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Finance … Development September 1979
Article

The Multilateral Trade Negotiations—a background note: The main points of agreement announced at the end of the Tokyo Round

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
September 1979
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Mark Allen

Major agreements on issues in the Tokyo Round of Multilateral Trade Negotiations (MTN) were announced on April 12, 1979, following five years of intensive negotiations. The negotiations were launched at a ministerial meeting in Tokyo in September 1973, the seventh round of negotiations to have taken place since World War II and the longest and most complex, involving some 99 countries and many aspects of international trade.

The sixth was the Kennedy Round, which lasted from 1964 to 1967, and whose main aim was an overall reduction in tariffs. Individual participating countries, of which there were 49, had to determine whether an agreed 50 per cent tariff reduction would jeopardize particular sectors of the domestic industry. If so, they were to include related tariff items in a list of exceptions. After the exceptions had been taken into account, the outcome of the Kennedy Round was to reduce the average level of tariffs among the major trading powers to around 10 per cent by 1972.

Participation in the Tokyo Round negotiations included all the major Western trading nations, many socialist countries of Eastern Europe, and a considerable number of developing countries. These participating countries, whether contracting parties to the General Agreement on Tariffs and Trade (GATT), or not, agreed to negotiate within the framework of the GATT. The Tokyo Declaration of 1973 stipulated that the negotiations were to be conducted “on the basis of the principles of mutual advantage, mutual commitment, and overall reciprocity, while observing the most-favored-nation clause, and consistently with the provisions of the General Agreement relating to such negotiations.” Of the 99 participants, 26 were not Contracting Parties, and 3 have only acceded to the GATT provisionally.

A longer report on the conclusion of the Tokyo Round was published in the IMF Survey, May 7, 1979.

In themselves, the various codes, declarations, and decisions negotiated in the Tokyo Round do not represent a solution to the problems facing world trade. They provide a framework for cooperation, but their full effectiveness will only become known when they have been applied over an extended period of time to the day-today problems of international trade relations. The precise nature of the legal superstructure of the international trading system will evolve only after the various provisions have been supplemented by case law arising from their application.

The package of results from the negotiations is complex and is contained in several thousand pages of documentation. However, the results can be divided into three basic areas.

Trade liberalization

Tariff concessions negotiated in the Tokyo Round have been substantial, with the industrial countries pledging to reduce their tariffs on average by about one third over the next eight years. (See Tables 1 and 2.)

Table 1Estimated reduction of tariffs on 1976 dutiable imports of industrial products by the EEC and nine other developed countries
Initial level of duty
(In per cent)
0.1-55.1-1010.1-1515.1-25Over 25Total
Value of dutiable imports:
In billions of U.S. dollars32.043.332.317.44.3129.3
In per cent100100100100100100
of which:
subject to cut
up to 20 per cent38915184420
20.1-40 per cent256047231942
40.1-99.9 per cent61630421920
cut to zero13235
No reduction18135171813
Source: The Tokyo Round of Multilateral Trade Negotiations, GATT, Geneva, April 1979.Note: This table presents an early assessment based upon incomplete concession schedules. It is based upon 1976 imports from countries with most-favored-nation status.
Table 2Estimated changes in average most-favored-nation tariffs on products of interest to developing countries1

(In per cent)

Tariff averageRate of
Pre-MTNPost-MTNreduction
All industrial productsW7.55.526
S10.36.537
Raw materialsW1.10.560
S2.01.432
Semi-manufacturesW4.63.327
S9.16.132
Finished manufacturesW13.610.324
S12.37.539
Agricultural productsW7.96.912
S11.711.07
Source: The Tokyo Round of Multilateral Trade Negotiations, GATT, Geneva, April 1979.Note: W = Weighted average S = Simple average

It is estimated that some $110 billion of trade (at 1976 values) will be affected by the reduction in tariffs on industrial goods. The most important cuts have been concentrated in nonelectrical machinery, wood products, chemicals, and transport equipment, while less than average reductions are being made in the textile and leather sectors.

Tariff concessions on agricultural products cover about $15 billion of the total 1976 agricultural trade of $48 billion. In addition, two multilateral agreements governing trade in beef and dairy products have been concluded within the Tokyo Round.

Most developed countries implemented offers on tropical products in the first half of 1977, in accordance with the pledge in the Tokyo Declaration to give this sector priority treatment.

The only sector where there has been an agreement to eliminate all trade restrictions has been aircraft procurement. An agreement commits its signatories to eliminate all customs duties and any similar charges of any kind on civil aircraft, aircraft parts, and repairs on civil aircraft by January 1, 1980. It has been tentatively estimated that this agreement should cover purchases totaling about $100 billion each year and international trade amounting to $25 billion.

