Once again, the EU has been pushing for a new round of multilateral trade negotiations. This time, it has used the occasion of the review of its trade policy regime at the WTO to renew its call for a new round.

by Chakravarthi Raghavan

Geneva, 14 July 2000 -- The European Union used the occasion of the once-in-two year WTO review of its trade policy regime this week to renew its push for a new round of multilateral trade negotiations, with a ‘global approach’ (meaning anyone can bring up any issue), and to complete it as a ‘single undertaking’ (to force everyone to accept the outcome in all areas!)

Thus, the occasion of a review of its past and present, and its failings, to be used for increasing transparency and understanding, was used instead to promote its new round plank, and to make clear that no progress can be expected in changing any of its ‘warts’ (as a WTO official described its failings) without a new round and a price paid by others.

Needless to say, Japan endorsed the new round concept and wanted it to involve further liberalisation and rule-making in areas like agriculture, services, investment, competition, trade facilitation, government procurement and improvement disciplines in trade defense measures (an euphemism for anti-dumping, subsidies and countervailing measures, and various safeguards measures).

The absence of a discussant (provided for in the rules, but dispensed with by ‘consultations’ between the Trade Policy Review Body - TPRB - the Chairman from Bangladesh and the EU) who could have helped focus the discussions, and have prodded the EU to answer the points raised about its present trade policy and administration, helped the EC to frustrate the purpose of the discussions.

As a result, instead of the Trade Policy review being a review of its trade policy regime and practices, the EU used the occasion to make the launching of a new round of multilateral trade negotiations to address the challenges before the system.

The new round was also the EC’s answer to those who found fault with its restrictions (tariff and non-tariff) on imports from developing countries in textiles and clothing and agriculture, two sectors of heavy protection, or its use of trade defensive measures like anti-dumping and anti-subsidy, and repeated investigations that served no purpose other than harassment.

While the secretariat report had made references to these—what the WTO official, Mr. Clemens Boonekamp (a Dutch national who heads the division in the secretariat) had called ‘warts’—they were pitched in a lower key, mostly as a factual language - unlike the minatory and strident language used when such reports about protection are brought out in respect of the developing countries, and they are advised to liberalise more to benefit - one more example of Orwell’s animal farm in operation at the rules-based WTO: “all are equal, but some are more equal than others.”

Even the fact that the EU members not only provide subsidies in the agriculture sector over and above those from the Community itself, but in the industrial sector too - where several members use tax breaks to subsidise industrial sectors, and to require use of local content, are barely mentioned in the secretariat report.

It was left to India and a few others to bring these out in detail, but without eliciting any real reply - but instead an advice to launch a new comprehensive round to solve all these problems!

But it is a measure too of the power and influence wielded by the EC, through the web of preferential arrangements, with conditionalities and incentives, that almost every intervention, going beyond the customary diplomatese, began with references to the leading role of the EU in the WTO and the importance of its markets for their exports.

The secretariat report brought out that up to now, in the textiles and clothing sector, the EU’s integration of this trade into the normal GATT rules has only been 5.4% of its restricted imports of 1990.

[The latest EU Commission proposals to its ministers, for the third stage of integration, will still be a similar token value, and most of its restrictions will only go, if promises are kept, only at end of 2004.]

To these and other complaints, the EC’s answer was standard: developing countries seeking more access should negotiate and liberalise their own trade to exports from the EU.

Rather than a critical view, the secretariat reports has spoken of the EC’s liberalization through preferential arrangements—the customs union with Turkey and removal of quotas, and all the transition economies of Europe with which it has Europe Agreements (a stage towards accession at some future point). There is not a word that such a type of liberalisation puts developing-country exporters at an even greater disadvantage in the future, as competitors gain market advantage now.  In agriculture, the EC is a frequent user of the special safeguard (SSG) mechanism - available to those like the EC which had extensive tariff and non-tariff barriers before the WTO, converted in the Uruguay Round into tariffs (through what is known as ‘dirty tariffication’) and can now use special safeguards, invocable when import prices fall below trigger prices or import volumes are above trigger volumes. It can do this without having to go through normal safeguards or injury tests—one of the greatest inequities perpetrated on developing countries by the WTO agriculture accord.

Since 1995, the EC has invoked this price-based SSG in respect of a number of products including poultry meat, turkey meat, dried egg yolks, certain sugar products, and uncooked meat preparations; and volume based SSG for tomatoes, cucumbers, oranges, clementines, mandarins, lemons, apples and pears.

Interestingly, the secretariat reports about the EC filing every year, in computer-format, trade and tariff data on HS 8-digit tariff line basis for the WTO Integrated Data Base (IDB), and the details provided about agriculture subsides etc. But these seem to be at variance with the secretariat’s background notes to the agriculture negotiations special session (in July), where data not easily comparable have been provided on the UN’s SITC four digit classification basis, and non-availability of data was given as the explanation.

