The General Agreement on Tariffs and Trade (GATT) celebrated its fortieth anniversary in 1987. In its four decades of operation, the GATT has had many accomplishments. As a result of seven successive rounds of multilateral trade negotiations, average tariffs in industrial countries on industrial products have declined sharply, from over 40 percent in 1947 to about 5 percent today. World trade has expanded markedly, including a twentyfold increase in the volume of trade in manufactured goods. GATT’s membership has quadrupled to cover 96 countries that account for over 85 percent of world trade96 (Table A27).

Overview of Multilateral Trade Initiatives

The Uruguay Round

The General Agreement on Tariffs and Trade (GATT) celebrated its fortieth anniversary in 1987. In its four decades of operation, the GATT has had many accomplishments. As a result of seven successive rounds of multilateral trade negotiations, average tariffs in industrial countries on industrial products have declined sharply, from over 40 percent in 1947 to about 5 percent today. World trade has expanded markedly, including a twentyfold increase in the volume of trade in manufactured goods. GATT’s membership has quadrupled to cover 96 countries that account for over 85 percent of world trade96 (Table A27).

In spite of these successes, the multilateral trading system stands at a crossroads today, as developments over the past decade have challenged its credibility and relevance. Protectionist pressures, nurtured by macro-economic imbalances and inadequate structural adjustment, have intensified; a large number of discriminatory nontariff measures that bypass the GATT have been imposed; trade tensions among GATT members have escalated (both among industrial countries and among industrial and developing countries); and new areas such as services and intellectual property rights demand attention in a manner unforeseen when GATT was established. The shifts in the balance of world economic power since the late forties have been accompanied by an erosion of leadership in trade, together with an increasing tendency toward regionalism and bilateralism at the expense of multilateralism.

Against this background, the launching of the Uruguay Round of Multilateral Trade Negotiations (MTN) at Punta del Este, Uruguay, in September 1986 was of major importance. The new Round is viewed by many as essential to keep domestic protectionist demands at bay and to restore the relevance and credibility of the multilateral trading system. This Round is the most ambitious of its kind, as it goes beyond the traditional concerns (such as tariffs) of past MTNs, gives greater recognition to the linkages between trade and other economic policies, covers areas that in the past were largely neglected (such as agriculture), and includes new areas (such as services) as well as sectors (textiles and clothing) that have been relegated to special regimes through multilateral action. In addition, systemic issues, such as examining the functioning of the GATT, are an integral part of the negotiations. (Table 6 presents a list of selected issues considered by GATT and under the Uruguay Round.)

Table 6.

Discussion Forums in GATT and the Uruguay Round

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The GATT Council of Representatives considers matters placed before it. Working parties may be established to investigate specific issues (e.g., accession and waivers).

Note: FOGS = Functioning of the GATT system; TRIPS = Trade-related intellectual property rights; TRIMS = Trade-related investment measures; NRBP = Natural resource-based products.

The Ministerial Declaration launching the new Round spells out the overall and specific objectives of the MTN and establishes a time frame of four years for its completion (Appendix II). The Round aims, inter alia, at further liberalizing trade, strengthening the role of the GATT, increasing GATT’s responsiveness to the evolving international economic environment, and fostering cooperative action to strengthen the interrelationship between trade and other economic policies affecting growth and development. To conduct the negotiations, a Trade Negotiations Committee (TNC) was established with two subsidiary bodies, the Group of Negotiations on Goods (GNG) and the Group of Negotiations on Services (GNS). The GNG was further divided into 14 negotiating subgroups covering tariffs, nontariff measures, tropical products, natural resource-based products, textiles and clothing, agriculture, safeguards, GATT Articles, MTN agreements and arrangements, subsidies and countervailing measures, dispute settlement, trade-related intellectual property rights, trade-related investment measures, and the functioning of the GATT system. GATT members also committed themselves to observing a “standstill” and “rollback” of trade-restricting measures that are inconsistent with GATT.

The Uruguay Round participants spent 1987 in “the initial phase” of the negotiations, preparing the ground for the future exchange of concessions. Much of the discussion in the various negotiating groups was devoted to clarifying the content and modalities of the negotiations, submitting proposals, and other steps necessary to move the negotiations forward. At the end of the initial phase, there was broad “formal” agreement among the participants that satisfactory progress had been made, though many of them stressed that there was no room for complacency.

Developments under the Uruguay Round may be summarized as follows.

  • Since the Uruguay Round pledge on the standstill, recourse to new trade restrictions has increased.

  • Thus far, one conditional rollback offer has been tabled (by the EC), Many countries expect the rollback to be achieved toward the end of the negotiations rather than ahead of them.

  • In view of the persistence of protectionist pressures and large macroeconomic imbalances, some countries have urged that the Round do more to create a climate of confidence and to send a positive signal to governments, the business community, and the financial markets concerning the direction of the negotiations. They recommend an “early harvest” of agreements, at least in selected areas by the time of the midterm review, which would also help sustain the momentum of the negotiations. Others doubt the feasibility of achieving selected agreements and look more toward “globality” in the outcome of the negotiations, with balanced progress in the majority of negotiating areas.

  • Progress in the individual negotiating groups has been uneven, as wide divergences of views continue to prevail. For example, on agriculture, which is crucial to the negotiations for a number of countries, views diverge on whether the ultimate objective of the negotiations should be a total or partial elimination of subsidies, and on the role of short-term measures. The discussion on services, although far from agreement, has been more substantive and has proceeded faster than initially expected by many countries. Discussions in other new areas (such as trade-related intellectual property rights and trade-related investment measures) are at a preliminary stage. Substantive discussions have taken place in the group on functioning of the GATT system on trade policy surveillance, ministerial involvement in GATT’s work, and cooperation with international organizations. Agreement on dispute settlement procedures in the near future is hoped for.

  • Negotiations in many of the groups appear to be inevitably linked. For instance, progress on nontariff measures appears to be linked to progress on safeguards, and that on subsidies to progress in agriculture; progress in textiles is linked with the issues of safeguards, subsidies, and reciprocity. Although these linkages may create deadlocks, they can also permit progress through quid pro quos. In delinked areas, such as the functioning of the GATT system and dispute settlement procedures, the negotiations are moving forward.

  • Developing countries are taking an active part in all the negotiating groups. In their view, insufficient attention has been given in the discussions to the principle of differential and more favorable treatment that was reiterated in the Uruguay Round Declaration. Many developing countries are also concerned about increasing calls for them to become more fully integrated into the obligations of GATT and to reduce reliance on GATT provisions on trade restrictions for balance of payments purposes. While developing countries are resisting changes in these provisions, it is clear that many industrial countries feel strongly that implementation of the provisions needs tightening. These views have been expressed in various forums, including meetings of the GATT Committee on Balance of Payments Restrictions.

Other Initiatives

The Organization for Economic Cooperation and Development (OECD) has conducted substantive research on trade issues, including the costs of protection and the interrelationships between trade and structural adjustment. In particular, the OECD’s analytical and quantitative work on agricultural trade has provided an impetus for reform. The OECD is also an important forum for its members to coordinate positions on trade policy issues.

At their latest meeting in May 1988, OECD ministers called for resolute efforts by OECD countries to fight protectionist pressures; resolve trade frictions on a non-discriminatory basis; observe the standstill and rollback commitments of the new Round; and work toward a better functioning of the GATT. The OECD communique endorsed, inter alia, the need for greater integration of developing countries into GATT and for liberalization of trade in services. It called for efforts to reach tangible progress in the new Round before the end of 1988; toward this end, member countries were encouraged to agree on a “framework approach” (i.e., formulation of general principles guiding the specific points of negotiations). It urged a strengthening of policy reform efforts in agriculture, calling on members to agree on a framework approach, including short- as well as long-term elements that would promote reform.

