WTO ENTRY PRICE GOES UP FOR APPLICANTS

8:08 AM Oct 14, 1994

WTO ENTRY PRICE GOES UP FOR APPLICANTS
Geneva 14 Oct (Chakravarthi Raghavan) -- Traditionally, Contracting Parties to the General Agreement on Tariffs and Trade have looked upon it as a club, with club-members entitled to demand from applicants 'high' entry fees -- higher than they themselves had paid.

This has been justified on the basis that those who are GATT contracting parties, through successive rounds of negotiations, have created a balance of rights and obligations which would be automatically applicable to any new entrant -- because of GATT's Art. 1 (Most-favoured-nation principle) -- and thus the new entrants would be paying for their share of the collective 'assets' of the system.

In recent days, there has been considerable public attention and focus on the 'entrance fee' that China, which was a full participant in the Uruguay Round negotiations, is being asked to pay for being allowed to join the GATT before the end of the year, and thus the WTO as a original member.

Among other things, China is being asked to give up any rights it could claim as a developing country, agree to 'special safeguard' measures being taken against Chinese exports, and agree to make concessions, for example, in services unlike others (including the majors) who were negotiating in the Uruguay Round.

Apart from China, which has been negotiating its access since before Punta del Este, there are now over a score of countries seeking to accede to the GATT and the World Trade Organization -- mostly constituents of former Soviet Union, but also a number of developing countries.

The list of pending requests includes Bulgaria, Nepal, Mongolia, Panama, Slovenia (where accession work has been concluded), Ecuador, Taiwan province of china, Albania, Russian Federation, Saudi Arabia, Belarus, Croatia, Armenia, Latvia, Moldova,Ukraine, Jordan, Lithuania and Estonia.

Apart from China, the accession application of Algeria which (as a former French colony/territory) has been de facto applying GATT has been pending since June 1987. There are 13 other developing countries de facto applying GATT. But they all have to negotiate accession to WTO -- and cannot exercise the short-cut that has been available so far under Art XXXII.2 -- as former colonies of metropolitan powers who applied GATT.

In all cases of pending accession applications, working parties have been established, and are at various stages of progress.

This is the traditional GATT mechanism for dealing with such accession request has been the establishment of a working party which considers the trade policy regime of the country concerned and its compatibility with the GATT rules, carry out negotiations with the applicant to get changes made in its regime to conform to the rules (and sometimes granting limited 'grandfather' clause privileges and/or time span to achieve the conformity).

Side by side, as the working party progresses, the applicant carries out tariff and market access negotiations with the other contracting parties -- those countries in which it has trading and export interest and vice versa. Inevitably, this involves the two majors, the United States and Europe who often lay down the terms.

In the applications for accessions now on the agenda, the US and EU have in fact taken over an even greater role, in demanding and negotiating with the applicant the kind of trade regime they want to see -- covering goods, intellectual property and services -- and the extent of market access they want.

Just before and during the Uruguay Round, those who negotiated and acceded, were asked by the US or EC to accept, for example, tariff-bindings generally at a 30-35 percent range, and binding almost all their import lines (something that even the US and EC have not achieved).

The US too bilaterally used to insist on other conditions -- such as asking the country concerned to accede to the Tokyo Round subsidies code and agree to time-bound phase-out -- and more recently over intellectual property regime.

In the case of China, under threat of Special 301 actions, the US even got China to agree to provide socalled 'full pipeline protection' (for chemicals, particularly agro-chemicals and pharmaceuticals) from the date of the launch of the Uruguay Round -- whereas under TRIPs this is possible only from date of entry into force of the WTO.

The two have been able to do this because of the size of their import markets and their ability to deny the benefits of the General Agreement through the 'non-application' clause.

The understanding reached in January 1994, on the interpretation of the existing GATT provisions on non-application (which previously did not permit invoking it if there had been 'tariff' negotiations between the two sides, based on the concept that no cp should be allowed to use this power to extract more concessions), and the provisions in the WTO enable greater use or threat of use of this, and force applicants to accede to the US/EC demands.

In the post-Marrakesh accession-negotiations, this step now appears to have been taken a further stage by the two majors, particularly the US, to 'stamp' on all WTO future members a total neo-liberal laissez faire order that does not prevail in the US, and which the IMF and the World Bank with all their conditionalities have been unable to achieve.

If successful, it will blow a big hole in the major claim for the WTO-system, namely that it is a rule-based system -- with clear rules of the game for all its members.

