GENERAL AGREEMENT ON

TARIFFS AND TRADE

RESTRICTED

C/M/168

14 June 1983

Limited Distribution

COUNCIL

26 May 1983

MINUTES OF MEETING

Held in the Centre William Rappard on 26 May 1983

Chairman: Mr. H.V. Ewerlof (Sweden)

Page

Subjects discussed: 1. Guatemala - Request for observer status

2. International Trade Centre

- Report of the Joint Advisory Group

3. Uruguay - Import surcharges

- Extension of waiver

4. European Economic Community - Imports of

citrus fruit and products

- Terms of reference of the Panel

5. United States - Imports of sugar from

Nicaragua

6. Customs unions and free-trade areas;

regional agreements

- Calendar of biennial reports

7. United States - Imports of certain

automotive spring assemblies

- Report of the Panel

8. Aspects of Trade in High-Technology Goods

9. Trade in Counterfeit Goods

- Report by the Director-General on

consultations with the Director General

of the World Intellectual Property

Organization

10. Administrative and financial questions

(a) Final position of the 1982 Budget of

the GATT

(b) Assessment of additional contribution to

the 1983 Budget and advance to the Working

Capital Fund

11. Exchange rate fluctuations and their effect on

trade

- Status of consultations with the

International Monetary Fund

83-1194

2

4

5

6

10

10

12

14

16

17
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12. Safeguards - Status of informal 18

discussions

13. Notification, Consultation, Dispute 19

Settlement and Surveillance

14. Japan - Further opening of the Japanese 19

market

15. United States tax legislation (DISC) 19

- Follow-up on the report of the Panel.

1. Guatemala - Request for observer status

The Chairman said that the Director-General had received a request

from Guatemala to attend the meeting as an observer, as a Rule 8

country. He added that Guatemala had observer status for sessions of the

CONTRACTING PARTIES but not for meetings of the Council. He asked

whether the Council would agree to invite the representative of

Guatemala to attend the present meeting as an observer, pointing out

that the Council, if it agreed, would be following the same procedure

that it had followed for other Rule 8 countries.

The Council agreed to invite Guatemala to attend the meeting as an

observer.

2. International Trade Centre

- Report of the Joint Advisory Group (ITC/AG(XVI)/88)

Mr. Rijpma (Netherlands), Chairman of the Joint Advisory Group,

introduced the report. He recalled that the Group reviews the

activities of the International Trade Centre (ITC) and formulates

recommendations to the governing bodies of UNCTAD and GATT. The Group

had noted that total net financial resources available to the ITC,

including carry-over from previous years, had declined in 1982. The

Centre's Third Medium-Term Programme for 1983-1985 had a target of

available extrabudgetary resources of US$60 million for the three-year

period. The Group had concluded that the Programme had realistic

objectives and that it reflected the evolving needs of the developing

countries, and had urged that the resources required by the Centre

should be forthcoming from present and new donors.

The Group considered that priority should be given by the ITC to

the identification of export potential in developing countries and to

the encouragement of development of products for export. The Group had

reiterated that close attention should be paid to the trade problems of
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the least-developed countries and had endorsed the Centre's intention to

develop a strategy for the African continent. Furthermore, in order to

bring about further expansion of trade between certain centrally-planned

economy State-trading countries and developing countries, the Group had

recommended that more attention be given to technical co-operation among

these countries.

He said that out of the ITC's total technical co-operation

activities, about 30 per cent were financed through the United Nations

Development Programme (UNDP). The Group had noted that acquisition of

executing agency status with the UNDP would in no way modify the

Centre's status as a joint subsidiary organ of GATT and the United

Nations, the latter acting through UNCTAD. Such a change in status

would help in making the Centre's role as focal point for trade

promotion more visible vis-à-vis governmental co-ordinating agencies,

and vis-à-vis UNDP executing agencies with which the ITC wanted to build

and strengthen co-operation. Given these considerations, and taking

account of the unanimous support expressed during its discussions, the

Group had decided to recommend '.... that the International Trade Centre

UNCTAD/GATT seek through its parent bodies executing agency status with

the United Nations Development Programme. It was understood that this

recommendation in no way should be interpreted as a step towards ITC

becoming a specialised agency of the United Nations, as ITC will

continue as a joint subsidiary organ of GATT and the United Nations, the

latter acting through UNCTAD...". (ITC/AG(XVI)/88, para. 98).

The representatives of Pakistan, Turkey, Uruguay, India, Finland on

behalf of the Nordic countries, Cuba, the European Communities, Canada,

Peru and Switzerland expressed their -support for the ITC, and said they

would like to see greater funds put at its disposal. They also

supported the recommendation in paragraph 98 of the Group's report to

grant the ITC executing agency status with the UNDP.

The representative of israel, pointing to the financial

difficulties facing the ITC, noted that while the Centre was making

efforts to promote trade between certain centrally-planned economy

State-trading countries and developing countries, none of the former

group of countries figured in the report's list of pledges by trust fund

donors (ITC/AG(XVI)/88, page 27).

