Ake Linder¹

The subject of my lecture is "The results of the Uruguay Round and its main implications for developing countries." In the history of GATT, since the beginning in 1948, there has been series of trade negotiations in that framework: from the beginning in the 1940s the negotiations that took place in 1947 before the actual entering into force of the General Agreement of Tariffs and Trade entirely dealt with tariff reductions. In the negotiations that where held in the mid 1960's, 1964, 1967, the so-called "Kennedy Round", were the first atempt to enlarge the negotiations to cover not only tariff reductions, but also reduction of non tarriff barriers. The main result of those negotiations in that area -non tariff barrier area-, where the first Anti-dumping Code which regulated more of this issue that is contained in the GATT itself: the conditions under which governments can take actions against imported products that are dumped by the exporting country.

The negotiations in the next Round, which was called "Tokyo Round" because the Ministerial Meeting that decided on the Round was held in Tokyo, although the negotiation took place in Geneva, lasted from 1973 to 1979. The non tariff measures claimed an equally important role as tariff reductions and the results of these negotiations were a series of what was called "codes" that gave further precision to certain GATT rules.

This codes cover quite a large series of different measures: there was a new improved Anti-dumping Code, a Code on subsidies and Countervaling Duties, Custom Valuation, Import Licenses, Tecnical Barriers to Trade -in other words the use of standards-, a Code on Government Procurement and also there were two agreements on agricultural products (diary products and meat).

When the preparations started for the following Round, what is known as the Uruguay Round since the opening Ministerial Conference was held in Uruguay in 1986, the United States and the Ministerial Meeting of GATT in 1982 suggested to enlarge the negotation not only to cover international trade in goods which was what GATT had been dealt with, but also with international exchange of services. Services that in this context meant a wide range of activities, as for example: financial services, international banking, international insurance activities, tourist services, transport services, ground and sea transportation, international construction work and telecomunications. The Americans also suggested that the new Round should deal with rules concerning what was called "trade related intellectual property rights," in other words rights concerning licenses arrangements and quite a few other intellectual property rights. When the Americans made this proposal the opinion of other representatives was not very enthusiastic.

The developed countries as a whole were rather neutral and the developing countries were as a whole against the proposal. In the period between 1982 and 1986, when the negotiations actually started, the opinion among members of GATT changed in a quite important manner. Practically, all industrialized and quite a number of developing countries were in favor of including these new areas, but there were several developing countries, like Brazil, that were still against them. The arguments for incorporating these new areas are that foreign international exchange of goods and services had gradually become very important. For some countries, international service activities are more important than the actual trade in goods. It was necessary, because of that background, to establish an international regulation of transnational services as well as for intelectual property, but that was not as controversial as services.

When the Ministerial Meeting was held at Uruguay in September 1986, it was agreed that the negotiations should also cover services and intellectual property rights, although services were to be considered as a special area in the negotiations and not in the remaining part of them; they were to be a kind of anexes in the negotiations. Through the end of the Round, India and Brazil which had started in a negative way towards services realized that they had more to gain than to loose in that particular area. In the beginning of the Uruguay Round at the meeting at Punta del Este, it was agreed that trade aspects should be an important part of the negotiations. This was because the situation in the tariff area on industrial products had actually changed very drastically over the years when GATT had been put into force. Back to 1947, before the entering into force of GATT, the average level of tariff protection in developed countries was about 40% and at the end of Tokyo Round came down to 35%; this meant that succesful results had been gathered. In the two previous negotiating Rounds, the Kennedy Round and the Tokyo Round, the negotiations on tariff reduction were centrally based on the aplication of an "across the board formula" that meant that all the participants should reduce their protection at a certain rate. In the Kennedy Round (1964- 1967) the aim was that it should decrease by 50%. There were the posibilities for exceptions for these rules, so the actual level of reduction turned to be about 35%. In the Tokyo Round Negotiations (1973-1979), the tariff negotiations were carried out according to a standard formula, but there was another complicated formula that had been brought by Switzerland, which essentialy said that high custom duties were reduced more than low duties. The result of the tariff negotiations as an average reduction, was about the same as in the previous Kennedy Round. It was a question about a reduction of a third of the rates before the beginning of the negotiations.

