5 The Multilateral Trading System and the Uruguay Round of Trade Negotiations: An Arab Perspective
- Saíd El-Naggar
- Published Date:
- December 1992
Abdel Hamid Mamdouh
The Multilateral Trading System
The General Agreement on Tariffs and Trade
The Havana Charter, negotiated during the United Nations Conference on Trade and Employment in 1947–48, sought to establish the International Trade Organization (ITO), which was to be the third institutional pillar in the postwar international order for economic reconstruction. The ITO was to be the specialized agency that established rules and oversaw the international trading system. Owing to political factors, the Havana Charter never entered into force, leaving a vacuum in international economic relations at that time in areas such as employment, economic development, trade policy, intergovernmental commodity agreements, restrictive business practices, and settlement of disputes. That vacuum has never been entirely filled. However, one crucial gap—that of trade policy and related settlement of disputes—was filled by the General Agreement on Tariffs and Trade (GATT).
The origins of the GATT are in 1945, when it was seen as a multilateral trade agreement aimed at liberalizing world trade (after a long period of protectionism and bilateralism during the 1930s) and at providing stability, predictability, and transparency in government trade policy practices. It was agreed that such objectives could not be achieved unless governments entered into legally binding commitments. This approach resulted in the contractual legal nature of the GATT.
The GATT is the only multilateral, legally binding, system to provide a framework of rules and procedures governing international trade. It is not truly universal, as some important countries are still not part of it, but it covers over 90 percent of world trade. It is both a treaty and an institution. The GATT system comprises the General Agreement, supplemented by separate legal instruments, such as the nontariff barrier agreements, as well as some sector-specific arrangements negotiated within the system; their implementation is supervised by the Contracting Parties to the GATT.
The GATT performs three main functions; the first is a code of conduct for foreign trade policies of its Contracting Parties, providing a balance of rights and obligations among all parties. Second, the GATT provides a forum for negotiating trade liberalization among its parties. The General Agreement provides the principles, rules, and procedures for such negotiations, while the GATT, as an institution, provides the necessary support for the negotiations. Traditional rounds of multilateral trade negotiations have been in the area of tariffs, with participating countries exchanging concessions. Third, the GATT provides for settlement of disputes between contracting parties. This function ensures the enforceability of the GATT rules.
The GATT is based on certain basic rules, expressed in legal terms in the Articles of the General Agreement. The rules are the following.
Most-Favored-Nation Treatment (MFN)
This is the cornerstone of the General Agreement, assuming the multilateral character of the trading system. The MFN rule, in Article I of the GATT, states: “… any advantage, favour, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties.” By virtue of this provision, any contracting party to the GATT cannot extend any trade concessions that discriminate between contracting parties. It also established the obligation that if a contracting party extends a trade benefit to any country, it must also extend it immediately to all other contracting parties. The obligation has had the important effect of favoring multilateralism over bilateralism in the conduct of foreign trade.
Protection Only Through Tariffs
Customs duties are, with some exceptions, the only form of protection permitted under the GATT. Tariffs are transparent, predictable, and calculable in terms of the extent of protection they provide. They encourage the interplay of market forces, leading competition, and more efficient allocation of resources. The trade liberalization objective of the GATT is then achieved by the gradual reduction of customs tariffs. It is through successive rounds of tariff negotiations that contracting parties have reduced their tariff protection over the past four decades. Article XXVIII:b contains the GATT set of rules for such negotiations, the most important of which is that it takes place on the basis of reciprocity and mutual advantage. It follows that any concessions exchanged during such negotiations are multilateralized, under the MFN provision.
General Elimination of Quantitative Restrictions
An essential part of the GATT approach to trade liberalization is the prohibition on the use of quantitative restrictions. When the GATT came into force in 1948, the use of such measures was widespread among different countries. Unlike customs tariffs, quantitative restrictions have a seriously distortive effect on markets, blocking the price mechanism. Article XI of the General Agreement prohibits the use of quantitative restrictions. Exceptions to this general rule relate to (i) agricultural and fisheries products; (ii) situations where a contracting party suffers balance of payments difficulties; and (iii) cases of promoting the establishment of infant industry in a developing country. Each of the exceptions mentioned is invoked subject to certain conditions.
As a central element of the GATT, national treatment requires that once imported products cross frontier barriers they should enjoy in the domestic market treatment that is no less favorable than that accorded to any domestic like product. Article III of the GATT reflects the rule in legal terms and defines the scope of its application to encompass internal taxes and other internal charges, as well as any laws, regulations, or requirements affecting the internal sale, offering for sale, purchase, transportation, distribution, or use of products.
Reciprocity has not been defined in legal terms in the GATT, but it is reflected in some of the provisions, particularly in the Preamble and in Articles XXVIII and XXVIIIbis, which deal with tariff negotiations between contracting parties and prescribe that such negotiations shall take place on a reciprocal and mutually advantageous basis.
Differential and More Favorable Treatment for Developing Countries
This principle developed from the growing recognition after the GATT went into effect in 1948 of the need to address the increasingly important link between trade and development. The principle, introduced as Part IV of the GATT in 1964 (Articles XXXVI–XXXVIII), achieved reciprocity. Article XXXIV, paragraph 8, states “the developed contracting parties do not expect reciprocity for commitments made by them in trade negotiations to reduce or remove tariffs and other barriers to the trade of less-developed contracting parties.” Besides Part IV of the GATT, there are other provisions that reflect this principle of differential and more favorable treatment, such as the provisions of Article XVIII of the GATT, entitled Governmental Assistance to Economic Development, and the 1979 decision by the contracting parties on “Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries,” which contains what is known as the enabling clause. There are also the provisions on the treatment of developing countries in the nontariff measure agreements resulting from the Tokyo Round of multilateral trade negotiations (for example, the agreement on subsidies and countervailing measures).
Multilateral Trade Negotiations
During the past four decades the GATT has served as a forum for trade negotiations. This particular function of the GATT has been one of the basic elements that its founders had in mind. The Preamble of the General Agreement, after setting clearly its objectives, identifies negotiations as the means for achieving those objectives where it states:
Being desirous of contributing to these objectives by entering into reciprocal and mutually advantageous arrangements directed to the substantial reduction of tariffs and other barriers to trade and to the elimination of discriminatory treatment in international commerce.
The provisions of Article XXVIIIbis of the GATT go even further and state clearly the legal basis on which tariff negotiations should take place.
Since the GATT came into force, seven rounds of multilateral trade negotiations have been held. The first five rounds of negotiations, the last of which was the Dillon Round (Geneva, 1960–61), dealt exclusively with tariffs. It was not until the sixth round (Kennedy Round) that negotiations started addressing a different subject, namely, anti-dumping. The seventh round, the Tokyo Round (Geneva, 1973–79), further widened the coverage of multilateral trade negotiations to cover nontariff measures, government procurement, and the agreements relating to the framework for the conduct of trade.
