BUSINESS

LOOKING FOR CONSENSUS

THIS WEEK'S GATT MEETING IN MONTREAL IS CRITICAL TO THE FUTURE OF WORLD TRADE

D’ARCY JENISH December 12 1988
BUSINESS

LOOKING FOR CONSENSUS

THIS WEEK'S GATT MEETING IN MONTREAL IS CRITICAL TO THE FUTURE OF WORLD TRADE

D’ARCY JENISH December 12 1988

LOOKING FOR CONSENSUS

BUSINESS

THIS WEEK'S GATT MEETING IN MONTREAL IS CRITICAL TO THE FUTURE OF WORLD TRADE

It promised to be a critical meeting for the future of world trade. More than 1,000 delegates from 96 countries are gathering in Montreal this week for a midterm review of negotiations under the Uruguay round of the General Agreement on Tariffs and Trade (GATT). The Uruguay round began two years ago and is scheduled for completion in 1990. But the Montreal meeting comes at a delicate phase. Because of pressing new issues, including the Canada-U.S. Free Trade Agreement (FTA), the talks could be a breakthrough in fostering new co-operation between. GATT members—or they could close the door on global liberalization.

Several senior Canadian trade officials told Maclean’s last week that the negotiations are currently stalled on three key issues: agriculture, services and intellectual property

rights—including control of computer software, drug patents and biotechnology. The officials say that the 60 trade ministers and another 1,000 officials expected to attend the Montreal meeting at the Palais des Congrès de Montréal must break the stalemates, or the entire round may collapse. Said Sylvia Ostry, Canada’s ambassador for multilateral trade negotiations: “It is essential that there be sufficient drive and political momentum to ensure that, in the final two years of the round, there is progress on the three strategic issues.” Although the Uruguay round of negotiations—the eighth since the GATT was founded after the Second World War—has reached a critical crossroads, Canadian trade officials and other ex-

pert observers say that the problems were anticipated from the outset. This round includes such traditional subjects as tariffs, nontariff barriers, dispute settlement and natural resource products. But most observers say

that the inclusion of agriculture, services and intellectual property has made the negotiations much more complex than any previous round. Michael Hart, a Canadian trade negotiator now

on a one-year leave of absence, said that these GATT negotiations are touching issues that “cut deep into national economic life and sovereignty.” Canadian trade officials say that Montreal was awarded the midterm review after the GATT administrators turned down a request from the Canadian government to host the meeting in Uruguay that launched the entire round of current negotiations. The purpose of the GATT is to liberalize trade around the world through the removal of tariffs and nontariff barriers. Canada and the United States 2 will remain members of the o multilateral GATT even though they have negotiated " the bilateral FTA, which goes beyond the GATT in several ways. In one case, it calls for binding dispute settlement

and prohibits the use of export subsidies on agricultural commodities. Canadian trade negotiators contend that the FTA will not be precisely duplicated by the GATT, but that it will certainly provide a moral

boost to the negotiations that are still to come. Most experts say that the trade ministers are unlikely to reach any binding agreements on the key issues at the Montreal meeting. But the ministers must demonstrate that their governments are committed to trade liberalization and prepared to make concessions in order to reach a new agreement. Canadian ambassador Ostry said that the negotiations are stalled on “quintessential policy issues that require political input, and that is what the Montreal meeting is all about.” Some economists and businessmen say that without progress at Montreal, pessimism about the effectiveness of the GATT will grow. In Toronto last week, several speakers at a conference sponsored by the Ottawa-based Institute for Research in Public Policy predicted that if the negotiations fail, the international trading system will be further eroded by the erection of new barriers. Although most observers acknowledge the importance of the Montreal talks, they say that they are also acutely aware of the difficulties they face. Ostry said that agriculture was a neglected issue in previous rounds. This time, one of the major objectives of the negotiations is to develop a set of GATT rules for agriculture, she said. Farm groups from Canada, the United States and Europe were scheduled to hold a rally in downtown Montreal on Monday and march to the Palais. Donald Knoerr, a B.C. cattle producer and president of the Canadian Federation of Agriculture, said that the farm groups will present the trade ministers with a document called the Montreal Agricultural countries are also pushing for a so-called transparency clause, which would compel governments to publish their rules and regulations covering services.

