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NOT-SO-LEVEL A PLAYING FIELD AT WTO

by Chakravarthi Raghavan


Geneva, 20 Sep 99 -- Low average tariffs resulting from the Uruguay Round have led some to a belief that a level playing field is being rapidly established in the international trading system, but that is far from being the case, according to UNCTAD's Trade and Development Report 1999.

Trade liberalisation in developed countries was a gradual process, which unfolded over eight rounds of multilateral trade negotiations (MTNs) under GATT auspices and through their participation in regional trade agreements and customs unions. Exceptionally strong growth in the postwar period underpinned that process.

By contrast, the large and active participation of developing countries in recent MTNs occurred at times of sluggish growth, when many of them were implementing difficult adjustment programs to address payments difficulties associated with the debt crisis of 1980s. These programs involved extensive liberalisation measures, notably removal or relaxation of QRs and exchange controls, as well as significant reductions in tariffs, which were to a large extent bound in their concessions in the Uruguay Round. Whereas for the developed countries tariff bindings increased from 94 to 96 percent under the UR, for the developing countries it increased from 14 to 59 percent.

At the same time, negotiations in many areas of interest to developing countries did not advance very far.

While average MFN tariffs of major advanced industrial countries should fall to between 3.7% (US) and 7.1% (Canada), once the negotiated concessions are fully implemented, both the level and frequency of tariffs remain a matter of concern in many areas of key interest to developing countries.

Over 10% of the tariff universe of the Quad (Canada, EU, Japan and US) made up of 4000 tariff lines will continue to face peak tariffs - in excess of 12% ad valorem. One-fifth of peak tariffs of the US, 30% of those of Japan, one quarter of those of the EU, and one-seventh of Canada's exceed 30%.

"Even after all concessions are fully implemented, frequent tariff peaks and significant tariff escalation will continue to provide high levels of import protection for a sizeable cross-section of northern producers."

Among agricultural tariffs (according to an UNCTAD/WTO study) excessively high rates, over 70 percent, are applied to products recently tariffied. They include frozen bovine meat, grape juice, fresh bananas, milk, maize and raw sugar cane (in the EU); stemmed tobacco, shelled or roasted peanuts and peanut butter in the US; milled rice, shelled peanuts, milk and prepared pork hams in Japan; and dairy products in Canada-all products offering potential for export diversification by developing countries.

As for non-tariff measures, while some trade measures are losing importance as barriers, the threat of market penetration by southern producers has prompted northern industries to seek other protectionist measures, and such measures could have significant impact on market access.

The TDR cites a recent study to the effect that the true average protection rate of European industry rises from 5.1 percent if only tariffs are included, but 9% if tariff and non-tariff measures are taken together.

Also important are loopholes and imbalances in agreements such anti-dumping. Though many actions are against industrialized countries, a majority of cases are against developing countries, and some by other developing countries.

The effect of agricultural support has been to allow agricultural products to be sold on domestic and world markets at below the cost of production, and their impact on developing countries is such that not only are they precluded from entering developed country markets, but face unfair competition (from subsidised exports) in their own or third country markets.

In a section on 'The International Trade Agenda for 1999 and beyond', TDR-99 notes that though a consensus seems to be gradually emerging on launching a new round of MTNs at Seattle, there remains substantial differences among countries over the content of such negotiations.

The positions of developing countries reflect three immediate concerns: firstly, the Uruguay Round and its implementation process has done little to improve market access for their exports of goods and services; secondly, the WTO rules are unbalanced in several important developed-related areas such as protection of IPRs and use of industrial subsidies, while the S&D treatment accorded by the Uruguay Round has been inadequate; thirdly, insufficient human and financial resources and weak institutional capacities have restricted their ability to exploit the opportunities open to them under the WTO, particularly in dispute settlements mechanism and their own ability to comply with contractual obligations.

In calling for a 'positive trade agenda', TDR-99 says that while setting priorities is an integral part of any negotiating process, access to northern markets for developing country exports remains the single most important theme around which to build any "positive agenda."

Pointing to the very high tariffs and tariff peaks and tariff escalation facing exports of developing countries, TDR-99 says removal of such protection should be given priority to ensure credibility and broad-based political support for any negotiations. There should be duty-free access to all exports of least developed countries. Another key area is restraint on use of anti-dumping actions and other trade contingency measures by industrialized countries in specific sectors of export interest to the developing world.