The common feature in all the GATT rounds of trade negotiations is that they all aim at further liberalization of international trade among its contracting parties. That was sought initially through tariff negotiations, based on GATT rules. But as the international trade environment evolved, the need to address and reconsider some of the rules of the system itself became increasingly evident. This trend changed qualitatively the mix of negotiating subjects in recent rounds, particularly the Uruguay Round, toward more emphasis on rule-making issues as against the exchange of trade concessions. Rules of the system relating to nontariff measures, unfair competition (subsidies, anti-dumping), safeguards, and those relating to the treatment of developing countries were high on the list of rule-making negotiations.
Developing Countries in the System
When the GATT first came into force, less than half of its 23 founding contracting parties were developing countries. Now more than two thirds of GATT contracting parties are developing countries. But more important than their number in the GATT is developing country participation in the system. This has taken on a new dimension as their approach to the GATT evolved.
The participation of developing countries in the GATT system has always (not prior to 1956, I think) been governed by provisions relating “differential and more favorable treatment to developing countries.” The most significant privileges that developing countries enjoy by virtue of such provisions are
- The flexibility for a developing country to impose quantitative restrictions to address balance of payments difficulties. This exception to the use of quantitative restrictions is also available to developed countries, but the criteria and conditions under which it applies for developing countries are much more flexible.
- That developed countries do not expect reciprocity from developing countries in trade negotiations to reduce tariffs and other trade barriers.
The existence of such rules, or, rather, exceptions in the system has kept developing countries’ participation, in previous rounds of negotiations, at a modest level. The ability of developing countries to make tariff concessions on a large scale was always considered to be inconsistent with their import substitution philosophy during the 1960s and 1970s. The corollary to that was that developing countries could not influence the trade liberalization process to cover produce areas such as textiles, agriculture, and tropical products that are of export interest to them. The lack of substantial liberalization commitments by developing countries has led to the reluctance of developed countries to undertake meaningful commitments in return.
This situation prevailed for decades generally because most developing countries did not accept the underlying philosophy of the GATT, which is that liberalized trade promotes growth and development, and moreover their development policies did not attribute a central role to their export sectors in the development of their economies.
While this was the situation of developing countries during the 1960s and 1970s, changes started appearing during the 1980s in a way that gave the multilateral trading system a new meaning and increased the importance for those countries. The most significant evolution was the rethinking, by many developing countries, of the role of trade policy in the development process and the increasing appreciation of the advantages and benefits that a dynamic outward-looking export sector could bring to a developing economy. In the 1960s it was only the Republic of Korea and Singapore that did not apply import substitution policies and followed the free market economy approach. Such countries served as examples to illustrate the imperfections of the traditional closed market philosophy and the inefficiencies that it entails.
During the 1980s an increasing number of developing countries adopted the same approach. This consequently increased the need of those countries for an open, stable, and credible multilateral trading system that provides the necessary rules and disciplines to protect the rights and obligations of its members.
The need for such a system led developing countries to take a much more active role in the Uruguay Round than they had in any previous round. Also, during that period a number of developing countries started facing debt service problems, which produced two new elements. The first is the increasing need for those countries to improve their export performance to be able to meet their financial burdens, which requires securing open export markets through negotiations. The second is the wave of unilateral liberalization adopted by those countries, which was a function both of their new approach to the role of trade policy in the development process, and of the conditionality in IMF and World Bank lending programs.
What is most relevant here about these two elements is that they led developing countries to be much more active in pursuing their interests, not only by trying to negotiate meaningful trade liberalization commitments with developed countries but also by engaging in rule-making negotiations to ensure that the disciplines of the system would reflect their interests and protect their rights. All these factors made developing countries more attached to the system than they had ever been. These changes had their implications also for the way in which developing countries operate and negotiate within the system. They traditionally operated, like in the United Nations system, as one bloc of countries having more or less the same economic and trade interests. Since their economies are not large enough to give them any individual negotiating power, they had to operate and negotiate collectively in order to have some negotiating leverage against large negotiating partners from the developed world.
A notable trend lately in the course of the Uruguay Round has been the increased cooperation and coordination between some developing countries and developed countries, particularly small and midsized ones in various combinations. The emerging groupings are the function more of specific trade interest in different areas of negotiation than of being based on political solidarity.
It is more or less the same concept of gaining negotiating leverage through negotiating collectively, but this time it is to serve specific trade interests where the divide is not a north-south one but between small and midsized countries, whether developed or developing, on one side, and large countries on the other.
The Uruguay Round
The Uruguay Round was launched against a background full of trade tensions and frustrations by both developing and developed countries. Developing countries were firmly convinced that the credibility of the multilateral system was at great risk, developed countries were not living up to their commitments toward them, and their commitment to the system itself was seriously questioned in the light of the permanent derogations they enjoyed in textiles and agriculture. They were also frustrated by the backlog of outstanding issues from the Tokyo Round in areas such as safeguards, and even with respect to their exports of manufactures, developed countries have introduced a significant number of barriers.
On the other hand, developed countries were also frustrated by the lack of commitment by developing countries. The previous seven rounds of trade negotiations had produced mainly liberalization of trade among developed countries, those that were willing to make significant concessions. Even where developing countries were committed, such as in the relatively limited area of tariff bindings, they had the flexibility to deviate from such commitments by invoking exceptions that allowed them to introduce quantitative restrictions. Developed countries were basically firmly convinced that the principle of nonreciprocity of developing countries needed to be reviewed. There was also a growing feeling that developing countries were no longer one homogeneous group of countries with similar capacities to assume commitments and therefore would all warrant the same kind of treatment. Some distinction was needed between those developing countries that are relatively developed, and should therefore participate more fully in the system, and those that are still at a relatively low level of development and therefore still warrant some flexibility. Some rethinking has even been done with respect to the latter category, on whether such flexibility is the best way to address development difficulties. Such rethinking was to a certain degree shared by some developing countries that began to adopt more outward-looking economic policies.
Apart from frustrations that ran high, some important changes also took place in the economics of international trade, the most influential of which is the role of modern technology and its impact on international trade patterns. Modern technology has considerably altered the input mix in manufactured products to the detriment of traditional raw materials. Products with high technology content have tended to be among the most rapidly growing export sectors. This trend brought a new dividing line between countries with different export capabilities.
The increasing importance of technology as a determinant of the competitive edge of exporting countries strongly influenced the international environment preceding the Uruguay Round and the agenda of negotiations. This important factor led the exporters of modern technology to pursue two important aims through negotiations. The first is to achieve a substantial degree of liberalization of different types of economic activities where they can increase their benefits from their competitive edge (such as trade in services, and disciplines on the governmental use of investment measures). The second is to secure a higher level of international protection for technology (negotiations on trade-related aspects of intellectual property rights), which in turn would also secure higher levels of revenue from the industrial use of such technology.
