I Economic Implications of the Uruguay Round
Author:
Mr. Richard T. Harmsen
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Mr. Arvind Subramanian
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Language:
English
Print Publication Date:
08 Feb 1995
Keywords:
WEFS; country; Uruguay Round agreement; firm; trade; competition policy; structural adjustment; transition country; intellectual property; industrial country; post-Uruguay Round; Trade barriers; General Agreement on Tariffs and Trade; Caribbean
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Abstract

The Final Act of the Uruguay Round was signed in Marrakesh in April 1994, bringing to a conclusion the eighth and most ambitious set of multilateral trade negotiations. One hundred and twenty-five countries participated in the Round, which will reduce tariff and nontariff barriers to trade in goods, strengthen trade rules and extend multilateral rules to new areas—services and intellectual property—and establish the World Trade Organization. Developing countries participated more actively in the negotiations than hitherto and will be more fully integrated into the multilateral trading system after the Round. This paper investigates the economic implications of these different aspects of the Uruguay Round on industrial, developing, and transition economies, based on information available at the time of preparation of the paper. A quick reference guide to the Round provides a synopsis of the main results (Appendix I) and should be read in conjunction with individual sections below.

The Final Act of the Uruguay Round was signed in Marrakesh in April 1994, bringing to a conclusion the eighth and most ambitious set of multilateral trade negotiations. One hundred and twenty-five countries participated in the Round, which will reduce tariff and nontariff barriers to trade in goods, strengthen trade rules and extend multilateral rules to new areas—services and intellectual property—and establish the World Trade Organization. Developing countries participated more actively in the negotiations than hitherto and will be more fully integrated into the multilateral trading system after the Round. This paper investigates the economic implications of these different aspects of the Uruguay Round on industrial, developing, and transition economies, based on information available at the time of preparation of the paper. A quick reference guide to the Round provides a synopsis of the main results (Appendix I) and should be read in conjunction with individual sections below.

Trade Liberalization

A number of studies have estimated the implications of the Uruguay Round agreement for global income and trade.2 Almost all predated the conclusion of the Round and were, in general, based on assumptions about the likely outcomes with respect to reductions in tariffs on industrial and agricultural products, rather than the final results. Also, estimates of price effects of trade liberalization are confined to the agricultural sector and therefore very partial. Calculations of overall terms of trade effects, including the effects of the liberalization of trade in industrial products, are not available.

Annual gains in world income from full implementation are estimated at between $212 billion and $274 billion, of which $78 billion annually would be attributable to developing countries.3 These results, however, provide only a partial picture and likely underestimate the real gains of the Round. A broader, more qualitative assessment of the impact of trade liberalization is provided below.

Tariffs on Industrial Products

The Uruguay Round agreement will result in significant reductions in the level of bound import tariffs on industrial products and an increase in the coverage of bindings.

Industrial Countries

Under the Round, industrial countries will reduce import-weighted average bound tariffs on industrial products4 from 6 percent to 3.6 percent in equal annual installments over a five-year implementation period (with some exceptions)5 (Table 1). However, as applied rates are lower than bound rates in the base period for many industrial countries, the former provide a better basis to measure actual liberalization; taking applied rates as a point of departure, import-weighted average tariffs on industrial imports will decline from 5.0 percent to 3.6 percent.6

Table 1.

Industrial Countries: Uruguay Round Tariff Reductions on Industrial Products by Country1

(In percent)

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Sources: Hoda (1994); and IMF staff estimates.

These numbers are based on available GATT and IMF data. In cases where only a part of tariff lines is bound (columns 1 and 3), average bound rates are calculated as an average of bound and applied rates. The definition of industrial products excludes petroleum.

Simple arithmetic mean.

A closer look at the structure of tariff reductions by groups of industrial products reveals that these have been uneven across sectors (Table 2). The highest proportionate cuts, ranging from about 60 percent to 70 percent (measured in terms of bound rates), have been made in sectors where tariff levels were already modest (wood, paper, pulp, and furniture; metals; and nonelectric machinery). More limited cuts, ranging from about 20 percent to 25 percent, pertain to sectors that continue to face structural adjustment difficulties and where current levels of protection are high (textiles and clothing; transport equipment; and leather, rubber, footwear, and travel products). Measured in absolute terms, however, tariff cuts in some of these industries are sizable; average tariffs in the textiles and clothing sector will decline by 3.4 percentage points from 15.5 percent to 12.1 percent.

Table 2.

Industrial Countries: Uruguay Round Tariff Reductions by Sector

(In percent)

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Source: GATT (1994b).

This column shows selected developing economies where exports of the mentioned categories of products exceed 20 percent of total exports.

Moreover, many products of the highly protected sectors will remain subject to high tariff peaks (defined as tariffs exceeding 15 percent), in particular those of sensitive sectors, such as textiles and clothing. In those sectors subject to more far-reaching liberalization, such as wood, pulp, paper, and furniture, tariff peaks have been reduced significantly or fully eliminated.

Duty-free imports entering industrial country markets will grow considerably. The average share of trade at zero duty is expected to increase from 20 percent to 43 percent. The growth of the share of duty-free trade will be particularly high in sectors such as machinery, metals, mineral products, wood, pulp, paper, furniture and chemical products. However, the share of duty-free trade in the more protected sectors mentioned above will remain relatively low at 4 percent to 21 percent.

Table 3 shows that tariff escalation remains, but at lower levels. For example, the decline in nominal average tariffs on imports of finished industrial products from developing countries amounts to 32 percent, somewhat lower than the average tariff reductions on semimanufactures and raw materials (47 percent and 62 percent, respectively).

Table 3.

Tariff Escalation on Industrial Countries’ Imports from Developing Countries

(In percent)

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Source: GATT (1994b).

Developing and Transition Countries

Many developing countries continued their policies of unilateral trade liberalization, including a reduction in tariffs, in the past several years.7 However, prior to the Uruguay Round, they were in general reluctant to bind lower tariffs—or, in many cases, any tariffs at all—under the GATT (Table 4). As a result of this failure to lock in reforms, a high degree of uncertainty continued to exist about future tariff policies in developing countries. This situation will improve considerably with the implementation of the Uruguay Round agreement, as many developing countries have undertaken to bind all or a large part of their tariff lines. The coverage of bindings on industrial products will increase from 14 percent to 61 percent of imports. A number of countries agreed to increase the coverage of tariff bindings from quite low levels to 100 percent (e.g., Argentina, Brazil, Colombia, Jamaica, and Uruguay).

Table 4.

Tariff Bindings

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Source: GATT (1994b).

The increased coverage of bindings will result in increased predictability of developing countries’ trade regimes but will not lead to actual trade liberalization, as the newly bound tariffs generally exceed currently applied rates (Table 5).8 Also, not with standing major tariff reductions in recent years, the average level of tariffs and the number of products subject to tariff peaks will remain very high in many developing countries. In some countries (e.g., Indonesia, Jamaica, Tunisia, and Uruguay) the differential between bound and applied rates remains large even after full implementation of the Uruguay Round agreement. There are a few exceptions, notably India, the Philippines, and Thailand. India agreed to bind future tariff reductions that it will implement in the context of a comprehensive reform of its trade regime.

Table 5.

Developing Economies: Uruguay Round Tariff Reductions on Industrial Products1

(In percent)

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Sources: Hoda (1994); and IMF staff estimates.

See Table 1, footnote 1. In some cases, column 3 shows higher rates than column 1. This is due to the fact that these figures are calculated as averages of bound and applied rates for unbound items and that the coverage of bindings has been expanded at higher levels than applied rates.

Simple arithmetic mean.

East European countries have also increased the scope of bindings, from 74 percent of imports currently to 96 percent after the implementation of the agreement (Table 4). Further, East European countries will in general reduce their applied tariffs (Table 6). An exception is Romania, where applied tariffs are considerably lower than the bindings under the Round.