Declaration. Included in the document was a call for “immediate action to end the chaos in international agricultural markets which has resulted in the distortion of trade.” Since then, the negotiators have been attempting to reach a consensus on the concepts that might be included in a treaty on services, said the Canadian trade official. He added that the developed countries want a national treatment clause to ensure that exporting companies receive the same advantages as domestic firms in the importing country. The developed

The central task facing the GATT negotiators is to develop a basic consensus and timetable for reducing farm subsidies, which are now costing grain-exporting nations $220 billion annually, according to some estimates. Officials at the federal department of agriculture say that Canadian grain and oilseed growers earned $4.6 billion in 1987 from the sale of their crops, down from a yearly average of $6.8 billion between 1981 and 1984. That decrease was largely due to depressed world wheat prices caused by a subsidy war between the European Community (EC) and the United States.

Now the EC and the United States are deeply divided over the approach that should be taken to agricultural reform. The United States initially put forward the so-called zero 2000 alternative, which called for the total elimination of all trade-distorting farm subsidies and import restrictions by GATT members no later than the turn of the century. According to one Canadian trade negotiator who requested anonymity, the United States has since removed the deadline but is sticking to the long-term goal of removing subsidies.

In response, the EC has agreed to freeze subsidies at current levels, or to accept shortterm cutbacks. But the Europeans will not set a specific long-term goal and, without a clear

alternative to the American proposal, the negotiations will be deadlocked, said the Canadian official. As a compromise, the 13-member Cairns Group, which is named after the Australian city where its first meeting was held in 1986, and which includes such diverse grain exporters as Canada, Colombia, Australia and Indonesia, has proposed 10-per-cent cutbacks in trade-distorting subsidies in 1989 and 1990 while the members proceed to negotiate longterm objectives.

The Uruguay round represents the first attempt to negotiate a multilateral trade agreement on services, ranging from financial services and consulting engineering to architecture and insurance. The FTA sets an international precedent by liberalizing trade in services and allowing for freer movement across the Canada-U.S. border for workers ranging from advertising executives to forestfire fighters. A senior Canadian official said that up until July, 1988, the GATT discussions on services resembled nothing more than seminars in which the participating countries presented research papers rather than genuine bargaining proposals.

The official said that some less-developed countries have protested vigorously because they do not disclose all the rules—even to their own citizens. He added that if a consensus can be reached on basic issues, the participants could then begin to negotiate the professions and occupations that would be covered by an agreement on services. Said Ostry: “There must be enough momentum in services that there will be a continuing move toward trade liberalization.”

Although the GATT members agreed at the start of the round to negotiate services for the first time, intellectual property emerged as a major issue only after the negotiations began. Intellectual property is a term applied to innovations in such fields as computer software and pharmaceutical drugs. Without an international agreement to protect ownership rights, such innovations can easily be duplicated by competitors in other countries.

Ostry said that a group of American, European and Japanese multinational corporations has lobbied GATT members for rules that will protect their ownership of intellectual property. The issue has become vitally important to the multinationals because of the technological revolution in computer communications, biotechnology and new materials for consumer and industrial products. Said Ostry: “The ability to induce innovation depends on capturing the financial returns on that innovation, which is the heart of the issue.”

For GATT members, a major conflict has developed over their role on intellectual property. Ostry said that less-developed countries have argued against the inclusion of patent and copyright standards in GATT negotiations because they want to ensure that they have access to such new technology. The developed countries, including Canada, insist that uniform international standards must be negotiated.

If the issue is left unresolved, both developed and developing countries stand to lose, said Ostry. Excessively stringent patent and copyright laws could deny less-developed nations access to technological innovations. At the same time, multinationals will be reluctant to invest in Third World countries unless there are adequate laws and international trade rules to protect their ownership of advanced technology.

Although GATT negotiators are dealing with a broad range of issues, there are two underlying problems. Ostry said that the negotiators are trying to bring previously neglected sectors, including agriculture, into the GATT. They must also come to grips with such expanding economic activities as services and critical problems arising from the ownership of intellectual property. But before the negotiators can make any progress on those issues, they will need direction and support from the trade ministers who gather in Montreal.

D’ARCY JENISH