Also, the changes that have taken place in developing countries in adopting a new policy approach to international trade, of which the multilateral system is a central part, coupled with the increasing trend toward trade liberalization, have led developing countries to place themselves more in the center of the system itself. They are more ready to engage in serious trade negotiations and to assume onerous commitments; they can identify their specific interests much more concretely, but they also would like to see what they can obtain in return from their developed country partners. They have not abandoned their demands for differential and more favorable treatment, but it is no longer the only basis on which they are ready to participate in multilateral trade negotiations. The emphasis of an increasing number of developing countries has shifted from that principle toward engaging in real negotiation of solid commitments. Against this background, a strong and credible multilateral trading system was considered to be a necessity for both developed and developing countries.
A Different Round of Trade Negotiations
Since the Uruguay Round was launched in September 1986 at the ministerial meeting in Punta del Este, Uruguay, it has been viewed by the international community, and rightly so, as the most comprehensive and far-reaching international trade negotiations ever undertaken. In terms of participating countries, the list is the longest ever: 103 countries. In terms of the negotiating agenda, it is certainly unprecedented. Negotiations in the Uruguay Round take place on goods as well as on services. On goods, there are 14 subjects, which represent a wide variety of interests. On services, the subject is one that proved to be quite complex owing to the heterogeneous types of activities and transactions that it covers.
There are traditional issues in the Round that fall within three main classifications: market access issues, rule making, and systemic issues. The market access category includes negotiations on tariffs, nontariff measures, natural resource-based products, textiles, tropical products, and agriculture. The rule-making issues include negotiations on safeguards, GATT articles, multilateral trade negotiations (MTN) agreements, and arrangements and subsidies. The systemic issues include improving the settlement of disputes system of the GATT and improving the functioning of the GATT system. There is also the category of the three new issues, which includes negotiations on the trade-related aspects of intellectual property rights, trade-related investment measures, and trade in services.
The negotiating package is wide enough to accommodate the different interests of negotiating countries. The background against which these negotiations were launched—whether it is the need for a strong and credible multilateral system by those who seek its protection or the need for a reformed system that is more relevant to the modern trade environment of high technology—had a strong influence on the negotiating agenda. It is also understood that any agreements resulting from negotiations on the new subjects, which involve different types of economic activities going far beyond mere cross-border trade in goods, will certainly be much more intrusive on national laws and regulations and will call upon governments to change such laws and regulations. This willingness to assume commitments is generated by the need for the system itself and for what it provides in terms of rules and disciplines to secure stability and predictability in markets.
Traditional Subjects for Negotiations
The negotiating agenda contains a number of traditional subjects relating to market access and rule making, and some are basically systemic issues. While it may be too time consuming to go into the fine details of each of the subjects, it may be useful to identify the main issues.
Negotiating subjects relating to market access are tariffs, nontariff measures, natural resource-based products, textiles, tropical products, and agriculture. These subjects are of particular interest to a wide range of countries, mainly developing and the agricultural exporters among the developed countries, and their inclusion in the negotiating agenda was necessary to ensure full participation of GATT contracting parties in the Uruguay Round.
Tariffs have been the GATT’s traditional and most successful field of negotiations. While it is in principle the only legal means of protection under GATT rules, it has been subject to seven previous rounds of negotiations where contracting parties exchanged reductions in their tariff rates. Those seven rounds have considerably reduced the level of tariff protection in industrialized countries. However, there are still some peaks of high tariff protection for sensitive products that are of export interest to developing countries, particularly in the areas of textiles and agriculture. In developing countries the situation is different. The general level of customs duties is higher than in developed countries, and, more important, the degree to which such duties are bound is much less. That means that such unbound duties could be increased further at any time without the need to offer any compensation to other contracting parties.
Previous successes in tariff negotiations and the recent interest in nontariff measures and new negotiating subjects may have put tariffs in the background in the Uruguay Round. However, many countries consider it to be of central importance to them that the negotiations deal effectively with the remaining problems in this area, such as tariff escalation, tariff peaks, elimination of low tariffs, and increasing the overall level of tariff bindings by developing countries. The overall objective for tariff reduction is to be no less, on average, than the reduction achieved during the Tokyo Round, which was about 30 percent.
Nontariff measures are an area that has an increasing effect on international trade owing to the relatively recent proliferation of such measures. When the GATT was negotiated and signed in 1947, quantitative restrictions were the most prevalent form of nontariff measure. Therefore, and in order to protect the benefits of negotiated tariff reductions, the founders of the GATT imposed, by virtue of Article XI, a general prohibition on quantitative restrictions. There are, of course, certain exceptions to this rule, which relate to cases of balance of payments difficulties (Articles XII and XVIII(b)), and also in Article XI for countries that limit their production of agricultural products.
In spite of such rules, and given the creativity of governments and regulators in coming up with new devices, such as voluntary export restraints, the problem of nontariff measures persisted. Ironically, the proliferation of such measures is considered to be a side effect of GATT’s success in tariff liberalization.
The Tokyo Round in the 1970s represented a major effort in dealing with the problem. It resulted in agreements on subsidies and countervailing measures, customs valuation, technical barriers to trade, import licensing procedures, and government procurement.
In the Uruguay Round, negotiators are confronted with the need for disciplines in new areas such as rules of origin and pre-shipment inspection, which have recently been cited as impediments to international trade. Countries are also exchanging concessions in the form of dismantling specific nontariff measures. Some participants tend to draw strong linkages with negotiations on tariffs because market access will be determined eventually as a result of both the tariff and nontariff treatment of a product.
Natural resource-based products are an important sector in world trade; exports of minerals (including fuels and nonferrous metals) alone reached $370 billion in 1988. The share of mining and the agricultural sector in international trade is identical, at 13.5 percent. These products are important for a wide range of countries, developing and developed. Many of them wish to go beyond their role as raw material suppliers and move into processing. The negotiating group addressed issues such as tariff escalation, government support measures, and access to supplies—particularly to fishery resources. However, the actual liberalization of trade in natural resource-based products is addressed in the negotiating groups on tariffs and nontariff measures.
Textiles and clothing is a sector that represented 9 percent of world trade in manufactures in 1988, and particularly important to developing countries, has been subject to negotiated exceptions to the GATT since 1961. The Multifibre Arrangement (MFA), under which industrial countries negotiate quotas on imports from developing countries, went into effect in 1974. The current extension of the MFA is due to expire on December 31, 1992.
The negotiating mandate in this area states that “negotiations in the area of textiles and clothing shall aim to formulate modalities that would permit the eventual integration of this sector into GATT on the basis of strengthened GATT rules and disciplines, thereby also contributing to the objective of further liberalization of trade.”
Tropical products is a sector that accounted for only 3 percent of world trade in 1989. However, since it represents a precious share of developing countries’ trade, tropical products were separated from agriculture so that they could have a priority status for liberalization in multilateral negotiations. The Ministerial Declaration for the Uruguay Round has accorded tropical products “special attention,” which has provided particular impetus for the negotiations on this subject. The Declaration also refers to “the fullest liberalization of trade in tropical products” as the objective in this area of negotiations.