Table 6.

Transition Economies: Uruguay Round Tariff Reductions on Industrial Products1

(In percent)

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Sources: Hoda (1994); and IMF staff estimates.

Simple average of MFN statutory rates. These averages typically differ from import-weighted averages, which explains that average applied rates exceed the pre-Uruguay Round bound rates.

Excluding the 6 percent import surcharge in Poland and 10 percent import surcharge in the Slovak Republic.

The impact of the tariff cuts for developing countries’ access to industrial country markets is mixed. Developing and transition countries that are likely to gain are those whose exports are heavily biased toward products where tariff cuts are large. The group of exporters that will benefit from high proportionate cuts in tariffs on metals, nonelectric machinery, wood, pulp, paper, and furniture includes Cameroon, Ghana, and countries of the former Soviet Union, although it should be kept in mind, as noted before, that the initial level of tariffs is already quite low for most of these products. The sizable absolute cuts in tariffs on electric machinery and chemicals and photographic supplies will give a boost to exports of countries like Mexico, Malaysia, Singapore, and some Caribbean countries. The cuts in industrial countries’ tariffs on tropical industrial products and natural resource-based products (Table 3) will also increase export opportunities for a large number of developing countries and transition economies. The group of countries that on the basis of its export structure is less well positioned to benefit from widened market access includes, for example, Ecuador, Honduras, and Kenya. The export earnings of these countries are heavily dependent on industrial products where absolute tariff cuts are limited, such as leather, rubber, footwear, travel goods, fish, and fish products.

Nontariff Barriers on Industrial Products

In most industrial countries, the use of “gray area measures,” such as voluntary export restraints (VERs) and import surveillance, against imports of industrial products had increased significantly during the 1980s to become the most important category of nontariff barriers. The Uruguay Round agreement provides for the virtual elimination of gray area measures within four years after the entry into force of the agreement.9 Signatories are allowed to retain one VER until the end of 1999.

Industrial Countries

The elimination of VERs may have far-reaching implications for future trade policies in industrial countries. Nontariff barriers continue to be significant (covering around 14 percent of imports) and often take the form of VERs. VERs are often subject to discretionary action by the authorities. They reduce competition and predictability of market access for foreign suppliers, raise prices, and create rents for domestic industries and foreign suppliers with privileged market access.

Various studies confirm the considerable negative effects of VERs.10 For instance, VERs on Japanese cars in the 1980s resulted in increases in domestic car prices of 12-20 percent in the United States and the European Union (EU).11 Similar conclusions apply to the U.S. textiles and clothing sectors and the semiconductor trade agreement between Japan and the United States. The elimination of VERs may therefore have considerable positive welfare effects in industrial countries. The full benefits from the elimination of VERs will be felt only if they are not replaced by other forms of protection, such as antidumping measures. Furthermore, as officially sponsored VERs are ended, there is a risk that more industry-to-industry VERs may crop up. Because such actions are nontransparent, vigilance is needed to ensure that the Uruguay Round agreement is implemented in letter and spirit.

Developing and Transition Countries

Given the fact that developing countries and transition economies normally do not impose gray area measures as instruments of trade protection, the elimination of these measures under the Uruguay Round agreement will have little or no immediate impact on their own trade liberalization. The Round will, however, have implications for access to industrial country markets. In 1992, nearly one tenth of developing countries’ exports to industrial countries were covered by gray area measures. Fish and fish products are the group of goods most often hit by restrictions; nearly half of these exports were subject to gray area measures. Other sectors where gray area measures against exports from developing and transition countries are highly significant include footwear, iron and steel, consumer electronics, textiles and clothing, and agriculture (the latter two categories of products are discussed below). The elimination of gray area measures by industrial countries will increase export opportunities for developing countries. Low and Yeats (1994) estimate that the average trade coverage ratio of nontariff measures (NTMs), including quantitative restrictions (QRs) and restrictions under the Multifiber Arrangement (MFA), against imports from developing countries will decline from 18.0 percent at present to 4.2 percent to 5.5 percent after the implementation of the Round.

Agriculture

An outstanding achievement of the Uruguay Round was the integration of the agricultural sector into the multilateral trading system. The agreed reductions in domestic market supports and export subsidization (Appendix I) will mitigate distortions in world markets and increase export opportunities for more efficient producers.

Industrial Countries

Given the significant cost of agricultural subsidization in most industrial countries, the welfare gains from liberalization are considerable. Goldin, Knudsen, and van der Mensbrugghe (1993), for instance, estimated the positive impact on GDP of liberalization in line with the Draft Final Act of the Uruguay Round at $57 billion for the EU, $16 billion for Japan, $12 billion for the United States, $9 billion for the European Free Trade Association (EFTA), and about $2 billion for Canada and Australia and New Zealand (1985 prices). Nguyen, Perroni, and Wigle (1993) come to roughly comparable numbers.12

In the EU, the costs and distortionary effects of the EU’s Common Agricultural Policy (CAP) had already induced EU members to agree on the 1992 CAP reform. The reform provides for a phased shift away from subsidization of production to direct payments to farmers, and significant reductions in guaranteed prices for cereals and beef to be completed in the marketing year 1995/96. Scenarios on the future development of agricultural production in the EU made by the European Commission show a significant decline in output of cereals during the 1990s as a result of the CAP reform.13 If events prove that the CAP reform is insufficient to produce the outcome required by the Uruguay Round agreement, further measures will be needed.

The implications of the agreement for agricultural policies in the United States seem to be less far-reaching. The commitment to reduce trade-distorting domestic supports is expected to have rather limited consequences, because supports for a number of commodities have already been reduced in recent years. Reductions in domestic intervention prices likely will not exceed 1 percent a year during the Uruguay Round implementation period.14 The commitment to reduce export subsidies will have consequences for U.S. exports of subsidized commodities (including those under the Export Enhancement Program), which are expected to decrease from baseline program levels by over $500 million a year by the end of the implementation period and beyond. On the other hand, U.S. agricultural exports (especially grains and animal products) are expected to increase by $1.6 billion to $4.7 billion in 2000.15

The main implications for the Japanese agricultural sector result from commitments on market access for rice. Japan will provide minimum access to the domestic rice market equivalent to 4 percent of domestic consumption (about 400,000 metric tons) in the first year of implementation (1995), rising to 8 percent of domestic consumption at the end of the six-year period of implementation (2000). The Round’s provisions on domestic supports and export subsidies are not expected to have consequences for Japanese agricultural policies. Japan had already achieved the Round’s target on domestic supports by 1992 through cuts in domestic prices and a production limitation program since 1986. Also, Japan does not provide any export subsidies for agriculture.

Developing and Transition Countries

Developing and transition countries made an important contribution to the security of market access by binding 100 percent of agricultural product tariff lines. However, as a result of the high level of bound tariffs, the direct impact of the Uruguay Round agreement on access to agricultural markets in developing countries is expected to remain limited in the short run. At the same time, a number of food-exporting developing and transition economies stand to gain from higher prices and lower subsidies in industrial countries, such as the members of the Cairns Group,16 sugar producers (e.g., Cuba, Brazil, Dominican Republic, Thailand), and East European countries (e.g., Bulgaria and Poland). Further, a large number of developing and transition countries with potentially strong agricultural sectors (e.g., China, Kenya, Mexico, South Africa) may benefit from a more liberalized and market-oriented environment if they succeed in implementing the needed structural adjustment measures with a view to developing domestic production capacities.

The world market price effects of the expected decrease in supply of temperate zone products as a result of agricultural reforms in industrial countries have been the subject of various quantitative studies.17 Although the magnitudes of the estimated price effects differ considerably, most studies show relative price increases for a limited number of heavily protected commodities, notably wheat, rice, meat, dairy products, and sugar. Brandao and Martin (1993), for instance, show that price increases for these products as a result of reduced protection under the agreement could reach 4-10 percent over the medium term.