For the Uruguay Round, it was agreed that this should be a reduction of the same size that it had been achieved in the Kennedy and Tokyo Round, but no particular formula for how to carry out negotiations was adopted. Governments could choose freely if they wanted to apply some kind of "across the board formula" of the type that had been applied in the two previous Rounds or turning back to practicing the old GATT, where tariff reductions resulted from bilateral negotiations between participating countries. Two countries sat down together and one offered reductions for products of interest to the other and, in exchang offered tariff reduction of products of export interest to the other side. This method had been replaced by this "across the board formula" in the Kennedy and Tokyo Rounds. In the Uruguay Round the countries wished they could use this old tecnique rather than a technique based on an "across the board" standard reduction. In the tariff negotiation of the Uruguay Round, a kind of aditional tecnique that had been used for the negotiations in GATT, was introduced. This was that, for the accession of new countries, instead of concentrating in tariff reductions on individual tariff bindings in GATT for individual product it was agreed on what was called a "general ceiling binding".

The results of tariff reductions resulting from negotiations in GATT is that, apart of the reduction itself, the custom duties are bound, in other words, that a Government cannot increase a custom duty once they have negotiated a reduction of the duty concerned. They can, in certain circumstances, increase the bound rate, but in that case they have to compensate the exporting countries by offering them reductions on the custom duties of other products of interest to the same exporting country. This new idea, that I refered to, was that a country that joined GATT should undertake a general commitment not to have any custom duties higher than a certain ceiling and also, that the ceiling level for acceding developing countries should vary depending on the tariff level of these countries from 60% to 30% before their accession to GATT.

The countries, in other words, commited themselves not to apply any custom duties higher than that ceiling that had been fixed for the country concerned. There were certain exceptions from that rule, so countries could, for certain areas, get the permission to have higher duties. On the other side, they could, for certain areas or certain products, agree to have lower duties than the ceiling, although it is a kind of a general commitment. This idea of ceiling bindings was introduced for the first time in a round of tariff negotiations, in the Uruguay Round. The final result of the tariff negotiations were, in the industrialized countries, to an average reduction of custom duties about 38%, in other words a bit higher than what had been fixed as the aim at the beginning of the negotiation; developing countries had reached an average level that was lower.

The developing countries that took part in the negotiations, old members of GATT, increased the number of bound custom duties, but the main aspects of these new bindings were the results of this ceiling bindings I just refered to; that meant that the countries that agreed to serve the ceiling binding, would bound 100% of that custom duties since this ceiling can be applied to all products. The ceilings were fixed in such a way that they would not force the country concerned to meet tariff reductions. The idea of the ceiling was not to force countries and be guaranteed against future duty increases. Of course, the ceiling meant a considerable amount of stabilitiy in international trade, this because Governments knew that others that had undertaken certain ceilings could not decide on one to the next to double custom duties or increase them considerably; there was a guarantee against exagerated change.

This situation was different in respect to agricultural products because in the agricultural area custom duties, before the negotiations, did not normally played a very large role as trade obstacle. Most countries based on agricultural policy had not so much of the use of custom duties wich in principle should had been done in GATT, but instead used several other measures; they protected their own agricultural production to a very large extent through the use of subsidies.

From the very beginning until the Uruguay Round negotiations trade in agricultural products, had been not officially, but in substance, very much outside the negotiations in GATT and it was agreed that for the first time one should concentrate very much on eliminating barriers to agricultural products. Agricultural products were covered by the same general principle that there should be a duty reduction program enforced before the negotiations by 35%.

There were a number of special elements for trade in agriculture: one was that Governments were obliged to abolish all cuantitative restrictions on imports on agricultural products and instead, they were allowed to increase custom duties; there was a formula for calculating the tariff increases that would replace the abolition of cuantitative restrictions. The new high duties that resulted from this transformation were, in turn, subject to the 35% reduction requirement that was the general principle for tariff negotiations. In some cases the abolition of cuantitative restrictions, particularly when there had been very strict import restrictions lead to very high custom duties; there could be custom duties up to 100% in order to ensure that there was a reasonable chance for trade in such products.

It was agreed that Governments that imposed as a result of this transformation, very high custom duties, should open the posibility for imports at lower rates within the framework of what is called "the tariff cuotas."

