The Community has concluded agreements with those EFTA countries which did not want to become full members, namely Iceland, Norway, Portugal, Sweden, Switzerland, Austria and Finland. In addition, agreements will be worked out with those developing countries which have historically benefited from preferences, and in some cases have granted reverse preferences, to one or another of the Six or the more recent members of the Community. Reverse preferences are granted by some countries with which the Community already has arrangements and some of the less developed Commonwealth countries. The existing series of preferential agreements covering relations between the Community and Mediterranean countries were to be applied to the four acceding countries as of January 1973. The United States has made it clear that it does not consider the agreements between Spain and Israel and the Community to be consistent with the GATT, and has expressed its intention to request early consultations, in accordance with appropriate GATT procedures, with the parties to these agreements on their impact on United States exports. Intra-LDC Regional and Non-Regional Preferential Agreements There have been a number of agreements among groupings of LDCs to form common markets, free trade areas or preferential trading associations. Most of these groups have been made up of contiguous states, but more recently, an agreement for preferential tariff reductions was concluded among 16 LDCs located on five continents. United States policy has been to encourage regional economic integration among LDCs as a means of achieving economic development by lowering barriers and broadening internal markets. The United States has recognized the difficulties for LDCs to adhere to agreements that would fully conform to the requirements of GATT Article XXIV but has nevertheless pointed out that the benefits of integration are most likely to be realized if the associations conform. The United States has, however, adopted a pragmatic approach to this issue. GATT working parties typically have been unable to reach agreed conclusions as to whether the agreements met the criteria of Article XXIV and have required the parties to report annually on developments. The United States has pressed the participants to consider the interests of third parties. The case of the Central American Common Market (CACM) is illustrative. When Nicaragua, the only CACM country which is also a party to the GATT, reported the signing of an agreement to form CACM in 1960, it was evident that CACM did not conform to Article XXIV criteria. Therefore, Nicaragua requested and was granted a waiver under Article XXV to participate in the agreement and raise some GATT bound tariffs. The terms of the waiver required that Nica ragua report annually on the formation of the common market and that the entire Nicaragua GATT schedule would be renegotiated when the formation of a CACM common external tariff is complete. In the meantime, contracting parties could pursue rights to compensation if their trade is damaged. GATT consideration of the Latin American Free Trade Association (LAFTA), an agreement between 7 (now 11) Latin American. countries to establish a free trade area, signed in Montevideo in 1960 followed a pattern similar to CACM. After an examination of the Montevideo Treaty by a working party and the GATT Council, the Contracting Parties at their 17th Session concluded that no decision could be made on the compatibility of the agreement with Article XXIV, that the parties should continue to report developments and that the rights of all contracting parties were not impaired. The decision was not taken in the form of a waiver as was the CACM decision. The United States has consistently supported the establishment and development of LAFTA. Other intra-LDC regional arrangements reported to the GATT include the Central African Economic and Customs Union, the Arab Common Market and the Caribbean Free Trade Area. In 1968 India, Egypt and Yugoslavia put into effect an agreement granting each other preferential treatment on about 500 tariff items. The agreement among the three grew out of negotiations among about 20 LDCs initiated in the GATT during the Kennedy Round. Since at the conclusion of the Kennedy Round these negotiations had not produced any agreed concessions among the participants, the three countries decided to conduct separate talks of their own. They hoped that their agreement would serve as a model which the other countries could follow or join. GATT consideration of the agreement, the first case of a preferential arrangement that was nonregional, set an important precedent for further arrangements. In GATT committees the United States took the position that the examination of this agreement should be thorough, to include a study of its consistency with the General Agreement, the contribution that it could be expected to make to the economic development of the participants and the effect it would have on third countries. The GATT Contracting Parties, at the 25th Session, taking into account, among other things, that the agreement was experimental, decided to allow the three countries to implement it, subject to review by subsequent sessions of the Contracting Parties. The United States concurred in this decision. The three-nation agreement was subsumed into an arrangement. among the 16 developing countries in 1971. In that year 16 LDCs completed negotiations held under the auspices of the GATT to exchange preferential tariff reductions among themselves. This agreement was not designed to conform to the requirements of Article XXIV. Rather, it was an effort to liberalize trade among developing countries. At the 27th Session of the GATT Contracting Parties, the participating countries asked the Contracting Parties for a waiver under Article XXV to allow them to put the agreement into effect. Since the documentation and waiver request was received only immediately before the Session, the United States took the position that the agreement should be examined in a working party, on the grounds that the arrangement did not appear satisfactory in all respects and that not all the terms of the proposed waiver were clear. Furthermore, the matter involved certain new principles and some potential trade problems. There was no support for this position. A vote was taken and the other contracting parties