A concern expressed by developing countries is that higher prices may lead to adverse welfare effects in developing countries that are net commercial importers of food. Brandao and Martin (1993) identify African and Mediterranean countries (including the Maghreb) as experiencing possible adverse effects; this is also indicated by Goldin, Knudsen, and van der Mensbrugghe (1993) whose study shows possible net welfare losses, for example, for Nigeria18 and the Mediterranean countries. It should be noted that terms of trade losses resulting from higher food import prices are likely to be offset in most cases by gains in other areas as a result of wider access to industrial country markets for products that are important to developing countries (such as textiles and clothing and, as noted earlier, agricultural products). Also, there are important caveats to the calculations in the above-mentioned studies, which, if taken into account, could change the picture considerably in a more favorable direction. First, the calculations are all based on the text of the Draft Final Act of the Uruguay Round or other, more general, assumptions that, as discussed above, imply a higher degree of liberalization in industrial countries than was actually agreed upon in the Final Act of the Uruguay Round. Second, the estimated effects on food prices do not fully take into account the possible supply responses of nonsubsidized producers in industrial and developing countries, which could mitigate the price increases considerably.

The parties to the Uruguay Round agreement have nevertheless recognized that some least-developed and net food-importing developing countries may experience negative effects from the Round. A Ministerial Decision in the Final Act provides for, inter alia, negotiations “to establish a level of food aid commitments sufficient to meet the legitimate needs of developing countries during the reform programme,” and “to adopt guidelines to ensure that an increasing proportion of basic foodstuffs is provided to least-developed and net food-importing developing countries in fully grant form and/or on appropriate concessional terms…”19

Textiles and Clothing

Data on world trade in textiles and clothing are presented in Tables 7 and 8. The Round’s agreement will have important effects on these sectors, which have hitherto not been covered by important GATT rules.

Table 7.

Exports of Textiles and Clothing

(In percent of own exports)

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Source: GATT (1993c).

Data on textiles are not available; total refers to clothing only.

The number for textiles refers to 1991.

Table 8.

Leading Exporters and Importers of Textiles and Clothing

(Value c.i.f. in billions of U.S. dollars; share in percent

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Source: GATT (1993c).

World trade figures including re-exports are not available.

Includes trade through processing zones.

Imports f.o.b.

Retained imports are defined as imports less re-exports.

Industrial Countries

Not with standing the continued prevalence of high tariffs and tariff peaks, and the very much backloaded integration of the MFA in the multilateral trading system, the welfare gains could be substantial from the abolition of the MFA and the elimination of VERs on textiles and clothing (see Box 1 for a history of the MFA). De Melo and Tarr (1990) estimate that in the United States the welfare costs due to MFA quotas are almost $12 billion (at 1984 prices). The United States International Trade Commission (USITC (1993a)) estimates that abolition of the MFA, while leaving existing high tariffs in place, would result in a welfare gain in the United States ranging from $9.6 billion to $10.8 billion (at 1991 prices), equivalent to about 24 percent of the total value of U.S. textiles and clothing imports. The MFA restraints alone account for over half of the total welfare costs of protection in the United States.

Abolishing the MFA is likely to lead to higher import penetration and employment losses in the domestic industries in industrial countries. In the case of the United States, the USITC study estimates that about 37,000 jobs would be lost, mainly in the more heavily protected apparel sector; dividing the estimated economy-wide welfare gain by the estimated job losses suggests that the welfare cost of each job protected by the MFA is about $270,000. For Portugal, the European Commission, in light of the likely impact on the weaker segments of the domestic textile and clothing industry, has approved an allocation of ECU 400 million for the modernization of the Portuguese textile industry. Also, a widening of market access to developing countries is of particular concern to many industrial countries. This is reflected in the Agreement on Textiles and Clothing, which specifies that all members shall take such actions as may be necessary to abide by GATT 1994 rules and disciplines so as to “achieve improved access to markets for textile and clothing products through such measures as tariff reductions and bindings, reduction or elimination of non-tariff barriers, and facilitation of customs, administrative and licensing formalities.”20

Developing and Transition Countries

GATT (1993a) notes that developing countries’ exports to major countries of the Organization for Economic Cooperation and Development (OECD) could increase by 82 percent for textiles and 93 percent for clothing over the ten-year implementation period of the Uruguay Round agreement on textiles and clothing. A major part of the gains will come at the end of the period. Trela and Whalley (1990) estimate that the removal of protection in Canada, the EU, and the United States would gain around $8 billion (in 1986 prices) for the 34 developing countries included in their study on the assumption of elimination of tariffs and quotas.

Abolishing the MFA will also have important effects on specific groups of developing countries. These effects may work in opposite directions for individual producers and are, in general, hard to measure. First, the existence of binding quota restraints on some countries has probably led to the relocation of production toward less quota-restricted countries. Eliminating MFA restrictions may lead to production being concentrated in more efficient producers (e.g., China and Viet Nam) or new locations. Second, although restraints under the MFA apply to most developing countries, some exporters currently enjoy preferential access to specific markets (e.g., Morocco, Tunisia, and Mexico). Eliminating the MFA may erode their relative competitive position in these markets, but it may expand their trading opportunities in other markets previously restricted. Third, several exporting economies have been able to maintain market shares due to the rigidities of the quota system, not with standing declining competitiveness (e.g., Hong Kong and Korea). When the MFA is phased out, these economies may experience a gradual weakening of their market positions as a result of increased competition from more efficient producers.

New Areas

Trade in Services

International transactions in services have become increasingly important in both industrial and developing countries over the last few decades. During the period 1982-92, world exports of services grew at an annual average rate of 9.5 percent, compared with 7.1 percent for merchandise exports. As a result, the share of services in total exports of goods and nonfactor services increased from 17.7 percent in 1982 to 21.1 percent in 1992.21

The General Agreement on Trade in Services (GATS), therefore, represents an important achievement of the Uruguay Round. By setting up a multilateral framework based on nondiscrimination and transparency, and by instituting a forum for negotiations of market access among participant countries, the GATS has extended the reach of multilateral rules and disciplines to the services sector, and will thus also provide a stimulus to the world economy by fostering liberalization of trade in services.22

The Multifiber Arrangement

The textiles and clothing sectors have an important role in world trade, accounting in 1992, respectively, for 3.2 percent and 3.6 percent of world merchandise exports. For several countries, mostly in the developing world, exports of textiles and clothing represent a large share in total merchandise exports (Table 7). In industrial and developing countries, imports and exports of textiles increased in 1990-92, while output generally stagnated or declined. In industrial countries, employment in the sectors declined: in the United States it fell by about 1 percent between 1986 and 1992, and in the European Union it contracted by about 14 percent between 1988 and 1992.1

In many developing countries, the share of clothing and textiles in total merchandise exports has changed dramatically during the past decade (Table 8). While existing trade restrictions may have contributed to the observed trends, these long-term fluctuations point to the importance of the textile and clothing sectors in export-oriented development strategies. In some countries (e.g., Bangladesh, China, India, Indonesia, Mauritius, Morocco, and Pakistan), the expansion of the textile and clothing sectors partly reflects industrialization and diversification away from resource-based exports. In other economies (e.g., Hong Kong, Korea, and Taiwan Province of China), the declining relative importance of the textiles and clothing sectors suggests that economies that embraced an export-oriented trade strategy during the 1960s and the 1970s have been able during the past decade to move toward more technologically advanced sectors, reaping the gains of rapid physical and human capital accumulation.

Trade in textiles and clothing has been largely regulated by international agreements over the past thirty-four years. Following the Short-Term (1961-62) and the Long-Term (1962-73) Arrangements, the Multifiber Arrangement (MFA) came into existence. The original MFA (1974-78) was followed by MFA II (1978-81), MFA III (1982-86) and MFA IV (1986-July 1991). MFA IV was subsequently extended three times: first to December 1992, then to December 1993, and recently to December 1994. MFA participants—44 countries in July 1993—accounted in 1992 for some 80 percent of world textiles and clothing exports (excluding intra-EU trade).

