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LMG proposals for implementation decisions at Seattle

by Chakravarthi Raghavan


Geneva, 4 Oct 99 -- A group of like-minded developing countries (LMG) consisting of Cuba, the Dominican Republic, Egypt, El Salvador, Honduras, India, Indonesia,Malaysia, Pakistan and Uganda have outlined proposals on implementation issues to be addressed before or at Seattle.

The decisions they propose under various agreements are:

* Services - developed countries "shall" fully implement commitments undertaken under Mode 4 (supply of services through temporary movement of natural persons).

The developed countries, while entering into commitments in their schedules, made them subject to so-called economic needs tests and visa requirements and grant of visas etc.

The LMG paper says that there shall be no application of economic needs test, and there shall be an automatic issuance of visas and exemption from work permit or residency requirements for short periods of presence, for the sectors where commitments have been made by developed country members.

Also, a monitoring and notification mechanism shall be established to ensure effective implementation of Art. IV of GATS. This article requires that increasing participation of developing country members in the services trade shall be facilitated (a) by negotiated commitments relating to strengthening of domestic services capacity of developing countries through access to technology on commercial basis, (b) by improvement of their access to distribution channels and information networks, and (c) liberalisation for market access to sectors and modes of supply of export interest to them.

The other parts of the Article require developed country members to set up contact points - the implementation period for this ended on 1 January 1996 - to facilitate access of Third World service suppliers to information related to their respective markets on the commercial and technical aspects of the supply of services, on the registration, recognition and obtaining of professional qualifications and the availability of services technology. Special priority was required to be given on these matters to LDCs.

Very little appears to have been done by developed countries on these matters.

* Anti-Dumping;

1. To restrict the start of back-to-back investigation "no investigation shall be initiated for a period of 365 days from the date of finalization of a previous investigation for the same product resulting in non-imposition of duties.

Industrialized countries, and the EC have been the major culprits in this, start an investigation on complaints, find no action is possible (even under the considerable leeway an importing country has been provided under the AD agreement) and ending the investigation with no action, and restart another investigation within a few days.

2. The lesser duty rule, that is duty sufficient to remove the injury to the domestic industry, shall be mandatory while imposing an anti-dumping duty against a developing country by any developed country member. There shall be an undertaking to this effect under Art. 9.1

Under Art. 9.1 of the Anti-Dumping agreement, the imposition of 'lesser duty' (lesser duty than the margin of dumping, if the lesser duty is sufficient to remove the injury to domestic industry) is envisaged, but left to the authorities of the importing country.

3. Article 2.2 of the agreement (on determination of dumping) shall be clarified so that where sales on the domestic market do not permit a proper comparison, the dumping margin is to be determined by comparison with export price to a third country, and only where this is not representative should the export price be determined on the basis of the constructed value of cost of the product in the country of origin.

Currently, the "constructed" value basis of calculation has become the favourite mode of abuse of the anti-dumping actions.

Subsidies Agreement:

1. The non-actionable subsidies under Art. 8.1 of the agreement shall be expanded to include subsidies provided by developing countries contingent upon export performance (including those set out in Annex 1 as illustrative) and those provided on condition of use of domestic over imported goods, so that actions cannot be taken against developing countries either through the dispute settlement route or the countervailing duty route.

These kinds of subsidies are now prohibited under Art. 3.1, and such subsidies used by developing country Members for development, diversification and upgrading of their industry and agriculture are now actionable.

2. Export credits given by developing countries shall not be considered as subsidies so long as the rates at which they are extended are above LIBOR (London Inter-Bank Overnight Rate).

Developing country enterprises and governments can raise funds in international capital markets or from banks only by paying a few percentage points of premium over LIBOR - and these usually cover various add-ons including a so-called country-risk premium.

A recent panel ruling against Brazil, for e.g., has created a situation where enterprises of developing countries will always be at a disadvantage vis-a-vis competitors in the industrialized world, since the developing country government cannot extend any credit except on the rates at which it can borrow, while most OECD countries can borrow at LIBOR or a few points above (100 points make for one percentage point).

