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No C 318/50 Official Journal of the European Communities 12. 12. 88

_2.16A._ If the Council has not acted within a period
laid down by itself, which may not exceed three months,
the measures are adopted by the Commission.

Done at Brussels, 29 September 1988.

2.16.5. The power thus granted to the Commission
to act on its own seems excessive.

_The_ _Chairman_

_of the Economic and Social_ _Committee_

Alfons MARGOT

Opinion on the 'GATT/Uruguay Round' negotiations: the current situation and future
prospects from the viewpoint of relations between the European Community and the main

industrialized countries, the developing countries and the State-trading countries

(88/C 318/16)

On 31 May 1988 the Economic and Social Committee, acting under the fourth paragraph of
Article 20 of its rules of procedure, decided to draw up an Opinion on the current situation
and the future perspectives of the GATT/Uruguay Round negotiations.

The section for external relations, trade and development policy, which was responsible for
preparing the Committee's work on the subject, adopted its Opinion on 16 September 1988.
The rapporteur was Mr Romoli.

At its 258th plenary session (meeting of 29 September 1988) the Economic and Social
Committee adopted the following Opinion unanimously.

General considerations

1. Over the last few months the Study Group on
GATT/Uruguay Round has been monitoring the Uruguay Round negotiations. EC Commission officials
have given informal briefings on specific subjects
covered by the negotiating groups; the views of representatives from contracting countries such as India,
Brazil and the United States have been heard; the Study
Group Rapporteur and Chairman have had contacts
with the Director-General of the General Agreement on
Tariffs and Trade (GATT) and Secretariat; GATT has
been covered at ESC meetings with the countries of the
European Free Trade Association (EFTA) and at a
public hearing of the European Parliament's External
Relations Committee; and the Secretariat of the external
relations section has also kept the study group regularly
supplied with extensive documentation from the specialized press.

2. Major progress has been made since the Punta del
Este declaration on the general objectives of the new
round and during the sectoral negotiations which took
place in 1987. This progress is pleasing both in terms
of the volume of work carried out, and because of the
active contributions of many delegations in determining
the goals and procedures to be followed on the huge
number of specific problems under negotiation.

The current far more difficult stage began in January
1988. This covers the negotiations proper, the submission of demands, and the offering of concessions by
the individual contracting parties.

A ministerial mid-term review is scheduled for the

beginning of December. This will assess progress so far,
providing a political boost for the further negotiations
which should in principle finish by the end of 1990.

12. 12. 88 Official Journal of the European Communities No C 318/51

In the run-up to this mid-term review, which is to take
place in Montreal on 5 December, the Committee feels
it useful to give the Commission and Council its views
on the negotiations, as they have emerged during the
study group's discussions. The aim of this is to help
provide a clearer picture of the European Community's
standpoint in relationship to the other participants.

3. As the Committee is also currently preparing a
separate Opinion on the negotiations in the agriculture
sector, the present Opinion will not be covering this
subject. The Committee would, however, note that
progress on the agricultural aspects is crucial to the
final success of the Uruguay Round.

4. In general, the Committee fully endorses the Commission's overriding concern to ensure that the negotiations are treated as a single package as pledged in
the declaration of Punta del Este.

The negotiations must always be seen as one whole, in
which the various problems and aspects remain closely
interlinked. The sub-division of the negotiations into
fourteen specific subjects (plus the separate topic of
'services') is no reason for pursuing separate paths, with
varying aims and timescales for arriving at piecemeal
solutions (although some of the main negotiating parties actually seem to want this).

One of the most serious dangers facing the negotiations
is that they will become over-technical and will concentrate on specific individual topics. This would lose sight
of the main goal, which is to distribute benefits and
obligations fairly between the parties, thus securing a
general increase in international trade and cooperation.

5. For this reason too, the Committee feels it best to
consider the sectoral aspects of the negotiations within
an overall assessment of the Community's current and
future relations with industrialized countries, developing countries and State-trading countries.

It is vital to fix priorities in the discussions. Above all,
it is vital to ascertain whether an effective and clear

line is being taken on the basic issues, the differences
in approach and the most deeply-rooted sources of
conflict between the main partners.

