UNITED NATIONS
ECONOMIC AND SOCIAL COUNCIL
Distr.: GENERAL E/ECA/CM. 19/25
13 April 1993
Original: ENGLISH
ECONOMIC COMMISSION FOR AFRICA Fourteenth meeting of the Technical
Preparatory Committee of the Whole
Addis Ababa, Ethiopia 26-30 April 1993
ECONOMIC COMMISSION FOR AFRICA Twenty-eighth session of the Commission/
nineteenth meeting of the Conference of Ministers
Addis Ababa, Ethiopia 3-6 May 1993
IMPLICATIONS OF THE CURRENT URUGUAY ROUND OF NEGOTIATIONS ON AFRICA'S TRADE
1. The current Uruguay Round of Multilateral Trade Negotiations under the General Agreement on
Tariffs and Trade (GATT), started in September 1986 with the Ministerial Declaration at Punta del Este, Uruguay, is the most ambitious and comprehensive trade negotiation ever undertaken. Nearly 108 governments are participating and when finalized the expected package will contain at least 28 agreements as well as extensive and specific national commitments to lower tariff and non-tariff barriers to merchandise trade and to reform trade-related domestic regulations affecting trade in services. l
2. There is extensive support in economic literature for the relation between trade and growth. Various
cross-country studies have revealed close and strong associations between the growth of exports and grossnational product (GNP). The expansion of trade in developing countries contributes to economic growth both directly and indirectly. Trade promotes specialization and can lead .to efficiency gains through healthy competition and economies of scale. Likewise, as a developing country increases its exports and earns foreign currency, its capacity to buy from abroad and service its financial obligations also expands. Last but not least, a healthy growth in trade also provides strong incentives to investment, promotes human
capacity building and entrepreneurship.3. Furthermore, developing countries have gained importance as markets for industrialized country
exports. Even when granting official development assistance (ODA), industrialized countries often tie the provision of assistance to a developing country in such a way that the financial resources provided can only be spent in purchases of goods and services from the donor country. Thus, the provision of aid becomes
a way to promote the donor country's own exports.4. The current Uruguay Round of Multilateral Trade Negotiations is unique in that it is not only dealing
with conventional GATT issues such as tariffs, but also areas of trade policy hitherto outside GATT disciplines such as agriculture, textiles and apparel, "grey area" non-tariff measures, as well as services,
intellectual property rights and trade-related investment measures.5. The Uruguay Round, when and if concluded, will have a definite impact for African countries on four specific areas, which are examined in this document, which has been divided into seven parts. Section II looks at the implications of market-opening measures such as tariff concessions, which are the traditional areas of GATT. Section III examines the inclusion of trade in agricultural goods and textiles and apparel.
Section IV evaluates the potential impact to Africa stemming from the inclusion in GATT negotiations of new sectors of economic activity not previously covered by GATT such as trade in services, trade-related
aspects of intellectual property protection and trade-related investment measures. Section V analyzes the
impact of efforts at strengthening the GATT regarding the control of "grey area" measures, mechanisms fordispute settlement and the proposal for establishing a new multilateral trade organization. The last section
attempts to draw some conclusions.II. TRADITIONAL MARKET OPENING MEASURES
6. The major accomplishments of the multilateral trade negotiations since the Second World War have been the drastic reduction of industrialized country tariffs which have been achieved through the seven rounds of negotiations so far concluded, from the first one in Geneva in 1947 to the last one in Tokyo in 1979. Developing countries, including those in Africa, did not effectively participate in the negotiations of these Rounds; nonetheless they benefitted from these multilateral trade arrangements through the application of the most favoured nation (MFN) clause and some preferential treatment protocols such as the Lome Convention and the General System of Preferences (GSP).
1 News of the Uruguay Round of Multilateral Trade Negotiations, In Brief - What Would a Uruguay Round Deal Contain", The Information and Media Relations Division, General Agreement on Tariffs and Trade, NUR 051, 10 November 1992.