The representative of Jamaica called for a strong recommendation

by the Council for a substantial increase in resources for the ITC so as

to boost developing country exports. The Council ought also to

recognize the contribution of the countries on the list of trust fund

donors, and make a strong plea to all donor countries to increase their

contributions.
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The Director-General said that his visits to contracting parties

had reinforced his conviction of the important role played by the ITC,

and he fully associated himself with the appeals for new resources to be

offered to the Centre. In reply to questions, he noted that the Group's

recommendation to grant the ITC executive agency status with the UNDP

would not in any way change the relationship between GATT and the

Centre. Adoption of the report by the Council would give him the

necessary authority as Director-General to contact the UNDP and inform

them of the Council's decision; he would do this after consulting with

the Secretary-General of UNCTAD.

The Council adopted the report and took note of the statements.

The Chairman said that the next step on the GATT side would be for

the Director-General to transmit, in consultation with the

Secretary-General of UNCTAD, the recommendation as adopted to the

Administrator of the UNDP for appropriate action. The Chairman

understood that the UNCTAD Board would be considering the Group's report

in the autumn of 1983.

3. Uruguay - Import Surcharges

- Extension of Waiver (C/W/416, L/5489)

The Chairman recalled that by their Decision of 24 October 1972

(BISD 19S/9), the CONTRACTING PARTIES had waived the application of the

provisions of Article II of the General Agreement to the extent

necessary to allow the Government of Uruguay to maintain certain import

surcharges in excess of bound duties. The waiver, which had been

extended a number of times, was due to expire on 30 June 1983. The

delegation of Uruguay had submitted a request for a further extension of

the waiver (L/5489). The Chairman drew attention to the text of the

draft decision contained in document C/W1416.

The representative of Uruguay said that his country was engaged in

a process of reducing, simplifying and harmonizing its import tariff

through the application of a single customs tax, but world economic

difficulties had necessitated some adjustments in this process. Uruguay

had started to open its economy after years of being separated from

world economic growth. Most of Uruguay's imports were raw materials,

intermediate inputs and capital goods which did not compete with local

production, so putting. a brake on imports would have led to a decrease

in imports of goods which were indispensable for the development of the

country, and this would also have led to a reduction of exports.

Uruguay had therefore decided to maintain its present policy of opening

its economy in all its basic aspects and of making the necessary

adjustments to survive in a period of reduced international economic

activity. It was in order to have time to complete the task of

adjusting the concessions included in Schedule XXXI that Uruguay had

asked for a further extension of the waiver until 31 December 1983.

Uruguay hoped to be able to submit by the end of 1983 a proposal for a

new Schedule XXXI which would be examined under the procedures

established by the General Agreement.
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The Council approved the text of the draft decision extending the

waiver until 31 December 1983, and recommended its adoption by the

CONTRACTING PARTIES by postal ballot.

4. European Economic Community - Imports of citrus fruit and products

- Terms of reference of the Panel

The Chairman recalled that on 2 November 1982, the Council had

agreed to establish a panel to examine the US complaint. He had been

authorized to decide on appropriate terms of reference for the panel, in

consultation with the two parties concerned and with other contracting

parties which had indicated an interest in the matter and, in

consultation with the two parties concerned, to designate the Chairman

and members of the panel. The terms of reference had been considered at

the Council meeting on 20 April 1983. On the basis of further

consultations with delegations, he wished to inform the Council.of the

following terms of reference:

"To examine in the light of the relevant GATT provisions, the

matter referred to the CONTRACTING PARTIES by the United States,

relating to the tariff treatment accorded by the European Community to

imports of citrus products from certain countries in the Mediterranean

region (L/5337), and to make such findings as will assist the

CONTRACTING PARTIES in making recommendations or rulings, as provided

for in Article XXIII:2."

The Chairman then made the following statement: "Agreement on the

above-mentioned terms of reference has been reached on the basis of the

following understandings. As regards product coverage, it is understood

that the reference to document L/5337. means a reference to the products

indicated therein. Given the special nature of this matter, in that the

tariff treatment which is to be examined by the Panel is an element of

Agreements entered into by the European Community with certain

Mediterranean countries, it is expected that the Panel will take due

account, inter alia, of the reports of the working parties relating to

these agreements and of the minutes of the Council sessions where these

reports were discussed and adopted, and, in setting up its own working

procedures, will provide adequate opportunities for these countries to

participate in the work of the Panel as necessary and appropriate."

The Council took note of the terms of reference and of the

Chairman's statement.