If not, there is a serious danger of pursuing compromise
solutions of a technical nature, or — worse still —
merely glossing over the issues without getting to grips
with the contradictions and conflicts of interest: these

would resurface immediately the negotiations are over,
as they unfortunately already have in various areas
covered by the Tokyo Round.

The European Community's relations with the industrialized countries

6. The Community's relations, with Western industrialized nations are covered by the GATT, based on
the principles of non-discrimination ('most-favoured
nation' clause) and reciprocity.

The lowering of tariff barriers has been given priority in
past negotiations, and the satisfactory results achieved
(particularly in the Tokyo Round), as reflected by a
general fall in the average level of customs duties in
industrialized countries, leave little scope for further
significant reductions in the present negotiations.

Some problems remain concerning the reduction of
particularly high tariffs, uniform classification of customs headings, customs valuation, consolidation of certain concessions etc., but the path ahead for the relevant
negotiating group does not seem too difficult.

7. A much more complicated problem is how to
restore order in the jungle of non-tariff barriers which
impede trade between industrialized countries too.
Technically it should not be difficult (though it will be
laborious) to decide which non-tariff measures should
receive priority. However, it is well known that more
access to other countries' markets is the key problem
in relations with many countries, including some of the
most highly developed (such as Japan).

The Committee stresses here that, despite the
undoubted efforts and definite progress made, Japan's
trade surplus (particularly _vis-a-vis_ the Community)
and the serious difficulties of penetrating the Japanese
market remain one of the most serious problems facing
GATT. Japan's efforts to develop its domestic market
and imports must be stepped up, and not simply continued.

8. A glance down the list of negotiating groups
reveals a number which seek to define relations between

the industrialized and the developing countries. This
applies to the negotiations on tropical products, textiles,
safeguards, anti-dumping and export licences.

No C 318/52 Official Journal of the European Communities 12. 12. 88

9. Other subjects have a direct bearing on present
and future relations between the developed countries
(i.e. between the European Community, the United
States, Japan and the other industrialized market-economy countries).

Take, for example, subsidies, State aid and discriminatory public procurement policies; or the failure to respect
the 'standstill' commitments and the tendency of some
leading nations to push through national legislation
(such as the United States Congress's recent Omnibus
Trade and Competitiveness Act of 1988) in breach
of multilateral commitments) or again, the common
tendency to seek bilateral solutions and voluntary
agreements outside GATT.

If viewed in the longer term, these 'grey area' agreements to some extent represent a transitional phase in
the difficult process of opening up national economies
to which the new rules of international competition do
not apply at present.

However, some of the 'grey area' voluntary restraint
agreements are a reaction on the part of importing
countries to certain industrialized or newly industrializing countries' aggressive trade policies in certain sectors.

10. Nevertheless, all this creates a climate of uncertainty and unease in international trade as a whole, and
systematic efforts are needed to dispel it.

11. In these circumstances, it is important that the
credibility of the GATT system should be restored, first
and foremost by strengthening the dispute settlement
procedure. A special negotiating group is tackling this
subject.

However, there does not yet seem to be sufficient consensus among the major nations or among the developing countries on how to make the dispute settlement
procedure more effective in tackling the more politically
charged disputes.

12. Little progress has also been made in revising the
GATT Articles. The deluge of proposed amendments
risks distracting attention from the really important
points. The EC Commission, for example, would like
to see amendments to Article XII (restrictions to safeguard the balance of payments of developing countries),
Article XVII (State-trading enterprises), Article XXV
(non-application of the agreement between contracting
parties), and the Protocol on provisional application.

However, the real problem is that in the absence of
consensus or political will, the provisions of the treaty
(which are inevitably general) are not implemented
precisely and uniformly, and too often receive a biased
interpretation.

Attention should focus here on 'how' the rules should

be applied, rather than believing that a radical review
of the treaty would everything.

13. Unfortunately views, opinions and theories differ
in the most developed nations on these points. In fact,
these differences are only partly caused by differing
ways of thinking and are very often simply a cover for
the defence of national or sectoral interests.

14. For all these reasons, some in-depth clarification
must be made and a preliminary consensus must be
sought between the main industrialized nations on a
few basic issues.

For example, one question which should be asked is
how the principle of 'comparative advantage' in the
production of goods and services, which some people
feel should always have priority, can exist alongside
the principle of the right to defend national interests
(contained in various articles of the GATT) when
threatened by aggressive foreign competition.