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7. Over the years, tariffs were progressively reduced in industrialized economies. The average MFN tariff for the developed country fell from an average of 40 to 5 per cent. However, the importance of non- tariff barriers and measures increased significantly and became the main form of discrimination against imports from developing countries. The discriminatory measures employed by developed market economies have included, among others, the use of non-tariff barriers; increased use of formally permissible non-tariff instruments such as producer support prices in agriculture; legitimation of such agreements as the MultiFibre Arrangement (MFA); extensive use of "grey area" measures such as voluntary export restraints
(VERs) and orderly marketing arrangements (OMAs).8. Although non-tariff barriers have emerged as the major obstacles for exports of developing countries to industrialized country markets, the escalation of trade barriers in higher levels of processing, especially of agricultural and mineral products, has also inhibited the process of industrialization in developing countries. A study that considered 16 material groups of commodities revealed that on average tariffs increased by five to ten percentage points as one moved higher up the processing chain. This was the case for some of the commodities exported by Africa such as meat, vegetables, fruits, vegetable oil, tobacco, sugar, cocoa, rubber, leather, wood, cotton, iron, phosphates, ores and petroleum. 2
9. Thus while most primary commodities exported to industrialized countries, with the exception of some temperate zone agricultural products, enter their markets free of import duties or face the lowest tariff rates, duties escalate sharply as the goods undergo increased processing. This has been a serious obstacle for African countries trying to increase the processing of their exported raw materials and other products,
and therefore a major impediment to Africa's industrialization process.10. It has been argued that if deeper MFN tariffs are negotiated in the Uruguay Round, developing countries could end up losing through trade diversion the preferential margin benefits obtained under the GSP and other preferential schemes. However, the real trade expansion benefits of preferential schemes have not been fully realized because of the high levels of conditionality, limited coverage of products, restrictive administrative rules and failures in implementation.
U. Developing countries receiving preferential treatment often live under the "Damocles sword" of the threat of being "graduated" or having their access otherwise restricted. Furthermore, for domestic industries in developing countries to grow and flourish, a certain level of market access assurance is necessary in order
to plan future expansion and investment.
12. Therefore, given the uncertainty and inherent limitations associated with the application of most preferential schemes, one can argue that Africa could stand to gain more from outright MFN cuts in tariffs.
What matters here is that trade liberalization actually takes place on export products of interest to Africa.
After all, the region has the economic and human potential to grow, as well as the necessary natural
resources.
III. INCLUDING AGRICULTURE AND TEXTILES AND CLOTHING
13. As a result of powerful interest groups in industrialized countries, previous rounds of multilateral trade negotiations have not included important areas such as trade in agricultural products and textiles and apparel. These areas have been treated as "sacred cows" and thus excluded from the rules governing the rest of world trade. Consequently, pervasive restrictions on imports, rampant subsidies, great costs and inefficiencies to both consumers and governments continue to cause great distortions in world trade.
2 Refik Erzan and Peter Svedberg, Protection Facing Exports from Sub-Saharan Africa in the EC, Japan and the United States. Working Paper Series, No. 320, The World Bank, Washington, D.C., USA,
August 1990.
A. Agriculture
14. Agriculture is the most protected sector in most countries of the Organization for Economic Cooperation and Development (OECD). There has been a dramatic increase in subsidies to agriculture in industrialized countries compared to the levels that prevailed 10 years ago. There is a complex pattern of agricultural protection with serious implications on market access of exports of developing countries. In most industrialized countries, agricultural trade policy has become an instrument aimed at redistributing income among domestic economic sectors. Furthermore, the effects of these "domestic" policies of OECD countries have perniciously spilled over onto international markets making them even more unstabie.
15. Agricultural production and export subsidies by industrialized market economies have proved to be the most damaging trade barriers to African countries' export performance. For example, the European Community emerged from being an importer of sugar to a major producer and exporter of the commodity.
In the same vein, price supports and import protection played an important role in the development of the European Community from a net agricultural importer in the 1960s to self-sufficiency and subsequently to a net exporter. It is as a result of these producer support prices and export subsidies that the Community has been able to increase its share of the world market in sugar, wheat flour and dairy products mostly at the expense of developing countries. It is not surprising therefore that the issue of agricultural subsidies has emerged as the most controversial in the current Uruguay Round.
16. Previous GATT negotiations have been successful in reducing industrial tariffs and less successful with reducing non-tariff barriers. Non-tariff barriers have been the dominant form of protection in agriculture. Critical problems for agricultural exporters have been quantitative restrictions and domestic subsidies, selective safeguards targeting specific exporting countries, and the weakness of GATT mechanisms for surveillance and dispute settlement.