Codes for nontariff barriers

With the gradual reduction in tariffs in the postwar period, the relative importance of nontariff barriers as impediments to international trade has increased. The Tokyo Round represents the first comprehensive attempt to control the use of non-tariff barriers.

A central feature of the Tokyo Round has been the negotiation of multilateral codes of conduct governing customs valuation, government procurement, import licensing, subsidies and countervailing duties, and standards. Standing committees will administer the various agreements, all of which contain provisions for consultation and dispute settlement, together with special and more favorable treatment for developing countries.

Customs valuation. The agreement on the implementation of Article VII of the GATT (known as the Customs Valuation Code) is intended to provide a fair, uniform, and neutral system for the valuation of goods for customs purposes, which will conform with commercial realities and prevent use of arbitrary or fictitious values. Developing countries are given flexibility in applying the code.

Government procurement. Government and the agencies that it controls are often among the largest purchasers of goods. However, discrimination in favor of domestic suppliers tends to create obstacles to international trade in products subject to government purchasing.

The Agreement on Government Procurement aims to secure greater international competition in the government procurement market. It contains detailed rules on the way in which tenders for government purchasing contracts should be invited and awarded. The agreement’s provisions will apply to individual government contracts worth more than SDR 150,000 and will initially cover some $35 billion worth of government procurement annually. The agreement will enter into force on January 1, 1981.

Import licensing procedures. Governments issue import licenses (automatically) to keep track of the nature and quantity of imports and (nonautomatically) to administer certain types of import restrictions such as quotas. Under the terms of the Agreement on Import Licensing Procedures, governments will commit themselves to administering automatic licensing so as to have no restrictive effects on imports and nonautomatic licensing so as not to have restrictive effects in addition to the effects of the restrictions themselves.

Subsidies and countervailing duties. This has been one of the most difficult, sensitive, and important issues in the MTN. Resort to both kinds of measures has been encouraged by increasing protectionist pressures over the past few years. The Code on Subsidies and Countervailing Duties clarifies the existing provisions on these measures already found in Articles VI, XVI, and XXIII of the GATT. It aims to ensure that the use of subsidies by any signatory does not harm the trading interests of another and that countervailing measures do not unjustifiably impede international trade. For this purpose, the code establishes an agreed framework of rights and obligations covering these measures and a mechanism for international surveillance and dispute settlement. The code will enter into force on January 1, 1980.

Standards. The Agreement on Technical Barriers to Trade (also known as the Standards Code) aims to ensure that, when governments or other bodies adopt technical regulations or standards, whether for reasons of safety, health, consumer, or environmental protection, or for other purposes, these should not create unnecessary obstacles to trade. For the first time in the field of standardization, there will be legally binding rules between governments, enabling them to complain about, and obtain redress for, code violations by other signatories. The provisions of the code apply to both industrial and agricultural products.

The code, which will enter into force on January 1, 1980, also contains special provisions for technical assistance to developing countries.

Improvements

Special provisions to assist developing countries have been included in all the codes negotiated in the Tokyo Round.

A new agreement in the Tokyo Round provides recognition that preferential treatment for developing countries is a permanent feature of the world trading system and elaborates the concept of nonreciprocity in trade between developed and developing countries. This text has sometimes been referred to as an “enabling clause,” since its key provision allows GATT members to give preferential and more favorable treatment to developing countries, notwithstanding the most-favored-nation provisions of Article I. Such preferential treatment is defined as covering (a) preferential tariff rates accorded by developed countries to developing countries under the generalized system of preferences; (b) differential and more favorable treatment for developing countries in the area of nontariff measures; (c) regional or global arrangements among developing countries; and (d) special treatment for the least developed countries.

The GATT provides that in certain circumstances countries may take trade measures to assist in maintaining or restoring balance of payments equilibrium. A declaration was concluded on this subject in the Tokyo Round, governing in more detail the use of these provisions. If developed countries do adopt such measures, they agree to take into account the export interests of developing countries. Revised GATT procedures governing the use of trade restrictions for economic development purposes were also agreed.

The participants in these negotiations have concluded a draft understanding on notification, consultation, dispute settlement, and surveillance in the GATT.

Following the conclusion of the negotiations, the work on implementing the agreements will start. Some time in the fall, there will be a special session of the Contracting Parties to establish the various bodies called for in the codes negotiated in the Tokyo Round and to give effect to the various declarations and decisions appended to the Procès-Verbal, which was approved by the Trade Negotiations Committee on April 11-12 and opened for signature by participating countries.

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