The need to improve the trade environment has been featured in the annual economic summits of major industrial countries. In the most recent economic summit held in June 1988 in Toronto, the leaders of Canada, France, the Federal Republic of Germany, Italy, Japan, the United Kingdom, and the United States, and the president of the Commission of the European Communities welcomed the proposed U.S.-Canada Free Trade Agreement, as well as progress toward a single market in the EC by 1992. They agreed that it was vital for the GATT to become a more dynamic and effective organization, particularly in regard to the surveillance of trade policies and dispute settlement procedures. They called for greater ministerial involvement in GATT discussions and strengthened linkages with other international organizations and emphasized the need to make agriculture more responsive to market signals.

Trade policy issues are also discussed in a number of other international organizations, including the Fund (see below), the World Bank, and the UNCTAD. The Bank and the Fund have increasingly emphasized trade policy issues in their consultations with members and in the design of adjustment programs. The Bank has prepared a handbook on the Uruguay Round to assist, in particular, the developing countries in their deliberations. The UNCTAD has done considerable research on trade issues of relevance to the new Round and is extending technical assistance to developing countries. It has also prepared an extensive inventory of nontariff measures maintained by its members.

The Role of the Fund

A key function of the Fund is the exercise of firm surveillance over exchange rate policies of its members. In practice this function encompasses the review of wide-ranging economic and financial policies in a multilateral context through regular exercises in the World Economic Outlook, and through Article IV consultations with individual members. Trade policy issues are covered in the work of the Fund in the context of Fund surveillance and in the use of Fund resources. Furthermore, the Fund collaborates closely on trade matters with the GATT, which has primary responsibility in the trade field. Fund staff also collaborate on trade issues with the World Bank, especially in the design of trade policies in adjustment programs.

Article IV Consultations

The Fund conducts regular Article IV consultations with all its members to assess whether their domestic and external policies are conducive to financial stability and economic growth. In line with guidelines from the Executive Board of the Fund, Article IV consultations place emphasis, inter alia, on trade policy issues, particularly regarding analysis of the effects of the member’s trade policy stance on domestic adjustment and on its trading partners.

Trade coverage has been generally comprehensive in recent consultation reports prepared by Fund staff, especially in the reports on major industrial countries. It has included descriptions of the trade regime, analysis of the trade policy impact on the domestic economy (on inflation and sectoral adjustment, for instance) and on trading partners (on access to domestic markets for foreign suppliers). Trade restrictions abroad affecting the consulting country are also featured. In some cases the impact of protection has been quantified. The analysis has focused on the economic impact of trade restrictions and not on their conformity with GATT. In some reports, aspects of regional trade issues have been featured (for example, in reports of some EC member states), and in others regional integration in the context of free trade agreements has been discussed (for example, the U.S. Canada Free Trade Agreement).

Fund staff appraisals on the member’s trade policies are generally featured as part of the appraisal of the performance of the economy as a whole. They provide a basis for discussion of the member’s situation by the Fund’s Executive Board. The Fund staff is attempting to improve and expand the analysis of trade issues in consultation reports, particularly with respect to the inter-linkages between trade policy and macro economic and structural adjustment issues. Other areas to which more attention will be given include encouragement of improved domestic surveillance mechanisms in individual countries and adoption of more transparent trade regimes.

Trade Policies in Fund-Supported Programs

All Fund-supported programs contain, inter alia, a standard clause on trade whereby the authorities of the member using Fund resources make a commitment to avoid imposition of new, or intensification of existing, import restrictions for balance of payments purposes during the period of the stand-by or extended arrangement. In recent years, an increasing number of programs have gone beyond this “standstill” clause, and trade liberalization has been included as an integral part of the external and structural policies under the programs. Coverage of trade issues has increased in stand-by and extended arrangements approved in recent years, and most programs in support of arrangements under the structural adjustment facility have incorporated specific trade liberalization measures.

The increased emphasis on trade liberalization in Fund-supported programs reflects the greater weight being given to structural adjustments in designing stabilization programs. Developing countries increasingly recognize that structural adjustments, of which trade liberalization is an important element, are essential for improved efficiency in resource allocation, enhanced competitiveness, and a shift toward outward-oriented development strategies.

Programs that did not contain specific trade liberalization measures included cases in which (i) the trade regime was already liberal; (ii) trade liberalization had been undertaken prior to approval of the program or in the context of previous programs; and (iii) trade liberalization was held over until better control of a fragile external position was established.

The design of trade liberalization programs takes into account the circumstances of individual countries, and in most cases a gradual approach has been adopted. It is an important area of consultation and collaboration with the World Bank. The focus and depth of trade liberalization have varied widely, ranging from the elimination of quantitative restrictions (QRs) to a simple streamlining of regulations. These variations reflect factors such as the nature and level of the initial restrictions, complementary exchange rate action, balance of payments prospects, and the authorities’ commitment to liberalization. Given that exchange and trade restrictions can be effective substitutes, the nature and extent of measures in the area of exchange restrictions and exchange rate policies are of particular importance in influencing meaningful trade liberalization.

Relaxation of quantitative restrictions, which are less transparent and more distortive than tariffs, was the most common type of specific trade liberalization measure included in Fund-supported programs in the past three years. Reduction in the scope of QRs was featured in about one fourth of the countries that were granted stand-by or extended arrangements in 1985, and in about one half in 1986-87. Within this category, elimination or substantial relaxation of QRs, or restrictive import licensing, were featured in a number of programs. In a number of cases, the removal or substantive reduction of QRs was part of a more comprehensive liberalization package including major exchange rate and domestic price reforms.

Tariff reform was increasingly featured in Fund-supported programs in the past three years. Comprehensive tariff reforms were often part of wider trade liberalization programs designed in collaboration with the Bank, and supported also by Bank resources. Comprehensive tariff reforms were typically implemented according to a phased schedule in conjunction with a phased reduction in quantitative restrictions, often as part of medium-term programs. The aim of tariff reforms in most cases was to lower the average nominal rate of protection, in order to reduce the effective rate of protection as well as the dispersion of tariffs. However, in some cases tariff reform was not feasible because of its fiscal revenue repercussions. In cases where quantitative restrictions were replaced by tariffs, revenues from tariff collections were expected to increase after the tariff reform. In other cases, revenues were augmented by improvements in tariff collections or increases in tariff rates.

Other types of trade liberalization in Fund-supported programs included (i) liberalization or abolition of requirements for importer’s licenses, sometimes in conjunction with other trade measures; (ii) rationalization of the exchange rate used for customs valuation; and (iii) abolition of import or export monopolies.

Export promotion has also been featured in some programs in the form of tariff rebates or exemptions on imported inputs used for export production, administrative streamlining, preferential tax treatment for exports, elimination of export duties, and foreign exchange retention privileges for exports. (Export promotion via elimination of the anti-export bias implicit in restrictive import regimes is usually more efficient compared with the more direct measures of export subsidization.)

In most of the programs, trade liberalization measures were not used as performance criteria but were monitored in the context of overall reviews of performance, reflecting partly the difficulties in quantifying trade liberalization as well as attempts to minimize the number of performance criteria. In a few cases, trade liberalization measures were implemented prior to approval of the program. Monitoring of trade liberalization under the structural adjustment facility took place through the use of benchmarks and annual reviews.

Fund-GATT Collaboration

Cooperation between the Fund and the GATT has been pursued at two levels—in regard to general matters of mutual concern, and in terms of the Fund’s participation in the G ATT’s consultations with contracting parties maintaining trade restrictions for balance of payments reasons.

That exchange controls and trade measures can be used as substitutes has from the outset resulted in a special status for the links between the GATT and the Fund. GATT Articles XIV and XV give determinant effect to this cooperation; for example, when a country adopts trade measures to deal with balance of payments difficulties, the Contracting Parties consult with the Fund, in the context of that country’s consultations with the GATT Balance of Payments Committee.97 Other examples of institutional cooperation include the study prepared by Fund staff, at the request of GATT, on the effects of exchange rate fluctuations on world trade.

Furthermore, well-developed channels of cooperation exist between the two staffs, including the operations of the Fund’s Geneva Office. The Director-General of GATT is invited to attend as an observer in the ministerial-level meetings of the Fund and the Bank. In turn, the Fund is represented as an observer at sessions of the GATT Contracting Parties, the GATT Council of Representatives, and most standing GATT committees.