17. The agricultural negotiations have centred on four interrelated areas: market access, domestic support schemes, export subsidies, and sanitary and phytosanitary measures. Proposals on reforms of trade in agricultural products have included: tarification of non-tariff barriers and an average reduction in the resulting tariffs; a significant reduction in export subsidy outlays and in quantities subsidized; and a cut in price-distorting domestic supports.
18. Under the GATT framework currently being negotiated for liberalizing trade in agricultural products, developing countries would be allowed to cut tariffs, export subsidies and domestic supports by only two- thirds of the industrialized partners' commitment and be given longer periods of adjustment. Furthermore, the least developed countries would be exempt from commitments to reduce tariffs and non-tariff barriers on agricultural trade.
19. Agricultural trade policies of industrialized countries have greater ramifications for African countries beyond those affecting export revenues. Since many African countries depend heavily on agricultural production, the potential gains from liberalization are quite substantial. Tt is well known fact that agriculture in Africa is much more labour-intensive than manufacturing. Therefore, the multiplicative effects of increased agricultural production through domestic employment creation will lead to improvements in living standards, stronger bafance-of-payments positions and enhanced capacities to honour their external obligations.
20. African countries could realize substantial gains in foreign exchange if trade barriers were lowered or removed for products such as tobacco, roasted coffee, coffee extracts, cocoa derivatives, oil and seeds.
Furthermore, liberalization of agricultural trade could result in a reduction of world commodity price instability, particularly if non-tariff barriers were removed.
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21. There is a fundamental concern that if agricultural trade is liberalized, the short-term effect could be diminished agricultural production, as export subsidies are reduced or eliminated in OECD countries, leading to increased costs of agricultural products. The latter, it is argued, will inevitably affect those African countries which are net importers of agricultural products. While the validity of such an argument has to be acknowledged, it has to be pointed out that in many African countries agricultural production is being stunted because of artificially low international prices which, in fact, inhibit production. Africa possesses abundant agricultural land and water resources which could be economically utilized if the current
distortions are eliminated.22. The fundamental goal of developing countries is therefore to ensure that reform of GATT rules and discipline on agricultural trade will provide them with improved and secure market access for their agricultural exports, while containing specific provisions that would recognize the special developmental role of agriculture in their economies and societies. African countries should be particularly interested in an outcome from the current Uruguay Round which provides a framework of transparent and enforceable norms, rules and procedures. The alternative could be discriminatory protection and bilateralism. 3
B. Textiles and clothing
23. Another important area of interest for developing countries in the current Uruguay Round is the efforts to bring under the umbrella of the GATT trade in textiles and clothing. The textile negotiations have been less controversial as, in principle, a consensus on dismantling the MultiFibre Arrangement (MFA) had already been reached by 1990. However, major disagreements remain on all aspects of the transition process. Trade in textiles and clothing has been governed by the MFA, which govern much of the international trade in this area. The objectives of the MFA were stated as the temporary regulation of trade in textiles, promotion of orderly adjustment of trade in textile and clothing industry, and overall long-term
liberalization of trade in textiles.24. The institutionalization of restrictions on a multilateral basis for trade in textiles dates back to 1961 and 1962 when the Short-Term and then the Long-Term Arrangement regarding International Trade in Textiles were negotiated. The Long-Term Arrangement (LTA) was replaced by the Multifibre Arrangement,
which was extended in 1977, 1981, 1986, 1991 and 1992.25. Instead of promoting liberalization of the industry, the MFA imposed particular costs on the developing countries, because it has not only restrained trade but has also been discriminatory in its application. While textiles and clothing are traded freely among developed countries, albeit subject to tariffs, trade from developing countries is subject to negotiated quota controls. Thus, in practice the MFA is designed to restrict low-cost exports of clothing and textiles to developed country markets.
26. The bilateral agreements reached under successive MFAs have become progressively more restrictive. Consequently, annual growth rates permitted within quotas have generally been below 6 per cent; the number of product categories subject to restrictions has been increased; quota fragmentation coupled with revision of the original "swing" or "carry forward" provisions has reduced quota utilization;
3 Alberto Valdes, "Agriculture in the Uruguay Round: Interests of Developing Countries", in The Multilateral Trade Negotiations and Developing Country Interests. The World Bank Economic Review, Vol.