If new members are to give up their rights in some areas and agree to their trading partners departing from the rules, it is really the beginning of another kind of 'grey area' measures in trading that the WTO's safeguards agreement has proclaimed it is stamping out.

Several of the applicants, who did not want themselves or their countries to be identified, say that the 'starting bid' for their entry fee appear to involve not only normal trade concessions -- the tariff and other market concessions they will make to key trading partners -- in the area of goods, and in the new areas of the WTO, namely, TRIPs and Services, but in areas of economic activity or economic policy not at all within the ken of the WTO -- such as privatization programmes and sell-off of their public companies to foreigners.

The applicants are being asked to enter into commitments on privatization programmes in general, on specific aspects of transparency and monitoring, specific time-tables, percentages and other numerical goals of privatization. These relate not only to foreign trade enterprises, but also enterprises in agriculture, industry and services like banking.

Within some working parties, when the US and EU have aired these, some others have opposed it on the ground that these are beyond the ken of the present GATT or future WTO. Neverthless in bilaterals the US and EU are known to be pushing for these.

Even in areas under the WTO, such as agriculture, some of those seeking accession are being asked not to exercise the WTO Agriculture Agreement's provision for 'tariffication' of all domestic support and non-tariff barriers, and then subject the resulting 'tariff' to the proposed cuts.

The US and EU, in terms of the Agriculture agreement, as also several other industrialized countries, in fact have been charged with having engaged in 'dirty tariffication' -- converting their support or non-tariff restrictions at very high levels of tariffs in major areas, and thus denying effective access to their markets. Even the minimum access and existing access have been done in a way that there is no real liberalization and increased access.

But these same countries, along with Australia, Canada and a few others (who aren't blameless on dirty tariffication), are asking the new entrants to undertake larger liberalisation and binding tariffs at much lower levels and opening up their agricultural markets.

They are also asked to agree in advance that they would not invoke in the WTO and its GATT 1994, for example, the 'injury test' in terms of actions to be taken against imports from them -- whether under 'safeguards', subsidies, anti-dumping and countervailing duty provisions and other areas.

The argument used for this is that most of these former centrally planned economies don't have functioning market-systems with their transparent price-formation. While there is some logic behind this, this cannot be carried to the extremes as now.

Again, the WTO's General Agreement on Trade in Services (GATS), being a completely new area for trade rules, as settled now is essentially a framework agreement. Each participant had to annex a schedule of its market access commitments -- and there was an element of negotiations based on 'offers' and 'requests'. But in the final analysis it was a case of countries filing their schedules of 'offers', with little scope for anyone to exclude anyone else because of dissatisfaction.

There is a balance of rights and obligations in the framework, with the developing countries being some contractual rights in terms of Special and Differential Treatment. The schedules under GATS of individual members could even be seen as a negotiated package from which any new entrant would be benefit, and hence should be required to pay a price through negotiations.

However, given the fact that the GATS will only come into force at best on 1 January, and it will take atleast a few months or a year or two for accumulated market benefits, in several cases of new entrants the US and EU appear to be demanding much higher entry fees.

Several developing countries are ambivalent on all these. In any event, they say, the real fight is in the parallel bilaterals where the applicant has to stand up to the US, EU etc.

At working party meetings as on China, they come out in support of China. At some other working parties where the privatization and other demands are proposed, they have opposed it on the basis of the GATT/WTO competence. Privately several of them agree that some of the terms demanded of China are just 'atrocious' but shrug their shoulders over the situation created by the two majors.

And while China, in many respects, has several cards to play, and many chips to collect from other developing countries, and could even engage in bluster to equal that of the US -- because of its large and growing market and ability to inflict reciprocal damages -- few others have any such leverage.

The only other major applicant is Russia, where the working party is yet to start, but whose political leadership, observers say, has been erratic in playing its cards to defend its national interests -- whether on trade, economics or even political and security questions.

Some Russian officials, in some recent seminars and meetings, have complained that the IMF and the World Bank, for example, is pressing them to cut their tariffs drastically, even in the 5-10 percent ranges on some sectors.

While Russian technical negotiators have sought to resist impossible demands -- as for example those demanded by the EU in regard to its cooperation agreement with Russia -- Washington and Brussels have tried to deal directly with the capital and political leaders there -- who are even less knowledgeable on trade policies and implications of the demands made on them and giving in to them.

But the drama of the neo-liberal order, driven by the greed of major transnational corporations, which is sought to be stamped on the entire world through the WTO is yet to be played out and may have some surprises, several observers following these negotiations suggest.