The Fund has extended its strong support to the Uruguay Round, in which a number of issues of special interest to the Fund are under discussion. The Uruguay Round’s Trade Negotiations Committee (TNC) has invited the Managing Director of the Fund to be represented at its meetings, as well as at the meetings of the groups of negotiations on goods and on services, and the groups on GATT Articles, functioning of the GATT system, trade-related investment measures, and natural resource-based products. The deliberations of the Round may well have significant implications for the Fund. For example, the Round is discussing possible strengthening of GATT’s relations with other international organizations. Another example is the area of services in which the Fund has jurisdiction over the payments side,98 and hence has a natural interest in seeing that any new disciplines developed in the Uruguay Round are consistent with the Fund’s jurisdiction.


Existing GATT Mechanisms

Broadly defined, almost all GATT bodies have surveillance functions and regularly review particular aspects of trade policies and measures. Existing GATT bodies concerned with surveillance include the following. (1) The special meetings of the Council, held twice a year, perform regular and systematic reviews of developments in the trading system, based on a six-monthly survey prepared by the GATT Secretariat. (2) The Committee on Trade and Development reviews matters of interest to developing countries. (3) The Committee on Balance of Payments Restrictions is responsible for multilateral surveillance of trade restrictions taken for balance of payments purposes. (4) The Textile Committee oversees the Multifiber Arrangement (MFA), and the Textile Surveillance Body reviews bilateral agreements of MFA members. (5) The committees associated with the various MTN codes review members’ policies and measures at intervals of between four times a year and once every two years. (6) The Consultative Group of Eighteen (CG 18), established in 1975, has a mandate to follow international trade developments and forestall sudden disturbances in the trading system and the international adjustment process. The CG 18 is not a decision-making body; its function is essentially consultative but it may make recommendations to the GATT Council. It has not met since 1987.

In spite of these mechanisms, the need for more effective trade policy surveillance has been increasingly recognized, both within and outside GATT. Accordingly, the Uruguay Round is devoting much attention to surveillance issues.

Standstill and Rollback

The function of the Uruguay Round’s Surveillance Body, established in early 1987 to oversee compliance of the new Round’s standstill and rollback commitments, is more a political than a legal form of surveillance. Several countries have alleged contraventions of the standstill. For example, Chile has complained about GSP treatment in the United States and the Community’s import licensing of apples; the EC is concerned about new manifestations of the Buy American program in the United States; the United States has raised the issues of import curbs on certain dairy products and new subsidies for white peabeans by Canada and new soybean subsidies by Switzerland; and Canada has complained about the Community’s ban on imports of meat from animals given artificial hormones.

Regarding the rollback, thus far only the EC has put forward a proposal (in March 1988), which envisages rolling back some of its residual restrictions (over 100 quantitative restrictions covering a variety of products), excluding those on Eastern Europe and Japan. The offer is conditional on similar offers from other participants. As the first rollback offer, the EC announcement was generally welcomed by other participants, but some countries have expressed concern about its discriminatory nature (vis-à-vis Eastern Europe and Japan) and its limited significance in terms of the amount of trade it would liberalize.

The absence of significant rollback offers is viewed by many countries as an indication that any major rollback would probably be at the end rather than at the beginning of the negotiations, because many countries insist on a “balance of benefits approach,” and are unwilling to give anything away unilaterally. Rollback issues are also complicated by the views of some countries that gray-area measures are not subject to the rollback but are subject to negotiation; their reduction would depend on progress on safeguards and on reducing subsidies.

Functioning of the GATT System

Dissatisfaction with the adequacy of existing surveillance mechanisms has led GATT members to consider possible improvements. Furthermore, many countries are no longer concerned only with obtaining direct trade advantages or with clarifying GATT rules but wish also to strengthen GATT’s ability to adapt to present and future developments in the international financial and economic environment and to strengthen GATT’s institutional powers. Hence, the negotiations in the Uruguay Round’s group on functioning of the GATT system are centered on three aspects: first, to enhance GATT surveillance of trade policies and practices and their impact; second, to improve the effectiveness and decision making of GATT as an institution; and third, to enable GATT to play a more active part in global economic policymaking.

Trade Policy Reviews

A consensus appears to be developing that the objective of a trade policy review mechanism should be to enhance transparency and understanding of the trade policies of all members, and to allow for an evaluation of individual trade policies and trends, rather than an examination of the legal compatibility of arty particular measure with GATT rules. Many countries believe that the trade review mechanism would facilitate, inter alia, assessment of individual trade practices within the wider context of the external trade and financial environment. A mechanism requiring more frequent reviews for countries with the largest share of world trade compared with others is preferred. However, disagreements persist on the content of surveillance and on how direct an effect on trade any given policy measure should have for it to be covered by the surveillance discussion.

GATT Effectiveness

The discussions so far on improving GATT’s effectiveness have focused primarily on greater ministerial involvement in its work. In the past three decades, ten GATT meetings at the ministerial level have been held. There is consensus that more frequent participation by trade ministers could provide political guidance and initiative, reinforce governments’ commitments, give GATT greater prominence and credibility in domestic political arenas, and enable better monitoring of trade trends against the background of a wider political and economic context.

Broad support exists for periodic ministerial sessions of all GATT members, with full decision-making powers. Views are more divided about the size and composition of a possible smaller group of ministers who would meet more frequently, in an advisory role, to examine trade developments and policies before they were submitted for full deliberation in GATT. The concept of regular meetings with ministers representing certain constituencies, similar to the Fund’s Executive Board, has not had much support among GATT members because the GATT is viewed as a contract, as opposed to an organization.99

Cooperation with Other Organizations

The Punta del Este Declaration states that negotiations should aim to increase GATT’s contribution to economic policymaking by strengthening its relations with other international organizations responsible for monetary and financial matters.

Many GATT members believe that some of the substantive questions relating to trade, finance, and monetary issues need to be addressed in the Round to reach meaningful conclusions on institutional relationships. Some have noted that while trade liberalization alone cannot solve problems of indebtedness and financing, protectionism aggravates these problems and makes it more difficult for indebted countries to fulfill their responsibilities to the Fund and the Bank. The impact of macro- and financial policies on trade is not always clearly perceived by national policymakers. The question, therefore, is how GATT could make a greater contribution to the multilateral system in such a way that full account is taken of the interrelationships between trade and other policies.

The discussions on strengthening cooperation with other organizations are still in a preliminary stage, and views vary. Some favor strengthening cooperation only at the technical level between the secretariats of these institutions; others take a more ambitious approach, seeking to broaden the area of present cooperation and deal with actual policymaking and coordination. Some fear that the latter approach may lead to an overlapping and confusion of the roles of the organizations. Some developing countries are concerned that a strengthening of GATT/Fund/Bank relationships may result in cross-conditionality and in stronger pressures on them to pursue open trade policies without similar pressures being applied to industrial countries.

Instruments of Protection


Tariff levels in industrial countries have been reduced in successive GATT negotiations and a large proportion of industrial tariffs are “bound” in the GATT against increases (Section II). Tariff reductions have been less pronounced in some sectors, such as agriculture and textiles, and individual high tariffs remain. Tariff escalation (successively higher tariffs for products at a higher stage of processing) in industrial countries often makes the rate of effective protection higher than that of nominal protection.

Tariff reductions and supervision of GATT tariff schedules are overseen by the GATT Committee on Tariff Concessions established in 1980. Much of the committee’s work in recent years has been related to preparations for implementation (which began in 1988) of the new Harmonized Commodity Description and Coding System, developed by the Customs Cooperation Council in Brussels, The new system, which serves as a single standard for the classification of traded goods, has presented some GATT members with the need for negotiations under Article XXVIII where the change from current nomenclatures disturbs the fine balance of concessions already negotiated.100

The Uruguay Round Group on Tariffs is discussing a number of proposals for tariff reductions. Some members favor elimination of all tariffs on industrial products by industrial countries; others support more modest reductions. Industrial countries’ tariff peaks and escalation are of concern to developing countries. The group is searching for agreement on a common negotiating basis that would cover a tariff-cutting approach, eliminate high tariffs and tariff escalation, and expand the degree of bindings by all participants.