I, no. 4, September 1987, pp. 571-593,
requirements of proof of injury to domestic producers have become minimal; and many very small suppliers have been controlled. 4
27. In the context of the MFA, adjustment to changes in trade patterns in textiles and clothing and increases in imports was intended to allow some producers to withdraw from production, promote diversification or closure of inefficient operations, and workers switching to other activities. This kind of adjustment has taken place in some industrialized countries. The number of textile and clothing firms, employment in the sector and output have declined even where there has been some demand growth.
28. At the individual firm level, there is evidence of major efforts to restructure the industry. These include the development of new fibres with a whole range of new non-woven applications and specialization in production of high-quality fabrics and garments less vulnerable to price competition. Furthermore, the industry has adopted a range of new technological advances to cut labour costs and improve competitiveness.
29. The cost of production have been further reduced by relocation of manufacturing centres to low-wage areas and through vertical integration. Clothing production has so far remained a highly labour-intensive industry, as the main operation is still sewing. However, even some aspects of sewing are being automated
by machine welding of seams and mechanized embroidery.30. Many companies in industrialized countries are now developing "quick response" approaches to take advantage of geographical proximity to retailers and to respond promptly to fashion demand. Flexibility is an important element and extensive use is made of computer-aided design, robotics cutting, and computer
systems to monitor inventories and sales.31. The above developments have substantial implications for Africa. Removal of textile and apparel trade restrictions could result in major distributive implications. It is difficult to determine which countries would benefit from liberalization of the industry. It is possible that under the influence of market forces, the centre of garment production would shift from countries with low labour cost production to countries with proximity to the European Community and United States of America markets, or to those countries where high technology can be best integrated with low labour costs.
32. The current proposals to liberalize trade in textiles and apparel hinges on whether tariff reductions would indeed help to promote trade and whether quotas under the MFA could be converted to tariffs, to be gradually reduced as part of a return to GATT rules. Weighted average MFN tariff levels for textiles and clothing remain high in the developed countries, between two and three times higher than tariffs on manufactures as a whole. Levels of effective protection are even higher as a result of tariff escalation.
33. The United Nations Conference on Trade and Development (UNCTAD) estimated that if the European Community, Japan and the United States of America removed all non-tariff barriers on textile trade, this would generate additional developing countries' exports of nearly US$11.8 billion. Trade in textiles is one of the few product areas, outside of primary commodities, where developing countries reveal
comparative advantage.
34. There are some African countries that have a well-developed textile industry and would stand to gain from increased opportunities made possible by liberalization and also those who could gain from proximity with the EEC market. However, for many African countries the battle to penetrate the textile export
4 Vincent Cable, " Textiles and clothing in a new round of trade negotiations" in The Multilateral Trade Negotiations and Developing Country Interests. The World Bank Economic Review Vol I no 4
1987, pp. 619-646. " '
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industry will be a difficult one even if trade in textiles comes under GATT rules. The need to adjust their textile industries to more competition and technological changes is indeed a formidable task.
IV. NEW SECTORS IN THE URUGUAY ROUND
35. The concerns of developing countries on the new issues that have been introduced in the negotiations, such as liberalization of trade in services, trade-related investment measures (TRIMS), and trade-related
aspects of intellectual property rights (TRIPS), are both general and specific in nature. s The general
concerns relate to the impact that the inclusion of these issues would have on negotiations on market access while specific concerns relate to the impact they could have on selected sectors of African economies.36. Additionally, there is a fear of potential retaliation in traditional areas, such as trade in goods, against countries that do not comply with developed country's norms in non-traditional areas, such as intellectual property rights and trade-related investment measures. 6 Accordingly, developing countries argued for negotiations that preclude any possibility of cross-sectoral retaliation between trade in goods and measures covered under the new sectors.
A. Trade in services
37. Although trade in services is not yet covered by GATT rules, it has grown dramatically, outpacing the rate of growth of trade in goods. Negotiations on trade in services has proceeded on the basis of a text of a General Agreement on Trade in Services (GATS) modelled on the basis of the General Agreement on Tariffs and Trade. The basic principles incorporated in the draft agreement for trade in services include the gradual liberalization of services, reciprocity, non-discrimination, transparency of regulations, fair trade and use of quantitative restrictions only as an emergency tool. Certain aspects of trade in services have been left out of the agreement such as air traffic, financial services, and the possibility to use quantitative restrictions for balance-of-payments purposes.