It was agreed at the outset to pursue negotiations on seven product groups: tropical beverages (such as coffee, tea, and cocoa); spices, flowers, and plants; certain oilseeds, vegetable oil, and oil cakes (palm and coconut oil); tobacco, rice, and tropical roots; tropical fruits and nuts (bananas, pineapples, and peanuts); tropical wood and rubber; and jute and hard fibers.
Negotiations on these product groups aim at reducing or eliminating trade obstacles such as tariff escalation, quantitative restrictions, internal taxes, and sanitary regulations. Several industrial countries have maintained that the main developing country beneficiaries from such liberalization must also contribute to the negotiations by liberalization measures of their own according to their economic capacity.
The mid-term review of the Uruguay Round, conducted at ministerial level, led to a provisional package of tropical product concessions, which were largely implemented in the first half of 1989. They were mainly tariff cuts and they covered each of the product groups mentioned above.
In addition to these concessions ministers agreed to continue negotiations in this area to achieve further liberalization of trade in tropical products.
Agriculture has been a major source of tension in international trade relations owing to the escalating costs of farm support in major developed countries, the increasing use of subsidies that distort international markets, mounting surpluses, and increasing trade frictions. While the international debate on agriculture was warming up over the years, the share of agricultural products in world merchandise trade has shrunk considerably, from 46 percent in 1950 to 13.5 percent in 1988. This decline is due to the strong growth in the manufactures sector, the fall in prices of agricultural products, and also government intervention in this sector, which had a significant negative effect.
GATT rules concerning quantitative restrictions and subsidies are considerably more flexible with respect to agricultural products than manufactures. It was generally recognized before the Uruguay Round that such rules in some respect lack precision and leave room for differing interpretations. For example, Article XVI on subsidies merely requires contracting parties to seek to avoid the use of subsidies on the export of primary products, but if they do grant them, not to do so in a manner that results in their having “more than an equitable share of world export trade” in the product concerned.
Also, the provisions of Article XI concerning quantitative restrictions are much more flexible for agricultural products, where contracting parties are allowed to impose such restrictions on any product whose production is being limited domestically.
Some contracting parties in the GATT have also enjoyed special freedom in this area by virtue of individual derogations (notably the U.S. waiver and the Swiss protocol of accession).
The seven previous rounds of negotiations have resulted in fewer tariff reductions for agricultural products than for industrial goods, and the overall degree of tariff binding is also much less.
When the Uruguay Round was launched there was no ambiguity about what needed to be addressed. The political and social difficulties for some major developed countries were also recognized. However, the urgent need for fundamental reform was clearly expressed. The Ministerial Declaration for the Uruguay Round states that
Contracting Parties agree that there is an urgent need to bring more discipline and predictability to world agricultural trade by correcting and preventing restrictions and distortions including those related to structural surpluses so as to reduce the uncertainty, imbalances and instability in world agricultural markets.
Negotiations shall aim to achieve greater liberalization of trade in agriculture and bring all measures affecting import access and export competition under strengthened and more operationally effective GATT rules and disciplines, taking into account the general principles governing the negotiations, by:
- (i) improving market access through, inter alia, the reduction of import barriers;
- (ii) improving the competitive environment by increasing discipline on the use of all direct and indirect subsidies and other measures affecting directly or indirectly agricultural trade, including the phased reduction of their negative effects and dealing with their causes;
- (iii) minimizing the adverse effects that sanitary and phytosanitary regulations and barriers can have on trade in agriculture, taking into account the relevant international agreements.
The mid-term review agreement in April 1989 laid down long-term guidelines as well as short-term commitments. A key objective of the long term was to “provide for substantial progressive reduction in agricultural support and protection sustained over an agreed period of time, resulting in correcting and preventing restrictions and distortions in world agricultural markets.”
Negotiating subjects relating to rule making are those basically concerned with the review of some GATT provisions, whether in the General Agreement itself or in related instruments, which were considered by the contracting parties to warrant such a review. The four subjects falling under this category are safeguards; GATT Articles; MTN agreements and arrangements (the Tokyo Round codes); and subsidies.
Safeguards. Article XIX of the GATT allows contracting parties to impose restrictions on their imports of any product in cases where such imports have increased in an unforeseen manner and cause or threaten to cause serious injury to domestic producers of a like product. The founders of the GATT realized the political reality that governments would be unwilling to accept any far-reaching obligations to reduce their restrictions on foreign trade unless the Agreement contained a provision like Article XIX, which allows them to derogate from their commitments, an “escape clause.”
Safeguard measures are not meant to deal with unfair trade practices, which find their answers in other types of measures (for example, countervailing and anti-dumping measures); they are actually meant to address situations where the trade practice involved is “fair,” but, owing to a sudden increase in imports, domestic producers are being injured or threatened to be so. The purpose behind the provision is to protect domestic producers from foreign competition, an objective, some experts argue, that does not conform with the overall philosophy of trade liberalization, which should introduce more competition leading to reallocation of resources within economies.
The challenge facing the safeguards negotiations in the Uruguay Round is to achieve a comprehensive agreement that refines the rules of Article XIX and at the same time resolves the problem of proliferating bilateral agreements restricting exports, which are known as voluntary export restraints (VERs) and orderly market arrangements (OMAs), and by which the exporting country undertakes a commitment to control the level of its exports reaching a particular market.
The major issue of contention among negotiating participants is “selectivity,” and whether a safeguard measure should be taken against single suppliers or taken on a nondiscriminatory basis. Other issues that need to be resolved are the extent to which some developing countries should be exempted from safeguard actions, the duration of the safeguards measure, the need for adjustment measures by the protected industry accompanying the safeguards action, and the question of compensation for the country against which the action has been taken.
It is worth noting that reaching successful results from negotiations on this subject is considered to be a cornerstone in any effort toward strengthening the GATT system. Ministers in Punta del Este realized that when they adopted a mandate stating “A comprehensive agreement on safeguards is of particular importance to the strengthening of the GATT system and to progress in the MTNs.”
GATT Articles. The Uruguay Round has provided the first opportunity, since 1955, for a comprehensive review of the Articles of the General Agreement. Some specific Articles are dealt with in other negotiating groups like safeguards (Article XIX), settlement of disputes (Articles XXII and XXIII), and subsidies (Article XVI). Thirteen of the 38 Articles of the GATT have been examined in this negotiating group. In some cases such examination was followed by substantive negotiations to refine some of the provisions. In other cases there are fundamental differences among countries as to whether negotiations are even appropriate.