While not the most important issue in the Uruguay Round, tariff negotiations are a significant part of the debate on developing country integration. Developing countries have not generally reduced or bound tariffs in previous MTNs. Mexico and Chile are the only GATT members that have bound 100 percent of their tariffs (Mexico at 50 percent and Chile at 35 percent). The degree of tariff bindings varies widely in other developing countries but is generally low. Industrial countries are urging developing countries to bind most of their tariffs to ensure security of access to their markets. The issue of tariff bindings is also being discussed in a number of other negotiating groups, including those on tropical products, textiles, and natural-resource based products.

Nontariff Measures

The proliferation of nontariff measures (NTMs) in the past two decades has led GATT members to search for better GATT disciplines in the use of such measures. Many NTMs are in the form of voluntary export restraints and other gray-area measures outside GATT surveillance. The Uruguay Round Group on Nontariff Measures is considering proposals on the modalities of the negotiations: the establishment of multilateral rules and the choice of a formula approach or a request-and-offer approach to liberalization.101 In view of problems of measuring the equivalence of future concessions on NTMs, the group is also considering possible measurement yardsticks.102 Issues under discussion include the NTMs to be covered in the negotiations and their trade-distorting effects. For example, some industrial countries are concerned about delays and the additional costs to exporters associated with preshipment inspection; developing countries consider that such inspection helps save foreign exchange and deters unethical business practices. Progress in the group, particularly concerning gray-area measures, is linked to progress on safeguards.

Certain nontariff measures, including technical barriers to trade, import licensing, and government procurement, are governed by codes agreed in the Tokyo Round (Table A28).


The GATT’s main safeguard provision is Article XIX, which allows temporary restrictions on imports where domestic producers are seriously injured and provides for compensation to affected trading partners. In practice, however, these provisions have been ineffective. Recourse to Article XIX has declined at the same time as an increasing number of discriminatory gray-area measures are taken outside GATT. With one exception (Chile), Article XIX has been invoked only by industrial countries since 1978 (Table A29). (Developing countries have tended to utilize GATT’s balance of payments provisions to justify their trade restrictions.) Of 134 Article XIX actions taken since 1950, 23 had a duration of more than five years, and 32 had a duration of three to five years. As of mid-1987, 26 Article XIX measures were still in force. This compares with 135 known export restraint arrangements reported by GATT in September 1987 and 261 in May 1988 (Table 2).

Although the 1982 GATT ministerial meeting called for a comprehensive safeguards agreement, such an agreement was not reached because of differences in views between proponents of nondiscriminatory safeguards and those who favor selective action against imports from particular supplying countries. These differences also influence discussions in the Uruguay Round Group on Safeguards. In addition to the principle of nondiscrimination, the group is discussing other features of a possible new safeguards code, including transparency (clarity in rules and application of restrictions); degressivity (phased reduction during period of maintenance of restrictions); temporariness (limit on duration of measures); and compensation (redress for countries adversely affected by the restrictions). Other issues relate to appropriate definitions of “injury,” “domestic industry,” and “like or directly competitive products.” Some countries favor the establishment of a surveillance body or safeguards committee that would ensure that Article XIX measures are taken solely to deal with emergency, short-term imbalances.

The discussion on safeguards is linked to a number of other areas, for both substantive and tactical reasons. Developing countries support a solution on safeguards based on nondiscrimination, as they are vulnerable to discriminatory restrictions; they also call for elimination of the Multifiber Arrangement, which is a major derogation from normal GATT rules on nondiscriminatory application of temporary restrictions. Some developing countries have also linked their cooperation on services and other “new” areas to progress on safeguards. A number of industrial countries appear inclined to link progress on safeguards with progress on developing countries’ acceptance of greater discipline on balance of payments restrictions under GATT Article XVIIFB, and with progress on subsidies.

Subsidies and Dumping


An Agreement on the Interpretation and Application of Articles VI, XVI, and XXIII of the GATT, more commonly referred to as the “Subsidies Code,” was negotiated in the Tokyo Round. The code aims to bring greater discipline to the use of subsidies. Export subsidies on manufactures are prohibited. For primary products, the code enjoins signatories to refrain from export subsidies that result in a “more than equitable share” of world export trade in such products. Since signatories recognize that domestic subsidies may serve important social and economic policy objectives, domestic subsidies are not prohibited, but signatories are enjoined to avoid their use where they have adverse trade effects for others. The code permits the imposition of countervailing duties to offset the injurious effects on domestic producers arising from imports of like products that benefit from subsidies abroad (export or domestic). As of June 1988, there were 25 signatories to the Subsidies Code (with the EC counted as one) (Table A28).

The Subsidies Code has many interpretative difficulties. Differences of view exist among GATT members regarding the definition, scope, and measurement of subsidies and the application of countervailing duties. These differences include, for example, treatment of financial versus other subsidies, input versus final product subsidies, and specific versus general subsidies; definitions of “primary” and “manufactured products,” “domestic industry,” and “like products.”They have led to many trade disputes related to the conditions of use of subsidies and of measures to counter their effects.

The Committee on Subsidies and Countervailing Measures is responsible for overseeing the code and acts as the forum under which signatories consult on matters related to the code, including clarification of definitions and resolution of disputes. The use of subsidies has to be notified by signatories to the committee. Actual notifications are inadequate, however, partly because of insufficient data on subsidies and partly because countries do not want to publicize their subsidies to avoid countervailing duties. These factors have made the code difficult to enforce, and trade frictions on subsidies have increased in recent years.

GATT members basically disagree about whether the existence of a subsidy requires a financial contribution by governments. The committee issued (in 1985) a draft recommendation on the principle of specificity that held that a subsidy exists only if the government provides assistance to a particular industry as opposed to all industries. This recommendation, in principle acceptable to most signatories to the code, was not adopted because the United States opposed a concept that would exclude the provision of energy-related inputs to industry at prices below world market levels.103

Differences of interpretation have made it difficult for the committee to reach clear conclusions in some disputes. For example, progress was not made on disputes over EC subsidies on exports of wheat flour and pasta products,104 which required clarification of definitions of primary and manufactured products. Also, disagreement on the definition of domestic industry became evident in a dispute involving EC subsidies to the wine industry: the EC argued, and a GATT panel found (in a report not yet adopted by the GATT Council), that U.S. grape growers could not file a countervailing duty petition against wine imports.105 Similar cases involving the practice of broadening the definition of domestic industry have arisen with respect to countervailing duty petitions by U.S. orange growers against Brazil’s exporters of orange juice, and by Canadian cattle growers against EC beef exporters. (On the latter, a GATT panel found in October 1987 that cattle growers were not part of the domestic industry, but the panel’s report has not yet been adopted.) More recently, a GATT panel was established to investigate U.S. charges that EC oilseed subsidies nullify zero tariff bindings on soybeans.

Another source of disagreement relates to the application of the “injury test” in determining the need for countervailing duties. Some countries (e.g., the EC) apply the injury test to all countries, while others (e.g., the United States) apply it only to signatories of the Subsidies Code or to nonsignatories that have entered into bilateral agreements to exercise discipline over subsidies. A further issue is whether cumulation of imports is valid for the purpose of determining injury. Legislation expanding the scope of countervailing duties in some industrial countries has also been a source of concern to other countries.

Against this background, negotiations in the Uruguay Round Group on Subsidies and Countervailing Measures are both complex and difficult. For some countries the main objective is to achieve international discipline in the use of subsidies; others emphasize discipline in the use of countervailing duties on the basis of specificity, for the most part narrowly defined to include financial contributions by governments. Various approaches to subsidies are under discussion. One issue is whether to proceed with a classification of subsidies (prohibited, actionable, or n on act ion able) or to bring all kinds of government assistance, including that for agriculture, under GATT’s wing. Another issue is whether agreement on a definition of subsidies is a prerequisite to consensus on an effective dispute settlement system. The negotiations are further complicated by the linkage between subsidies and agriculture and by the widespread use of subsidies in the steel sector. Developing countries have emphasized the need to take fully into account, in drawing up any new rules, the principle of differential and more favorable treatment for them.