Governments were obliged to open posibilities for the importation of products up to a certain cuantitative level so that the new rates would not be completely prohibitive. The result of this means that, concerning the product commitment in the agricultural area, where all agricultural products were subject to this so-called "tariffication exercise" (the transformation of non tariff). restrictions into tariffs, all the products were bound in GATT but now there is a 100% binding of all custom duties in the agricultural area. Also, agricultural duties were bound in a higher extent than industrial products, 100% bound only for countries that have adopted a ceiling. Before the negotiations, the situation was that the bindings were more important for industrial products than for agricultural products, so this completely changed the picture.

The other and more complicated negotiations in the agricultural area in the Round concerned agricultural subsidies, because trade in agricultural products were very much distorted by the fact that some countries, in the first place the members of the European Economic Communities subsidized exports to agricultural products to a very large extent, which of course put the countries which had genuine posibilities for agricultural production in an unfavorable competitive situation as for example, (Australia, New Zeland, Argentina, Uruguay, Canada), which have highly favorable natural conditions which were highly favorable for the production of agricultural products. The exports had to compete with very high subsidized products from the European Communitites and other countries, including United States.

One of the main aspect in the negotiations in the agricultural area was to reduce the subsidization, of that paid for the production and export of agricultural products. Also what was called "internal support measures", support for farmers that were paid regardless of the products that were exported and intended for the domestic consumption in the country concerned. It turned out that particularly the export subsidies area was an extremely difficult sector. From the beginning the United States and the main agricultural exporting countries wanted a complete elimination of all export subsidies: no countries would pay any export subsidies for agricultural products. The European Communities made it clear that that was completely unacceptable and had to negotiate some balance somewhere in between. These negotiations were, as I just said, very complicated; in several occasions, it looked like the whole negotiation would brake down because of this particular problem of agricultural export subsidies.

The two countries that were strongly opposed were United States for one side and France on the other side, essentialy they were opposed to each other. The ultimate result was the reduction of agricultural subsidies by 36% of the amount that agricultural subsidies had before the beginning of the negotiations, spread out over a 6 year period. For the developing countries, had a lower percent and a bit longer period: 9 years to implement cuts in the subsidies. The domestic subsidies and domestic support measures, in other words, subsidies that were not related to exports, but general support for farmers, should be reduced by 20% for the amount they had before the negotiations.

This means that when the results had been implemented, there would be a much more equal balance situation in international trade in agricultural products, that has been the case since GATT was created in 1948. The agricultural exporting developed countries were satisfied with the agreement. Agricultural exporters, of course, had wished to have a further reduction of subsidies further than the 36% that was finally agreed, but they never considered that the results were unsatisfactory. The countries that had problems were the ones called "net food importing developing countries", in other words countries that are net importers of agricultural products. They would face a situation where the prices in international markets for agricultural products would go down because of the pact of subsidization. In particularl, in the

Communities but also in other countries, the fact that they were subsidizing products, of course tended to push down the export prices.

When subsidies disappear, the results would be that the export prices would go up, that was the aim that the agricultural exporting countries would like as income from the agricultural exports. The second consecuence would be that countries that rely on import agricultural products would had to pay more for that import; there was a special decision taken in order ,to some extent, aliviate the results of increased prices for agricultural products. Governments would take special care of the situation in countries particularly hard hit by this change in agricultural prices and give them grants to compensate for the fact that trade balance would be negatively affected.

There was a main sector on what was the traditional GATT activities, leaving aside what was services and intelectual porperty rights; that covered textiles because since in the 1960s and early 1970s, textiles had been the subject of a special regulation in GATT through an agreement that is known as "The Multifiber Arrengement." These are all the countries that are part to this particular agreement, and that is all the main exporters and importers in the textile field. The importing countries had the posibility of applying selective restrictions on imports of textiles in a way that is normaly not permited in GATT; were, if you have cuantitative import restrictions, which in principle should not be used in GATT but they are permited in other cirumstances, there should be pride in non discriminatory basis. In the textiles area, the importing countries had the posibility of fixing discriminatory selective cuotas for imports of textiles from certain countries, exporting countries. This was an exception from the basic rules of GATT, it cannot attempt to abolish this special textile arrangement.

Both importing and exporting countries were against the textile arrangement because the importing countries had the posibility of regulating imports in a more restrictive way than that could have done in GATT. The traditional exporters that had insured that they got import cuotas in the importing countries based on part performance were on the hold not too disatisfied with the arrangement. The ones that suffered from it, were the new and small exporters of textile products who had great difficulties in getting any cuotas in the importing countries. It was agreed in the Urugauay Round negotiations that the time had come to abolish the special arrangement for textiles and clothing.