3. Any countervailing duty against products from a developing country shall be restricted to the amount by which subsidy exceeds the de minimis level.

4. Under Art. 27.2 (a), developing countries listed in Annex VII are not subject to the general prohibition of export subsidies under Art. 3.1 (a). Annex VII now excludes LDCs designated as such by the UN, and names specified countries until their per capita income reaches $1000 (according to World Bank data).

The LMG has proposed modifying the Annex to exempt from the prohibition under Art. 3.1. (a) all developing country WTO members, including LDCs who are included in the Low and Lower- Middle Income category of the World Bank. They will be excluded from the Annex if their GNP per capita exceeds the top level of the Lower-Middle Income category of the World Bank, and automatically included if the GNP per capita falls at or under that top level.

Also, the prohibition in Art. 27.6, against using export subsidies when a developing country export product has achieved export competitiveness, is to be applicable to a developing country only if its export levels in a particular product have registered a 3.25% share of world trade continuously for 5 years. There should also be an automatic inclusion provision to enable developing countries to reintroduce export subsidies if their share of exports of a product decrease to a level below 3.25% of world trade.

Sanitary and Phytosanitary measures:

1. It is proposed that the provisions in Art. 10.1 of the SPS Agreement asking importing countries to take into account the special needs of developing countries in applying SPS measures should be made mandatory, and if an SPS measure creates problems for more than one developing country, the country adopting the SPS measure is required to withdraw it.

The present enabling provision has rarely been complied with.

2. The provisions of Art. 10.2 to give for products of export interest to developing countries a longer time frame for compliance "has only been followed in breach". These provisions should be made mandatory for developed countries to provide a time period of at least 12 months from date of notification for compliance with an SPS measure.

3. International Standards setting organizations (Art. 3.4 mentions Codex Alimantaire, International Office of Epizootics and International and Regional Organizatons under the International Plant Protection Convention) are to be required to ensure presence of countries at different levels of development, and from all geographical regions, throughout all phases of standard setting. Also, in the formulation of such standards, the specific conditions prevailing in developing countries are to be taken into account.

In many of the standards setting organizations, where standards setting involves several stages or steps, the expert meetings are often of experts from developed countries. Few developing countries are able to name and pay for their experts. They can have a say only at the very final stage, when it is impossible to modify the standards (only block their adoption if consensus is needed).

Under the SPS Art. 3.1, Members are to use SPS measures based on international standards formulated in this manner are to be recognized as "international standards", but can set higher standards when based on "scientific justification".

A similar provision requiring standards setting organizations to ensure developing country participation at all stages, as for the SPS, is also proposed by the group for the TBT agreement where similar problems face them. And the international standards setting organizations under TBT, including the International Standards Organization are not even intergovernmental bodies.

4. The provisions of SPS, in Annex B, requiring members to allow a reasonable interval between publication of an SPS measure and its enforcement, to allow producers, specially in developing countries to adopt them, are rarely done. These provisions should be made mandatory, and a reasonable period set at no less than 12 months.

Textiles:

Under the textiles agreement, in terms of the provisions allowing a member to advance its integration process, the importing developed countries (maintaining old MFA restrictions) are asked to advance the integration process and integrate in January 2002, 50 % of the total volume of restrained products. They are also asked to apply the growth-on-growth for stage 3 of the integration from 1 January 2000 instead of 2002.

A moratorium is also to be applied by importing countries on anti-dumping actions until two years after the entire textiles and clothing sector is integrated into the GATT.

TRIMS:

The provisions of the TRIMS agreement relating to local-content requirements shall be revised to allow for accelerating the industrialization process in developing countries and enable them to maintain balance-of-payments stability.

Also, the transition period for developing countries (in Art 5 para 2 of the TRIMS agreement) are to be extended until such time as their development needs demand.

And developing countries are also to have another opportunity to notify their existing TRIMS measures, which they would then be allowed to maintain till the end of the transition period.

Agriculture:

Developing countries with predominantly rural agrarian economies shall to have sufficient flexibility in the green box to adequately address their non-trade concerns - such as food security, rural employment. And support provided by them for non-trade concerns, even if outside the ambit of the green box, shall be exempt from AMS (aggregate measurement of support).