The Tokyo Round Agreement on Antidumping Practices, which replaced that negotiated during the Kennedy Round, came into effect in 1980. It interprets the provisions of GATT Article VI, which lays down the conditions under which antidumping duties may be imposed as a defense against dumped imports. Antidumping investigations are reported to the GATT Committee on Antidumping Practices. An ad hoc group on the implementation of the antidumping code studies technical issues referred to it by the committee.

Recourse to antidumping measures, as well as disputes over their application, have increased considerably in recent years. The antidumping code has involved controversy over definitions and measurement of dumping, injury, and the application of antidumping duties. The problem areas (some are similar to those in the Subsidies Code) include the appropriate definition or use of domestic industry, like products, constructed values, threat of injury, cumulative injury assessment, input or component versus final product dumping, the application of dumping in third markets, the use of price undertakings in antidumping proceedings, and revision and termination of undertakings. Legislation by some industrial countries to widen the coverage of antidumping duties has been a source of concern to other countries.

An important recent controversy pertains to the extension of antidumping measures to components of products in so-called screwdriver operations. On June 22, 1987 the EC adopted a new regulation that stipulates that to prevent circumvention of antidumping duties on finished products, antidumping duties may also be applied under certain conditions106 to products assembled or produced in the Community, using imported parts or materials. Under this regulation, the EC initiated investigations during 1987-88 on electronic typewriters, electronic scales, excavators, and photocopiers, all of which were assembled or produced by Japanese-related companies in the EC. In April 1988 the European Council decided to impose antidumping duties on five companies.

Japan argued in the GATT Committee on Antidumping Practices that the Community’s anticircumvention regulation was inconsistent with the GATT and the Antidumping Code because (i) no investigations took place to determine dumping and injury related to the imported components; (ii) the provision stipulated that duties may be imposed provided that the value of components originating in the country subject to the initial antidumping duty exceeded the value of all other parts by a specified proportion; in Japan’s view, this provision was intended to operate like a local content requirement and was inconsistent with GATT; (iii) duties were imposed only on manufacturers associated with foreign companies already subject to antidumping duties and not on domestic manufacturers even if they used the same imported components; Japan considered that this amounted to a discriminatory internal tax in violation of GATT; and (iv) Japan did not accept the Community’s contention that the new regulation had legal cover under GATT Article XX:D.107 The EC contended that the legislation had been adopted after experience had shown that the opening of the antidumping investigation (on the final product) was often followed by the establishment of an assembly operation in the EC designed to circumvent eventual antidumping duties. The EC also argued that the legislation had been drafted with great care to define precisely the conditions under which the circumvention of antidumping duties was most obvious.

Other recent issues regarding the application of antidumping provisions include the following.

  • Determination of the threat of material injury. In 1985, the committee adopted recommendations by the ad hoc group, which stressed that the totality of factors must be considered in such a determination.108

  • Difficulties in determining constructed values or estimated production costs.109

  • Prevention of dumping in third markets. A GATT panel set up at the request of the EC to investigate the Japan-U.S. agreement on semiconductors did not address the validity of prevention of dumping in third markets, but it did rule that the type of measures taken by Japan to prevent dumping of semiconductors in third markets was contrary to the prohibition on quantitative restrictions on exports under the GATT.

  • The U.S. Court of International Trade made two new rulings that have the potential to encourage further aggressive use of antidumping petitions by U.S. producers: one makes it more difficult for the U.S. Commerce Department to suspend an antidumping order; the other says that the use of the concept of cumulation of imports for different countries does not violate GATT antidumping provisions.

  • Under a new regulation, the EC has initiated, for the first time, an unfair practices investigation in a service industry (Korean shipping).

Issues related to the Antidumping Code are being discussed in the Uruguay Round Group on MTN Agreements and Arrangements. These discussions have generally revolved around the need to clarify definitions and conditions under which antidumping actions are taken and to avoid abuse of the antidumping instrument as a disguised form of protection and harassment of foreign exporters. Some question the relevance of the code in today’s business world; others believe that varied interpretation of the code has given rise to arbitrary applications and unjustifiable impediments to trade. Considerable interest has been expressed in clarifying the application of the code to imported components, defining “like products,” and determining constructed values (used when no sales of “like products” exist). Some countries are concerned that “recidivist dumping” (deliberate, repeated dumping) and “diversionary practices” (practices to evade an antidumping order) are being employed more often and in a manner that defeats the intent of the code.

Trade-Related Aspects of Intellectual Property Rights

The negotiations in the Uruguay Round Group on Trade-Related Aspects of Intellectual Property Rights (TRIPS) aim to identify GATT provisions that might apply to TRIPS, elaborate new disciplines, as appropriate, and develop a multilateral framework in counterfeit goods, building on the work already done in the GATT.110 Industrial countries argue that inadequate or ineffective protection of intellectual property rights has trade-distorting or trade-restrictive effects and that new rules are therefore needed to protect such rights. They suggest the adoption of norms that could serve as a basis for enforcing such key GATT principles as non-discrimination, transparency, and national treatment, and the establishment of adequate enforcement mechanisms in these areas, especially to protect copyrights, machinery trademarks, patents, semiconductor layout, trade secrets, and designs.

Many developing countries are concerned about going beyond the mandate of the group. They emphasize that the group’s work should be confined to the trade-distorting or trade-restrictive aspects of intellectual property rights, and should not include the establishment of new regulatory regimes for intellectual property rights, per se, as these are matters in the competence of the World Intellectual Property Organization (WIPO), Some of these countries also believe that it would be wrong to design an intellectual property system based only on trade considerations; intellectual property owners have not only rights but also obligations to society, and dealing only with rights would entail a weakening of measures to protect the public interest.

Trade-Related Investment Measures

The Uruguay Round Group on Trade-Related Investment Measures (TRIMS) is identifying relevant TRIMS, such as local content and export requirements, and it is examining various GATT Articles to assess their relevance for trade-distorting or trade-restrictive effects of investment measures.111 Views diverge on whether further rules and regulations in this area are needed; some countries believe that existing GATT Articles are already relevant for many TRIMS. A key issue is whether the group should deal with all TRIMS or only those with direct effects on trade. Another is whether it is more appropriate to deal with TRIMS on a case-by-case basis or to seek to apply GATT disciplines to them across the board. Also being addressed are measurement questions, including the difficulties of determining the trade effects of combinations of investment measures and investment measures used in conjunction with trade measures. Some developing countries have emphasized that the group’s mandate focuses only on the trade effects and that no attempt should be made to put in place a new system of international investment regulations.

Sectoral Issues


Agriculture has historically been considered special for socioeconomic and strategic reasons. As a result, it has remained largely outside GATT’s normal disciplinary framework. GATT provisions on export subsidies for agriculture are vague (see above), and the growing budgetary and economic costs of high levels of protection and subsidization of agriculture, particularly in major industrial countries, have led to a widespread realization of the need for multilateral disciplines in this sector.

A breakthrough was achieved when the 1982 GATT ministerial meeting established the GATT Committee on Trade in Agriculture with a mandate to look into possible reform. This committee agreed in November 1984 on a series of recommendations aimed at achieving greater liberalization of trade in agriculture.112 It also worked extensively on compiling information on nontariff measures maintained in agriculture by GATT members.

The work of the committee proved to be a valuable input for the subsequent discussions in the negotiating Group on Agriculture under the Uruguay Round, which has a mandate to bring all measures affecting import access and export competition in agriculture under strengthened and more operationally effective GATT rules and disciplines. Discussions in the group have revolved around the scope of liberalization, various approaches to it, and the means of monitoring agriculture protection. An increasing number of countries are prepared to accept the use of production subsidy equivalents (PSEs) after suitable modification, for monitoring protection to agriculture (see Section V).

The basic differences in approach to agriculture are reflected in the proposals presented in the group, which vary in the recommended pace and extent of reform. The U.S. proposal calls for the complete phase-out over a ten-year period of all subsidies that directly or indirectly affect trade in agriculture and of all agricultural import barriers, as well as harmonization of health and sanitary regulations. Support to farmers need not be abolished, but it should not be linked to the type or amount of commodity produced; nor should such support distort trade, provide undue incentive to production, or shield farmers from market signals.