The representative of the United States said that his delegation

had reluctantly accepted the understanding in order to have the Panel

established. He noted that the United States had asked for a panel

eleven months earlier, and that the terms of reference had first been

discussed more than six months earlier. He hoped that the slow

procedures in this case would not be a precedent for future dispute

settlement cases, as this would call into question the Tokyo Round

Understanding in this area (BISD 26S/210).
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The representative of the European Communities said that this could

not be called an ordinary affair. He wanted to recall the spirit of

pragmatism and conciliation which had been shown by the Community in

this case, and to underline that the Community had not been defending

its own interests. His delegation had not understood why the Panel had

been requested. The Director-General's good offices had not produced

satisfactory results for all concerned. The Community had then asked

that the matter not be pressed further, but the United States had

insisted, so the Community had thought it better to set up a working

party. When this alternative had been rejected, the Community had

finally agreed to set up a panel. He wondered whether the US request

for a panel was aimed at something more fundamental. A large share of

world trade was carried out on the basis of agreements deriving from

Article XXIV; if an attempt was made to meddle with the principles

underlining this vast volume of world trade, great care would have to be

taken. His delegation hoped that the Panel would show skill, pragmatism

and impartiality. It would have to resist pressures and recall that

this was not a routine matter.

The representative of Spain expressed satisfaction that a solution

had been reached to what was a minor but not an ordinary matter. He

regretted that the US delegation was not entirely happy with the

solution. Spain was not entirely happy either, but had accepted the

solution because it did not want to be held responsible for the slowness

of a process that should have moved faster. When the case had come

before the Council, Spain had asked for a working group, not a.panel.

But the United States had insisted on a panel, and Spain and other

delegations had recognized its right to a panel. Spain and the other

Mediterranean countries had agreed, but they wanted to be sure that

their interests would be fully taken into account. The complaint had

not been made against the Mediterranean countries but they had vital

export interests in this matter.

The Chairman said that consultations would be pursued actively

concerning the composition of the Panel.

The Council took note of the statements.

5. United States - Imports of sugar from Nicaragua (L/5492)

The Chairman drew. attention to document L/5492 containing a

communication from the delegation of Nicaragua.

The representative of Nicaragua said-that the announcement by the

United States of a forthcoming reduction, effective on 1 October 1983,

of his country's sugar quota from 58,800 short tons to 6,000 short tons

for the financial year 1983/84, had serious consequences not only for
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Nicaragua's sugar sector but also for the general development of its

economy. The reasons given by the United States for this drastic cut

were stated to be: first, Nicaragua's negative attitude towards US

initiatives to discuss problems that threatened peace and stability in

Central America; second, the hostile propaganda which the United States

claimed that Nicaragua carried on against the United States; an third,

the support given by Nicaragua to guerrillas in El Salvador.

Nicaragua's sugar sector was vitally important to its economy, and sugar

was Nicaragua's third export product after coffee and cotton,

representing between eight and ten per cent of its global exports. From

1979 to 1983, the United States had taken between 75 and 100 per cent of

Nicaragua's sugar exports. The annual currency loss that would be

caused by the implementation of the US measure had been evaluated at

about $13.5 million on the basis of 1980-83 trade figures. The measure

would also have serious socio-political consequences for Nicaragua as

more than 65 per cent of cane production was in private hands. If the

measure were to be implemented, Nicaragua's sugar industry would most

likely head for bankruptcy.

Nicaragua considered that the US measure was unilateral,

discriminatory, and violated the principles of the General Agreement,

particularly Articles II and XIII, especially paragraphs 2, 2(d) and 4.

The measure also went against the spirit and the letter of Part IV.

The share-out of the 52,800 tons taken away from Nicaragua and given to

El Salvador, Costa Rica and Honduras did not meet fair economic

criteria, and had-created a disturbance in the economic relations of the

Central American Common Market. Also, as with any restrictive trade

measure, the United States should have notified this to the contracting

party affected.

The reasons put forward by the United States as justification for

the proposed quota cut were not economic reasons and therefore could not

be accepted by Nicaragua. Nicaragua had fewer than three million people

and no powers of retaliation; it relied on the proper functioning of

the GATT multilateral system, whose objective was to secure law and

order in international trade and economic relations.

Nicaragua had requested bilateral consultations with the United

States under Article XXIII:1. His delegation was pleased to inform the

Council that it had received a positive reply from the United States and

that the two delegations would start these consultations as soon as

possible.

The representative of the United States confirmed that his

delegation would soon be holding Article XXIII:1 consultations on this

matter with Nicaragua.. On 9 May, the US President had announced that

for the year beginning in October 1983, the allocation of any US sugar

import quota would be modified by a reduction of Nicaragua's allocation,

which would be redistributed to Honduras, Costa Rica and El Salvador.
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There was no change in the current allocation for the quota year, nor

would this decision affect the overall level of US sugar imports for the

following year, or the quota allocation of any other, country. The

reasons for the decision were well known, and had been the subject of

discussion in other, more appropriate international fora. The United

States had informed Nicaragua that it expected Article XXIII:1

consultations to be scheduled expeditiously. His delegation was also

willing to consult with any other contracting party wishing to do so.

He did not intend to go into the substance of this matter or to respond

at this time to the views of the Nicaraguan delegation. This was not

customary in circumstances where consultations had been agreed under

GATT procedures. It would be premature to engage in a multilateral

debate before the consultations" had taken place.