38. The areas of preoccupation to developing countries in general and African countries in particular regarding the services negotiations included concerns relating to issues of national security and sovereignty in the implementation of the GATS agreement, along with interests in protecting Africa's infant service industries; conceptual difficulties as to how to define services; and differences in coverage of the agreement.
The financial services sector has presented particular difficulties because of divergence of opinion as to whether the sector should be governed by a self-contained agreement.
39. The focus of developing countries in the negotiations has been to obtain effective access for services of export interest to them in the markets of developed countries and for labour mobility to be included in the agreement, which developed countries argue is merely an immigration issue. African countries may find it difficult to effectively capitalize on negotiated market access opportunities in trade in services because of lack of large transnational corporations with global infrastructures; limited financial strength; problems in mastering advanced technologies; and the lack of established reputations in this fiercely competitive area.
They have therefore tended to place emphasis in the negotiations on obtaining concessions with respect to the movement of labour, on arrangements for access to distribution channels and information networks, and on obtaining concessions on transfer of technology by foreign firms.
5 United Nations Centre on Transnational Corporations, The Impact of Trade-Related Investment Measures on Trade and Development: Theory. Evidence and Policy Implications. United Nations, New York, 1991.
6 John Whaley, The Uruguay Round and Beyond. Final Report from the Ford Foundation Project on Developing Countries and the Global Trading System, 1989.
B. Trade-related investment measures (TRJMs)
40. Negotiations on trade-related investment measures have evolved into an area of major disagreement mainly because of differences of opinion as to the mandate of the current round of negotiations on this issue;
different perceptions as to how foreign direct investment can contribute to the development process and how to separate trade-related issues from those related to conditions for regulating investment regimes; and differences of opinion on the trade-restrictive and trade-distorting effects of investment measures. 7 The
concerns of African countries on negotiations in connection to trade-related investment measures centre onthe "sovereignty issues" and how to control the "anti-competitive practices" of transnational corporations
once TRIMs have been liberalized.41. African countries realize the importance to their economies of foreign direct investment as a source of technology transfer and non-debt creating flows. The latter is particularly true in the current global
situation characterized by scarce financial resources. However, they still argue that the right to determine
whether they would permit foreign direct investment is not only inherent but also necessary to ensure the maximum development impact of foreign investment.C. Trade-related aspects of intellectual property (TRIPs)
42. The discussions on trade-related aspects of intellectual property rights have been centred on the
upward harmonization of standards to those of industrialized countries for protection of intellectual rights and the requirement that all contracting parties enact in their national laws existing international conventions
on intellectual property rights.43. The draft text on trade-related intellectual property rights establishes high standards for copyrights, including computer software, trademarks, geographical indication of origin, industrial designs and patents, including those referring to new technology. The concerns of African countries as regards TRIPs is that strong systems of protection may limit the possibility of following an imitative path of technological development based on reverse engineering, adaptation and the improvement of existing innovation.
Furthermore, developing countries are of the view that an agreement on TRIPs should aim to promote rather than impede developing countries' access to technology and their development of indigenous technological capacities. The agreement should not oblige countries to protect intellectual property rights in a manner that would constitute barriers to legitimate trade.
44. Major areas of tension in the current negotiations between developed and developing countries on trade-related intellectual property rights are resolved in favour of the developed market economies such as the proposed increase in minimum period of patent protection; the burden of proof in the case of processing patents being placed on the presumed infringer (which means developing countries); proposed increase in the period of protection of layout-designs of integrated circuits; proposals to adopt border (customs) measures to protect property rights; and the requirement that developing countries adopt national legislation consistent with the TRIPS agreement within a five-year period, extended to 10 years for least developed countries.
V. STRENGTHENING GATT
45. The non-tariff measures that developed market economies have used against exports of developing countries have included para-tariff measures such as tariff quotas, seasonal tariffs, supplementary tariffs;
variable levies; countervailing and anti-dumping actions; quantitative restrictions; the surveillance of
7 United Nations Conference on Trade and Development (UNCTAD), "Selected Issues in the Uruguay Round". Trade and Development Report, 1991.