The MFA’s stated objectives were to achieve the expansion and progressive liberalization of world trade in textile products, while at the same time avoiding disruptive effects in individual markets and lines of production. Representing a major departure from the GATT’s principle of nondiscrimination, the MFA envisaged essentially two types of quantity restrictions: (1) those under its Article 3, which permits bilateral or unilateral restrictions as a result of market disruption, and (2) those under Article 4, which provides for bilateral agreements to eliminate the risks of market disruptions. The MFA has “flexibility” provisions that permit switching between individual quota categories (swing), carryover of unutilized quota to the following year, or borrowing (carry forward) of next year’s quota. Through the years, the number of participating countries and the product coverage of the Arrangement has expanded. Although quotas generally have been increased annually by 1 percent for wool products and 6 percent for all other products, major suppliers are frequently subject to lower growth limits. According to the GATT Textile Surveillance Body (TSB), the number of bilateral restraint agreements on exports of textiles and clothing applied under the cover of the MFA was 99 as of July 1992.2

Within the MFA framework, some participating countries (e.g., Austria, Finland, Japan, and Switzerland) impose few restraints, but others (e.g., the European Union and the United States) have been more restrictive. MFA restraints continue to apply almost exclusively to exports from developing countries, as has been the case throughout the life of the Arrangement. Some countries not participating in the MFA (e.g., Sweden) maintain a very liberal trade regime in textile products. In others, several additional constraints on trade are imposed outside the MFA framework, often in nontransparent ways, both by industrial and developing countries. Such constraints include bilateral restraint agreements, quotas applied on imports from specific origins or non-MFA products (e.g., silk), and less formal arrangements between governments, between government and industry, and between industries.

1See Hufbauer and Elliott (1994), and Commission of the European Communities (1993b). 2GATT (1993b). Between July 1992 and July 1993, the TSB was notified of five additional new agreements.

Industrial countries, the major world suppliers of services (Table 9), are expected to gain significantly from an opening up of markets in this sector. Developing countries, however, over the period 1970-92, have increased their share of exports of services from 11 percent to about 15 percent. In addition, revealed comparative advantage indices suggest that a number of developing countries are relatively specialized in services and, therefore, developing countries will have a significant stake in liberalization of trade in services.23 Indeed, this is reflected by the large number of developing countries (77) that have submitted schedules of commitments in services under the Uruguay Round.

Table 9.

Leading Exporters and Importers in World Trade in Commercial Services, 19921

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Source: GATT (1993c).

This table presents the top ten leading exporters and the top ten leading importers among industrial countries and among developing economies. Some industrial countries not shown in this table actually have higher trade shares than some developing economies mentioned in the table.

The composition of trade in services has changed dramatically over the last two decades: the share of total exports of the traditional services consisting of transport and travel has declined in favor of financial services, nonmerchandise insurance, cultural services (films and videos), consulting, and other professional services. In the case of financial services, there has been an increased integration of world markets, reflecting, inter alia, the continued internationalization of business activities through the expansion of multinational corporations, financial innovations, such as the development of complex hedging techniques, rapid progress in telecommunications and information technologies, and reduced exchange and capital controls in both developing and industrial countries.

Industrial and transition countries have included almost all services sectors in their commitments. The sectoral coverage of commitments made by developing countries is in general more limited.

Commitments on financial services made by the United States, the EU, and Japan cover the banking and securities sectors and insurance services. No financial subsectors are exempted from the scope of the commitments. By and large, the existing regime for financial services in these three regions is made applicable to all countries, although in some cases commitments have been made to increase market access. Japan, for example, has offered to gradually open up its pension fund management to foreign firms, and the EU has agreed to make the benefits of the Single Market available to all foreign financial institutions. The United States, however, because it considered liberalization offers by some countries insufficient, decided to limit the extent of its liberalization commitments for the time being to a number of basic financial services. Further access will be contingent on other countries providing better access to their financial markets. Negotiations are still continuing with a view to improving offers and are scheduled to be completed within six months after entry into force of the WTO. Appendix II contains a list of limitations on market access and national treatment in the schedules on financial services for selected industrial and developing countries (Brazil, the EU, India, Korea, Japan, and the United States).

Intellectual Property Rights

Given the growing importance of intellectual property-based industries in international transactions, the agreement on intellectual property rights (TRIPs) can be considered as one of the most important achievements of the Uruguay Round.

Industrial Countries

Between 1970 and 1991, intellectual property income from abroad for seven major industrial countries grew from $1.9 billion to $30.0 billion (Table 10). In the short run, producers of goods based on intellectual property will benefit through increased sales and profits at the expense of competitors hitherto supplying the market through imitation, and through higher profits as they assert their market position mainly in developing countries. In the long run, higher levels of intellectual property protection may serve to increase global levels of innovation, creativity, and research and development, thereby lowering production costs and increasing product variety, benefiting consumers worldwide.

Table 10.

Major Industrial Countries’ Intellectual Property Income from Abroad1

(In billions U.S. dollars)

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Source: OECD (1993).

Canada, France, Germany, Italy, Japan, United Kingdom, and the United States.

The major beneficiaries of the TRIPs agreement will be in the high technology industry, the entertainment sector, and the luxury goods industry. High technology industries, such as the pharmaceutical, chemical, and information technology industries, the prime movers of the TRIPs initiative, will benefit from better protection of technology through patent, trade secret, copyright, and computer “chips” protection. In the entertainment sector, producers of sound and video recordings, motion pictures, and publishing will benefit from improved copyright protection. Finally, producers of luxury brand products—perfumes, T-shirts, watches—will in general benefit from better enforcement of their trademark against counterfeiting by imitators.

Developing and Transition Countries

Developing countries, as net importers of technology, were initially reluctant to agree to higher levels of intellectual property protection because of concerns about its potentially adverse impact on prices and welfare. Concerns were most acute in the pharmaceuticals sector because patent protection has a more decisive impact on market outcomes in this sector.

The economic impact of higher patent protection in pharmaceuticals has static and dynamic dimensions. For a net importer, the static effects are likely to be adverse because patent protection makes the market less competitive, thereby increasing prices and reducing welfare.24 These adverse static effects could in time be offset by possible dynamic effects in the form of higher research and development induced by stronger patent protection and new incentives for the development of specified pharmaceutical products (if developing countries’ markets are sufficiently large to induce higher research and development), which would reduce long-run costs and increase product variety. Also, the timing of the implementation of the TRIPs agreement is such that its full economic impact on the pharmaceutical sector will only be felt 20 years after the WTO enters into force. Further, developing countries will retain the right to use remedial measures in the event that the patent owner charges very high prices. Higher intellectual property protection would benefit those developing countries that are important exporters of copyright-based audiovisual products and may serve to attract foreign investment and technology.

Investment Measures

Trade-related investment measures (TRIMs) refer to measures requiring or inducing foreign enterprises to meet certain yardsticks of performance. The most commonly used TRIMs are local content requirements, when a firm must ensure that local inputs are used for a specified amount or share of production; export performance requirements, when a firm must ensure that a specified amount or share of local production be exported; and trade (foreign exchange) balancing requirements, when a firm must ensure that imports are not greater than a specified proportion of exports. The Uruguay Round TRIMs agreement prohibits the use of local content requirements and trade and foreign exchange balancing requirements, but not export performance requirements.

TRIMs are employed more commonly by developing than industrial or transition countries. A review of trade regimes of selected developing countries described in the GATT’s Trade Policy Review Mechanism reports shows that several countries employed local content requirements in the period 1991-94.25 The requirements were most prevalent in the automotive sector; specification of the extent of local content varied from about 25 percent to 70 percent. Studies show a disparity between the amount of foreign investment theoretically affected by TRIMs and the amount of investment reported by companies as covered by TRIMs.26 This is because the application of TRIMs by countries is discretionary and hence negotiable; moreover, TRIMs may often not be binding insofar as they require a course of action that the firm would otherwise pursue.

