Opinion on The Effects of the Uruguay Round Agreements (94/C 393/31)

On 26 February 1994 the Economic and Social Committee, acting under the second paragraph of Rule 23 of its Rules of Procedure, decided to draw up an Opinion on The Effects of the Uruguay Round Agreements.

The Section for External Relations, Trade and Development Policy, which was responsible for preparing the Committee's work on the subject, adopted its Additional Opinion on 11 July 1994. The Rapporteur was Mr Giesecke and the Co-Rapporteur Mr C. Pelletier.

At its 318th Plenary Session (meeting of 15 September 1994), the Economic and Social Committee unanimously adopted the following Additional Opinion.

PRELIMINARY COMMENTS

This report follows on from the ESC's earlier Opinions and Reports on the Uruguay Round of the GATT talks. As well as making a general assessment of the results of the negotiations - as of the summer of 1994 - it deals more fully with subjects already identified as being of critical importance, as well as the outstanding questions arising from the Geneva package. Given that the agenda of the Uruguay Round was set in the first half of the 1980s, the Committee will go on to study the new questions to emerge as a result of marked developments in the world economy.

1. Introduction

1.1. The completion of the Uruguay Round of GATT negotiations marked one of the most important steps in the history of trade policy. Despite a difficult economic situation in most of the countries involved, the foundations were laid for the initiation of a hitherto unprecedented liberalization process and for a transparent, fair and comprehensive world trade system. The achievement of a broad consensus on the extensive negotiation package was in doubt right up to the last moment. Failure would have further strengthened the spreading protectionism of recent years in its various forms, occasioned further trade wars and accelerated the looming fragmentation of the world economy into antagonistic trade blocs. Even if the overall result inevitably includes some unsatisfactory solutions, on account of the diverging interests of the 117 negotiating partners, the conclusion and results of the negotiations must be regarded all in all as a success. The negotiating result achieved on 15 December 1993 will only have passed the test, however, once the reciprocal measures to open markets have been taken by all trading partners and have led in practice to intensified trade.

1.2. The agreements, which were signed in Marrakesh on 15 April 1994, must be ratified by the GATT signatories as soon as possible, so that the period of uncertainty preceding their entry into force can be kept as short as possible. The Committee expects that after the EU, all EU Member States will, where necessary, have completed ratification by the end of 1994. The Committee hopes that the USA and Japan will also proceed in such a way that the agreements can enter into force at the beginning of 1995.

1.3. The present significance of the settlement lies in the stimulus it is likely to give to the still sluggish world economy. Investors and consumers worldwide will be encouraged. In addition to these very welcome short-term effects, it is the long-term aspects of the negotiation results which are particularly valuable: despite some uncertainties, prospects have been opened up for a future world economic order.

1.4. The effects of the settlement should be looked at in terms of:

- the creation of new economic opportunities;

- various potential influences on different sectors in the implementation phase of the agreed liberalization processes (probably 1995-2000);

- the competitive positions and trade strategies of the main world trading partners.

In particular:

1.5. With respect to cross-frontier trade, the settlement recognizes the superiority of competition over any protectionist/defensive policy. It is however important that the new multilateral trade agreement should not exclude the possibility of concluding plurilateral agreements in sectors of particular domestic importance such as government procurement, civil aircraft, dairy products and bovine meat.

1.6. While maintaining the tried and tested GATT principles of non-discrimination and multilateralism, a wider organizational framework has been created, taking account of new forms of international economic cooperation. At the same time, the set of agreements remains open to future, as yet unforeseeable sectors and forms of external trade activities.

1.7. There is less danger now of multilateralism being gradually eroded. If the Uruguay Round had failed, the tendency towards large regional associations might easily have led to the world economy splitting up into separate, isolated blocs. In reality, international trade within the existing regional zones is growing much faster than world trade as a whole. It is estimated that in the year 2000 more than half of world trade will be carried on within regional preference zones. The new World Trade Organization must now further develop Article 24 of the GATT and establish rules for integrating regional associations harmoniously into the multilateral framework of the world economy.

It is important above all to avoid prejudicing the position of trading partners outside the preference zones. In practice this means that groupings must remain open to new members and that the external protection level must be reduced in parallel to internal liberalization. Under these conditions, the intensification of regional economic relations can serve as a catalyst for world-wide integration. The multilateral framework for this has been created through the conclusion of the Uruguay Round.

1.8. The greater reliability of the multilateral rules will pre-empt bilateral arrangements to direct external trade flows. Market distortions resulting from the increase in bilateral 'managed trade' (e.g. in the form of voluntary self-restraints - a grey area of the old 1947 GATT) have in the past operated mainly to the disadvantage of small trading partners. It is to be hoped that in future the World Trade Organization will have strong powers to impose fair conditions of competition so that small partners are protected from trade pressures exerted by large partners. The new arbitration procedure will play an important role.