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quantities and/or prices of imports, and various types of licensing. In addition, industrialized countries have also employed health and safety regulations, stringent technical standards, and excise taxes to prevent or restrict imports from developing countries.
46. The use of "grey area" measures and unfair trade provisions has been an outstanding feature of protectionism by industrialized countries in recent decades, notwithstanding the fact that GATT rules prohibit the use of measures such as voluntary export restraints (VERs) and orderly marketing arrangements (OMAs).
In the current round, greater discipline has been introduced in the use of "grey area" measures by defining what constitutes dumping and what are termed "unfair trade" practices. Under this framework, subsidies are classified into three broad areas - prohibited, actionable and non-actionable - to determine anti-dumping and unfair trade practices. For developing countries, the stringent application of rules for use of "grey area"
measures could mean restricted application of such measures by developed countries and therefore greater access to such markets.
47. It is essential for African countries that negotiations directed at strengthening the GATT dispute settlement procedures are successfully concluded. The differences of interpretation of the GATT provisions and codes between contracting parties need to be resolved. This problem is a result of the often unclear and imprecise provisions stemming from the negotiating process and political necessities.
48. There is need for clearly defined and enforceable dispute settlement procedures tto be instituted.
Developing countries, especially those of Africa, have not effectively used the GATT's dispute settlement mechanism, partly due to their lack of understanding of the procedures involved. Usually when complaints are brought before GATT, they are stone-walled by unduly long delaysd and cumbersome procedures. There is even the perception, in some quarters, that when it comes to dispute settlement the real meaning of GATT becomes "General Agreement on Talk and Talk."
49. The negotiations on the institutional framework for GATT have centred on the search for a new institutional arrangement to ensure implementation of the post-Uruguay Round of trade regime and more specifically the proposal to create a more permanent institution, "the Multilateral Trade Organization (MTO)". Developing countries that have over the years viewed GATT as a "rich man's club" need to take interest and to be more actively involved in the establishment of the new institutional framework to ensure that their interests are incorporated in the mandate, functions and structures of the proposed institution.
VI. CONCLUSIONS
50. Negotiations of the current Uruguay Round are nearing completion and further negotiations are being restricted to resolving those issues that are blocking agreement. There is therefore no scope for African countries to renegotiate their positions. Nonetheless, African countries could direct their energies towards evaluating the implications of the final provisions of the round on their trade prospects as well as towards devising policies needed for them effectively to take advantage of the provisions contained in the new agreement.
51. The Trade Negotiations Committee of the Uruguay Round reactivated the multilateral trade negotiations in November 1992 which had been stalled because of disagreements among major players. The decision to reactivate the negotiations was reached after the United States of America and the European Community informed other participants in the negotiations that they had reached an understanding on their long-standing differences on agriculture, services and market access. The target now is to reach a successful political conclusion of the Uruguay Round before the end of 1993.
52. The content of this understanding is unclear and therefore many developing countries are concerned that the Final Act of the Uruguay Round will reflect the interests of the major players in the negotiations
and that developing countries will be presented with a fait accompli feat which they will be forced to "take or leave".
53. The developing countries no longer need to be persuaded that access to foreign markets is important
for their development. The economic success of the outward-oriented economies of East Asia has been decisive in changing many minds on the subject. The real worry now is whether protectionism will not frustrate the converts as they seek the benefits of the export-oriented strategy. 8
54. Basic economics would tend to indicate that African countries are better off in an international trading system that permits growth of world output and trade. Nonetheless, the complexity of the current world economic order and international trade relations dictates that because of their vulnerable position they still deserve special treatment, derogations, set-asides and preferences that will allow them longer transitional
periods of adjustment. These transitional adjustment periods are needed to permit African countries to
implement comprehensive structural reforms aimed at increasing their economic efficiency and productivity and to integrate their economies into the global economic system.55. This will require a careful examination of the provisions contained in the proposals for liberalization of trade in agriculture, textiles and services; agreements relating to trade-related investment measures and
trade-related aspects of intellectual property rights; proposals on safeguards and voluntary export restraints;balance of payments and related issues; and proposed new institutional arrangements for GATT.