In agriculture, where developing countries exports are severely hampered by domestic support and export subsidies of industrialized countries, significant cuts in tariffs, domestic support and export subsidies should be the firm goal.

At the same time, the continued reform of agricultural trade should take into account the non-trade concerns such as food security, specific problems of net food-importing countries and the varying social impact of agricultural trade liberalization.

And while the agriculture negotiations should move in the direction of integrating agricultural trade into normal WTO rules, it should ensure that developing countries, particularly those with predominantly rural agrarian economies, maintain adequate flexibility so that concerns such as food security and rural employment can be addressed.

In GATS, the agreement provides flexibility to developing countries in the timing and choice of sectors to be opened up, and enabling them to attach conditions to market access to ensue their ability to increase participation in international trade in services, and recognizes the use of performance requirements and other measures such as joint ventures as legitimate tools of development policy, there is need for further work to be done under Art.XIX of GATS. Also needed is further work to improve data on trade in services.

On outstanding and new issues, TDR-99 says views as important the reviews of TRIPS and TRIMS.

Requiring urgent consideration in TRIPS, are those relating to:

* comprehensive empirical assessment of links between IPRs and economic development;

* elevating the objective of promoting technological innovation and transfer and dissemination of technology to a central place in the new disciplines governing IPRs;

* measures by the ICs to provide incentives to their enterprises and institutions to promote and encourage technology transfer to LDCs;

* extension of transition periods to provide additional time for domestic industries to adjust;

* technical and financial support to formulate IPR rules, adapted to a country's domestic circumstances and stage of development;

* adoption of specific measures to facilitate use of compulsory licensing to ensure transfer of technology (including environmentally sound technologies) and meeting public health concerns;

* measures to bring TRIPS into conformity with the Convention on Biological Diversity; and

* inclusion of new provisions relating to protection of traditional and indigenous knowledge and works of folklore; provisions to prevent any restrictions on parallel imports; and clarifications aimed at explicitly prohibiting any rules and practices amounting to unilateral retaliation.

As for TRIMS agreement, the review should address whether it should be supplemented by provisions on investment and competition policy.

But the emphasis should be on whether or not it has helped developing country enterprises to compete on world markets for goods and services and, in this light, for reconsideration of certain parts of the Agreement.

Any extension of TRIMS disciplines to some of the currently WTO-permitted measures such as export performance could constrain use of policy instruments available to developing countries to promote sectors and industries of export potential, TDR-99 warns.

Equally, it adds, the importance of investment performance requirements for their development programmes and right to impose such requirements should be recognized. The possibility that in some areas as domestic content requirement, the rules are harmful to interests of developing countries should be examined. The investment incentive programmes of developed countries that have had trade-distorting impact on developing countries should also be examined.

Also requiring WTO attention is the "merger mania" sweeping across the world economy, and that justifies the position of developing countries during the Uruguay Round for symmetry between investment and competition policy.

In terms of systemic policies, the ability of developing countries to take certain measures as part of their development strategy acquires importance as pressures continue to extend the "frontiers" of the trading system.

Rather than relying on arbitrary and artificial time-frames, unrelated to need and performance, S&D should be linked to specific economic and social criteria, and should involve examination of policy questions on among others:

* basic rights of developing countries under Art.XVIII and Enabling Clause, and extending Enabling Clause to allow developing countries to give preferences to LDCs;

* adequacy of transition periods that terminate in 2005 or earlier in some WTO agreements;

* revision and improvement of S&D provisions in WTO agreements, and elaboration of additional provisions with emphasis on supply side measures to foster development of internationally competitive export supply;

* linkage of further trade liberalization to transfer of technology.

There is also need to address the systemic issue of accession, especially of LDCs, where current applicants are facing substantial difficulties in seeking to benefit from S&D, and where major industrialized countries are resisting strongly negotiation of transition periods. (SUNS4512)

This document was published in the South-North Development Monitor(SUNS), edited by Mr C. Raghavan. It is being circulated for the benefit of the NGO community.

For recirculation please obtain permission from Mr Raghavan at suns@igc.apc.org

 


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