The elimination of TRIMs will have economic effects broadly similar to liberalization in other areas of trade policy.27 The most frequently used TRIM—local content requirements—when it is binding serves to raise the costs of production by forcing the use of higher-cost, locally produced inputs over imported inputs. For instance, the oil import quota scheme operated by the United States in the 1960s and 1970s, which amounted to a local content requirement, cost the consumers about $5 billion a year. Most of this represented a transfer to domestic oil producers, resulting in a net welfare cost of about $1–2 billion.28 Trade and foreign exchange balancing requirements are conceptually analogous to quantitative restrictions as they have the effect of restricting imports.

Strengthened Rules and Institutions

The Uruguay Round also clarified or strengthened rules with respect to the use of specific trade policy instruments, notably safeguards, antidumping, and countervailing measures.

Safeguards

The agreement on safeguards provides for the elimination of gray area measures (including VERs), a sunset clause, and procedural requirements, including public notice for hearings. The implications of the elimination of VERs are discussed above. The provisions on the use of safeguards may both strengthen and weaken discipline in this area. The relatively strict conditions of GATT Article XIX had discouraged use of the safeguards clause and had induced resort to gray area measures such as VERs. To reduce such disincentives, the Uruguay Round modified some aspects of the safeguard clause. Specifically, exporting countries affected by a safeguard measure are not allowed to suspend concessions on their side for three years. Also, the new agreement provides for some selectivity, by allowing those safeguard measures that take the form of quantitative restrictions to be imposed only against specific exporting countries. On the other hand, discipline will be strengthened by the increase in transparency, a strengthening of rules on the provision of evidence of injury, the sunset clause, and, equally important, the requirement of progressive liberalization of the measure if its duration is over one year (see Appendix I).

Antidumping Measures

The Uruguay Round also succeeded in clarifying procedural issues and encouraging enhanced transparency in the area of antidumping measures (Appendix I). The new procedures are designed to enhance the fairness of proceedings. Still uncertain is the extent to which the new rules will substantively alter existing practices and whether the use of antidumping measures will be appreciably restrained upon implementation of the agreement. Indeed, based on the trend over the last several years in the use of antidumping among traditional industrial country users, and emerging interest in its use among developing countries, there is a risk that resort to antidumping actions may continue to spread during the 1990s.

Subsidies and Countervailing Duties

Under the Uruguay Round agreement on industrial subsidies, actions against subsidies can be taken along two tracks (Appendix I): first, they can be countervailed, pursuant to national procedures under which the existence of a subsidy, of injury to a domestic industry, and of a causal link between the two need to be demonstrated.29 The Uruguay Round does not specify which subsidies can be countervailed under national law, although it does define two kinds of subsidies that may not be countervailed: “green box” subsidies (see below) and “de minimis” subsidies (subsidies less than 1 percent of the value of the product, and less than 2 percent in the case of developing countries). By implication, all other subsidies are countervailable pursuant to national laws and procedures.

The second track is those subsidies governed by multilateral procedures. In this connection, the Uruguay Round defines three groups of subsidies: prohibited (“red box”), actionable (“amber box”), and nonactionable subsidies (“green box”). The red box covers export subsidies, including currency retention schemes and subsidized export credits, and subsidies for the use of domestic over imported goods. The amber box covers nonprohibited subsidies that cause injury to a domestic industry, cause nullification or impairment of benefits for other WTO members, or “serious prejudice” to the interests of another member. Serious prejudice arises if the subsidy affects exports to the subsidizing country or to third country markets, or if it leads to significant price undercutting or an increase in the world market share of the subsidizing country. Serious prejudice is presumed to exist in the case of production subsidies exceeding 5 percent of the value of a product, subsidies to cover operating losses of an industry or an enterprise (other than one-time measures to provide time for the development of long-term solutions or for social reasons), direct forgiveness of debt, and grants to cover debt repayment. Such subsidies are therefore virtually prohibited. The green box covers subsidies that are not specific to (a group of) enterprises, or that provide support for research activities, assistance to disadvantaged regions, and to environmental adaptation. (Brazil, the EU, India, Korea, The agreement provides for a number of important exceptions for developing countries and transition economies in terms of actions that can be taken against subsidies granted by them pursuant to multilateral procedures (in other words, these exceptions do not apply to countervailing measures that can be taken against such subsidies). Least-developed and developing countries with per capita GNP of less than $1,000 a year need not eliminate export subsidies.30 Other developing countries and transition economies need to do so after eight and seven years, respectively. Also, developing countries’ subsidies arising from debt forgiveness in the context of privatization programs are exempt from the presumption of serious prejudice; transition economies are also exempt, but only for a period of seven years.

The major difference between the Uruguay Round and Tokyo Round agreements on subsidies are first, the Round gives a clearer definition of different types of subsidies that are actionable or nonactionable. Second, it clarifies the concept of serious prejudice and thereby strengthens the disciplines on subsidies. And third, not-withstanding exceptions, the new rules will apply more broadly to developing countries and transition economies (Appendix I). In relation to specifying which subsidies may be countervailed, however, the Uruguay Round agreement is broadly similar to the Tokyo Round agreement. For example, debt forgiveness was countervailable under the Tokyo Round and continues to be so under the Uruguay Round.

The improved definitions and dispute settlement procedure may lead to a reduction in trade distortive state supports in industrial countries. It is not clear how the exemption of green box subsidies and the longer implementation periods for developing and transition economies will affect future progress in encouraging reduction in subsidies. In general, however, the strengthening of procedures and transparency with respect to countervailing measures as well as the exclusion of relatively small subsidies from countervailability may increase discipline, although much will depend on the practical application of the agreement.

Other

The Uruguay Round agreement will also lead to a number of institutional changes, including changes with respect to the Trade Policy Review Mechanism (TPRM), a strengthening of rules on dispute settlement, and the establishment of the World Trade Organization. At the conclusion of the Mid-Term Review of the Uruguay Round in 1989, it was agreed that decisions on the work of dispute panels would no longer be dependent on the consent of the parties to the dispute. The Uruguay Round agreement has further strengthened dispute settlement arrangements by eliminating the right of parties to a dispute to veto the conclusions of the dispute panel and the authorization of the right to retaliate when a country does not comply with a panel ruling; this will lend greater automaticity to dispute settlement procedures. It is expected that this change will strengthen the role of WTO panels in international trade disputes. It is also important that the agreement has limited the scope for unilateral action.

Preferences

The most-favored-nation (MFN) tariff cuts under the Uruguay Round will lead to a small erosion in the preference margins that beneficiaries currently enjoy under schemes such as the Generalized System of Preferences (GSP), Lomé Convention, and the Mediterranean Agreements (see Box 2); Tables 11 and 12 present the value of imports enjoying preference under these schemes. This erosion is less than suggested by the MFN tariff cuts.31 The impact of preference erosion will vary across groups of countries. The major beneficiaries of preferences (in terms of the value of imports affected) are the more advanced developing countries under the GSP.32 Furthermore, effective preferential margins are on average higher for these countries as their exports are weighted in favor of higher value-added products that face higher MFN tariffs. Accordingly, the impact of erosion of preferences due to declining MFN tariffs is likely to be important for these countries. However, the advanced developing countries in Asia and Latin America will also be major beneficiaries of the Round because of market opening in agriculture and textiles.33 Furthermore, the benefits from MFN cuts are likely to outweigh any losses from preference erosion, as preferential exports represent about 26 percent of total dutiable exports in OECD markets.

Table 11.

OECD Imports Under the Generalized System of Preferences (GSP)

(In billions of U.S. dollars)

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Source: UNCTAD (1994).