In the Committee's view, it is unreasonable always to
expect strict application of the principle of comparative
advantage if serious tensions in international economic
relations are to be avoided.

Both at international level and within GATT, much
of the current talk about subsidies, national aid, the
protection of domestic markets, and piecemeal solutions outside the multilateral framework, stems precisely from the fact that this conflict of principles has
never been cleared up.

At the centre of this problem is the survival of major
sectors (steel, shipbuilding, petrochemicals, agriculture
and many more) which are widely felt to be strategic.

15. Hence the paradox of looking for piecemeal or
compromise solutions within GATT, when questions
of principle have not yet been tackled or resolved

Even the reasonable proposal to add a safeguards code
to Article XIX of the GATT, containing obligations on
notification and transparency, in order to bring all
protectionist measures under the GATT umbrella,
would have little chance of success unless the main
trading partners could agree on the basic premises

12. 12. 88 Official Journal of the European Communities No C 318/53

underpinning it. The EC could give a lead here
by systematically giving formal notification of its

measures.

16. At all events, the safeguard clause of Article XIX
—which is non-selective and provides for degressive
temporary measures—is ill-equipped to tackle unfair
anti-GATT practices by one or more countries (subsidies for industrial products, obstacles to the import
of specific products, etc.). These practices are generally
an attack on specific production sectors and can be
highly damaging to whole areas of Community industry. In such circumstances, specific voluntary restraint
measures against the countries engaging in these practices are perfectly legitimate and should be pursued for
as long as the practices which occasioned them continue. However, such measures should be transparent,
and in particular should be notified to GATT.

17. The Committee considers that it is up to the main
industrialized nations to start discussing the underlying
issues and clarifying the future course of international
economic relations in order to give the multilateral
trade system regulated by GATT a solid foundation.
This is the only way to prepare the ground for an
effective package of rules to govern relations between
the industrialized world and the developing countries.

The European Community should play an active part
in promoting these clarifications, which are political
rather than technical, and should take place at the
highest level.

Here the Committee would refer back to its Opinion
on the impact of current United States economic and
political developments on the Uruguay Round and
international trade, adopted on 2 July 1987.

This stated that:

'The time has therefore come for the European
Community to propose to the United States that a
frank comprehensive assessment be made of the
situation with a view to working together for a new
international equilibrium based on solidarity and
sincere reciprocity.

These discussions—which should later involve all

major Western countries—should not be limited to
trade issues, i.e. to bringing the Uruguay Round of
the GATT multilateral negotiations to a successful
conclusion. They should also cover the international
monetary system and the search for a healthy balance between demand for and supply of raw
materials and agricultural products.'

18. The Committee now reiterates this recommen
dation, at the same time specifying that this does not
mean establishing _ad hoc_ rules for the main industrialized nations, but rather clarifying the principles which
should form the basis of an effective multilateral GATT

system. Clearly it would have been preferable to clarify
matters before the Uruguay Round began; but the
decision can be put off no longer. The installation of
the new United States administration following the
forthcoming elections could provide a good opportunity
for a careful assessment.

The Committee regrets to note that the adoption of the
new Trade Act bij the United States Congress is not a
step in the right direction, and confirms the fears voiced
in the Committee Opinion of July 1987. The Trade
Act encourages a protectionist attitude worldwide, and
favours neither the retention of the status quo requested
by the instigators of the Uruguay Round nor the multilateralism which is the cornerstone of GATT. It should

prompt the Community seriously to reconsider the significance and prospects of the present negociations.

In the meantime the Commission of the EC should give
immediate consideration to the adoption of similar
provisions mirroring the United States legislation.

The Committee notes that trade problems cannot be
divorced from monetary problems, and that a currency's excessive depreciation (whether voluntary or
not), or conversely its excessive overvaluation, often
has a far greater effect than customs duties.

Progress in the GATT negociations should go hand in
hand with progress in setting up a satisfactory international monetary system.

The European Community's relations with the developing countries

19. The negociations on the subjects which directly
affect relations between industrialized and developing
countries involve some complex considerations.