1.9. Although tariffs are no longer the main barrier to market access for industrial goods - tariff reductions made up the standard programme of all eight GATT negotiating rounds - this part of the package was hotly debated in the final phase of negotiations. This shows that many trading partners continue to attach importance to the remaining tariffs.

Agreement was reached on tariff reductions world-wide of approximately 33%, which is significantly more than was foreseen in the Punta-del-Este Declaration at the beginning of the Round. Most of the tariff reductions are to be made in five equal annual steps, which gives the industrial branches affected time to adapt. The EU is reducing its tariffs towards all countries by more than a third, and towards the USA by about 50%. The USA is reducing its tariffs on imports from the EU also by about 50%, and towards all countries by almost 40%.

These figures must be treated with caution because of the lack of transparency in US customs nomenclature. However, the Committee regards this as a generally acceptable result although it is tempered by the high US tariffs remaining on certain textile and clothing articles.

1.10. The new world trade system, with improved access for goods, services, know-how and direct investment, is an important basis for job-creating entrepreneurial initiatives. However, it can only yield positive results if the agreed liberalization measures are consistently applied in the coming years. Integration of the world economy remains a difficult process requiring continuous effort. Because of recession and unemployment, it is to be expected that protectionist tendencies will resurface over the next few years. The transitional period before the new World Trade Organization (WTO) becomes operational will be especially critical in this respect. The signatories to the Uruguay Round Agreements will have to be constantly reminded that in Marrakesh they committed themselves not to act before the entry into force of the new WTO system by introducing any trade restrictions which could jeopardize the agreement package, or parts thereof, or have a negative influence on their implementation (standstill).

1.11. While participation in world trade has advantages for all states, the structural adjustment process brought about by the expansion of world trade nearly always involves economic, social and political burdens. This leads to political opposition from the groups and sectors hitherto protected by trade-control measures. If economic growth is weak and high unemployment persists, there is increasing political pressure on national governments and the Commission of the EU to slow down the necessary structural changes.

1.12. For these reasons alone it would seem necessary to have the results of the Uruguay Round also ratified by the national Parliaments of the EU, thus involving the Member States in responsibility for putting the results into practice.

1.13. Greater efforts are necessary at European Union level, along the lines, for instance, of the Commission's December 1993 White Paper on Growth, Competitiveness and Employment. Moreover, even at this stage - before the formal entry into force of the Geneva accords - the EU must demonstrate its political will to support the principles of the new WTO and contribute to their shaping.

1.14. In order to gain the necessary political support, there should in future be more public discussion at all levels of the advantages to be gained from free world trade. This is a difficult task as experience shows that the gains to consumers and taxpayers are sometimes widely diffused and only felt in the long term. In contrast, the ones to lose from the necessary restructuring process most feel their losses directly. In the years to come political leadership will be needed more than ever in trade policy so as to enable the seeds sown by the Uruguay Round to take root. Structural and backup policies must create an environment in which a) the Community's economy can take full advantage of the market liberalization measures agreed in the Uruguay Round and b) any adverse consequences are mitigated.

1.15. At the start of the Uruguay Round the growing interdependence of national economies made it necessary to include new subjects in the negotiations, and similarly the World Trade Organization is now faced once more with the need to address new subjects quickly. Apart from the trade aspects of environmental protection, competition and social standards, these subjects also include a comprehensive set of rules on direct investment.

There are other important questions which have not yet been tackled, since they were not yet identifiable in 1986 at Punta-del-Este. One of the main tasks of this kind is the integration of the former socialist countries into the world economy. In addition, regional integration processes have deepened to such an extent in all parts of the world that the rules of behaviour for the formation of preference zones need to be spelt out in much greater detail.

1.16. No solution has yet been found for the structural causes of the stubborn external trade imbalances of Japan and the USA. These macro-economic causes go far beyond the trade policy questions of GATT and the Uruguay Round.

Despite some progress in the Uruguay Round, it is also urgently necessary to carry out an in-depth analysis of the behaviour of sub-national political units not bound by the rules of GATT, such as the federal States of the USA, whose measures often have trade policy repercussions. Thus US protectionism in the banking sector is based both on federal laws and on laws of the individual States. It seems doubtful whether the agreements reached in the Uruguay Round are sufficient to prevent the results of the Round being undermined by measures and laws adopted at subnational levels.