The representative of Argentina said that his delegation was struck

by the selective, political nature of the US measure against Nicaragua,

and by the negative impact the measure would have or that country's

economic development. There had been other cases recently of developed

countries adopting restrictive trade measures against developing

countries in violation of the spirit and letter of the General

Agreement, particularly Part IV. He also recalled the formal

undertaking in the 1982 Ministerial Declaration to abstain from

taking restrictive trade measures for reasons of a non-economic

character not consistent with the General Agreement (L/5424, paragraph

7(iii)). His delegation hoped that the Article XXIII:1 consultations

between Nicaragua and the United States would lead to cancellation of

the US measure.

The representative of Cuba said that once again an arbitrary trade

measure was being taken against a contracting party, for political

rather than for economic or trade reasons. His delegation was concerned

at the frequency of cases where trade was being used as a weapon to

enforce positions on other countries. The proposed cut in Nicaragua's

sugar quota would cause considerable prejudice to a contracting party.

He recalled that in 1960 the United States had cut Cuba's sugar quota by

92 per cent. The US measure against Nicaragua had violated the 1982

Ministerial Declaration only six months after its adoption. In his

view, the solution of this dispute would show whether that Declaration

was-credible or not.

The representative of Poland said there had recently been a

disturbing proliferation of trade restrictive measures with unmistakably

political origins. Such measures were especially regrettable when they

applied to a sensitive, export-oriented sector of a developing country

and thus made structural adjustment particularly difficult. His

delegation hoped for a reversal of the US measure as a result of the

bilateral consultations.
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The representatives of Colombia, Peru, Chile and Uruguay expressed

support for Nicaragua and concern at what they saw as an erosion of the

General Agreement and of the 1982 Ministerial Declaration concerning

trade measures taken for non-economic reasons.They hoped that the

Article XXIII:1 consultations would lead to a satisfactory solution.

The representative of Spain believed that this dispute brought the

risk of politicizing the GATT as a technical body; such would be the

result of trade measures applied for political reasons in violation of

the General Agreement and of the 1982 Ministerial Declaraion. His

delegation regretted this particular situation between Nicaragua and the

United States, and thus was glad to hear that both parties would be

opening consultations.

The representatives of Sweden, Romania, Czechoslovakia, Portugal,

Yugoslavia and Jamaica expressed satisfaction that the two parties would

be opening Article XXIII 1 consultations and hoped for a satisfactory

solution within the GATT framework..

The representative of Brazil assumed that the United States would

notify the measure against Nicaragua to GATT. His delegation hoped that

the consultations would proceed quickly, and that as a result the trade

relations between Nicaragua and the United-States could be adjusted to

the provisions of the General Agreement.

The representative of Switzerland said that his delegation hoped

that the consultations would lead to a satisfactory result. Switzerland

was against the use of trade measures for political reasons, just as it

rejected the use of political measures for trade purposes.

The representative of India hoped that the consultations would lead

to a satisfactory solution, and that the United States would notify the

measure to GATT. He also hoped that contracting parties would adhere to

their commitment against trade measures for non-economic reasons

contained in the 1982 Ministerial Declaration.

The representative of Guatemala, speaking as an observer, said his

delegation was following this matter with great interest. He hoped that

the Article XXIII:1 consultations would lead to a satisfactory solution

within the GATT framework.

The representative of the European Communities said that his

delegation did not intend to support either party in this dispute. It

was glad that GATT mechanisms were going to be used, and hoped that a

satisfactory solution could be found.
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The representative of Nicaragua reiterated his delegation's full

trust in the GATT and in its machinery, which he was sure would produce

a solution satisfactory to the two parties. Nicaragua reserved its

right to put this matter before the Council again if consultations with

the United States failed to produce a solution.

The Council took note of the statements.

6. Customs Unions and Free-Trade Areas; Regional Agreements

- Calendar of biennial reports (C/W/417)

The Chairman recalled that at their twenty-seventh session in

November 1971, the CONTRACTING PARTIES had instructed the Council to

establish a calendar fixing dates by which contracting parties that were

members of a regional agreement would be invited to submit a biennial

report on developments under the Agreement concerned. The most recent

calendar established by the Council in June 1981 had covered the period

October 1981-April 1983. In document C/W/417 the secretariat had

circulated suggestions for a new calendar for consideration by the

Council.

The representative of Pakistan said that the sheer number of

regional agreements listed in the new calendar confirmed -his

delegation's view that the Council should at some point carry out an

overview of regional agreements, as these had emerged as an important

element of the GATT trading system.

The Council approved the proposed calendar and took note of the

statement.