Excluding the Czech Republic, Hungary, Poland, and the Slovak Republic under the EU scheme.

For Australia and Canada, the figures are for 1991.

Table 12.

Imports Under Preferential Schemes Other Than the Generalized System of Preferences

(In billions of U.S. dollars)

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Sources: UNCTAD (1994); and USITC (1993b).

Coverage of Preferences

The most important existing preferential schemes are the GSP, under which preferences are granted by many industrial countries to at least 130 developing countries, the Lomé Convention (granted by the EU to certain African, Caribbean, and Pacific (ACP) developing countries), the Mediterranean Agreements (granted by the EU to North African developing countries), and the Caribbean Basin Initiative (granted by the United States to developing countries in the Caribbean). Preferential schemes differ from regional trading arrangements mainly in that the preferences are nonreciprocal. Preferences represent a derogation from the GATT’s MFN principle. This derogation was first sanctified by a waiver granted by the Contracting Parties in 1971, and later made permanent under the Enabling Clause of the Tokyo Round in 1979. Other preferential arrangements such as the Caribbean Basin Initiative are covered by waivers from GATT rules.

The GSP covers a wide range of industrial (excluding textiles and clothing in the case of the U.S. scheme) and agricultural products (excluding some processed agricultural products in the case of the EU scheme). There are numerous conditions attached to the granting of preferences. The Lomé Convention grants unrestricted and duty-free access in industrial products, including coal, steel, textiles and clothing; ACP countries also benefit from duty reductions and preferential quantitative access on a number of agricultural products. The Mediterranean Agreements cover a wide range of industrial and agricultural products. The Caribbean Basin Initiative covers most products with the exception of textiles and clothing. Preferential access takes the form of goods usually being allowed to enter duty free or at lower-than-MFN rates.

The annual average increase in GSP imports of OECD countries between 1976 and 1992 was almost twice that of total imports from all beneficiaries and about 1.5 times that of imports from all sources. Total OECD imports in 1992 from GSP beneficiaries amounted to $426 billion, of which 71 percent represented dutiable imports (Table 11). Imports amounting to $77 billion (about 26 percent of dutiable imports) actually received preferential treatment. Exports of the least-developed countries (excluding ACP countries) that received preferences in OECD markets under the GSP amounted to $1.0 billion, or about 19 percent of these countries’ total exports to OECD markets (UNCTAD (1994)). The EU accounted for the largest share of preferential imports (46 percent, or $35.7 billion) granted by OECD countries, followed by the United States (22 percent or $16.7 billion) and Japan (16 percent, or $12.3 billion).

The major beneficiaries of preferences are the more advanced developing countries. The major beneficiaries in each market, listed in order of the magnitude of their exports that benefit from preferential treatment, are as follows. Ten countries accounted for about 83 percent of the total U.S. imports receiving preferential treatment in 1992 (Mexico, Malaysia, Thailand, Brazil, the Philippines, Indonesia, India, Israel, Venezuela, and Argentina). In the EU, ten beneficiaries accounted for 72 percent of imports receiving preferential treatment in 1989 (China, Brazil, India, Thailand, Indonesia, Hong Kong, Singapore, Kuwait, Romania, and Malaysia). The top nine beneficiaries of the Japanese GSP scheme in 1990 were Korea, China, Taiwan Province of China, Brazil, Hong Kong, Thailand, the Philippines, Indonesia, and Chile. The top three beneficiaries accounted for 50 percent of Japanese preferential imports.

The Lomé Convention and the Mediterranean Agreements each provided preferences covering over $9 billion of EU imports in 1989 (Table 12). While smaller than the GSP in the value of preferential imports affected by preferences, these schemes cover fewer countries (64 and 12 countries, respectively). Under the Lomé Convention, preferences are more important in agriculture compared with industry, as a large amount of imports of industrial products from ACP countries face zero MFN tariffs. Under the Mediterranean Agreements, preferences are more important in industrial products as exports of agricultural products are relatively small.

Preferences under the Caribbean Basin Initiative covered $1.5 billion of imports in 1992, or 16 percent of imports from beneficiary countries.

The African, Caribbean, and Pacific developing countries (ACP) receive preferential treatment affecting about $10 billion of their exports under the Lomé Convention and the Caribbean Basin Initiative. Although smaller in absolute value than preferences received by the more advanced developing countries, preferential exports account for a larger share of dutiable exports. The actual effect on these countries is nevertheless likely to be small for three reasons. First, preferential margins are on average smaller for these countries because the composition of exports is often weighted in favor of commodities that in any case face low MFN tariffs (Table 13). An 18 percent reduction in preferential margins would entail very small annual export losses to sub-Saharan African countries.34 Second, the composition of exports of ACP countries suggests that even this estimate could be overstated. Two thirds of the preferences received by ACP countries are in the agricultural sector, which take the form of guaranteed quantitative access for exports of ACP countries. The requirement in the agriculture agreement of the Uruguay Round to guarantee a certain amount of imports as a share of domestic consumption can be met by providing market access to preference-receiving countries in line with their current market shares. Thus, current levels of access and the implicit preference for high-cost exporters can be preserved. Finally, owing to the phase-in of the tariff cuts, the full impact of preference erosion will only be felt five years (industrial products) and six years (agricultural products) after the entry into force of the WTO.35 There may, however, be a few countries that are overwhelmingly dependent on preferences on industrial products and could, therefore, be seriously affected by preference erosion. The impact on individual countries will need to be closely monitored in the context of Fund- and Bank-supported programs as the Uruguay Round agreement is implemented. Mediterranean countries enjoy preferences affecting $9.2 billion of their exports. Industrial products are the major beneficiaries of the preferences (Table 12). While the Uruguay Round would allow for the preservation of existing levels of access in agriculture, it would not do so for industrial products.36 For this reason, the overall impact of preference erosion is likely to be more significant for countries under the Mediterranean Agreements. Even so, this impact will be felt gradually over five years after the entry into force of the WTO.

Table 13.

Sub-Saharan Africa: Preferences for Non-Oil Exports in Industrial Countries1

(In percent)

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Source: Yeats (1993).

Tariffs are simple (unweighted) averages of nominal duties levied on the country’s exports.

The preference margin is the difference between the simple average tariff on the African country’s exports and the simple average tariff on other exporters of the same products.

From a forward-looking perspective, it is likely that preferences will continue to be eroded not only as a result of current and post-Uruguay Round multilateral liberalization, but also because of proliferating regional trade liberalization initiatives. Reliance on preferences, even where they have static positive effects, is therefore not a viable long-term strategy for current beneficiaries. At the same time, preferences have not been an unmixed blessing. They have been subject to frequent changes, particularly where preferences have led to successful exports, and have therefore not offered a reliable or secure basis for export growth. Preferences have also been used as a bargaining tool by industrial countries to secure policy changes in areas such as workers’ rights, intellectual property, and services, with unpredictable consequences. While preferences may have a beneficial effect on exports, the superior export performance of the newly industrializing economies has resulted from their outward-oriented growth strategies rather than preferences.37

Integration Issues

The Uruguay Round was unique in terms of the breadth and intensity of the developing countries’ participation in the negotiating process compared with previous rounds. Ninety-one developing countries participated in the Round, considerably more than in previous Rounds. In the Tokyo Round, preserving special and differential treatment (S&D) had been a high priority for developing countries (Box 3). In the Uruguay Round, however, many developing countries offered tariff concessions, and the least-developed countries will need to do so by April 1995. The most important symbolic indicator of the developing countries’ status in the new trading system is their universal adherence to all the multilateral agreements of the Uruguay Round. The principle that all countries should have broadly similar rights and obligations is thus enshrined in the WTO.