2. Establishment of a World Trade Organization (WTO)

2.1. The General Agreement on Tariffs and Trade (GATT) of 1947, with its numerous sub-agreements, was hitherto provisional. It did not have legal personality, nor an organizational framework laid down in statutes. The many sub-agreements had been pragmatically concluded with various members and in various legal forms.

2.2. Inadequate procedures for assessing and condemning behaviour, the difficulty of enforcing the rules, particularly vis-à-vis the major trading nations, and problems with the safeguards clause meant that the credibility of the international trade order was not equal to the challenges of a rapidly integrating world.

2.3. The Committee expects that the establishment of the World Trade Organization (WTO) will strengthen the institutional machinery of the world trade system, in that administration and practical application of agreements should become more transparent and efficient. Ongoing monitoring of the agreed rules, together with effective dispute settlement, should lead to more disciplined behaviour. The transition to an effective system of this kind will not be easy, particularly for the stronger world trading partners. However, they are the very ones who are being called upon to lend credibility to the new system. The Committee expects the European Union to behave accordingly even now during the critical transitional period.

2.4. The overall WTO system improves legal certainty and ensures a similar level of commitment for all WTO members. The Committee welcomes the requirement that all WTO members bring their legislation into line with their commitments under the Agreement. In cases of controversy, they must comply with the rules and procedures of the integrated arbitration procedure. Naturally this also applies to the USA.

2.5. The Committee notes that the WTO structure still to be established is likely to give this organization a stronger political role than the one which GATT could play. This is significant in relation to the IMF and the World Bank, but especially in relation to its Member States.

2.6. The WTO must be organized in such a way that in future it not only provides a dispute settlement service but also paves the way for some form of permanent negotiation and coordination process for trade issues. It must remain receptive to new subjects and tasks, so that the multilateral trade system, after its institutional strengthening through the Uruguay Round, can react flexibly to the dynamic trends of the world economy.

2.7. Thus there is a whole range of tasks awaiting the new World Trade Organization. Trade policymakers in Europe, the USA, Japan and the Third World will have to demonstrate innovative capacity and flexibility in day-to-day policy, but also firmness on questions of principle.

2.8. The Committee expects the EU to cooperate constructively with the new bodies:

- the Ministerial Conference, the WTO's supreme body;

- the General Council, responsible for monitoring the agreements, the dispute settlement procedure and the trade policy review;

- the specialized councils for trade in goods and services and the protection of intellectual property rights;

- the sub-committees set up by these bodies (e.g. the finance and services committee, the establishment of which has already been decided).

2.9. The greater transparency, and to some extent the stronger legal basis underpinning procedures and decisions in the many new areas, will pose considerable organizational and staffing challenges for the WTO secretariat to be established on the basis of the old GATT secretariat. To this end, adequate financial resources must be provided. The Committee expects the new authorities to work with the same efficiency and independence as the old GATT secretariat.

2.10. With a view to possible additional tasks for the WTO affecting politically sensitive national powers, the Committee is pleased that both the EU and the EU's Member States are to be full members of the WTO, as is in any case required under the General Agreement on Trade in Services (GATS). The detailed division of powers will, it is hoped, soon be clarified by an unambiguous judgement of the European Court of Justice. To avoid a halt in the negotiations, a pragmatic approach, based on the accumulated experience of Uruguay Round cooperation, should be adopted, emphasizing external cohesion and internal solidarity.

3. Dispute settlement

3.1. Weaknesses of the GATT hitherto have been long drawn out dispute settlement procedures and the impracticability of sanction mechanisms. Strong trading partners could ultimately decide for themselves whether they wished to accept a settlement. In many cases, breaching the GATT rules had no serious consequences for them.

3.2. The larger trading partners - first and foremost the USA - therefore developed their own unilateral retaliation instruments. The credibility and reliability of GATT were thereby undermined, and the path was cleared for bilateralism.

3.3. The new dispute settlement procedure, which is to apply equally to all parts of the WTO agreements, is accelerated by laying down time-limits, and operates automatically. Decisions must be accepted in full. An appeal by one side against a decision is possible: the appropriate appellate body is yet to be set up within the WTO.

3.4. The new rules should considerably improve the effectiveness of the world trade system. In the Committee's view, this new dispute settlement procedure should provide greater security and predictability. Weaker trading partners can be better protected against unilateral action by politically and economically stronger countries.

3.5. In the Committee's view the success of the new procedure will depend on the effectiveness of the sanctions (retaliatory measures) imposed by the dispute settlement body.

3.6. Where possible, retaliation (as has been the case to date) is to be taken in the same sector as that in which the breach of the agreement was noted. What is new is the possibility of cross-retaliation () in exceptional circumstances if the abovementioned measures prove ineffective. The new procedural rules are to be reviewed after four years.