The arrangements that were reached in the agricultural area and now in the textiles area meant, in practice, that the two of the most important areas were special restrictive arrangements permited on the GATT, had to disappear as special areas and they would both be subject to the same GATT rules as has applied normaly and particularly to industrial products in the past.

It was also said, as far as GATT was concerned, that time had come to amend the GATT because the GATT text was drafted in 1946-1947 and entered into force in January 1948, the text has since then remain unchanged. There was in the mid 1960s part that dealt with special measures in favor for developing countries, but basically the GATT text had not changed between 1948 and the beginning of the Uruguay Round in 1986. Quite large effort was spent on negotiations to amend and make the GATT text more adecuate with this requirements than the text of 5 years ago. This did not lead to a real change in text of the GATT itself, but there were a number of new agreements on interpretation of different aspects of GATT which for large extent were built on codes that had been negotiated in the Tokyo Round negotiations in 1973-1979.

This codes were all subject to a review and in some cases they were quite considerable changes in the text of this codes in order to take them as an experience to what happened since they were originaly drafted in the 70s. In a more important aspect, this different codes which were not in the 1973-1979 Tokyo Round negotiations were not obligatory. Members of GATT could join them if they wished, but there were no obligations to do so. The number of countries that joined this special codes were very limited, about 20 or 40 countries joined these codes out of more than 100 GATT member countries. This situation has changed because it was agreed at the last stage of the Uruguay Round negotiations that the whole result of the negotiations would be what is called a "single undertake," in other words a government cannot accept parts of the total package and not accept other parts; governments would have either to accept everything that is negotiated or stay outside.

The posibility that existed before of joining certain codes and not joining other has disappeared, with exception for four agreements which are still not obligatory within the Uruguay Round framework; this four agreements are on goverment procurement: the agreement on trade in civil aircrafts and the two agricultural agreements on diary products and meat. This diary agrrements within parenthesis are not very operational agreements, they are essential agreements for the exchange of information on trade in this areas. As far diary products are concerned, they also covered a minimum prize provisions; they do not affect agricultural trade rules in principle, so the two agreements that were accepted are the trade in civil aircrafts which was originaly drafted by a limited number of countries that were main suppliers of civil aircrafts (United States, European Communities, Japan, Canada and Sweden): these ones drafted this agreement from the beginning. This is a very liberal one because it essentialy gives free trade for aircrafts and aircraft parts; this is extended not only between the parts but also to all other countries even if they are not members of this agreement which was an exception from the obligation to accept the agreements covered by the Uruguay Round negotiations. The agreements on government procurement are of other special type.

There is a new agreement on safeguard measures. The GATT contains an Article XIX that says that a particular country can suddenly and unexpectedly, increase imports and cause a serious damage to domestic industry of the country concerned. The country concerned can take exceptional measures which otherwise would not be permitted on the GATT to stop this sudden inflew of imports. The measures could be either in position of cuantitative restrictions or it could be the increase of custom duties, both in bound level without previous negotiations.

This Article XIX forseas that if a Government wants to limit imports in this special safeguard emergency situation, they have to impose these cuantitative restrictions on imports from all members of GATT. Even if it should be cleared that imports that actualy cause problems comes from only or perhaps a few countries, nevertheless, the import restrictions must be imposed from all members of GATT. This had been very controversial because many countries have argued that this is unreasonable and that should create a posibility for governments to introduce selective safeguard measures, in other words, safeguard measures that would only hit the countries that actualy caused the problem.

This, in the other side, has been contested by a number of countries who feel that this would give the posibility for misuse and that according to the main GATT principles means a non discriminatory use. In result of that, in turn, has been that many governments intead of imposing restrictions under the safeguard rules of GATT Article XIX, have used what is called sometimes "voluntary export arrangements". It was agreed as a result in the negotiation that all search voluntary exporter arrangement must be abolish within a four period of to the entering into force of the arrangements in the Uruguay Round results. There is a posibility for a country to maintain one search arrangement according to our own selection into force until 1999, but in principle they must be abolish four years in the entering into force of the Uruguay Round results.