While it might not be within the focus of this paper to go into the fine details of what is being discussed in this negotiating group, which in many instances involved technical issues that do not alter any of the basic rights or obligations under the GATT, one major issue, which is highly divisive for developed and developing countries, is the balance of payments provisions. Article XVIII:B of the GATT provides an exception that gives developing countries the right to impose quantitative restrictions on their imports in case of balance of payments difficulties. Developed countries view this provision as a major loophole that allows developing countries to escape their obligations under the GATT. It has been their submission that the criteria and conditions set out in Article XVIII:B are too flexible and loose. These conditions in practice also allow developing countries to maintain permanent restrictions in the name of balance of payments difficulties while they are actually used to protect domestic industries.
Developed countries also argue that the measures used under this Article, namely sector-specific quantitative restrictions, are not appropriate for use in such situations. Instead, across-the-board price-based measures would be appropriate. In addition, a number of procedural questions arise relating to the consultation requirements for countries invoking this exception.
On the other hand, developing countries maintain that the provisions of this Article do not need any revision. The criteria and conditions specified in it, they argue, were based on the realities of developing economies where balance of payments problems are structural and long term. The Article recognizes that developing countries, when they are in the rapid process of development, tend to experience balance of payments difficulties arising mainly from the efforts to expand their internal markets as well as from the instability in their terms of trade. Developing countries argue that none of these considerations have changed since the Article was drafted. They also seem to be convinced that the measures to be used do not have to be across the board because that ignores the need to give priority to imports that are more essential for the development process.
This remains a major issue that needs to be resolved and it certainly has a high degree of political sensitivity attached to it on both sides.
MTN Agreements and Arrangements. These are the nine multilateral agreements and arrangements that resulted from the Tokyo Round of multilateral trade negotiations, often referred to as “codes,” and attempt to deal with a variety of nontariff barriers to trade. Although the majority of signatories to these codes are developed countries, they were considered widely as being a major contribution in the fight against nontariff barriers.
While some of these codes have been amended since they were agreed in 1979, it was decided when the Uruguay Round was launched that they should all be open for review during the Round with the objective of improving, clarifying, or expanding them as appropriate.
Subsidies. In the Tokyo Round an agreement was negotiated with the aim of providing disciplines for both the use of subsidies and the use of countervailing measures. In the Uruguay Round the subject was reopened with a clear recognition of the need to improve the disciplines of the subsidies code on both fronts. In the 1980s the use of subsidies in industry and even more in agriculture has substantially increased. Countervailing measures, in which some countries see a degree of abuse, have also been used considerably.
Final negotiations are taking place on a draft agreement that attempts to strike a balance between the two sides as well as ensuring the element of special and differential treatment for developing countries.
This category includes two negotiating subjects: settlement of disputes and functioning of the GATT system. They are slightly different in nature from other subjects addressed in the Uruguay Round in that they relate more to the actual functioning of the mechanics of the system. Negotiations in these areas do not endeavor to establish new rights and obligations but rather to enforce existing ones, in the case of settlement of disputes, and to secure the policy role for the GATT as an institution and improve its decision-making process, in the case of the functioning of the GATT system.
These two subjects were among the first to achieve early results in the mid-term review at the end of 1988. A set of “improvements to the GATT settlement of disputes rules and procedures” were adopted and actually implemented on a provisional basis four months later. Also, a decision was adopted to establish the “Trade Policy Review Mechanism,” which provides for regular collective appreciation and evaluation by the contracting parties of individual countries’ trade policies and practices and their impact on the functioning of the multilateral trading system.
The new issues for negotiation in the Uruguay Round, namely, investment measures, intellectual property rights, and services, distinguish this Round from the seven previous rounds of negotiations. The incorporation of these three issues into the negotiating agenda was divisive for developed countries and a group of developing countries. Developed countries led by the United States considered it necessary for new multilateral disciplines to be established for such increasingly important areas of economic activity. They also felt that the GATT is the appropriate and effective forum to deal with such questions where countries take contractual obligations that could be legally enforced through an efficient settlement of disputes system. They realized, of course, that a large number of developing countries in the GATT did not welcome such an expansion of the system. However, the trade-off was always in the interests of those developing countries in the more traditional areas, particularly where they have market access interests such as textiles and agriculture.
The misgivings that many developing countries had with respect to the new issues were based on two main concerns. The first is that developed countries would exchange concessions in the area of trade in goods for new commitments by developing countries in the area of investment, intellectual property, and trade in services, unlike the way it has always been, to exchange concessions on trade in goods for similar ones. The second is that the expansion of the system sought by industrialized countries would mean that the same rules of enforcement and settlement of disputes applied to trade in goods would also apply to the new areas, with the possibility of facing trade sanctions on their merchandise exports for any violation of rules in the new areas. They always considered investment and industrial policies to be sovereign policy areas for each government to regulate as it saw fit, and not an appropriate area for multilateral disciplines that might impinge upon such sovereignty.
The interesting feature that led developing countries to accept negotiations on such issues is that the reasons behind such acceptance were the very same reasons for which they had initially rejected the idea. Their keen interest to negotiate the liberalization of trade in products of export interest to them, and their wish to protect themselves from the threat of unilateral trade measures taken by the United States (under Section 301) led them to accept the linkages between the new issues and the traditional negotiating issues of the GATT: bilateral trade tensions were increasing, leading in some situations to legal disputes in the GATT. A clear conclusion then was that a multilateral discipline covering such areas would protect the interests of both sides.
Trade-Related Aspects of Intellectual Property Rights
As referred to earlier, the increasing importance of technology as a determinant of international competitiveness has been the main motive for some developed countries to press for multilateral action in this field with the aim of increasing international protection for intellectual property rights. Those countries saw the need for an international set of standards that provide higher levels and wider scope of protection as well as an effective system for settlement of disputes and enforcement of such standards.
The protection of intellectual property rights (copyrights, patents, trademarks) for those countries should reflect an economic balance between the large investments devoted to research and development and the economic benefits to be gained from the commercialization of new innovations. Therefore, they believe that the lack of adequate protection in some countries deprives their companies of the fair revenue on their research and development investments.
Most developing countries, on the other hand, feel that such protection should reflect a different balance, not primarily based on considerations of international competition but rather on social considerations. Such countries, which are importers of technology, obviously see little advantage in agreeing to internationally higher levels of protection. They recognize the need for certain levels of protection of intellectual property to encourage the transfer of technology and attract foreign investments, but they see that the international harmonization of levels of protection among different countries at different stages of development would not be in their interest.
The international rules for the protection of intellectual property rights, which are largely embodied in the Paris Convention (patents, trademarks, and other forms of industrial property) and the Berne Convention (copyrights), are based on the principles of national treatment and reciprocity between member countries. They also provide for the types of intellectual property rights that have to be protected and the basic disciplines and terms of protection. However, they leave much to the discretion of each government concerning the level and scope of such protection, which results in many countries in excluding some important products such as pharmaceuticals and food products.
While the motives and objectives of developed countries are clear, developing countries found themselves facing a number of questions that they have to address.