If in calculating AMS, domestic support prices are lower than external reference price (so as to ensure access of poor households to basic foodstuffs), and if this results in negative product support, the developing Members shall be allowed to raise their non-product specific support by an equivalent amount. A suitable methodology shall be adopted for taking into account the high-levels of inflation while making domestic support notification.

Administration of tariff rate quotas (TRQs) shall be made transparent, equitable and non-discriminatory, to allow new/small-scale developing country exporters to obtain market access. Imports by developed countries under TRQs are not to be made conditional to absorption of domestic production. To this end, notifications submitted to the Committee on Agriculture are to include details on guidelines and procedures of TRQ allotment.

The Marrakesh Ministerial decision concerning the negative effects of the reform programme on LDCs and Net Food-Importing Developing Countries (NFIDCs) shall be revised before 1 Jan 2001 to ensure effective implementation through concrete, operational and contractual measures for technical and financial assistance.

Customs Valuation (Agreement on implementation of Art.VII of the GATT 1994):

The LMG proposals for 'multilateral solutions' appear aimed at measures to deal with the transfer pricing and other abuses and corrupt practices of importers and exporters in trade.

One proposal calls for a multilateral solution to enable customs administrations of importing countries to seek and obtain information on export values contained in the export declaration to the customs administration of exporting countries, in a time-bound manner, in doubtful cases, shall be included in the Agreement.

This seems to suggest that when a customs authority in an importing country has a doubt, it should be able to obtain quickly information from the exporting country relating to the shipment.

A second proposal in regard to this agreement, says that the additional cost of services such as engineering, development, and design work, which are supplied directly or indirectly by the buyer free of charge or at reduced costs for production of goods under import, shall be included in Art.8:1(b)(iv), in the valuation of imported goods irrespective of whether the services were undertaken in the country of importation.

A third proposal calls for residual method of customs value under Art.7 of the agreement to include "all residual eventualities".

The proposal that this is to ensure that due cognisance is taken of the domestic price and the export price in a third country, as is done in the Agreement on anti-dumping. "The residual method of determining customs value under Art.7 (of the agreement) shall be inclusive of all residual eventualities, thus allowing valuation based on domestic market price or export price in a third country with appropriate adjustments," says the proposal.

Rules of Origin:

The proposal for decision by Ministers at Seattle calls for a directive to the Committee on Rules of Origin (CRO) to complete its remaining work on harmonizing non-preferential rules of origin by 31 July 2000.

Under the Marrakesh agreement and decisions of 1994, the CRO had been asked to complete its work programme for harmonization of non-preferential rules of origin within three years of initiation of work, ie by 20 July 1998. Some disciplines were also provided for any measures taken during the 'transition period' i.e. until completion of work on 20 July 1998. The work was not completed and the time for completion has been periodically extended, and more and more changes in rules or their administration have been brought in by the major importing countries.

The LMG paper notes that despite several periodic extensions of the deadline (at the instance of the majors including the US, which have even been opposed setting any new deadlines), the CRO has not completed its work. Since "the interim arrangements," says the LMG paper, "are creating restrictive, distortive and disruptive effects on the trade, in particular of developing country Members, the CRO shall complete its remaining work on harmonizing non-preferential rules of origin by 31 July 2000."

"In the meanwhile," the proposal asks the Ministers to decide that "no new interim arrangements shall be introduced. Further, any interim arrangements introduced by any Member with effect from 1 January 1995 or any subsequent date shall be suspended with effect from 4 December 1999."

S&D provisions:

In many areas of the WTO provisions, the LMG paper says, Special and Differential provisions are phrased only as best endeavour clauses, and their implementation has remained ineffectual and has therefore been difficult to assess.

"All S&D provisions shall be converted into concrete commitments specially to address the constraints on the supply side of developing countries," the LMG paper for decisions by or at Seattle proposes.

This set of proposals also covers decisions sought on TRIPS and the GATT BOP provisions. (SUNS4523)

The above article first appeared in the South-North Development Monitor (SUNS) of which Chakravarthi Raghavan is the Chief Editor.

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