3.7. Although the WTO will have greater capabilities than the old GATT, its deterrent effect against infringements will in the Committee's view remain uncertain if leading trading countries continue to be unwilling to submit to the dispute settlement body's decisions.

4. US trade policy

4.1. According to all the views expressed so far, there is no doubt that the US Congress will endorse the results of the Uruguay Round (by the fast track procedure).

4.2. The EU must seek to ensure that the Congress, in transposing the agreements into national law, does not interpret them too restrictively. In addition to the textile industry, which traditionally opposes any new liberalization of imports, it must be assumed that the US will resist the new rules on subsidies and dumping and challenge the form to be taken by the WTO.

4.3. The final package of the Uruguay Round includes the agreement to bring national laws into line with the new obligations. Close attention must therefore be paid to US trade policy instruments. It is particularly doubtful whether the market-opening procedure laid down by Section 301 can be reconciled with the new WTO dispute settlement procedure. The Americans obstinately assert that neither the raison d'être nor the application of Section 301 is affected by the results of the Uruguay Round, and even claim that the reintroduction of the so-called 'Super 301' is permitted. ('Super 301', which was introduced in 1988 and expired in 1990, provided for the automatic initiation of procedures to impose trade sanctions after official identification of obstacles to US exports.) On 3 March 1994 the US President revived this legal provision by an 'executive order', after leading Congress members had called for it to be used against Japan.

4.3.1. The Uruguay Round agreements also include the obligation on all partner countries to ensure respect for all rules of the 1994 GATT at regional and local level within their territory. The Committee expects the EU to demand compliance with this obligation, particularly on the part of the USA. If necessary, the new dispute settlement mechanism should be used.

4.3.2. While fully understanding the US demand for Japan to open its market, the Committee is disturbed by the USA's unilateral action, since the results of the multilateral Uruguay Round are thereby weakened. The USA must be expressly called upon to respect the agreed 'standstill' on all trade restrictions.

4.4. The European Union should promote the rapid implementation of the new multilateral dispute settlement procedure, which has many advantages over the old procedure and is more efficient. The use of unilateral sanctions by individual States would then inevitably be more circumspect and would eventually lose all justification. The Committee therefore warns against any escalation in the establishment of unilateral instruments, which would run entirely counter to the results of the Uruguay Round; otherwise the EU might feel obliged to respond in kind.

4.4.1. With regard to the dispute between the USA and Japan, the Committee believes that the EU and the USA are pursuing the same aim of opening up Japanese markets. However, this should not be done on a bilateral basis.

5. Subsidies

5.1. Subsidies for internationally traded goods and services have often led to serious trade conflicts in the past. The Uruguay Round therefore agreed on clearer rules and improved discipline both for the granting of subsidies and for the taking of countermeasures in the form of compensatory duties. The Committee thinks that the division of subsidies into three categories - prohibited, actionable and non-actionable is helpful.

5.2. The following are forbidden: export subsidies, including subsidies with a similar effect to an export subsidy, and subsidies which compensate for local content provisions. The following are permitted: limited subsidies for industrial research and pre-competitive development, as well as for environmental protection measures. The Committee has also noted with satisfaction that State support payments for structurally weak regions are permitted. All subsidies must expire automatically after five years and be adopted anew if necessary.

5.3. For developing countries facilities were agreed both for the granting of subsidies and for compensatory measures on the part of industrialized countries. The Committee expects these facilities to be linked with an ongoing assessment of the stage of development of the countries availing themselves of these concessions.

6. Agriculture

6.1. The agreement reached during the Uruguay Round for the agriculture sector establishes a framework for long-term reform of trade in agricultural products and of the domestic agricultural policies of the GATT Member States.

In particular it includes new rules regarding undertakings to be given by Member States concerning access to markets, internal aids for agricultural production and export subsidies.

Within these parameters, the compatibility of the reform of the common agricultural policy mechanisms with the international obligations of the European Union is confirmed.

6.1.1. As regards 'access to markets', non-tariff measures at borders ('levies') are to be replaced by customs duties (tariffs) which the EU is then required to reduce by 36% over a period of six years starting from July 1995.

A 20% reduction must be made over the same period in 'internal market support'. Measures which have a minimal effect on trade (aid to limit production, aid for environmental protection, direct income subsidies decided as part of the CAP reform, etc.) are exempt from this reduction.

Finally, the EU commitment to cutting 'export subsidies' by 36% over the six-year period, based on 1986-90 levels, has significant implications.

