Friday, August 28, 2009

Role of GATT for Developing Countries

Before the Kennedy Round (1964-67) developing countries gained vary little from the GATT except that they could u se quantitative restrictions to correct disequilibrium in balance of payments and benefited, from tarrif reduction by developed countries. But the principle of reciprocity for trade concessions went against the developing countries, because they were unable to provide equivalent benefits to the developed countries. For instance tarrifs on total manufactured imports by developed countries averaged 11 percent but where 17 percent on those from developing countries. Moreover, GATT did not take any initiative on trade barriers on agricultural and tropical products of developing countries.

The concept of “special and preferential” treatment for developing countries was formally introduced into the General Agreement in 1957. Under it negotiations would take in account the needs of LDCs form most flexible use of tarrifs protection to assist their economic development and the special needs of these countries to maintain tarrifs for revenue purposes. On the recommendation of the Haberler Report, the GATT started an action programme in 1958 which recommended that the developed countries should reduce taxation and trade barriers on industrial and primary products of developing countries.

In 1963, the contracting parties agreed on a more flexible attitude towards LDCs. Accordingly, tarrifs on some tropical products like tea and timber were reduced or eliminated by developed countries. In 1965 a new Part IV on Trade and Development was incorporated into the General Agreement dealing with the principle of non-reciprocity for developing countries. It states that “the developed contracting parties do not expect reciprocity or commitments made by them in trade negotiations to reduce or remove tarrifs and other barriers to the trade of less developed contracting parties. If further adds that “the less developed contracting parties should not be expected in the course of trade negotiations, to make contributions which are inconsistent with their individual development, financial and trade needs, taking into consideration part trade developments”.

The Kennedy round (1964-67) bestowed some benefits on developing countries when 37 developed countries reduced tarrifs on manufactured goods. But little attention was paid to the problem of developing countries.

In 1970, the Generalised System of Preferences (GSP) was introduced which permitted developed countries to grant unilateral tarrif preferences to developing countries. In June 1971, the GATT waived the MFN treatment obligation for developed countries for a period of ten years to the extent needed to grant preferential treatment under the GSP which has since been extended further.

It was however in Tokyo Round (1973 – 79) that a number of agreements on subsidies and counter vailing duties covering agricultural, fisheries, and forestry products; on customs valuation, on government procurement, on technical barriers to trade, on import licensing, on dairy products; on bovine meat and on civil air craft were reached. It was a triumph for developing countries for these agreements contained special provisions for developing countries. The Tokyo round also led to trade concessions to the exports of raw, processed and semi-processed tropical products of developing countries by developed countries. Moreover GATT rules also ban export subsidies on manufactured products by developed countries. On the other hand, they allow export subsidies for economic development and industrialisation by developing countries.

However trade in textiles and clothing has been subjected to the special restrictions for nearly four decades by developed countries outside the GATT rules. Developing countries being the principal exporters of these goods have been at a disadvantage in this respect. The early 1960s witnessed the advent of the Short-term Arrangement on Cotton Textiles in 1961 – 62 and the Long-term Arrangement from 1962 – 73 restricted trade in cotton textiles on the plea that developed countries which are the principal importers, need special protection against “market disruption” by lower-cost developing country suppliers. The market description is claimed by developed countries under Article X1X of GATT in 1974 the first Multi-fibre Arrangement (MFA I) was negotiated between the developed and developing countries for a period of four years which was renewed in 1978 (MFA II) and in 1982 (MFA III). MFA IV was renewed in 1986 for a period of five years. The renewed MFA was potentially more restrictive than the previous ones. It contained the right of the developed importing country to cut imports of specific products from particular developing countries on a selective basis when it was feared that too many imports capable of market disruption for local products might occur. The most significant change in MFA IV was that it extended its coverage from cotton, wool and man made fibres to all vegetable fibres as well as silk mixed with cotton, wool or man made fibres. For the first time, a return to GATT rules was written into MFA. But it made no mention of phasing out the MFA or setting a time limit within which the final objective of application of GATT rules trade in textiles would be attained. The Dunket Draft would lead to the phasing out of MFA. Despite special and preferential treatment for developing countries provided in GATT rules, they are being discriminated under the “escape clauses” and “safe guard” rules of GATT. Moreover the multiplication of trade restriction outside the GATT rules such as “voluntary export restraints” and “orderly marketing arrangements” go against the interest of developing countries and undermine the utility of the General Agreement.

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