Some are policy questions: How does the level of intellectual property right protection relate to industrial and technological development? How does the scope and level of patent protection affect the price of certain products such as pharmaceuticals? If it results in increasing prices, what are the social and political implications?
There are also negotiating questions: If countries assume new obligations in this area, what benefits could they get in other areas such as textiles, agriculture, or tropical products, and would it be possible to obtain a credible commitment from other countries, particularly the United States, to refrain from taking any unilateral trade measures, a problem that has worried many countries?
Trade-Related Investment Measures
The subject of investment measures was brought to the GATT some five years before the Uruguay Round. It was suggested by the United States that attention should be given to the effects of investment policies on international trade. This was resisted strongly by developing countries, and some developed countries were also not comfortable with the proposition. The argument was always that GATT was not legally competent to deal with investment policies.
During the preparatory stage leading to the launching of the Uruguay Round, the United States proposed a broad agenda for negotiations on investment measures that affected both foreign direct investment and international trade. That agenda included different types of performance requirements, investment incentives, restrictions on capital and income transfers, most-favored-nation treatment, and national treatment (including the right of establishment) for foreign investors.
In the face of strong resistance from developing countries a compromise was reached at Punta del Este. The scope of negotiations was confined to the adverse effects of investment measures and the extent to which they are addressed by the Articles of the GATT, rather than to investment policies and the broad relationships between investment, production, and trade.
Of course, investment measures can have an effect on trade. Local content export performance, trade balancing, manufacturing, and product mandating requirements are measures that can affect international trade flows. The extent to which they relate to GATT rules is, however, not the same for all. For example, a local content requirement is legally considered to be a violation of Article III of the GATT (national treatment). For an export performance requirement, that is not so; the question would be the trade effects of the measure.
This varying relationship of investment measures to GATT rules is a central question in elaborating new rules to address those measures, particularly the appropriateness of prohibiting some measures while addressing others on a case-by-case basis. Needless to say, at the heart of all this for a large number of countries is the question of the extent to which they are ready to limit their freedom to impose such measures on foreign investors through a multilateral agreement.
Developing countries argue that the use of such measures is an important instrument in the implementation of their investment policies. They believe that any disciplines in this area must take into account their development needs. They obviously have to balance concessions in this area with benefits to be achieved in other negotiating areas of interest to them.
Trade in Services
Services, for many countries, is the fastest growing economic sector and the most vigorous creator of jobs. Commercially traded services include transport, telecommunications, information services, construction, broadcasting, medical services, professional services, banking, insurance, and many others. They are basically everything except for state functions. The production of services accounts on average for nearly 60 percent of the GDP of developed countries and for 50 percent of developing countries. The value of world trade in commercial services was estimated at about $600 billion for 1988. During 1980–90, trade in services grew at about twice the rate of merchandise trade. Owing to the poor quality of available statistics on such trade, these figures are almost certainly underestimated.
The objectives of the negotiations on trade in services are to develop a multilateral agreement (which exists currently in the form of a draft General Agreement on Trade in Services—GATS), to elaborate sectoral disciplines that may be necessary to address certain peculiarities in some sectors, and to negotiate a package of initial liberalization commitments that will enter into force at the same time as the agreement itself.
When the negotiations started in 1986, the level of understanding of the conceptual problems involved in developing a multilateral system on trade in services was poor. It did not take the negotiators long to discover that a simple transposition of GATT principles and rules to the area of services would not be possible. For example, the notion of national borders, which is central in merchandise trade measures, does not apply in the case of services. There is no border point at which tariffs or quantitative measures could be imposed. Also, the nature of services, which often require the physical proximity of the producer to the consumer, makes the transaction of supplying a service fundamentally different from supplying goods. The former requires the movement of factors of production across national boundaries in order to conclude a transaction. Consequently, the rules that need to be developed had to be different from those that are in the GATT.
The objective of the GATS is to achieve progressive liberalization of trade in services with the aim of promoting economic growth for all parties and the development of developing countries. The developing countries’ concerns and interests were placed, by the negotiating mandate, at the heart of the negotiations. They have found their expression also in the provisions of the draft text of the agreement.
Developing countries understand the crucial role that the services sector of their economies has to play in development. Having a dynamic and efficient services sector is necessary for raising the productivity and competitiveness of all other sectors of the economy. Therefore they also realize that they have a fundamental interest in these negotiations. The development of multilateral disciplines would enable them not only to secure export opportunities in some labor-intensive services but also to benefit from a more open international market, which will provide them with technologically advanced services at the most competitive prices. Those services often have backward and forward linkages with other economic activities and represent an important element in determining their competitiveness.
Current State of Play in the Uruguay Round
The original deadline to conclude the Uruguay Round was December 1990. At the end of the Trade Negotiations Committee meeting, held at ministerial level in Brussels on December 3–7, 1990, it was declared that ministers were not in a position to conclude the Uruguay Round at that point. More time was needed to reach agreement on a number of politically important issues in important negotiating areas, most notably agriculture. Other areas clearly needed more time to refine agreements that were reached, or even to reach agreement on a common basis for negotiations, such as anti-dumping and trade-related investment measures.
The negotiations were resumed at the beginning of 1991 after concentrated efforts to provide for the elements of consensus that were necessary. Another major element of uncertainty was also overcome by the extension by the U.S. Congress of the “fast-track” authority granted to the executive branch of the Government to negotiate trade agreements.
After the negotiations were suspended in Brussels, intensive consultations resulted in the resumption of the process on February 26, 1991. The breakthrough was an agreement on a negotiating approach for agriculture. A work program was also adopted with respect to other negotiating areas. The negotiating structure was also stream-lined to be more efficient. No specific target date was set to conclude the negotiations; it was agreed that it would emerge from the process itself based on the real progress achieved.
Intensified negotiations have continued since then, and by the end of July 1991 a meeting of the Trade Negotiations Committee concluded that the Round was entering its decisive phase and that all the elements necessary finally to carry the Round to a successful end were at hand. It was noted that, in agriculture, textiles, market access, and services, the combination of work done before and after Brussels enabled participants to move into the final stage of negotiations. Also in the area of rule making and the trade-related aspects of intellectual property rights, the time was ripe for the final political trade-offs. And in areas where common negotiating texts were not yet agreed, such as trade-related investment measures and antidumping, once essential political decisions were taken, agreements would fall into place fairly quickly.
The importance attached to a successful conclusion of the Uruguay Round was expressed at the highest political level, most notably by the London summit of the Group of Seven. Other statements were also made by the IMF, the World Bank, and the Organization for Economic Cooperation and Development. What all these statements, and others, had in common was that the Uruguay Round is the first priority of the world economy. It has been made clear that the political consensus behind the Round, the most important single element to the process, is intact.