It seems obvious to many delegations that if the secretariat had wanted to and had used its computer resources, it could have easily translated into HS 8-digit format the agriculture data from an SITC basis, to help the agriculture negotiators.

Is it a case of incompetence or another example of the tight hold the EU has on the secretariat?

The EU also uses extensively, anti-dumping and counter-vailing duty measures. For 1998, it had the second largest number of measures in force, behind the United States. Initiation of new measures rose three-fold in 1999 to 66, and will lead to a rising trend of measures once investigations are completed.

There is no mention in the secretariat report to information available to them about the EC starting repeated investigations on the same product, within days of ending an earlier one—this has been done in respect of textiles and clothing products against a number of developing countries.

In agriculture, in addition to border measures to keep out imports, the EC spent $50 billion in 1999 on its Common Agriculture Policy (on domestic support and export subsidies). An additional $13 billion was budgeted by member-countries - France $2.7 billion, Germany $2.1 billion, Italy $1.9 billion, Finland $1.5 billion and the UK $1.3 billion. These include subsidies notified to the WTO as programmes exempt from the Aggregate Measure of Support commitment (the ‘green box’ exempted categories).

And the EC’s view is that these subsidy policies of member-states are exempt from WTO disciplines!

In fact, trends in Community-level payments since 1995 show rising payments on arable crops, olive oil and bovine meat. And while the export subsidies are down by almost 50% since 1995, this is largely due to declines on major subsidised items as arable crops, dairy products and bovine meat—where international prices have risen.

The EU export subsidies - by value and volume - have been within its annual commitment levels on wheat and wheat flour, rapeseed, butter and butter-oil, skim milk powder, cheese, fresh fruit and vegetables and processed fruit and vegetables, and raw tobacco.

But it has exceeded commitment levels on coarse grains (1998-99), rice (1996-97), sugar (1997-98), beef meat (1996-97), pigmeat (1998-99), eggs (1998-99), olive oil (1996-97), poultry meat (1997-98), other milk products (1997-98), wine  (1996-97 and 1997-98), alcohol (1998-99) and incorporated products.

The Organisation for Economic Cooperation and Development’s data show that EU support for agricultural products (PSE, producer subsidy equivalent, in percentage terms) was the same in 1997-99 as in 1986-88 (the base adopted for Uruguay Round). Due to a fall in world market prices for key CAP products, the PSE support increased from 38% in 1997 to an estimated 49% in 1999.

Apart from the agriculture sector, industrial subsidies are granted in a variety of ways—legal perhaps under the way the subsidies agreement was drawn up and accepted by the developing countries. State aid granted by the 15 members during 1995-97 was 95 billion euros or 1.2% of the Community GDP.

The report notes that the EC notifies the support programmes in terms of the Subsidies and Countervailing Measures (SCM) agreement, but that there are differences between the EC and its trading partners on how far it has conformed to obligations.

Besides the Community-wide programmes accounting for 45% of the EC budget of 90.7 Ecus in 1998 on agriculture and 37% on so-called structural operations, there is another 3.9% spent on research and development. Over and above the Community-wide programmes, there are state aid programmes in individual member-states.

The secretariat report somewhat cursorily notes that in France, Ireland, Italy and Portugal, over 30% of all aid to manufacturing is given in tax-breaks—without going into details on how and what these are.

In fact, it was India that brought out in some detailed comments that the income-tax laws providing tax breaks are violative of the SCM agreement, since they are export subsidies or subsidies contingent on use of domestic goods:

*        France provides for startup costs of overseas business conditional upon inclusion of French products through a deductible reserve account.  And 10% of receivable accounts are to be held in a separate account for medium and long-term credit risks related to export sales;

*        Greece allows domestic exporters to claim special tax exemptions depending on percentage of revenues coming from exports;

*        Ireland has ‘Special Trading House’ system under which special tax rates are levied for revenues from export sales of Irish products;

*        Belgium allows certain tax exemptions for recruiting personnel with export-related functions;

*        The Dutch allow for establishment of special export reserves for small- and medium-sized businesses.

It is not as if all this is not in the public domain. It has even been raised by the US (at the DSB) to fend itself off from the case against it on the Foreign Sales Corporation Act, and the ruling obtained by the EC, to be implemented by the US by 1 October this year. Subsequently, this has also been reported in the same financial media that the secretariat relies on for its reports (on trade regimes and practices of other countries).

France requires 100% assembly in France of bicycles sold - a condition that does not apply to imports from Italy.

The EU has the largest web of preferential trading arrangements—that provides benefits to preference receiving countries, and creates barriers to others that don’t get it.