Evolution of Special and Differential Treatment

Developing countries have traditionally had a special status in the GATT in terms of their rights and obligations relative to industrial countries—the so-called special and differential (S&D) treatment. This was legally enshrined in the GATT in 1965 when Part IV on Trade and Development was added, in the Enabling Clause of the Tokyo Round in 1979,1 and in the Punta del Este Declaration, which launched the Uruguay Round. In essence, S&D treatment had three elements.

First, and foremost, it allowed a greater freedom to take trade restrictive measures than industrial countries. This was a consequence of the pursuit of inward-oriented policies by developing countries coupled with the bargaining framework of the GATT, which implied that liberalization, being costly (“a concession” given), should not be required of developing countries. A logical corollary was that even less liberalization should be sought of the least developed countries. This greater freedom to take restrictive measures was reflected in (1) fewer tariff bindings than industrial countries (see Table 4); (2) persistent recourse to QRs for balance-of-payments reasons under Article XVIII:B of the GATT; and (3) fewer commitments in regard to other restrictive measures, such as export and domestic subsidies, import licensing, and government procurement, as reflected in limited adherence by developing countries to the relevant Tokyo Round codes.

Second, developing countries sought preferential access for their exports to the markets of industrial countries; a related feature was the right of developing countries to grant preferences to each other’s exports under less stringent conditions than permitted under Article XXIV of the GATT. These features were enshrined in various GATT provisions. That developing countries needed preferential access to compete internationally followed in part from the infant industry view of developing country industrialization; but it also resulted from inward-oriented policies that acted as a tax on exports and hence rendered them uncompetitive without preferential access.2

By reserving the right to protect and seek preferential access, developing countries effectively disqualified themselves from participating equally in the GATT process of bargaining and were consequently unable to seek a reduction in protection in products of particular interest to them—(agriculture, textiles and clothing, and footwear). The MFA, a system of discriminatory and restrictive measures on exports of textiles and clothing from developing countries, and the wide-ranging quantitative restrictions, variable levies, and export subsidies deployed by several industrial countries in agriculture were testimony to the inability of developing countries to effectively secure liberalization in products of interest to them; this was inherent to the nonreciprocal relationship engendered by S&D treatment. More recently, they were also unable to prevent the growing use of contingent protection measures that were increasingly directed at their exports.

In the middle to late 1980s, however, the status of developing countries in the multilateral trading system underwent a significant change in the direction of fuller integration. This was spurred by a change in thinking in favor of more outward-oriented policies, often under Fund- and Bank-supported structural adjustment programs. A large number of developing countries acceded to the GATT. Between 1987 and April 1994, 29 developing countries had acceded to the GATT compared with 17 in the 20 years preceding 1987. Unlike in the past, a number of developing countries undertook significant liberalization commitments in recent accessions. Further, since 1989, 6 out of 18 developing countries invoking QRs for balance of payments purposes ceased to do so.3 Also, developing countries, confirming their growing status, became more involved in GATT disputes. Prior to 1988, developing countries had been involved in 14 percent of all disputes; after 1988, more than one in three disputes involved developing countries. Finally, there were increasing moves toward “graduation,” namely, withdrawing the eligibility of certain countries to preferences under the GSP scheme.4 The United States, for example, withdrew GSP eligibility in 1989 for the four dynamic Asian economies (Hong Kong, Korea, Singapore, and Taiwan Province of China). Graduation was an inevitable concomitant of the underlying rationale for preferences, namely, that their grant was related to the weak competitive position of developing countries: success, therefore, should obviate the need for preferences.

1Formally called “Decision on Differential and More Favorable Treatment, Reciprocity and Fuller Participation of Developing Countries.” 2See Wolf (1987). 3This figure understates the extent to which developing countries reduced reliance on QRs for balance of payments purposes because several of them did not notify their QRs to the GATT, and hence did not invoke Article XVIII:B in the first place. 4Implicit graduation began even before these countries were officially declared ineligible under the GSP; it took the form of removal of products of export interest to these countries from the GSP list and more restrictive conditions imposed on them (Lang-hammer and Sapir (1987)).

In terms of the substantive commitments under the Round, moves toward equality are reflected in the following major areas:

(1) Tariff bindings. As noted earlier, the scope of tariff bindings undertaken by developing countries will move closer to the levels achieved by industrial countries.

(2) Quantitative restrictions. Resort to QRs and other trade restrictions for balance of payments reasons under GATT Article XVIII:B has decreased among developing countries.38 Under the Uruguay Round, future disciplines on the balance of payments provisions would require emphasis on price-based measures instead of QRs.

(3) Other nontariff measures. Developing countries will in principle have to adhere to the rules on subsidies, antidumping, safeguards, TRIMs, import licensing, customs valuation, and technical barriers to trade, although they will have recourse to transitional arrangements (see below).

(4) New areas. Developing countries will have to adhere to the same standards with respect to TRIPs and the same general rules in the area of services.

(5) Integration of sectors of importance to developing countries. As discussed in Box 3, a consequence of S&D treatment was the inability of developing countries to secure nondiscriminatory market opening, according to normal GATT principles, in sectors of importance to them. In the Uruguay Round, developing countries have been able to correct the anomaly that sectors of interest to them (textiles and clothing, and agriculture) are exempted from the scope of GATT rules.

(6) Preference erosion. As discussed earlier, the decline in most-favored-nation tariffs will erode preferences currently enjoyed by developing countries under schemes such as the GSP, Lomé Convention, and the Caribbean Basin Initiative.

The Uruguay Round agreement will nevertheless continue to provide S&D treatment for developing countries in various ways:

(1) Fewer substantive obligations or greater freedom to take restrictive measures. In several areas (tariffs, agriculture, government procurement, and subsidies), developing countries will continue to have greater freedom to take trade restrictive actions.

(2) Transitional arrangements. The most important element of S&D treatment in the Uruguay Round is that developing countries will have longer time periods in assuming the levels of obligations of industrial countries. Important examples include agriculture, TRIPs, TRIMs, subsidies, and safeguards.

(3) Preferential exemption from restrictive trade action. A positive aspect of preferential treatment will be that the standards of trade restrictive actions in certain areas (such as safeguards and countervailing duties) will be higher for imports from developing countries, rendering them less susceptible to such actions.

(4) Technical and financial assistance. Several agreements (e.g., TRIPs and services) provide for technical assistance to developing and least-developed countries to implement the results of the Uruguay Round. There is also a recognition of the need to assist least-developed and net food-importing countries (in the form of food aid and technical and financial assistance) if they are adversely affected by an increase in the price or reduced availability of food imports.

While the Uruguay Round represents a watershed in the process of fuller integration of developing countries in the multilateral trading system, the process is not yet complete. Much remains to be done, both in terms of developing countries’ own liberalization efforts and of securing greater market access in areas of interest to them. One important lesson of the Round is that fuller participation—the willingness of countries to commit themselves to international liberalization—has been rewarded in terms of locking in unilateral reforms, securing greater market access in crucial areas, and, above all, maintaining and strengthening a rules-based system that will be vital to ensure the success of developing countries’ structural adjustment efforts. Fuller participation is also essential in giving developing countries more effective influence in addressing the policy challenges that lie ahead, many of which are likely to impinge crucially on developing countries’ interests (e.g., trade and the environment, trade and labor standards, and investment rules).

Appendix I Quick Reference Guide to the Results of the Uruguay Round

Quick Reference Guide to the Results of the Uruguay Round

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Excluding petroleum data on tariffs are based on GATT 1994b) and cover selected developing countries.

A text on nonapplication modifies the provisions of GATT 1947.

The least-developed countries have to submit their schedules by April 15, 1995.

Although not formally part of the Uruguay Round, negotiations on civil aircraft and government procurement were undertaken within the same time frame.

Appendix II Summary of Specific Commitments in the Financial Services Sector of Selected Countries

Summary of Specific Commitments in the Financial Services Sector of Selected Countries1

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Under the GATS (Part III), countries undertake commitments according to a positive list approach whereby they offer market access and national treatment only for the service industries listed in their schedules, and for each of the four modes of supply, subject to whatever limitations are included in these schedules.

