanding on limiting subsidised beef exports to the far East, but which may result in other markets being targeted within the overall limits.

In looking to the future, the FUND and the Bank officials spoke of the need to maintain the "momentum of unilateral liberalisation" and its benefits for liberalisers -- a theology which they could force upon developing countries. But they had no answer why if it was so good from the point of view market theories, the industrialized countries like the US and EU don't themselves practise it -- in textiles and clothing, agriculture or services. The Bank's only explanation was that the developed countries needed reciprocal exchange of concessions to beat their domestic protectionist lobbies.

In relation to the Agreement on Textiles and Clothing (ATC), Sanjoy Bagchi of the International Textiles and Clothing Bureau pointed it provided for increases in existing 'growth' rates in bilateral agreements (thus liberalising the trade) and for phase-out of MFA restrictions by integration of products over the 10-year period.

But with growth rates on quotas in bilateral accords low -- the weighted average rate for all the restraining countries is only three percent -- the ATC provisions for growth rates being increased by respectively 16, 25 and 27 percent in three stages, would only result in growth rates at the beginning of the third phase of 5.52% and at the end of the transition period for enlargement of quotas by 54%

The integration is to be achieved in three stages by integrating from out of the various HS line products included in the annex -- with each restraining country obliged to select and integrate at each of the three stages 16, 17 and 18 percent of the HS line products.

But in actual fact the importing industrial countries could fulfil their obligations in the first two stages (of three years each) without removing restrictions on any of their imports, and merely integrating their unrestrained items. This was because the annex to the ATC contained many HS lines not covered by any specific restraints. Such currently unrestrained lines accounted for 47% of total Canadian imports, 34% in EU and 37% in US, 90% in Austria, 81% in Finland and 83% in Norway.

Bagchi noted that President Clinton has already assured US Congress that sensitive textile products will not be integrated until the very end, while there are indications that EU integration programmes for the first stage is unlikely to liberalise any MFA restriction.

Jean Francois Bellis of a Brussels-based legal firm specialising in trade matters, particularly in antidumping cases, noted that the EU was already using also the AD rules to hit the restrained MFA imports, and will do so even more in the future.

Others noted that the TRIPs agreement, and its provisions for protection of 'designer' clothes would enable harassment by complaints to customs that an imported clothing line is a violation of TRIPs.

The abolition of quotas, Bagchi said, would increase market access opportunities for developing countries in the textile sector. While there are several studies, following different methodologies, that have made estimates of the likely volume and value growth, "the important to bear in mind is that the benefits of the estimated magnitudes are likely to become available only after ten years, with a comparatively modest dimension of trade expansion becoming perceptible only from the seventh year onwards".

And during the transition period, the enlargement of the EU and consequent application of its textile import regime in new members (Austria, Finland, Norway and Sweden) would hinder the trade expansion on account of the comprehensive protectionist approach of the EU.

As for tariffs, Bagche said pre-Uruguay Round average in developed countries as a group for textile products was 15% compared to five for industrial products. The Round would reduce the level to 12% for textile sector as against four for industrial products -- and the reduced level would still be double the average pre-Uruguay Round tariff for all industrial products. In the industrial world the textile sector has double protection -- by quotas and high tariffs.

Tariffs had not been a major barrier for expansion of textile trade from developing countries, while the quotas had been the real obstacle. But the tariff peaks in the textile sector had often retarded trade flows to such an extent that need for quotas were obviated.

Nearly one-third of total imports of textiles in all industrial countries were facing tariff peaks of 15% and above in the pre-Uruguay Round period, with most of the peaks in clothing sector.

After the round, these tariff peaks would cover 28% of total imports.

A bright picture though is that developing countries have cut their tariffs and bound them in the Uruguay Round, and thus intra-developing country trade would benefit. The ITCB members, along with four Asean countries who not members, import $37,570 million worth of textiles. These countries have bound their tariff lines for 29 percent of textile imports, while the unbound duty free imports in this group of countries is nearly 66% of their imports. Thus, 95% of their imports would show tariff benefits.

In looking to the future, Das said that there should be pressures to ensure that the industrialized countries implement the results of the round faithfully and not try to circumvent it. Such a temptation to use unilateral measures should be resisted by the major nations.

Developing countries, he said, should individually and collectively look at the negotiating process and identify their points of strength and weaknesses, try to consolidate their strengths and overcome their weakness. This would be particularly necessary since the WTO would become a permanent forum of negotiations.

Das later explained that while at the end of the Tokyo Round, individually and collectively the developing countries made clear their dissatisfaction and voiced their views on the 'raw deal' they had got, even though the outcome was highly skewed and against them, after the Uruguay Round there was a tendency for self-congratulation.

The first pre-requisite for improving their future prospects was for each country, at level of negotiators and capitals (which had been weaker and softer than negotiators on the spot) should make a serious assessment, acknowledge the deficiencies publicly as a step towards improvement for the future.

The collective processes must also be looked at, and atleast the major key countries must join together. The present informal group of developing countries had proved ineffective, and at the end each country tried to look for its interests and by and large they lost individually and collectively..

In the rule-making areas, Das said, there were some choices available, and developing countries should individually identify the choices and put in place trade policy instruments in amending legislations that would enable their industrialization and development strategies -- whether on TRIPs, Anti-dumping or subsidies etc.

Amb. Julio Lacarte said that a major requirement is for developing countries, at the capitals and here at Geneva to have specialised trade experts who would follow these things over time. Generalists can no longer be effective at the Geneva end, and collective accumulation of expertise is even more needed in departments and ministries dealing with these issues, particularly since under the new trade regime a variety of domestic economic policy areas will come under international disciplines and these areas will only increase.