6.2. One of the aims of the Commission was to help bring agricultural trade in line with the needs of the market. The result of the negotiations undoubtedly makes it possible to achieve this aim. With particular reference to Mediterranean products, it should be noted that EU commitments for products (e.g. fruit and vegetables including citrus fruits, tobacco, wine, olive oil, etc.) for which Community preference has been extensively dismantled under a series of agreements with non-EU countries and for which there is little internal market support, penalize Community procedures seriously. As these penalties were not anticipated, the CAP reform makes no provision for compensation.

6.3. The various implications of the question whether the agreements reached in the Uruguay Round are compatible with the CAP prompt the Committee to express certain reservations and make certain comments.

6.3.1. The Commission should make sure that the opening up of European markets, together with a reduction in the subsidizing of exports, does not lead to a new imbalance on European agricultural markets. However, the agricultural agreement negotiated in the Uruguay Round allows the European Union a certain scope for manoeuvre in relation to Community preference, the development of non-subsidized exports and the adjustment of internal support measures.

6.3.2. Community preference: the Community concept of tariffs and its interpretation of the special safeguard provisions (Article 5 of the Agreement on Agriculture) guarantees the maintenance of a certain Community preference until further notice. It is of decisive importance to transpose these special safeguard provisions into Community law, and lay down precise implementing rules which ensure these provisions' automatic application and effectiveness.

6.3.3. Export obligations: the reduction in the volume of subsidized exports (down by 21% on average for 1986-90) and the 36% cut in EAGGF Guarantee Section expenditure will doubtless have an impact on agricultural incomes. A study therefore needs to be carried out into how the CAP can adjust to this new situation.

6.3.4. Domestic support measures and 'due restraint' clause: under Article 6 and Annex 2 of the Agreement on agriculture, internal protection measures are classified in three 'boxes' (yellow, green and blue). Any new support measure or change to an existing measure must be notified to the WTO's committee on agriculture. The 'due restraint' clause is linked to the condition that the commitments entered into in respect of the measures in the yellow and blue boxes are adhered to. These provisions must not jeopardize the CAP's ability to adapt to changes in European and world economic conditions. This is particularly important in the case of the unreformed common market organizations, e.g. for wine and fresh fruit and vegetables.

6.4. The opening of the markets of the European Union and of third countries is likely to increase international trade in agricultural products. The extent of this growth in agricultural trade cannot of course be quantified. When the new common market organization is in place, care must be taken to ensure that no preferential treatment is given to countries which are in competition with the European Union.

7. Financial services

7.1. The Uruguay Round saw the first negotiations on the liberalization of financial services worldwide. Although the USA pressed for these negotiations at the beginning of the Round, its willingness to liberalize diminished sharply when mainly East Asian and Latin American countries showed little readiness to make concessions. However, at the end of the Round, thanks to the efforts of the Commission, the USA was persuaded to apply the MFN principle to access to financial markets - albeit subject to certain conditions for the time being. As a result, most favoured nation status is to apply to all GATS signatory states in the first six months after GATS' entry into force. Each country can then decide whether it will grant definitive MFN status to its GATS partners and whether it will comply with the liberalization commitments made.

7.2. This preliminary trial period, which is associated with a 'due restraint' requirement, had led to pressure being put on the signatories to liberalize their markets further. The USA and the EU are attempting to get Japan, South Korea and other South-East Asian countries, whose offers have so far been unsatisfactory, to make improvements. The legislative processes required in some cases are already underway in some of these countries.

7.3. The possibilities of access to US and EU markets are unevenly balanced at the moment. While US financial institutions have broken into the European market on a large scale, European institutions have no comparable opportunities for exercising their activities in the USA. The EU should therefore insist upon equal market access opportunities, not only vis-à-vis the USA but also vis-à-vis other partner countries.

7.4. During the forthcoming period of uncertainty when MFN application is to be subject to certain conditions, the European Union must be careful to ensure that all GATS partners comply with their temporary commitments, if only to make sure that the negotiating climate for the unlimited introduction of free market access, including the application of MFN, does not worsen.

8. Audiovisual services

8.1. In April of this year the Commission issued the Green Paper on Strategic options for strengthening the programme industry in the framework of the European Union's audiovisual policy [COM(94) 96]. It recognized this sector's leading role among the economic sectors with high growth and employment potential.

The Committee will give its views on this Green Paper separately. The present Opinion deals only with the international context of the European programme industry.

8.2. The audiovisual sector - together with all other commercial services - was brought into the GATS. Failure to achieve agreement with the United States, however, means that at present the EU has not committed itself to any form of liberalization. It is only committed to transparency in connection with any new measures. However, no later than five years after the setting-up of the WTO, negotiations must be opened with the aim of achieving some liberalization, primarily in the treatment of domestic operators and in market access.