Firstly, the spontaneous moves by all developing
countries to join an informal 'group of developing
countries', regardless of their economic and social conditions and their prospects for the future, makes it
difficult to pinpoint the best solutions for their individual problems.

Part IV (Trade and Development) of the GATT provides for more favoured differential treatment of the

developing countries by the developed nations, who are

No C 318/54 Official Journal of the European Communities 12. 12. 88

to renonce the principle of reciprocity and encourage
exports from those countries.

A general consensus is already emerging that the poorest
countries (e.g. sub-Saharan Africa) should receive more
favoured treatment, and specific aid programmes are
also proposed for these countries.

However, points of uncertainty remain.

It is well known, for example, that the newly industrializing countries of South-East Asia have no external debts and do in fact have large surpluses in their
trade balances of payments. This has been partly due
to the linkage of local currencies to the United States
dollar at the time of its most serious depreciation, thus
forcing up exports. Mention should also be made of
the policies pursued by these countries in specific sectors
where massive subsidized investments allow them to

profit from the most up-to-date plant while pay and
social security remain at rock-bottom levels.

It is worth asking whether it is right for the GATT
negociations to treat these countries in the same way
as Latin American and other nations which have heavy
debts and are obliged to follow extremely tight economic policies. See the information report of the ESC on
African, Carribbean and Pacific (ACP) States' indebtedness (1987).

20. It should be noted that all the ACP States spontaneously joined the Group of Developing Countries
(headed by a few individual countries), without any
distinction being made for their preferential links with
the European Community.

The ACP States are concerned about possible erosion
of the advantages they have won from the Community,
and continually seek the Community's solidarity. It
would be well if they could extend their recognition of
the Community's role to the Uruguay Round negotiations.

21. Some progress has been achieved in the discussions of the various negotiating groups, for example
over the liberalization of tropical products. However,
they are many more points causing dissent and conflict
between the contracting parties and the work is proceeding very slowly. Some of the divergences have been
inherited from earlier negotiations (textiles, agricultural
products, safeguard measures, anti-dumping, etc.).

Other problems concern subjects not tackled in previous
rounds, such as the trade-related aspects of intellectual
property rights, trade-related investment measures (on
which the developed countries rightly insist, though

with little success so far), and the service sector, about
which the developing countries are extremely wary.

Here too, many of the main problems stem from the
failure to clarify a few basic issues which continue to
cloud relations between industrialized and developing
countries.

22. For example, nothing has been done about the
problem of social dumping—the absence (or very low
level) of basic rights and safeguards for local workers
in many developing countries.

The Geneva negotiations should take account of the
stands of the International Labour Organization (ILO)
on this, which have been endorsed by the European
Community and cited by the Economic and Social
Committee on a number of occasions.

The legitimacy of a 'comparative advantage' in production costs obtained by such means and at such a
price to question.

23. Further study is also needed of the policies of
some raw material producing countries where export
prices are much higher than the very low (in some cases
non-existent) prices charged to local industries for the
same materials.

Many raw material producing countries have for many
years faced difficulties arising mainly from the drop in
world prices. However, this must not blind us to the
existence of practices which run counter to GATT
rules. These involve petrochemical and high-energy
products in certain Middle Eastern countries, discriminatory two-tier pricing, hoarding of scarce raw
materials (such as non-ferrous metals), closing of markets, dumping of semi-processed products, etc. These
practices are pursued not only by many developing
countries, but also by various industrialized or newly
industrializing countries such as Japan, South Korea,
Taiwan and Brazil.

24. Consideration has also not been given to the
restrictive line adopted by certain well-known cartels
of producer countries [not only Oil producing and
exporting countries (OPEC)] which for decades have
been abusing dominant positions won by restrictive
trade practices.

The negociating group on natural resource-based products is bogged down by a number of outstanding problems and by the uncertainties which exist within the

12. 12. 88 Official Journal of the European Communities No C 318/55

industrialized nations themselves. Discussion continues

on the inclusion of energy products, access to fisheries
resources, and the situation of certain specific products.

The industrialized nations have even failed to agree
hitherto on the classification criteria for developing
countries which are to benefit from the Generalized

System of Tariff Preferences (GSP). This is a further
reason for considering their position vis-a-vis the developing countries.

25. The developing countries are generally very clear
about one basic point: the call for wider and freer access
to Western markets.