The EC views complete elimination of protection and subsidies for agriculture as unrealistic and politically unfeasible. It has proposed a two-stage approach. The first involves short-term measures to reduce agricultural imbalances by control of production and by emergency measures. The latter consist of (i) agreement on minimum export prices for cereals that would be linked to the stabilization of imports of cereal substitutes (used for animal feed) in the EC; (ii) compliance by all OECD countries with the minimum prices set under the International Dairy Agreement; and (iii) agreement on sugar by all OECD countries involving maintenance of the level of imports in a base year (1984). Other short-term measures include a commitment by all OECD countries to freeze their level of support relative to a base year (1984), as measured by some aggregate measure (perhaps the PSE with adjustments), particularly in sensitive areas such as cereals, beef, sugar, barley, and oilseeds. Basic reform involving a substantive reduction in support and protection is to be negotiated in the second stage over the long term.

The Cairns Group proposes a short-term reform program, to take ten years or less, after which a long-term framework to govern world trade would apply fully. The long-term framework envisages removal of all agricultural trade restrictions and subsidies and full integration of agricultural trade into GATT’s surveillance and dispute settlement mechanism. The short-term program envisages a phase-down of government support for agriculture, as measured by a type of PSE to be developed for this purpose. While the precise pattern of phase-down would vary from country to country, priorities would be given to phasing out export subsidies and to reductions in tariff and nontariff measures. Given the urgent need to reduce agricultural trade distortions, early relief measures would be implemented by end-1988 and would involve (i) a freeze on subsidies, no reduction in market access, no new sanitary or phytosanitary measures, and nondisruptive release of stocks; and (ii) a cutback across the board of all subsidies and a commitment to increase access.

The merits of short-term measures versus long-term reform are under debate. The United States is concerned that adoption of short-term measures, including price fixing and market-sharing arrangements, may erode long-term discipline. Some countries have observed, however, that the pressures for compromise are considerable, partly because it may prove difficult to contain protectionist pressures if early progress in the Uruguay Round negotiations on agriculture is not achieved.

Although some developing countries are concerned about the impact of possible liberalization on their food import bill, most support comprehensive reform of agriculture. Developing countries have indicated that they would expect to receive differential and more favorable treatment under any agreed reform.

Textiles and Clothing

The Multifiber Arrangement (MFA) is managed by the Textiles Committee, which has established the Textiles Surveillance Body to supervise the detailed implementation of the MFA. The Textiles Committee has also established a Sub-Committee on Adjustment with responsibility for periodically reviewing developments in autonomous adjustment within the textiles and clothing industries, as well as the role of government policies and measures to facilitate industrial adjustment.

In discussions in the Uruguay Round Group on Textiles and Clothing, many developing countries are emphasizing the need to return to normal GATT rules for this sector, while most industrial countries consider it inopportune to do so in the near future as they fear the repercussions on their domestic producers. Indonesia has proposed, on behalf of developing country exporters of textiles and clothing, a multiple process consisting of a reversal of restrictive measures under the MFA: elimination of concepts and practices under the MFA that are incompatible with GATT; effective application of GATT principles relating to developing countries’ trade in textiles and clothing; and termination of the MFA and all associated bilateral agreements. Industrial countries stress that while the position of their textile industries may have improved, they continue to face certain problems in their markets. Some industrial countries are more willing to consider trade liberalization of their textiles if developing countries also liberalize trade, especially their textile import regimes; others have linked the discussions of the group with progress in other areas in the Round.

Tropical Products

The Punta del Este Declaration recognizes that special attention should be given to liberalization in tropical products, since a number of developing countries largely depend on tropical products for their export earnings. In keeping with this understanding, the Uruguay Round Group on Tropical Products aims to seek the fullest possible liberalization of world trade in tropical products, with a view to achieving concrete results by the midterm review of the Round in December 1988. The group is examining detailed information on trade flows and trade barriers on selected tropical products.113 Liberalization in these areas is expected to benefit a number of developing countries although some may face erosion of their preferences in certain markets. A number of developing countries have presented initial lists of specific tropical products of export interest to them. Some countries have enunciated general principles they would like to see operating in trade in tropical products; others have submitted concrete proposals.

Some developing countries are concerned that linkages and prior conditions may slow down the negotiations. For example, some industrial countries have linked liberalization of trade in tropical products to overall reform in the agricultural sector. Given existing obstacles to early comprehensive agricultural reform, this linkage might considerably delay progress. Furthermore, reciprocity by developing countries, particularly the more advanced, has also been raised as an issue in the discussions.

Natural Resource-Based Products

Market access for natural resource-based products (NRBP) (namely, nonferrous metals and minerals, forestry products, and fish and fisheries products) is affected by subsidies and other nontariff support programs, which are often interlinked. The lack of transparency serves to obscure a full appreciation of the costs to both implementing countries and their trading partners. In 1984, the GATT Council set up a Working Party on Problems of Trade in Certain NRBP, and in 1985 the Contracting Parties agreed to tackle the problems in this sector multilaterally.

Outstanding issues currently being discussed in the Uruguay Round Group on NRBP, on which wide differences of opinion exist, include (i) whether coverage of the negotiations should be limited to nonferrous metals and minerals, forestry products, and fishing products, or should extend to other products (iron ore, construction material, phosphates, salts, and energy and energy-based products); (ii) whether the negotiations should aim at liberalizing import trade barriers or should also deal with subsidies and export restrictions; and (iii) whether the group should limit itself to monitoring the impact on natural resource-based products of progress made in other groups of the Uruguay Round, or should negotiate on these products.


The importance of services in the domestic economy and in foreign trade has increased considerably for major industrial countries, and is also rising for some developing countries. Even so, as yet no multilaterally agreed definitions of services and trade in services exist, as these comprise a variety of activities affected by different conditions. Partly as a result, measurement of services is also beset with difficulties. Furthermore, issues related to services are made more complex because trade in services affects other domestic policies in often sensitive areas such as immigration, investment priorities, foreign ownership, rights of establishment, and nationalized banking.

The inclusion of services in the Uruguay Round was subject to controversy, as many developing countries were initially opposed to their inclusion. Some believed that they had little or no comparative advantage in the services sector; others were concerned that the inclusion of services could direct attention away from much needed reform in trade in goods. Some feared they would be forced to open their markets in certain key and sensitive segments (such as banking and insurance) as a quid pro quo for preserving access to industrial country markets. Developing countries eventually agreed to the inclusion because of the legal separation of the entities negotiating goods and services and acceptance by all GATT members that inclusion of services in the Round did not imply recognition of services as part of GATT.

The Uruguay Round Group of Negotiations on Services aims to establish a multilateral framework of principles and rules for trade in services, with a view to a progressive liberalization, and respecting the policy objectives of national laws and regulations applying to services (see Appendix II). Discussion in this group has covered a variety of issues related to services, including appropriate definitions, measurement, coverage in the negotiations, and the merits of broad-based approaches on general principles versus sectoral approaches.

Thus far, there is no consensus in the group on a definition of trade in services and on whether an agreed definition is necessary for the group’s work to progress. Some countries require agreed definitions to determine the scope of rules and disciplines in the negotiations; others feel that definitions can be dealt with in parallel with the ongoing negotiations. Approaches on definitions vary from generic approaches identifying the essential attributes of a transaction so that it might be considered as trade in services to one based on an understanding of which services are to be covered.

Another issue relates to the coverage of the negotiations and whether it should be limited only to cross-border sales of services, possibly including labor services, or should be broadened. The limited coverage is favored by those who wish to avoid bringing investment or rights of establishment into the negotiations. The proponents of the broader approach point out that firms are frequently required to establish themselves in a host country before they are permitted to sell certain services, and in some cases physical presence may be required to provide the service (e.g., consultancy).