8.3. The most recent studies suggest that the demand for audiovisual products in Europe will double by the end of the century. Over the same period the turnover of this labour-intensive economic sector will rise from ECU 23 bn to ECU 45 bn. Since at present the major Hollywood studios account for about half the programmes of Europe's radio and television channels, and over 80% of cinema revenues, there remains considerable scope for conflict. While some EU Member States reject further opening up of the market, the US administration is already threatening measures to compel market opening.

8.4. The Committee shares the view expressed by the Commission in the Green Paper that the openings available for the time being for promoting the programme industries should be exploited immediately. The aim should be to strengthen these industries' international competitiveness - an aim which should be achieved in particular by making use of the 'digital revolution'.

8.5. While respecting the principle of subsidiarity, the energies of the European film and television industry should be focused on efficient cooperation, and the framework for achieving this should be created. This would include discussions on the convergence of national support systems.

8.6. The Committee also welcomes the Commission's view that the programme industries (currently undergoing restructuring) in the countries of central and eastern European should be included in its analysis from the very start. Such industries can tap the creative potential available in Europe and express the intrinsic values of Europe's peoples.

9. Cross-border movements of persons

9.1. The Uruguay Round negotiations and provisions on the liberalization of conditions of access for workers, which relate only to the services sector, have not yet been finalized. Under GATS the negotiations are supposed to be completed within six months of the establishment of the WTO. This is above all in the interests of the developing countries. The EU Member States follow differing policies on this matter, depending on their interests.

9.2. Third country employed and self-employed workers have become an integral part of working life in the EU. The emphasis, however, should not be purely on the work performed, but also on the acquisition of skills which can then be of use to the countries of origin.

9.3. Easier conditions of access can only be beneficial to all concerned if the latter are smoothly integrated into the labour market system; this is particularly true of the highly developed services sectors, which have the greatest growth potential. As it is, the EU labour market is already under strain with the supply of skilled workers far outstripping demand.

9.4. GATS is concerned however not with a general opening up of the EU labour market to foreign workers, but rather with the liberalization of the movements of persons needed for the trade in services. The dividing line between the opening up of the market for services and the protection of the EU labour market is difficult to draw. For the reasons set out above, full liberalization should not be advocated. In any case care should be taken to ensure that providers of services from non-EU countries possess the minimum qualifications laid down by the EU.

9.5. On the other hand, the temporary use of foreign providers of services in some sectors would be beneficial. They could for example serve to bridge a temporary shortage of labour or to provide specific services. This would make sense particularly where these providers of services are closer to hand than EU labour. This would contribute to greater economic flexibility and rationalization.

9.6. Making it possible for skilled workers to provide services in the EU for a limited time would also benefit the economic development of non-EU countries. A reciprocal opening of markets should also be sought from non-EU countries where appropriate. However, further strains on the European labour market must be avoided.

10. Trade and competition

10.1. GATT has so far concentrated on the removal of trade barriers caused by state measures. With a few exceptions (e.g. GATT-Tokyo Round: Code on Restrictive Business Practices, OECD Guidelines for Multinational Enterprises) little action has been taken against the competition-distorting behaviour of private enterprises operating worldwide.

National powers to safeguard competition have not been able to keep pace with the globalization of markets. Thus, national differences in the competitive behaviour of firms and differing competition laws have led increasingly to trade barriers.

10.2. The Committee feels that the harmonization of national competition policies needs to be advanced and the objective of internationally valid rules of competition pursued. The removal of government barriers to trade, agreed in the Uruguay Round, needs to be supplemented by rules to prevent restrictions on competition by companies. Conditions of competition should as far as possible be equalized on the basis of internationally harmonized rules for companies engaging in external trade. This also applies to national and international state monopolies and cartels (e.g. transport rates, telecommunications charges, OPEC). Companies will then have legal certainty for planning international activities, which will in turn help secure the jobs they create.

10.3. If competition rules are to be efficiently harmonized, legislation has to be enforceable internationally.

10.4. If it is not yet possible to achieve the broad consensus on the rules of the market economy and competition needed for this objective, the Committee feels that the raising of national minimum standards and their gradual harmonization would be a worthwhile start. Developing countries should be assisted in establishing and developing cartel legislation and authorities if they so wish.

10.5. The discussion of an International Antitrust Code is a major contribution to the harmonization, or at least convergence, of national competition law. The OECD has been doing important preparatory work in this area for some time. In this context the bilateral agreement between the EC and the US Government on application of the competition rules should also be mentioned.