However, there is total silence on the other side of the

coin: their own closed markets and the existence of

entrenched practices which impede imports, impenetrable licensing systems, quotas, monetary constraints
and sky-high customs duties, which cut these countries'
markets off—albeit with some exceptions—from normal free-market trade.

It is clear that this lop-sided interpretation of the purpose of the GATT negotiations is unacceptable.

The European Community and the other Western
nations should keep reminding the developing countries
of the commitment made at Punta del Este. Although
worded in the negative, its meaning was clear:

'the developing countries will not be expected to
make contributions which are inconsistent with

their individual development, financial and trade
needs'.

In positive terms, this means that those developing
countries which have already achieved high levels of
growth, production, consumption and financial equilibrium, are duty-bound to assume their share of obligations, i.e. to liberalize their national markets in line
with the benefits which they already enjoy and could
use to increase international trade.

These countries should be explicitly excluded from the
provisions of part IV of the GATT covering concessions, privileges and exemptions from the obligations
of the agreement.

26. There remains the critical problem of the third
world countries whose external debts are so heavy that
their servicing now eats up a large proportion of the
countries' export revenue.

In the current GATT negotiations, these countries find
it quite impossible to open up or integrate their economies any further into the international economic system.

The communique issued by the seven leading industrialized nations at the Toronto summit of 19-21 June

contained a statement on this point.

27. In such a situation, the Committee feels that
there are two courses open to the European Community
and the other industrialized nations.

The first is to increase the powers and efficiency of the
GATT system, by defining precise codes of conduct
and coherent technical procedures, so that the system
can carry out its role as the guardian of multilateralism
and defender of the need for open and liberalized international markets.

The aim must be a coherent, efficient system which
functions smoothly.

It must be borne in mind here that many developing
countries will not be able to adhere to the new rules

immediately. A longer term approach will be required
if these countries' structural imbalances and more

especially their debt problems are to be ironed out.

An efficient and balanced GATT system of standards
and codes, geared to a changing world, will be a vital
tool for checking the full commitment of each developing country—which will need support and financial aid
from the Western world—to a free market economy
underpinned by GATT.

28. The GATT negotiations are thus crucial if the
Western industrialized nations are finally to define a
more global and coherent policy towards the international economy, calling on all countries who are in
a position to do so to accept their respective responsibilities.

While the GATT system can hardly be blamed for the
world economic crisis, the contribution which a healthy
increase in trade could make to world growth has been
severely underestimated in the last few decades.

For a long time the prescriptions for economic recovery
imposed by the International Monetary Fund (IMF) on
developing countries seeking financial assistance, have
inexorably led to a squeeze on domestic consumption
and a cut in imports and hence investment. It would

No C 318/56 Official Journal of the European Communities 12. 12. 88

have been more sensible to try and achieve balance by
increasing these countries' trade (export/imports) and
investment, within the international economic system.

29. Turning to the second course of action, the Committee is pleased that for some time now the EC Commission has been calling for closer ties between various
multilateral bodies; a more strongly structured GATT
organization, with higher-level representation from its
contracting governments, can take its place alongside
the IMF and the World Bank. The policies of these
latter institutions also need to be revised and revitalized.

The Committee therefore calls on the Council and the

Commission to press ahead with the action in hand.
The long-term strategy of the Western nations must be
a steady revival of the developing countries' economies,
thereby freeing them from the serious structural problems which for a number of reasons have held them

back for so long.

Gradual integration of these countries, their economies
and their citizens into the world trade network can

provide an enormous boost to world economic growth,
and the European Community can play a full role in
this.

The State-trading countries' participation in the GATT
negotiations

30. The Uruguay Round negotiations are being
attended by Czechoslovakia (a founder member of the
General Agreement), Poland, Rumania and Hungary in
their role as members and the People's Republic of
China which has applied to be reinstated as a founder
member of GATT. Bulgaria has recently made a formal
application for GATT membership. The Soviet Union
has for the time being merely expressed a general interest in closer ties with GATT, as part of the present
leadership's greater openness on economic matters.