The approaches to negotiations on services fail broadly into two categories: (i) development first of a multilateral framework of principles for all sectors, which could then be used for sectoral negotiations; or (ii) greater emphasis on sectoral discussions and less on the multilateral framework, because of the perceived difficulties of achieving consensus on comprehensive rules and principles. The features of a possible framework for trade in services under discussion include most-favored-nation (MFN) application, national treatment (i.e., same treatment to both domestic and foreign service producers), and transparency. Some industrial countries consider it opportune for the group to begin pulling together broadly agreed views on principles and negotiating mechanisms to move the discussions forward. Others feel that before this can be done, the group needs to pay greater attention to ensuring respect for national policy objectives, as many obstacles to market access in services are motivated by nontrade considerations.

Developing countries are concerned that the negotiations are not addressing the need to promote economic development. Many are interested in including labor services in the discussions, whereas industrial countries wish to avoid including immigration. Some developing countries are important service producers with a stake in the multilateral negotiations, but others feel that little is to be gained by opening the service sectors; still others simply want to protect their own service sectors. Some have expressed concern about the trade-restricting practices of transnational corporations in the service area. A few developing countries have presented proposals to the group that call for a framework agreement with relatively modest disciplines and negotiation of trade liberalization mainly in the context of sectoral agreements. The proposals emphasize the need to respect national policy objectives and suggest particular areas for special treatment of developing countries.

Trade Issues Affecting Developing Countries

Issues of Interest to Developing Countries

Issues of trade interest to developing countries are the responsibility of the Committee on Trade and Development, one of the principal standing committees of the GATT. In particular, the committee examines how member countries put into practice the provisions of Part IV of the General Agreement, which provides for differential and more favorable treatment for developing countries and includes an undertaking by industrial countries to reduce trade barriers affecting developing countries and not to impose new ones. The committee also has primary responsibility for overseeing implementation of the Enabling Clause that was agreed in the Tokyo Round and that also provides more favorable treatment for developing countries. The committee has two subcommittees: one dealing with the least developed countries, and the other with examining protective actions taken by industrial countries that affect imports from developing countries.

Developing countries are concerned about a number of issues pertaining to the international trading system; some were raised in the sixty-third session of the committee in April 1988 and reiterated in its sixty-fourth session in July 1988. First, priority was assigned to dismantling protectionist trade barriers by industrial countries that reduced market access for developing countries; tariff escalation was also a matter of concern. Second, the need to strengthen multilateralism in the face of trends toward bilateralism was emphasized. Third, the importance of tighter disciplines on recourse to safeguards by industrial countries was highlighted. Fourth, some developing countries felt that the Uruguay Round discussions had so far concentrated on the areas of interest to industrial countries, such as services and trade-related intellectual property rights, and not sufficiently on those of interest to developing countries. Finally, the principle of differential and more favorable treatment for developing countries was defended as essential for their growth, and concern was expressed about suggestions in some negotiating groups of the new Round about the possible erosion of such special treatment.

The issue of increased discrimination in the application of the Generalized System of Preferences (GSP) was raised in the committee. Developing countries were concerned that industrial countries appeared to be moving away from the basic principles, set out in decisions of the Contracting Parties of June 25, 1971 and November 28, 1979, whereby industrial countries acting individually had been authorized to grant preferential treatment to developing countries, provided that the preferential schemes were of a generalized, nondiscriminatory, and nonreciprocal nature.

The Group of 77 at the Fifteenth Session of the UNCTAD Special Committee on Preferences in May 1988 charged that the GSP was not working as well as it should.114 It argued that the principle of nonreciprocity was compromised by the insistence of industrial countries on concessions in areas such as services and intellectual property in the Uruguay Round negotiations in return for continued GSP benefits. It also complained about the exclusion of certain developing countries from the benefits of GSP schemes on the basis of graduation. These views were criticized, however, by most industrial countries. The latter referred to the sharp rise in GSP imports in recent years and argued that the loss of preference for some beneficiary country suppliers was inevitable as these suppliers increased their competitiveness in the markets of the preference-giving countries.

Integration Issues

The Enabling Clause establishes the principle of integration of developing countries, but does not lay down the criteria for it. In the face of pressure by industrial countries for institutionalized graduation and integration and resistance by developing countries to these concepts, the language of the Enabling Clause was a compromise. Unable to incorporate graduation criteria officially into the GATT itself, some industrial countries have unilaterally incorporated aspects of graduation into their own trade laws, using varying criteria, and these attempts have met with criticism from developing countries.

For the Uruguay Round, integration and graduation have not been explicitly included in the agenda of negotiations, but they undoubtedly form part of the discussions and cut across many groups. Many industrial countries view integration by developing countries into greater GATT disciplines as one of the Round’s most important objectives, in part because they consider it the best possible means of encouraging trade liberalization by developing countries. Some industrial countries clearly expect greater reciprocity by the more advanced developing countries, particularly in areas of the latter’s comparative advantage and where they have made substantive inroads in export markets.

Many developing countries view integration with concern, however, and are skeptical about the benefits they can gain from the new Round. Some have noted that a dismantling of the Multifiber Arrangement does not seem imminent; agreement on tropical products is important for some of them; and agreement on an MFN-based safeguards code is also important for them but progress thus far is slow. Liberalization of trade in agriculture may be the most important concrete outcome of the Round for developing countries in the Cairns Group. Developing countries have generally adopted defensive positions in the discussions in the “new” areas (services, TRIPS, and TRIMS) but a number also have an interest in these areas as potential exporters. Some developing countries with open trade regimes, or that have recently undertaken unilateral trade liberalization, believe that they should get credit for this in the negotiations.

With respect to the least developed countries, their share in world trade has declined; some rely mainly on exports of a few primary commodities; and they already receive preferential treatment in most industrial country markets. The export problems of many of them are related primarily to domestic policy and production conditions. The Sub-Committee for Least Developed Countries has indicated willingness to review these countries’ problems and is accepting their proposals for presentation to the appropriate negotiating groups under the Uruguay Round. Bangladesh requested such a review, which indicated that Bangladesh’s difficulties were primarily related to internal transportation and marketing, production bottlenecks, and insufficient export diversification.

Balance of Payments Provisions

The GATT Committee on Balance of Payments Restrictions exercises surveillance over the use of trade restrictions for balance of payments reasons by industrial countries (under Article XII) and by developing countries (under Article XVIII). Systematic recourse by industrial countries to Article XII has declined steadily and now only ad hoc, temporary use is made of this Article (Table A30). In contrast, Article XVIILB has been frequently used by developing countries and represents the single, most widely applied exception to the prohibition contained in GATT Article XI on the application of quantitative restrictions (QRs). Some 85 percent of all QRs notified to GATT by developing countries are justified under Article XVIILB. Bar many individual developing countries, restrictions on over 300 import items (and over 700 in the case of Argentina and Colombia) are currently justified on balance of payments grounds. A number of developing countries that appear to be applying restrictions for balance of payments purposes have not notified these to GATT and have thus remained outside GATT surveillance.115 During the period 1974-87,112 consultations were held with 19 developing countries by the GATT Committee on Balance of Payments Restrictions; of these, more than two thirds took the form of “simplified” consultations, and the remainder were “full” consultations.116

Recourse by developing countries to GATT Article XVIILC, which allows them to maintain QRs for developmental or “infant industry” purposes, has been infrequent. Since 1970, Indonesia (in 1983) and Malaysia (in 1984) are the only two developing contracting parties to have notified certain import measures taken under Article XVIILC.117 This Article requires prior notification and non-disagreement by the Contracting Parties, involving a time delay before imposition of the restrictive measure. Also, it allows trading partners that are adversely affected by the measure to seek compensation. In comparison with Article XVIILB, which excludes the possibility of retaliation by countries adversely affected by the balance of payments measures, Article XVIILC has a built-in safeguard against its excessive use.