10.6. A group of independent international lawyers last year submitted to the GATT a draft International Antitrust Code containing a practicable basis for identifying behaviour that restricts competition and for enforcing rules of competition. The Code lays down minimum standards for competitive behaviour where this has cross-border effects. It is based on two principles which the Committee considers need to be observed:

a)

Individual countries' sovereign control over competition law would remain largely unaffected, as the standards contained in the Code are to be transposed into national law and thus enforced by national authorities and courts.

b)

The Code would be implemented by an international antitrust authority which could require national authorities to intervene against violations of competition rules and, where necessary, bring actions in the national courts. In cases of dispute, a binding multilateral settlement procedure based on the new WTO procedure would apply.

10.7. A Code of this kind could be used against national restrictions on competition of a structural nature, such as export cartels, strategies for driving specially targeted firms out of business, voluntary restraint agreements etc, which are difficult to identify, and could replace unilateral trade policy instruments which always lead to conflict.

10.8. The Committee advises the Commission to look at these proposals carefully and possibly implement them in stages. The new WTO could be given the powers of an international antitrust authority from the outset. It will in any case be responsible for the necessary law enforcement initiatives.

11. Direct investment

11.1. Direct cross-border investment has grown considerably with the internationalization of business activity. Even small- and medium-sized firms are increasingly investing abroad.

This trend still faces obstacles in many countries: foreign investors are discriminated against in such areas as the right of establishment, capital transfers, company purchases and public invitations to tender.

11.2. In the Uruguay Round the effects of measures restricting investment on cross-border trade (trade-related investment measures (TRIMs)) have been settled. Thus, foreign investors are to be granted the same treatment as nationals in relation to conditions on local content, procurement or minimum export quantities. Quantitative restrictions are prohibited. Conditions still in force must be notified to GATT and removed within two years (or five to seven years in the case of developing countries). GATS and TRIPS also include rules on investment.

11.3. The problems raised by direct investment are however much more wide-ranging. For investors, the question is how the general conditions for foreign direct investment, in particular in the developing countries and the reformist former communist countries of central and eastern Europe and the CIS can be improved and comprehensive legal protection ensured.

Countries receiving investment want to know about the behaviour of the large multinationals in particular and to have checks on any restrictive business practices.

11.4. The Committee feels that the EU should aim to achieve a lasting improvement in the investment climate in these countries; the conclusion of investment treaties by the EU Member States is particularly important in this respect. Guaranteed protection of property, equal treatment of domestic and foreign investors, guaranteed freedom to transfer capital and profits subject to the fiscal laws of the host country and unimpeded access to international mediation, are preconditions for long-term commitment on the part of foreign investors. The latter in turn are expected to abide by international codes of best practice drawn up, for example, by the OECD and the International Chamber of Commerce.

11.5. The Committee condemns practices, designed to attract foreign investors, which disregard internationally recognized standards in any sector.

11.6. Reliable and transparent rules on direct investment should in the longer term be enshrined in a comprehensive multilateral system of rules. The EU should do all in its power to support moves in this direction at the World Bank, the OECD and in the current negotiations on a European Energy Charter. Ultimately there should be a GATT for investment.

12. Social standards

12.1. The development and observance of minimum social standards rank among the achievements of modern industrial society. The ILO's Conventions lay down minimum standards to be aimed for worldwide: respect for basic human rights, prohibition of child and forced labour, basic rules on safety at work and health protection, freedom of workers to organize themselves and conclude collective wage agreements. The minimum standards do not cover wage levels.

Other international, and especially national, provisions go much further.

12.2. Once again, the Committee urges that the working programme of the World Trade Organization should include a 'social clause'. This should be based on Conventions adopted by the ILO - to which virtually all the world's countries belong - and particularly those concerning:

- abolition of forced labour (Conventions 29 and 105);

- the right to organize and collective bargaining (Conventions 87 and 98);

- minimum age for work and abolition of child labour (Convention 138);

- ban on discrimination in the workplace and equal pay as between men and women for equal work (Conventions 100 and 111).

12.3. In its complex negotiations with the developing countries, the EU should advocate adoption of these minimum social standards. The credibility of this approach would be strengthened by appropriate support measures as part of the development policies of the EU and the Member States.

12.4. In principle, economic cooperation leads to more lasting successes than political pressure. At all events, enforcement mechanisms should be based on a future set of multilateral rules and the new WTO could be a suitable forum for the drafting of these rules.

12.5. The Committee trusts that the Commission will vigorously promote the work that will have to be done to pave the way for discussion of the subject in the WTO, and will conduct the later discussion in a constructive spirit.

12.6. Work under the ILO Conventions should be continued, although important parts of them have not been ratified by either the USA or certain EU Member States. Discussions in the OECD, even before the negotiations in the WTO, could be helpful here.