31. The Punta del Este declaration of September
1986 makes no explicit reference to the problems posed
by the participation of the State-trading countries in
GATT's multilateral system though it is widely realized
that there are major problems in both theory and practice. The State-trading countries which belong to
GATT became members between 1967 and 1973; their
admission was due first and foremost to political
reasons, that is to say the wish that economic and other
relations with those countries should be improved.
Right from the start, however, it was realized that the
General Agreement was hardly suitable, in its original
form, for regulating trade relations with countries

whose economies are differently structured and have
nothing in common with the principles of a market

economy.

The protocols governing these countries' accession to
GATT (Poland 1967, Rumania 1971 and Hungary 1973)
have selective safeguard clauses which make it possible,
for example, to introduce trade quotas and to initiate
anti-dumping and countervailing procedures if the Statetrading countries engage in distorting trade practices.

32. However, no detailed consideration has ever
been given to the main problem: the fact that most of
these countries' foreign trade has so far been in the
hands of an impenetrable centralized monopoly in
which the authorities have full latitude to issue special
authorizations or bans, or vary volume, prices, licences
and currency reserves, according to needs. Under these
circumstances duties and tariffs become meaningless
and it is not possible to observe the 'most favoured
nation' principle, i.e. the non-discrimination of freely
competing countries and operators on which GATT's
multilateral system is founded.

In addition, the fact that prices are not determined by
supply and demand and the means of production are
publicly owned means that there is no point in these
countries' authorities pledging not to grant subsidies or
aid. It is also difficult for other countries to apply antidumping procedures or countervailing duties, because
domestic prices and production costs cannot be used as
a benchmark.

These difficulties have come clearly to the fore in recent

years.

33. In other words, the participation of State-trading
countries in GATT has so far been little more than an

empty gesture. It has been tolerated above all because
of the political importance of maintaining a forum for
talking with these countries, while waiting to see what
the future brings.

However, the prospect of active participation in GATT
by populous economic and political powers such as the
People's Republic of China and the Soviet Union means
that the problem cannot be ignored any further.

34. Hence the need to start considering whether
GATT can be adapted structurally to these requirements. If so, one possible suggestion might be to set up
a relevant working group straight away as part of the
Uruguay Round negotiations.

For example, a transitional phase should be established
for the candidate countries before they become full
members. Periodic checks should be made on the pro

LuLL88 Othcial]ournalot the European Communities ^oC31^eo7

^ress achieved, and on whether commitments have been
respected.

Care must also betaken to ensure that the mass entry
ot the ^tatetradin^ countries does not lead to the
political exploitation ot relations between CATTmem
bers.

3eo. Alternatively, consideration could be ^iven to
the possibility ot hocusing on specihc machinery or
agreements t^or intertacin^ between ditterently struc
turedeconomies ^asinthe case ot incompatible com
putersP

mother words, is CATTthe only possible instrument
tor tacldin^ these problems^

3^. At all events, the aimwill clearly have to bea
sharp increase in trade and closer relations and cooper
ation, especially inviewot the ^reateropennessnow
emer^in^ between the EEC and the Comecon countries,
which must be encouraged.

The Committee things that the European Community
should ^ive this subject its maximum attentionin par
ticularghe Commission should mal^e an indepthanaly
sis ot possible solutions,thereby tn^enn^ottacon
structive debate within the Community institutions.

lOoneatBrussels,^^eptemberl^88.

Additional considerations

37. TheOpimonhas notconsideredseveralpomts
on which thereisabroadconsensuswithmboththe
Community and the Organisation tor economic Coop
eration and development ^OECfo^

— extension otCATTtoservices^respectm^ the l^ey
principles ot reciprocity,transparency,treatment on
apar with nationals,nondiscriminationsandthe
definition ot rules tor consumer protection with
particular reterence to services provided by the lib
eral professions^,

— respect tor intellectual property, through the ere
ationota^enerala^reemenC which newly industn
aliped countries and some developing countries
would also si^n.

This Ceneral Agreement should cover not only counter
teitin^ but also trade marl^s, designation ot origin,
geographical indications, designs and models, copy
n^ht, patents etc.

38. Lastly,the Committee stresses that there must be
no conflict between the completion ot the Community^
internal market by 1^^ and its participation in the
Uruguay Round. The advantages ot the internal market
tor ourCALTpartners must be reciprocated ^especially
with regard to standards, public procurement, and the
littin^ or globalisation otquotasP