Developing Countries and the Uruguay Round
As mentioned earlier, the role of developing countries in the multilateral trading system has evolved considerably owing to the evolution in their trade policies and the role of such policies in development. Their move toward more outward-oriented policies has made a successful conclusion of the Round even more important to them. Achieving higher rates of growth and the ability to overcome debt-servicing problems are closely linked to export growth rates for many developing countries. The Uruguay Round is therefore witnessing an unprecedented level of participation by those countries.
In addition to these considerations, two other important developments have taken place in parallel with the negotiations. The first is the major trend adopted by many developing countries recently toward unilateral trade liberalization. In recent years many of them have lowered their tariff rates and streamlined their tariff structures, and some have even bound their entire tariff schedules in the GATT. Many of them have also dismantled the majority of their nontariff barriers in the context of trade policy reform programs. In return for such major moves, those countries hope to see meaningful liberalization of barriers to their exports to developed country markets, which are often of a discriminatory nature.
The second is the increasing trend toward regional arrangements among developed countries and the fear of creating trade blocs, most important of which are the Free Trade Agreement between Canada and the United States, and the creation of a single European market. Participants in such agreements argue that their objective is to liberalize trade further among them without eroding the trade opportunities of nonparticipants. Nonetheless, they are being viewed by many developing countries as a threat to trade interests and to the multilateral system.
The developing countries consider that they have gone a long way toward integrating themselves into the multilateral system and that it is now up to the major industrial countries to live up to their political statements.
Relevance and Implications for Arab Countries
Arab countries can be grouped, in terms of their exports, into three categories: the group of oil exporting countries that do not suffer from debt problems but nonetheless have structural problems that make them vulnerable to external factors, particularly oil price fluctuations. There is a group of primary product exporters that have not only structural problems but also endure minimum, and in some years, negative growth rates. And there is the group of countries with more diversified economies such as Egypt, Syria, Morocco, Tunisia, Lebanon, and Algeria, which enjoy a wider export base.
In spite of these subgroupings, Arab countries have much in common with the majority of developing countries throughout different regions of the world. They are, by virtue of the structures of their economies, excessively dependent on the outside world and vulnerable to external factors such as the prices of primary commodities and the rates of economic growth in developed countries. A number of them suffer severe debt-servicing problems. Most of them have also followed the classic industrial policy approach adopted by the majority of developing countries that was based on an export substitution strategy coupled with restrictive trade policies. Also, a number of them such as Morocco, Egypt, and Tunisia have lately taken great steps toward establishing market economies and reforming their macroeconomic and trade policies to make them more outward oriented.
So far, many Arab countries have not felt it necessary or even attractive for them to be part of the GATT system. At present only four of them are Contracting Parties (Egypt, Kuwait, Morocco, and Tunisia). Oil exporting countries did not see the need to join the GATT because trade in their main export item has not been subject to any multilateral negotiations. But more important (and this does not apply only to oil exporting countries) is the role that most Arab countries assign to trade policy within their overall development strategy, which determines their approach to the multilateral trading system. Clearly a country that adopts an outward-oriented approach and puts strong emphasis on its export performance would see much more for it in the system than countries that adopt inward-looking strategies.
Therefore, the approach of Arab countries to the multilateral trading system, at this stage, has to be seen in the context of their policy orientation.
A number of Arab countries have joined many other developing countries in the move toward more outward-oriented policies with great emphasis on the promotion of their export sectors. For these countries, as for many other developing countries, the system represents the legal and institutional framework that will secure the future successful application of their policies. The set of legal rules could also provide them with the protection from bilateral pressures in their relations with large economic powers.
It also ensures stability and predictability in trade relations with non-Arab countries, particularly the developed ones. Such relations have proved to be of vital importance to the growth of their economies. Attempts to promote regional trade among Arab countries have not shown that the system could provide for trade opportunities that would satisfy their development needs. The similarities in the composition of their exports and imports do not allow for a wide range of trade opportunities. They would still need to secure export opportunities in developed country markets for agricultural, petrochemicals, textiles, and other primary products and depend on those countries for the supply of machinery, transport equipment, and other technologically advanced products.
If the previous assumption is followed, that is, if Arab countries do have a genuine interest in the multilateral trading system, whether those that have already decided to be part of it or others that are struggling to develop their economies, the Uruguay Round would also be of great importance to them. As a general consideration, the strengthening of the system resulting from a successful conclusion of the Round would secure future opportunities under a framework of equitable principles and rules and preserve the balance of rights and obligations between developed and developing countries.
More specifically, negotiations on agriculture are addressing one of the most important export areas for Arab countries, particularly those of the Mediterranean Basin that face barriers in a number of developed countries and suffer from the distortion in the world market of agricultural products.
Also, in some manufactured products like textiles, which are important for some Arab countries, the Uruguay Round is bound to produce important results in integrating this sector into the GATT system. There are also other products of export interest to some Arab countries, such as petrochemicals, for which they have an interest in eliminating different trade barriers in developed country markets.
Services is another area of importance. The services sector in Arab countries is growing in importance. It represents on average about 50 percent of GDP of the non-oil exporting countries. The new multilateral system in this area will most certainly have important implications for these countries.
Finally, the interest of Arab countries in the Uruguay Round and in the GATT system in general has to be seen in a wider policy perspective and the importance they assign to their export sectors in their development strategies. There is no doubt that a sound export-oriented trade policy within a strong credible multilateral trading system, together with the right macroeconomic policies, can go a long way toward creating a favorable investment climate that would encourage inflows of capital and technology necessary for successful industrial development.
Mohamed Mamoun Kurdi
I would like at the outset to express my thanks for the opportunity to participate in this seminar with a comment on the paper presented by Mr. Abdel Hamid Mamdouh.
First, I would like to thank Mr. Mamdouh for his detailed explanation of the historical background of the establishment of the General Agreement on Tariffs and Trade (GATT) and of the GATT Agreement, as well as for his concise exposition of the Uruguay Round, the concepts entailed in the negotiations, and their significance for the Arab countries.
The speaker alluded to the circumstances that blocked the ratification of the Havana Charter and the establishment of the International Trade Organization as the third institutional pillar of the international economic system in the wake of World War II. In turn, I would like to mention that the GATT Agreement has a unique legal status, since it has not yet been ratified, nor has it entered into force as an international agreement. What governs the international trade system as reflected in this highly important agreement is the interim protocol of the implementation of the agreement, the subsequent accession protocols, codes of conduct, and subsidiary agreements; this has made the international trade system highly complex, particularly as regards the resulting rights and duties of the contracting parties.
One manifestation of this legal complexity is perhaps the different levels of international commitment to the items of the General Agreement and its subsequent codes of conduct and subsidiary agreements, Whereas commitment to the items of Parts I and III of the General Agreement is fully binding, commitment to the items of Parts II and IV is discretionary; it is left to the discretion of the contracting party according to individual circumstances. The same applies to the codes of conduct and subsidiary agreements in that they are mandatory only to the sanctioning parties. Suffice it to say that the number of contracting parties is over 100, of which less than one third have ratified some of the codes of conduct and subsidiary agreements.