12.7. Moves to take social standards into consideration at WTO level might in the long run help to stabilize international economic relations, by reducing protectionist pressures from the most developed countries. Multilateral settlement of disputes would stifle the temptation to impose bilateral sanctions, and reference to texts already accepted by most States (the relevant ILO Conventions) would reduce the risk of unilateral positions being adopted, as has frequently occurred in the past.

12.8. Voluntary European fair trade marks offer a supplementary route to raising ethical and social standards in developing countries. These marks offer consumers a guarantee that the developing country workers who produced the marked goods received fairer wages and better conditions. Companies who operate such ethical standards and apply for fair trade marks are rewarded by the ensuing publicity and sales to interested consumers. The EU should fund these initiatives and help them to expand.

13. Environmental protection and trade

13.1. Environmental protection is explicitly enshrined in the WTO preamble as an objective. A work programme was agreed on in Marrakesh for analysing the links between trade and the environment. The Committee hopes that forward-looking recommendations will be drawn up on this basis for adapting international rules.

13.2. In view of the globalization of environmental problems and the effort to liberalize world trade, the conflicts which frequently exist between trade and environmental objectives are coming more and more to the fore. The Committee regrets that the international harmonization of environmental standards is still in its infancy.

13.3. Environmental protection still has low priority in the Third World countries, which consequently have reservations about too strong a linkage between trade and environment policy; in particular, they fear that the more industrialized countries could pursue a protectionist trade policy on an environmental pretext.

13.4. In the EU, however, environmental protection has great importance. The Committee itself has repeatedly argued for it.

13.5. Since high environmental protection standards also lead to differing conditions of competition both within the EU and in comparison with third countries, it is desirable to raise environmental protection standards worldwide. Even if developing countries have other priorities at present, raising these standards is undoubtedly in their interests also. The Committee recommends that the EU should support the planned work in the appropriate fora with the aim of drawing up, worldwide, environment guidelines which are binding on national legislators and directed towards upward harmonization. Compensatory aid based on the model of the Montreal Protocol to enable developing countries to adopt appropriate measures will be essential.

13.6. The case for imposing environment standards on other states through trade-restricting measures is questionable. The Committee is opposed to individual states exercising unilateral trade policy pressures in order to impose their own environmental standards. However, multilateral action should be possible against individual states which do not comply with agreed levels.

14. Public procurement

14.1. To coincide with the end of the Uruguay Round a group of important partners in world trade, including the EU and the USA, concluded a new Plurilateral Agreement on Government Procurement. The new agreement, which replaced one dating from 1979, was further expanded during the Marrakesh Conference.

14.2. The Committee welcomes these agreements and expects from them a genuine reciprocal opening-up of important markets in government procurement. It calls upon the Commission to press on vigorously with the further negotiations planned. The Committee is fully aware that a serious impediment to more open markets lies in the state telecommunications monopolies in some EU countries, which even reject competition within the EU.

14.3. The Committee sees considerable potential in the transport and telecommunications sector for negotiating the opening-up of the huge US procurement markets for transport vehicles, airport equipment, waste processing and structural steel for motorways. These are all sectors in which the USA is unwilling to dismantle the Buy American laws.

15. Harmonization of standards

15.1. The increasing worldwide exchange of persons, goods, services, capital and rights makes it imperative to observe internationally agreed standards in such areas as environmental protection, social affairs (including worker migration) and the behaviour of companies in international competition.

15.2. Making the observance of internationally agreed minimum standards a prerequisite for free market access is an idea which suggests itself, especially as the new world trade authority, the WTO, is to be given greater powers to monitor and enforce compliance with the rules.

15.3. While the GATT had the aim above all of facilitating access to international markets, moves are now afoot to entrust the WTO with aims other than those relating to trading policy. But there is a danger here of overloading and overstrain. The prime aim of the WTO must remain that of seeing that foreign trade runs as smoothly as possible.

15.4. To the extent that minimum standards are guided by levels applicable in industrialized countries, the developing countries are concerned that at least some element of protectionist behaviour and measures is involved. They see their access to the markets of the industrialized countries as being made more difficult.

Conflicts therefore seem inevitable if the objectives to be pursued are not shared - or not shared to the same extent - by the countries involved in world trade. Special efforts to achieve a political consensus are therefore necessary.

15.5. The Committee would draw attention to the consequences which might arise from such a development and calls upon the Commission to keep this problem under close scrutiny.

Done at Brussels, 15 September 1994.

The President

of the Economic and Social Committee

Susanne TIEMANN

() Cross-retaliation:breaches of the agreement leading to sanctions regarding other products or other sectors of the economy.