7. United States - Imports of certain automotive spring assemblies

- Report of the Panel (C/W/396, C/W/400, L/5333)

The Chairman recalled that in December 1981 the Council had

established a panel to examine the complaint by Canada. The Panel had

submitted its report in document L/5333, which had been before the

Council at its meetings in June, July, October and November 1982. At

the Council meeting on 26 January 1983, the Council had agreed that the

Chairman should consult informally with the two parties and other

interested delegations to see how this matter could be resolved at one

of the next Council meetings. There had been further discussion on this

matter at the Council meeting on 20 April 1983. The Chairman said he

was now in a position to make the following proposal to the Council:

"That the Council take note of the statements made in the discussion on

the report of the Panel (L/5333), and adopt the report on the

understanding that this shall not foreclose future examination of the

use of Section 337 to deal with patent infringement cases from the point

of view of consistency with Articles III and XX of the General

Agreement."
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The representative of Brazil said that his delegation would not

oppose a consensus on this proposal, but would not join it. Brazil

reserved its position entirely, not only on the substance of this matter

but also on the procedures that the Council had adopted in dealing with

the Panel report. In his view, the Council had failed to take up its

responsibilities not only under Article XXIII of the General Agreement,

but also under the Tokyo Round Understanding on dispute settlement (BISD

26S/210), and under the 1982 Ministerial Decision on dispute settlement

(L/5424, pages 6-8). The Panel report had not, in Brazil's view,

addressed certain aspects of this case and therefore had not provided

sufficient advice for the Council either to make recommendations or to

give a ruling under Article XXIII:2. Considering that the specific

bilateral problem which had led to the Canadian complaint had ceased to

exist, Brazil considered that the Council could have simply taken note

of the Panel's report.

The representative of Jamaica, recalling the statement made: by the

representative of Brazil at the Council meeting on 20 April 1983,

wondered whether the Council was always obliged to adopt panel reports.

If the two parties to a dispute had settled their dispute bilaterally,

his delegation considered that the Council could take note of a panel

report and need not adopt it.

The Chairman said that the Council was always free to decide how it

wanted to proceed.

The Council agreed to the Chairman's proposal.

The representative of Canada said that for previously explained

reasons, including those contained in the statement (C/W/396) made by

his delegation at the Council meeting in October 1982, Canada would have

preferred not to adopt the Panel's report. In particular, Canada was

concerned that certain aspects of the report created possible risks with

respect to future application and interpretation of Article XX.

However, in the light of the various statements made and of the

understanding just agreed, Canada believed that those risks had been

minimized and was thus able to agree with the Chairman's proposal.

The representative of the United States said that the Panel report

and the understanding just agreed stood on their own merits, and no

interpretations that the United States or any other member of the

Council might ascribe to the report or the understanding were binding on

the Council as a whole. He recalled that his delegation had never

claimed that adoption of the report would consitute a blanket approval

of any use of Section 337 for patent infringement cases, or that the

United States would thereby be immunized from future GATT examination in

the dispute settlement process. The report itself made clear that the

Panel had carefully avoided conferring such a blanket approval or
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immunity for the use of Section 337 on the basis of the one case before

it. The United States did not anticipate or fear a future challenge on

Section 337 under Article XXIII, and it continued to respect the right

of all contracting parties to invoke dispute settlement procedures.

Where any of the delineated general exceptions in GATT obligations in

Article XX applied, then the question of conformity with other GATT

obligations did not arise. Conversely, if Article XX exceptions were

found not to apply, then a measure could properly be examined from the

point of view of conformity with the obligations of Article III or any

other GATT obligations.

The representative of the European Communities said his delegation

considered that the understanding represented a reasonable compromise

which preserved the rights of contracting parties to challenge the use

of Section 337.

The Council took note of the statements.

8. Aspects of Trade in High-Technology Goods (SR.38/9, C/W/409/Rev.2)

The Chairman recalled that at the 1982 Ministerial Meeting it had

been agreed to refer the question of trade in high-technology goods to

the Council or further consideration (SR.38/9, page 2). At its meeting

on 26 January 1983, the Council had taken note of the Ministers'

decision as well as of a proposal by the United States in document

C/W/409. The Council had considered the matter again at its meetings on

9 March and 20 April, at which a revised proposal by the United States

(C/W/409/Rev.1) had been discussed. The Council had agreed to revert to

this item at the present meeting, with the understanding that further

consultations would take place. The Chairman drew attention to a

further revision of the proposal by the United States which had been

circulated in document C/W/409/Rev.2.

The representative of the United States said his delegation

considered that the revised proposal in document C/W/409/Rev.2 went a

long way towards meeting the concerns expressed by other delegations at

the Council meeting on 20 April. He suggested that the second paragraph

should read "... in a manner consistent with the provisions and

objectives of the General Agreement...", making clear that the reference

was to the entire General Agreement, not only to its preamble. His

delegation continued to believe that trade in high-technology goods was

increasingly important, and that the GATT should at least look at

possible barriers to expanding trade in this area. The US proposal had,

in its basic form, been before the-Council for nearly six months and had

been discussed at several Council meetings; he believed that it was

appropriate for the Council to take action on this matter at the present

meeting so that the secretariat could begin work on the study.
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The representative of Brazil said his delegation could accept the

revised proposal in document C/W/409/Rev.2 with the amendment suggested

by the representative of the United States.

The representative of Argentina said that his delegation was not

ready to take a stand on the revised proposal.

The representative of Jamaica asked whether the MTN agreements,

particularly the Agreements on Goverment Procurement and on Subsidies

and Countervailing Measures, were included by paragraph 2 of

C/W/409/Rev.2. He also asked whether the sectors mentioned in the

footnote constituted a comprehensive, definitive list of trade in

high-technology goods.