Turning to the interests of the developing countries, we find that these have been attended to within the framework of Article XVIII of Part II and in all the articles of Part IV, and hence without the full commitment of the contracting parties. Quite often we hear from the developed countries that the Generalized System of Preferences, provided by those countries for access by developing countries’ exports to their markets, is their full response to Part IV of the General Agreement. The developing countries should therefore set aside their aspirations and expectations as regards the method by which their developmental needs can be taken into account in the framework of the international trade system through the GATT (the basis being equality through the fundamentals of the system, namely, the most-favored-nation clause and the principle of “nondiscrimination between domestic production and similar imports”).
If we consider, from a practical point of view, the experience of developing countries within the framework of the multilateral trade negotiations under the GATT, we find quite clearly that the rule-making authority lies only in the hands of those parties that influence trade in the various sectors. Because the participation of developing countries is rather modest in the different sectors, their participation in rule making is consequently modest. The ineffectiveness of the role of developing countries in the GATT is further accentuated by the fact that their trade interests are diversified, thus rendering it difficult if not impossible in practical terms for them to become an influential negotiating power, apart from the statements sometimes issued by this group without the opportunity to see them translated into reality. Here I must add that some developing countries with vital trade interests—and that are members of the GATT—have been treated by the rest of the contracting parties, particularly the developed ones, in a manner that is inconsistent with the philosophy of the General Agreement. Voluntary restrictions (practically imposed) on exports in such important sectors as textiles are the best example, namely, the Multifibre Arrangement. In short, the most important exports of developing countries’ agricultural products and raw materials have not yet received within the GATT the treatment that is needed for development to take place in the developing countries.
The author properly underlined the importance of the current round of multilateral trade negotiations, which represent a remarkable qualitative move in the international trade system by expanding the scope of the multilateral framework in many significant areas, including reductions in tariff levels and the assessment of ways to deal with trade controls outside the framework of tariffs, which in fact represent the most significant impediment facing developing countries’ trade, whether relating to specifications or to other customs measures. Perhaps the most important trade issue discussed in this Round is making trade services subject to the controls of an international system.
Despite the negative aspects of past practices and the limitations of present circumstances for the developing countries in general, and the Arab countries in particular, these developments call for our attention and require evaluation, as well as a new, well-planned stance for dealing with the international trade system through the General Agreement on Tariffs and Trade.
After the collapse of communism, the move by Central and Eastern Europe as well as the newly independent states of the former U.S.S.R. toward the “free” trade system, and their adoption of market economics, it is no longer fitting or acceptable for Arab countries to remain tied to economic methodologies that historically and practically have proved sterile, incompatible, and incapable of meeting the needs of real economic development at a time when interdependence among the members of the international community, particularly in the economic sphere, has increased in depth and transparency. A look at the economic performance of the developed countries during the past two decades clearly shows the growth of the services sector of those countries’ economies at the expense of the industrial production sector. It also discloses the conviction of those countries that the future requires the redeployment of industry to sites where there is a comparative advantage, while retaining the highly technological industries. An illustration of this orientation is the restructuring and rationalization of the petrochemical industry in the United States and Japan, suggesting the redeployment of this industry in its primary stage to the oil and gas producing countries, and highlighting the opportunity available for the hydrocarbon producing Arab countries to develop the petrochemical industry. It is quite probable that the sensitivities witnessed in trade relations between Europe and the countries of the Gulf Cooperation Council (GCC) are attributable primarily to the nonacceptance of such tacts by the European petrochemical industry, despite its satisfaction with the efficiency of production and the opportunities the future holds for this industry in the GCC states.
Another equally important development in the new international order is what the author referred to in the area of economic groups and trade arrangements. We have paid due attention to the measures establishing the unified European market and the establishment of the tree trade area between the United States and Canada. Today we are witnessing the establishment of the European economic area as an extension of the unified European market, encompassing—along with the European Community (EC) countries—the European Free Trade Association (EFTA), the EC’s mutual agreements and trade preferences, and the similar agreements concluded between the EFTA countries and those of Central and Eastern Europe. We are also seeing the EC move toward political, financial, and fiscal unity, as well as negotiations to expand the North American free trade area to include Mexico. At a later stage we will probably see further expansion of the arrangements to include other countries in Central and South America.
All these developments call for realistic and serious treatment on the part of the Arab countries. The question raised now is the impact of these developments on the multilateral trade system represented by the GATT, and the relationship between such developments and the Uruguay Round. The answer will neither be easy nor “inevitable.”
There is no doubt that if the Uruguay Round fails, the international orientation toward liberalizing the international trade system will increase the complexity and confusion of the already highly complex and vulnerable system. The conclusion of this Round will give these groups a positive role, and prove—at least from my point of view—that the objective can be attained by different means, and that such means do not necessarily have contradictory ends.
This perception leads me to conclude that the trade interests of the Arab countries require involvement within the GATT multilateral framework, without ignoring the regional arrangements and the economic and trade groupings already alluded to.
If we agree that the Arab countries will sooner or later reform their economic and trade systems and move toward the market economies; expand and diversify their productive and trade structures; increase their participation in industrial production and international trade; and increase their dependence on exports and promote a growing export base, then the significance of the Arab role in the international trade system will grow, proving that Arab reluctance to join the GATT is no longer warranted. Regardless of the diverse interests of the Arab countries, their need to exist within the multilateral framework will become clearer along with the expansion of their industrial base, the diversification of their export base, and the consequent need to facilitate the access of their exports to new and large markets.
Before I conclude my remarks, I would like to refer to the author’s perception of the Arab oil producing countries’ view of the GATT. For one reason or another, this view remains unchanged, but it is being re-examined and reassessed. While it is true that the oil sector is not currently subject to contractual arrangements within the framework of the GATT, it is also true that the commercial conditions faced by this sector require international attention, which cannot be gained without the active participation of the oil producing countries in the multilateral trade system.
The problem of oil is not one of tariffs but rather of trade measures hidden by other issues such as concern about the environment and its preservation, standardized specifications, and tax policies that greatly influence the demand for oil. Although there are numerous avenues for study of such concerns, the GATT remains an important channel, particularly in light of rearranging certain component items of the international trade system.
On the other hand, the diversification of the economic base of the Arab oil producing countries underlines the importance of the GATT as a channel through which the trade interests of these countries can be defended in the area of new, abundant, and nontraditional products. Quite naturally, interest in the expansion of the industrial base and the diversification of the economic structure requires a similar interest in the transfer and adaptation of technology, a matter that is connected with the GATT’s increasing interest in the protection of intellectual property rights, as well as trade in services, particularly in the area of investment.
While I do not have enough time to deal with these matters in detail, I ought to mention that the GATT represents an important channel for developing international arrangements that would respond positively to the interests of Arab countries, particularly the oil producing ones. This is especially true, since the development of such arrangements is still at the preliminary stage.