The discussions in the Uruguay Round on GATT’s balance of payments provisions are being held in the Group on GATT Articles. Many industrial countries strongly argue for a review of GATT’s balance of payments provisions with a view to strengthening surveillance over trade restrictions for balance of payments purposes. More fundamentally, they question the economic rationale for these provisions in view of flexible exchange rates and other changes in the international monetary system in the past two decades. Furthermore, they view reduced reliance by developing countries on GATT’s balance of payments provisions as essential to meaningful integration of developing countries into the GATT. While their views differ on the need to modify Article XVIH:B, they wish to ensure that balance of payments restrictions are temporary and that they are used in a form that minimizes disruptive effects on trade. Industrial countries also believe that changes in procedures in the GATT balance of payments consultations are warranted to tighten the surveillance process. They suggest, for example, that consultations under the “simplified procedures” of Article XVIII:B may need to be reviewed.

Most developing countries oppose any revision of the balance of payments provisions under Article XVIII:B on the grounds that there have been no fundamental changes in the international financial system since these provisions were last reviewed in 1979. They maintain that the provisions contain explicit and detailed rules to ensure that restrictions are not invoked arbitrarily. While recognizing that trade restrictions are not a remedy for balance of payments problems, they believe that restrictions are often a necessary response to an adverse external environment.

Disputes, Articles, and Codes

Dispute Settlement

The prompt resolution of trade disputes under multilateral surveillance is of vital importance to the smooth functioning of the GATT. GATT members have been concerned about the less than effective working of the GATT’s dispute settlement mechanism. While this may be due in part to inadequate procedures, many countries consider that the difficulties are due to other factors such as vague GATT provisions, differences in their interpretation, and nonobservance or abuse of the proceedings.

A marked increase has occurred in disputes brought for arbitration to GATT panels (Table A31 provides a list of panels established in the GATT). Also, delays in establishing the composition and terms of reference of the panels have become more serious. During the first half of 1988, the GATT Council established eight panels, more than in the whole of 1987. Some countries believe that the Uruguay Round negotiations should not be soured by excessive recourse to dispute settlement proceedings. Others view the increased recourse as a sign of growing confidence in the GATT.

Recent disputes reflect several characteristics. First, they have focused considerably, but not totally, on agricultural issues, partly reflecting intensifying problems facing world trade in agriculture. Recent disputes relate, for example, to quantitative restrictions on imports in the EC (apples), Japan (beef and citrus), Korea (beef), Norway and Sweden (apples and pears), and to payments and subsidies to producers in the EC (oilseeds and related animal feed protein), certain EC directives (third country meat directives and the growth hormone ban), and Argentina’s differential export tariffs (soybeans and soybean products). Second, a number of disputes relate to newly emergent sectors such as electronics and high technology (e.g., Japan’s semiconductors). Finally, the increase in the number of GATT panels might also represent attempts to use the dispute settlement mechanism to review and debate GATT regulations, with a view to clarifying these rules or establishing the need to revise them.

The Uruguay Round Group on Dispute Settlement is considering the strengthening of existing dispute settlement procedures. Discussions revolve around issues such as arbitration and consensus, time limits for establishing panels, use of standard terms of reference, and improved surveillance of the implementation of panel reports. A number of countries hope to reach some form of agreement on improved dispute settlement procedures by the midterm review of the Uruguay Round in December 1988.

GATT Articles

The Uruguay Round Group on GATT Articles is examining a number of Articles with a view to reviewing their applicability and relevance. In addition to the discussion (mentioned above) on GATT’s balance of payments provisions under Articles XII, XIV, XV, and XVIII, the group has before it requests for examination of Article XXIV on customs unions and free trade areas. Some countries consider that increasing use (or abuse) of Article XXIV is eroding the MFN principle of the GATT and that appropriate means should be found to enable nonparticipating countries to enjoy some of the benefits of regional integration on an MFN basis.

Many trading nations (both industrial and developing) continue to call for revisions in Article XXVIII (on the renegotiation of tariff schedules) on the grounds that the present distribution of negotiating rights favors large suppliers and creates disincentives for small suppliers to enter into tariff-binding negotiations. Some countries wish to review the applicability of Article XVII on state trading, with a view to attaining stricter disciplines and greater transparency in operations of state trading. In this context, it has also been suggested that the use of countertrade, particularly government-mandated countertrade, must be addressed to clarify how Article XVII might contribute to creating an effective discipline on countertrade activities that could distort trade and infringe on GATT principles. Other Articles under discussion include those dealing with subsidies and with national security exemptions.

MTN Agreements and Arrangements

The Tokyo Round resulted in a number of codes and agreements covering subsidies, dumping, technical barriers to trade, import licensing, government procurement, and customs valuation, as well as sectoral agreements related to bovine meat, dairy products, and civil aircraft. The Uruguay Round Group on MTN Agreements and Arrangements is examining these codes and agreements to determine whether any changes are warranted. The codes on subsidies and dumping were discussed earlier in this section, and Section V discusses dairy products and bovine meat; this sub section focuses on the remaining codes and agreements.

The Tokyo Round Agreement on Technical Barriers to Trade, more commonly known as the “Standards Code,” which entered into force on January 1,1980, has now been signed or accepted by more countries than any other Tokyo Round code (Table A28). The code is designed to ensure that procedures related to standards, testing, and certification of products do not operate as unnecessary barriers to trade. The overseeing Committee on Technical Barriers to Trade has made available a list of products covered by notifications under the agreement for the use of national standards bodies.118 It has examined the work of international and regional bodies in the fields of testing and inspection and the possibilities of improving understandings under the agreement. In this regard, difficulties arise in keeping up with standards in certain high-technology areas where technology changes rapidly; problems may also arise due to differences among countries in the extent of decentralization with respect to standards. The standards related to “process and production methods” are not covered under the code; disputes on such standards have increased (for example, EC standards on the use of hormones in beef).

In the Uruguay Round Group on MTN Agreements and Arrangements, further improvements have been suggested in the Standards Code, including better information and transparency on standards activities, clarification on processes and production methods, and possible expansion of the agreement to areas such as testing, inspection, and certification systems.

The Tokyo Round Agreement on Import Licensing is intended to ensure that licensing procedures do not in themselves act to restrict imports. The Committee on Import Licensing, to which notifications on national procedures are made, is examining possible improvements in notification procedures, clarification of definitions, and strengthened disciplines. These issues are also being discussed in the Uruguay Round Group on MTN Agreements and Arrangements, Some view the code as too limited in scope and feel that it needs clarification of definitions and discipline on the duration and trade coverage of licensing schemes and on the use of nonautomatic licensing, including increased transparency and institutionalized review proceedings.

The Government Procurement Code calls for open international bidding on government contracts exceeding a specified amount (from 1988, SDR 130,000). Discussions on the coverage of government entities included in the code are being carried out in an informal working group. Some countries would like to include in the code the postal and telephone services, water supply, and transportation. Another issue is how to deal with privatization: some participants insist that countries that have privatized state enterprises should include other government entities under the code to restore the balance among countries on the share of government procurement open to international bidding. Some countries have questioned whether the U.S. Buy American Act is in conformity with the obligations under the code; in response, the United States has indicated that the provisions of the Buy American Act do not cover the entities included in its commitments under the code. Only a few developing countries are signatories to the code, partly because it does not provide for differential and more favorable treatment for developing countries. Discussions about the Government Procurement Code in the Uruguay Round cover the need for better information and review, wider coverage, improvement in tendering procedures, and procedures for accession to the code.

The Agreement on Trade in Civil Aircraft was the only sectoral agreement covering manufactures negotiated during the Tokyo Round. The agreement eliminated import duties on civil aircraft and the bulk of aircraft parts. It also introduced disciplines on nontariff barriers to trade. The Committee on Civil Aircraft supervises the agreement. Signatories to the agreement account for all large civil aircraft production outside the Soviet Union. In 1986, the committee heard some complaints against the United States. One related to the proposed transitional provision for certain aircraft contained in the U.S. Tax Reform Bill. Another related to the U.S. Federal Aviation Administration’s decision on a stricter interpretation of certain regulations: the United States said the move was for safety reasons, while the EC and other members expressed concern about possible harmful effects for trade and the servicing of civil aircraft, The committee has also considered the U.S.-EC dispute on Airbus subsidies (see Section VI).

Also under discussion in the Uruguay Round is the Customs Valuation Code, which aims at more uniform and transparent practices on valuation of imported goods for customs purposes among different countries.