The representative of the United States said that his delegation

assumed that the MTN agreements were included by paragraph 2, and he

stressed that the sectors mentioned in the footnote were only examples.

It was also clear that the sectors to be examined would have to be

agreed in consultation with interested delegations and the secretariat.

The representative of Israel said that his delegation basically

supported the latest US proposal, but would prefer the document to

contain two footnotes: the first showing that computers, semiconductors, and the other items were only examples of what was meant by

high-technology goods; the second would be the. statement by the

Chairman of the Council that the sectors to be analyzed would be decided

through consultations among interested contracting parties.

The representative of the European Communities said his delegation

agreed that trade in high-technology goods accounted for a growing share

of world trade. His delegation wanted to consider this matter carefully

on the basis of a correct assessment of the situation, and would

continue to examine it in the light of statements made in the Council

and in consultations.

The representative of Brazil wanted to make clear that his

delegation supported the proposal in C/W/409/Rev.2 on the understanding

that in paragraph 2 the reference was only to the General Agreement

itself. As for the footnote, he agreed it was obvious that the list was

not comprehensive.

The representative of Switzerland said his delegation attached

great importance to this matter. If no agreement were possible on the

text at the present meeting, consultations should be continued so as to

reach a satisfactory solution as soon as possible.
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The representative of Japan recalled that at the 1982 Ministerial

Meeting, his delegation had supported the proposal to study trade in

high-technology goods. Japan strongly hoped that GATT would study this

issue as soon as possible, and expected that those contracting parties

which had asked for more time to reflect would finalize their positions

so that the Council could decide to launch the study at its next

meeting.

The representative of the United States said that the proposal in

C/W/409/Rev.2 was in two distinct parts: first, it called for a study

by the secretariat on trade barriers in high-technology goods; second,

it called on the Council to examine the data and to do something, if

something needed to be done, consistent with the General Agreement. He

noted that the representative of the European Communities had said that

his delegation needed to assess the matter; the United States

considered that the study which it was requesting would help the

Community to make that assessment. He urged that delegations be

prepared to reach a decision at the next Council meeting.

The representative of Spain said that his delegation understood

that the phrase "... provisions and objectives of the General Agreement

.. in paragraph 2 of C/W/409/Rev.2 referred -only to the General

Agreement, and not to other agreements negotiated later.

The Council took note of the statements and agreed to revert to

this item at its next meeting, on the understanding that further

consultations would take place in the meantime.

9. Trade in Counterfeit Goods

- Report by the Director-General on consultations with the Director

General of the World Intellectual Property Organization (C/W/418)

The Chairman recalled that at its meeting on 26 January 1983, the

Council had taken note of the intention of the Director-General to hold

consultations with the Director General of the World Intellectual

Property Organization (W.I.P.O.) in accordance with the 1982 Ministerial

decision on Trade in Counterfeit Goods (L/5424, page 11). At the

meeting of the Council on 20 April, representatives had been informed

that the Director-General expected to report on these consultations at

the present meeting. He drew attention to document C/W/418 containing

the Director-General's report.

The Director-General said that his report was self explanatory and

that members of the Council would no doubt wish to draw their own

conclusions with respect to any further action. In carrying out the

consultations with W.I.P.O., the GATT secretariat had tried to remain

strictly within the limits of the mandate given 't in terms of the
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November 1982 Ministerial Decision. The report, together with its

Annex, had been shown to the W.I.P.O. secretariat and had been discussed

with them. The report thus contained an agreed summary of the points

covered by the consultations and of the views expressed by the Director

General of W.I.P.O. The Director-General added that it was his personal

view that any difficulties in dealing with problems in this area did not

arise at the level of the secretariats; it was for governments to

decide how they wanted to proceed in the matter.

The representative of the United States said be was encouraged by

the Director-General's report that there had been good cooperation

between the GATT and W.I.P.O. secretariats, although his delegation was

disappointed that it had taken so much time to carry out the

consultations. The report could be useful for further consideration of

this matter in GATT. It was evident that firm measures against trade in

counterfeit goods were strong objectives of W.I.P.O. members, and that

such measures were far from inconsistent with the Paris Convention for

the Protection of Industrial Property. However, it was also evident

from the Annex to the report that current rules of the Paris Convention

fell short of providing formal obligations to deal with counterfeit

trade, and that there was little realistic possibility that revision of

those rules or a new convention would be taken up within W.I.P.O. for

quite some time. He urged the Director-General to organize informal

consultations among the interested delegations concerning implementation

of the Ministers' instructions on this matter in the light of the

report, so that the Council could determine a course of action at its

next meeting.

The representative of the European Communities said that, generally

speaking, he agreed with the views expressed by the representative of

the United States, while recognizing that the process of consultation takes

time. Apart from problems of the fields of competence of W.I.P.O. and GATT,

most governments had not yet grasped the importance of this issue. Certain

calculations put the volume of trade in counterfeit goods at one per

cent of all trade in manufactured goods, which would make it a very

significant economic problem. Care would be needed lest measures to prevent

trade in counterfeit goods be used for protectionist purposes. Moreover,

counterfeit trade took place in North, South, East and-West and should be

attacked wherever it occurred, especially where it was conducted through

obscure or dubious channels. He urged that governments intent on attacking

counterfeit trade attend to problems in their own countries before acting

multilaterally.