In fact the EC’s most-favoured-nation treatment applies only to imports from 8 WTO members—Australia, Canada, Hong Kong China, Japan, South Korea, New Zealand, Singapore and the US.

While the most beneficial treatment applies to the ACP countries and the least developed countries (but with protection against imports from them in sensitive sectors), there are also other regional preferential arrangements that benefit some middle-income countries to the detriment of more distant poorer developing countries.

A number of countries (receiving preferences) complained about the way they are actually applied, while some others among the eight were concerned about the totality of trade distortions and (diversions) that these involve. A number of countries also made known their grievances on this, with India making a fairly detailed presentation.

While the secretariat report had said that the EC was the most frequent user of trade defence instruments, India brought out that a majority of cases initiated by the EC were against developing countries. Even according to the EU’s own report for 1998, India had been the most targeted country for trade defence action with 2.5% of India’s exports to the EC subject to anti-dumping/anti-subsidy measures - as against the EC claim that only 0.3% of its global imports are subject to such measures.

In several cases the investigations were started even when imports were at de minimis levels and less than 1% of imports. In several instances complaints are filed and cases initiated, without valid grounds, and then these complaints are allowed to be withdrawn voluntarily, instead of being dismissed with prejudice, to enable complainants to come back with the same complaint (and trade harassment) again, and again.

Simultaneously complaints are lodged under anti-dumping and anti-subsidy rules, and they are clubbed together. Textiles products have become the special target for complaints and investigations, with several instances of back-to-back investigations - start of one and closing it, and starting another on the same within days.

The EC has also used the Generalised System of Preferences (GSP) schemes to provide incentives for preferences, namely, adherence to core labour standards of the ILO - even though the ILO declaration clearly stipulates these are not for protective purposes. These conditional preferences were against the GSP principles and the Most Favoured NAtion (MFN) principle of the WTO.

India, like Pakistan and a few others, also raised the issue of the way even the limited EU market access commitment under the General Agreement on Trade in Services (GATS) by movement of natural persons were being implemented.

Earlier, Japan had complained of the considerable time taken for non-EU nationals working for non-EU firms to obtain work permits or renew their working visas.

India said in terms of GATS and the commitments under it, the economic needs test applied by the EC for service providers generally took about 5 weeks and another 5 weeks to get the work permit—a total of ten weeks to fill up vacancies for non-EU nationals. There were also other serious restrictions.

The EC was also adopting a policy of fixing standard import values, under the Customs Valuation Agreement, for imports of certain fruits and vegetables. After more than a year of delay to questions raised on this in the Customs Valuation Committee, the EC has confirmed it was applying such a system. But there has been no indication whether the EC or its members made any reservations in the Tokyo Round or under the WTO to use such a system. The EC has not even clarified so far under what rule of the agreement it was doing so. The EC has been merely hinting to inquiries that the issue should be resolved in bilateral negotiations.

India complained about the new rice regime, for imports under a fixed tariff system, proposed by the EC that would price out India’s main basmati rice exports to the EC.

Hong Kong China, like India, expressed disappointment with the EC’s slow pace of integration of textiles and clothing products. Hong Kong China also referred to the EC’s view that non-trade issues like labour standards and other social issues should be addressed in a new round, and wondered how the WTO would be able to embark on a trade liberalizing round, if such non-trade issues are to be addressed. And if it was not ‘politically possible’ to launch a new round without such non-trade concerns, it was time to have a serious dialogue at the WTO on what its priorities are.

Malaysia complained of the very high level of tariffs on products of export interest to it - palm oil, processed tropical fruits, cocoa products, plastic and rubber footwear. Malaysia had also been a target of a number of anti-dumping actions, and in one case (stainless steel) both countervailing duties and anti-absorption orders, preventing an exporter to absorb the CVD duty (not part of any WTO rules) have been imposed. The EC timber purchasing policies restrict use of tropical timber in the EU market.

There were also a maze of regulations on exports of meat, poultry and fishery products - there were some 80 regulations on food imports.

The chairman’s summing up at the end, said that while members appreciated the generally open character of the EU market, there were a number of specific concerns: above average tariffs and quotas in textiles and clothing sectors, disappointing pace of integration of these sectors; the operation of the CAP, both in limiting market access and spill-over effects on world markets by heavy use of export subsidies, and the complexity of protective effects on imports of agriculture; the operation of the anti-dumping and subsidy instruments, the rising incidence of such measures and their impact on developing countries; the use of technical standards, sanitary and phytosanitary measures, and conformity assessment tests—all these had become a more significant aspect of market access and in some instances of barriers to trade. He added that a number of written questions had been sent by the members and in due course along with the report of the discussions, the EU’s responses would also be published.-SUNS4710

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

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