None of the selected countries in this table has undertaken commitment regarding the presence of natural persons in its territory for the purpose of supplying services, except (subject to certain conditions) for the entry and temporary stay of managers, executives, and specialists.

The United States, the European Union, and Japan specified their commitments according to the Understanding on Commitments in Financial Services, which establishes an alternative approach (to the one set up in Part III of the GATS) whereby countries make market access offers in all financial services subsectors and agree to a standstill clause (except where reservations are taken).

Korea undertakes a standstill commitment for limitations on market access and national treatment in all financial services listed in its schedule.

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  • Yeats, A., What Are the OECD Preferences Worth to Sub-Saharan Africa? (mimeo, Washington: World Bank, 1993).

1

International Monetary Fund, The Rise in Protectionism, IMF Pamphlet Series, No. 24 (Washington, 1978); Trade Policy Developments in Industrial Countries, IMF Occasional Paper, No. 5 (Washington, July 1981); Developments in International Trade Policy, IMF Occasional Paper, No. 16 (Washington, second printing, 1983); Trade Policy Issues and Developments, IMF Occasional Paper, No. 38 (Washington, July 1985); Issues and Developments in International Trade Policy, IMF Occasional Paper, No. 63 (Washington, December 1988); and Issues and Developments in International Trade Policy, World Economic and Financial Surveys (Washington, August 1992).

1

The principal authors of this paper.

2

See, for example, GATT (1993a), Goldin, Knudsen, and van der Mensbrugghe (1993), and Nguyen, Perroni, and Wigle (1993). For a critique of quantitative estimates in existing studies of the Round, see IMF (1994).

3

See IMF (1994). In October 1994, the GATT Director General indicated that the global income gains from the Uruguay Round could be in excess of $500 billion. This estimate was based on recent analysis undertaken by the GATT Secretariat that sought to capture some of the competition-enhancing effects of trade liberalization in the presence of imperfect competition and increasing returns to scale.

4

Throughout this paper, the definition of industrial products excludes petroleum.

5

These estimates differ from those of the GATT (1994b) (6.3 percent and 3.9 percent, respectively), as GATT definitions include South Africa among the industrial country category. For some countries and some products, the implementation period will differ from the norm of five years.

6

As in past MTNs, the Uruguay Round tariff cuts will have an impact on fiscal revenues to the extent that applied rates are brought down. Estimation of the true budgetary costs needs to take account of the second round effects on revenues deriving from the income gains generated by the Round. In general, reliance on trade taxes as a source of government revenue is not very significant in industrial countries and the net budgetary costs, if any, of the tariff cuts are expected to be absorbed without major problems.

7

The discussion in this section is based on GATT (1994b) data on tariffs that cover selected developing countries.

8

Thus, the direct budgetary effects of developing countries’ tariff concessions under the Uruguay Round are negligible. In transition economies, the direct effects will vary from zero in Romania to somewhat more significant levels in Hungary.

9

VERs in the area of textiles and clothing are subject to the provision of the agreement on textiles and clothing.

10

See Goldberg and Ordover (1991) for a summary of these studies.

11

The EU, which came into effect in 1993, is used in this paper to also refer to the European Community.

12

For a discussion of these studies, see IMF (1994). Note that the studies may overestimate the magnitude of actual liberalization under the Round for three reasons. First, the flexibility allowed in the process of “tariffication” of existing QRs may result in higher than actual base tariff rates, implying less liberalization; second, the base tariffs in some major importing countries are also high because world prices were generally depressed during the base period (1986-88); and third, the exemption from the required subsidy cuts of support, which is not entirely decoupled from production, would result in less liberalization than assumed in the studies.

16

The Cairns Group comprises Australia, Argentina, Brazil, Canada, Chile, Colombia, Fiji, Hungary, Indonesia, Malaysia, New Zealand, the Philippines, Thailand, and Uruguay.

18

Their net result for sub-Saharan African countries is zero.

19

See GATT (1994a), p. 395.

20

See GATT (1994a), p.95.

22

Liberalization of trade in services takes place through negotiated market access and national treatment for each of the four modes of supplying services defined in the GATS (Article I), namely, (1) cross-border supply (the user receives the service from a provider located in another country); (2) consumption abroad (the user consumes the service outside his country of residence); (3) commercial presence (the service provider establishes a facility in the user’s country); and (4) movement of natural persons (the service provider needs the temporary presence of nonresident natural persons in the user’s country).

24

See Chin and Grossman (1990). Estimates for the annual static welfare losses for some developing countries vary from $67 million to $387 million (Argentina), $220 million to $1.3 billion (India), $153 million to $879 million (Brazil), and $75 million to $428 million (Mexico), depending on the assumptions (see Subramanian (forthcoming) and Maskus and Konan (1994)).

25

These included Bangladesh, Chile, Egypt, Ghana, Indonesia, Mexico, Nigeria, Peru, Philippines, Senegal, South Africa, Thailand, and Uruguay.

29

However, the Uruguay Round also sets conditions on these national procedures. If countries do not comply with these conditions, they may be subject to multilateral challenge.

30

This will not apply if such countries have attained “export competitiveness” in particular products, that is, greater than 3.25 percent share of world trade for a product in two consecutive years.

31

According to UNCTAD (1994), the reduction in GSP preferential margins in the EU, United States, and Japan would be 23 percent, 9 percent, and 15 percent, respectively (or about 18 percent on average, compared with an average MFN tariff cut of bound rates of 40 percent). The differences between the MFN tariff cuts and reductions in preferential margins are due to the product composition of MFN tariff cuts.

32

The least-developed countries account for about 1 percent of imports that received preferential treatment under the GSP.

33

Advanced developing countries in any case face the prospect of being graduated out of GSP schemes. The European Commission announced in June 1994 a phased graduation of countries and sectors from preferential tariff treatment based on a combination of per capita GDP and industrial and export performance at a sectoral level.

34

Yeats (1993) estimates the value of preferences enjoyed by sub-Saharan African countries in OECD markets at $5 billion. This is calculated as the present discounted value of forgone exports consequent to the elimination of all preferences. On a rough calculation, the export losses consequent to the Uruguay Round would be less than 0.3 percent of the value of their exports in 1992.

35

Future renegotiation of the Lomé Convention and the Mediterranean Agreements, a process under way currently, could change preference margins under those schemes.

36

However, preferential treatment to high-cost exporters embodied in guaranteed quotas may be de facto preserved to some extent in textiles and clothing during the transition period owing to the back-loaded nature of liberalization in these sectors.

37

The EU market which grants preferences to newly industrializing economies, ACP, and Mediterranean countries witnessed average annual import growth between 1980 and 1989 from these three groups of 12.1 percent, –5.5 percent, and 3.7 percent, respectively (Pohl and Sorsa (1992)).

38

In 1988, 16 countries had invoked the balance of payments cover for trade restrictions under GATT Article XVIII:B, including (year of disinvocation in parentheses): Argentina (1991), Bangladesh and Brazil (1991), Colombia (1992), Egypt and Ghana (1989), India and Korea (1989), Nigeria, Pakistan, and Peru (1991), and the Philippines, Sri Lanka, Tunisia, Turkey, and Yugoslavia. Today, the number has been reduced to 10 (Bangladesh, Egypt, India, Nigeria, Pakistan, the Philippines, Sri Lanka, the Slovak Republic, Tunisia, and Turkey), with a few invoking this provision under GATT Article XII (Israel, Poland, and South Africa).

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Cover International Trade Policies
International Trade Policies
Volume II The Uruguay Round and Beyond: Background Papers
ISBN:
9781557754578
ISSN:
0258-7440
Publication Date:
08 Feb 1995
Publisher:
International Monetary Fund
DOI:
https://doi.org/10.5089/9781557754578.083
Pages:
144