approved the waiver. The United States abstained. MFN and Communist Countries The United States imposes the statutory (column 2) tariff rates on all Communist countries other than Poland and Yugoslavia. Products of those two countries are assessed at the MFN rates. The denial to Communist countries of tariff reductions stemming from trade negotiations since 1934 originated with Section 5 of the Trade Agreements Extension Act of 1951. The Section directed the President to "suspend, withdraw, or prevent the application of any reduc- As directed by the statute, the President withdrew all tariff concessions from all Communist countries, except Yugoslavia, which was deemed not included in the statute. In 1960, the President determined that Poland had shown the requisite independence of the international Communist movement required by the statute, and MFN tariff treatment was restored to that country. Section 5 was superseded by the Trade Expansion Act of 1962 (TEA). Section 231 of the Act required the President to withhold MFN from "any country or area dominated or controlled by Communism." Subsequent to enactment of the TEA, Section 231(b) was added to the TEA to permit exceptions for those countries already accorded MFN treatment if the President determined that the continuance thereof was important to the national interest and would promote the independence of such countries from international Communism. The President determined that such was the case with respect to Yugoslavia and Poland. The legal effect of Section 231, as amended, was to include among the countries denied MFN treatment, Cuba, the products of which were already denied such treatment under Section 401 of the Tariff Classification Act of 1962. Since 1963, there have been no legislative changes with respect to MFN treatment for Communist countries. The proposed Trade Reform Act of 1973 contains provisions which would authorize the President to (a) enter into bilateral commercial arrangements to extend 'MFN treatment to countries now subject to Column 2 rates and (b) extend MFN treatment to countries which become a party to a multilateral agreement to which the United States is also a party, e.g. the GATT. The implementation of such agreements or orders under the proposed Act would be subject to a Congressional veto procedure. Eastern European countries have shown increasing interest in participation in the GATT. Poland acceded in 1967, Romania in 1971, and Hungary is presently negotiating to join. The accession of Poland did not pose a legal problem for the United States since MFN treatment was authorized for Polish goods. However, when Romania acceded, inability of the United States to extend MFN treatment required it to invoke Article XXXV, which provides that at the time when either of two countries becomes a party to the GATT, either may declare that it does not consent to application of the provisions of the GATT between the two. If Hungary accedes the United States will be obliged to invoke Article XXXV again unless Congress meanwhile authorizes extension of MFN. MFN and Non-GATT Members The United States, as required by law, grants MFN treatment to all free world countries, whether members of GATT or not. Most Western countries follow the same practice. While a number of countries are not GATT members, some among them have accepted GATT obligations, including MFN. Together with the members of GATT, these countries number 96 and their trade accounts for between 80 and 90 percent of total world trade. The Generalized Preferences Waiver A recent important derogation from the MFN principle is the generalized preferences waiver, which was approved by the GATT Contracting Parties on June 25, 1971. Mutually acceptable arrangements to grant nonreciprocal trade preferences to LDCs were drawn up over a period of years in the Organization for Economic Cooperation and Development and in the United Nations Conference on Trade and Development. Congressional author ization is required in order for the United States to participate, and this has been requested in the proposed Trade Reform Act of 1973. The Government of Canada has obtained Parliamentary approval but has not yet implemented a general preference system. All other major trading countries have put their systems into effect. These systems result in discrimination in favor of the LDCs, as opposed to the industrialized countries, and therefore are inconsistent with the MFN obligations of the contracting parties contained in GATT Article I. Through GATT action these obligations were waived for a period of ten years in order to permit the granting of generalized preferences. Recent Developments Because of concern over the proliferation of preferential arrangements, the United States proposed at the 27th Session of the Contracting Parties in November 1971, that: (1) a schedule be established for the Council to examine reports of countries participating in customs unions, free trade area arrangements and interim arrangements; and (2) the Contracting Parties establish a working party to examine existing and prospective preferential and special trading arrangements to determine the total imports at MFN and at preferential rates for each GATT member and for GATT countries as a whole in the 19551970 period. The United States also proposed that the working party analyze and evaluate the trends and the implications of the trade flows at MFN and preferential rates based on this data. On the first United States proposal the Contracting Parties instructed the Council to establish a calendar fixing dates for the examination, every two years, of preferential arrangements. The Council subsequently approved a timetable for reporting dates. On the second United States proposal, the Contracting Parties decided that the Director General of the GATT, with guidance from a working party, would undertake the statistical study but would limit it to representative years in the 1955-1970 period. Preliminary statistical findings by the GATT Secretariat were released in June 1972 on a restricted basis. The data confirm the U.S. contention that a significant percentage of world trade is now subject to preferential duty rates-about 25 percent if intra-EC trade is included. Further analysis has been temporarily deferred because of the heavy workload of the Secretariat in the context of the forthcoming multilateral trade negotiations. |