The representative of Argentina said that his government intended

to study the report in depth, and would react to it at a later stage.

The representative of Brazil said that the report was being carefully

examined by her authorities, who were looking at all the relevant factors

including the legal and institutional aspects mentioned in the 1982

Ministerial Declaration.
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The Council took note of the Director-General's report in document

C/W/418 and of the statements and agreed to revert to this item at its

next meeting.

10. Administrative and financial questions

(a) Final position of the 1982 Budget of the GATT (L/5477)

The Chairman drew attention to document L/5477 containing the final

position of the 1982 Budget. Re noted with satisfaction that the

Director-General had been able to cover the additional cost resulting

from the 1982 Ministerial Meeting within the approved Budget. Annex A

showed outstanding contributions at the end of 1982 amounted to nearly

six and a half million Swiss francs. Although some payments had since

been received, the situation continued to be a matter of great concern

and, once again, he urged governments to assume their financial

responsibilities as promptly as possible.

The representative of Jamaica said that at some stage the Council

ought to look at the possibility of re-scheduling the debt arising from

the outstanding contributions. Turning to the Expenditure Budget, he

noted under Section 2 (meetings of the Council and other meetings) that

there had been excess expenditure of more than Sw F 77,000. In his

view, there should be no excess expenditure for meetings of the Council

itself and such expenditure could only arise from meetings of other

bodies. Thus there was a need to break down the heading so as to show

separately meetings of the Council and meetings of the Committees and

Councils established under the MTN. In respect of paragraph 7, he

sought an explanation as to the "other services" that had incurred

excess expenditure of Sw F 53,264.- in 1982. Finally, he considered

that it would have been useful if the Committee on Budget, Finance and

Administration had examined the point for decision in paragraph 7 before

it was submitted to the Council.

The Director-General said that the excess expenditure for meetings

under Section 2 in 1982 was largely a result of preparations for the

Ministerial Meeting. As for the question of excess expenditure on

"other services" in paragraph 7, he pointed out that in 1982 there had

also been a number of activities directly linked to the Ministerial

Meeting. Turning to the presentation of document L/5477, the

Director-General said that the Council itself normally dealt with such

reports, although if the Committee had met before a Council meeting, its

views would have been sought.

The Council authorized the increase in appropriations, approved the

proposed financing as reflected in paragraph 7 of document L/5477 and

took note of the statements.
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(b) Assessment of additional contribution to the 1983 Budget and

advance to the Working Capital Fund (L/5482)

The Chairman drew attention to document L/5482 containing a

proposal that following the accession of Maldives in accordance with the

provisions of Article XXVI:5(c), an additional contribution to the 1983

Budget as well as an advance to the Working Capital Fund should be

assessed on Maldives.

The Council adopted the assessments.

11. Exchange rate fluctuations and their effect on trade

- Status of consultations with the International Monetary Fund

The Director-General said that as requested in the Ministerial

Declaration (L/5424, page 14), he had consulted the Managing Director of

the International Monetary Fund on the possibility of a study of the

effects of erratic fluctuations in exchange rates on international

trade. As a result of those consultations, the Fund had undertaken to

have its contribution to the study ready for submission to its Executive

Directors in November 1983; and the GATT secretariat would have an

opportunity to comment on the Fund's contribution before that meeting.

He hoped that the study would thus be available by the end of 1983.

The representative of the European Communities said that the

financial and monetary aspects were assuming increasing importance in

international economic relations, and exchange rates constituted only

one of the various factors involved. An attempt should be made to

establish some kind of co-operation as regards financial and monetary

problems on the one side and trade on the other. The Communities

believed that while governments were responsible for their own national

economic policies, the international environment, particularly in terms

of financial and monetary problems, had become an obstacle to efforts

undertaken on the domestic front, especially where national economies

were fragile and vulnerable. It was important that efforts made on the

domestic front should not be jeopardized by external forces. GATT

obviously had a role to play in assessing the impact of erratic exchange

rate fluctuations on international trade, and the Community was

interested to know their impact in terms of micro-economics.

The representative of Jamaica asked whether the GATT secretariat

had set in motion its own study and whether it was now waiting for a

separate IMF study to complete the GATT study. He also asked whether

the study would deal -with the effects of exchange rates off-setting or

over-shooting tariff cuts, because some of the Tokyo Round tariff cuts

had been neutralized by changes in exchange rates.
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The Director-General said that the study would be a joint effort by

the GATT and the IMF secretariats. He had considered that it would be

more useful to receive a study which had already been approved by the

Fund's Executive Directors, so as to avoid the study going back and

forth between the two organizations, but he stressed that the GATT

secretariat would have an opportunity to comment on the study before it

was submitted to the Fund's Executive Directors. As for substance, the

plan was to produce as comprehensive and detailed a study as possible on

the effects of exchange rate fluctuations on trade.

The Council took note of the statements.

12. Safeguards

Status of informal discussions

The Chairman recalled the Decision taken by the Ministers in

November 1982 on the need for an improved and more efficient safeguard

system, and for arriving at a comprehensive understanding to this end

not later than the 1983 Session of the CONTRACTING PARTIES (L/5424, page

4). He said that over the recent months, he had held jointly with the

Director-General in his capacity as Chairman of the Safeguards

Committee, a series of informal consultations with a view to exploring

how effective progress might be made. Following these informal

consultations, it had been concluded that a useful point of departure

for further efforts in the area of safeguards would be to examine, on a

completely informal basis, recent cases of voluntary export restraints

and orderly marketing arrangements, as well as other import measures of

a safeguarding nature, taken outside Article XIX. The purpose of the

discussions in this first phase was to arrive at a fuller picture of the

precise nature of these measures, the reasons for which they had been

taken or accepted, their possible effects including those on the trade

of third countries, the reasons why Article XIX action had not been

taken, and what could be said about -the establishment of multilateral

disciplines. This discussion, in which delegations were participating

almost on a personal basis, and which it was clearly understood had no

bearing on the legal nature of these measures or on the rights and

obligations of the participants under the General Agreement, would

continue at further informal meetings.

He hoped it would be possible to draw up a first .set of reflections

resulting from these discussions to serve as a basis for the Interim

Report to the Council envisaged by the Ministers. It was his intention

to present such a report to the Council at its next meeting.

Thereafter, the CONTRACTING PARTIES would need to devote considerable

time in the autumn to the process of further discussion and negotiation

so that decisions could be taken on this important issue at the 1983

Session of the CONTRACTING PARTIES.

The Council took note of this information.
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13. Notification, Consultation, Dispute Settlement and Surveillance

The Chairman recalled that under the GATT Work Programme adopted in

November 1979 (BISD 26S/219), the Council was responsible for the

conduct of the regular and systematic review of developments in the

trading system, as provided in the Understanding regarding Notification,

Consultation, Dispute Settlement and Surveillance (BISD 26S/210).

As a result of the discussion at the recent meeting of the

Consultative Group of Eighteen, it appeared that at its next special

meeting, the Council should also deal in the course of its review with

developments relevant to paragraph 7(i) of the 1982 Ministerial

Declaration (L/5424). The Director-General had decided that the special

meeting would be held on 12 July 1983, after which the Council would

reconvene to consider items on its regular agenda.

The Council took note of this information.

14. Japan - Further opening of the Japanese market

The representative of Japan, speaking under Other Business,

informed the Council of the two latest developments in the further

opening of the Japanese market. First, the Prime Minister had announced

on 1 May 1983 his intention to consider revising Japan's scheme under

the Generalized System of Preferences in the financial year 1984 to

bring about an increase in the total ceiling quotas for industrial

products-by approximately 50 per cent over those of the current fiscal

year. His delegation would inform the Council once the measures had

been decided. Second, he drew attention to document L/5494 outlining

the amendments to the related laws concerning standards and

certification systems. He stressed the extraordinary and unprecedented

speed with which the Diet had acted on this matter, the determination of

his Government to work further to ensure that the omnibus law and the

specific improvement measures would be implemented properly and

steadily, and his Government's hope that its trading partners would take

full advantage of these new measures and make further efforts to expand

their exports to Japan.

The Council took note of the statement.

15. United States tax legislation (DISC)

The representative of the United States, speaking under Other

Business, recalled that at the Council meeting on 9 March 1983, his

delegation had announced that the Cabinet had approved a general

proposal to replace the DISC through substantial modification. of

existing US tax law, and had indicated the parameters of the legislation

sought from Congress. He reported that the Administration, in
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consultation with Congressional staff and private sector

representatives, had since been refining the details of the general

proposal. Within the following week, the Administration would have

completed a detailed description and technical explanation of its

proposal for the President to submit formally to Congress, after which

Congressional staff working with the Administration would translate this

into the language of a bill. The United States remained willing to

discuss details of its proposal bilaterally with those embassies in

Washington which were interested. However, he had to caution that tax

legislation was the constitutional prerogative of Congress, so any

discussion of details of the administration's proposal might be of

limited use at this point. The United States would continue to work

diligently to achieve a satisfactory result on this matter as quickly as

possible, and would report to the Council on Congressional action

concerning the proposal to amend the DISC legislation.

The representative of the European Communites said that his

delegation was concerned by press reports that the US Congress was

considering the repayment of taxes on the profits of companies covered

by the DISC since 1972, which would be a huge subsidy to firms that had

already benefited from tax postponements. If Congress were to take such

a decision, then the Community might have to bring this issue before the

Council inconnexionwith past injury.The Community had the impression, also gleaned from press reports, that measures relating to

the US territorial fiscal system might not be in line with GATT or with

the 1981 Understanding (L/5271). He recalled that the two EEC proposals

(C/M/157, page 16 and C/W/392) were maintained, and reserved the right

to return to these at a future Council meeting.

The Council took note of the statements.