This is called "gray area measures," because they are not explicitely covered be GATT. What GATT deals with, are arrangements between governments, some of this arrangements are actually arrangements between private industries and different countries, and they would not be covered be the GATT rules; GATT rules would cover however all measures taken by governments. There are also some changes to the rules of Article XIX itself in GATT, which essentialy means that in certain circumstances, Goverments had the posibility to impose the measures in a partly non discriminatory manner, in other words the countries are responsable than the other memebers of GATT. That implices on the hold, that in the past there has been no maximun timing for such safeguard measures. There were obvious intended to be temporary, but in some cases they have been mantaining force between the years as safeguard measures, they were quite contrary to the original intension. Now there has been introduced a rule that there cannot be taken force for more than 4 years or, if there should be special certain circumstances 8 years, it would also be subject in a new commitee that would be set up to deal with certain matters.

The next area in the beginning of the Ministerial Meeting at Punta del Este in 1986 was the basis of any new institucional area. The idea was that GATT will continue as central piece and that what one would do would be essentialy to amend the GATT, but not that there should be a need for a completely new organizational trade.

The area of services which said originaly, had been dealt separately in the negotiations, became an integral part of the negotiations as well as intellectual property rights. Against that background was GATT actually not an organization, GATT was just an agreement with an attached secretariat that furthermore was only applied provisionaly to make GATT a proper organization on a permanent basis. GATT would be a part of the new arrangements to GATT which deals with trading goods, services arrangements and arrangements in intellectual property rights.

About 1990, 4 years after the beginning of the negotiations, the European Communities and Canada, independentely of each other, proposed that what should had been agreed in the negotiations was to set up a new organization which they suggested would be called the "World Trade Organization" which should be responsible for servicing the various arrangements and agreements that would result from the Uruguay Round. The idea was that the agreement on this new organization should not itself contain any rules of substance, but just organizational and administrative rules and that the actual operational provisions would be contained in the different agreements of GATT.

In this new agreements, the first proposal that Communities and Canada made, were later much elaborated. In the late 1991 the European Communities, Canada and Mexico together presented other detail proposal for an agreement on this new organization which basically was the text that was finally adopted and is now established in the new World Organization. When Canada and the Communities called this organization, The World Trade Organization and caused inmidiate objections, protests from the The World Tourist Organization in Madrid that they pointed that the abriviations in English of the two organizations would be the same, WTO. It could be changed for Multilateral Trade Organization but it would not mean that much. It was accepted after large meetings in December 1993, when arrangements were made with the World Tourist Organization.

In the new organization the top body would be a Ministerial Conference that would meet every 2 years where Ministers responsible for WTO matters and all member Governments can participate. Between the meetings of the Ministerial Conference, there would be a General Council that would be responsible for day to day operations of the various agreements. Under this General Council, there would be three spacial councils: one for trading goods, in other words corresponding to GATT; one for trading services and one for intellectual property rights. Two of them for the posibility for all member Governments to be represented. In addition to this Ministerial Meeting and the councils, there would be number of committees for special purposes, balance of payment committees to examine the situation problems, budgets committees and a new committee on safeguard measures.

A very controversial issue at the end of the negotiations were the ones that wanted to set up a special committee for enviornmental trade; they were particularly the United Sates and some other industrialized countries in favor and many others against. The result was that there is no reference to certain committee in the text of the agreement, but there is a special decision that establishes the need to set up the committee that would be set up by the new organization but it is not covered by the agreement as such. The new organization would also take over present GATT secretariat, there would be a need to enlagre the secretariat in order to cover all the aspects of the new organization. The secretariar of GATT would be the secretariat of WTO, but the General would not be the same since his resignation at the end of the year. There are three candidates for the new General: one is Salinas from Mexico, the Italian Minister of Trade and the third is the Korean Minister of International Trade.

The new Organization contains a number of special provisions concerning how to take decisions in the new Organization and how to permit exceptions on the rules in special circumstances. In GATT since 1959, in all controversial issues, decisions had been taken in concensions; this has never been formaly established, GATT rules talk about voting but it had been changed in practice since 1959. In the new organization it is formaly established that decisions should be taken by concensions.

A country can be a member of the new Organization in two ways: Governmetns that are part of GATT and had negotiated the additional commitments that are necessary for the organization, this means certain market access commitments which are not covered by the GATT and they must also meet commitments in the service areas. Countries that fullfill this requirements are entilted to be original members of the World Trade Organization, Costa Rica falls in this category. Governments that are not from part of GATT or do not negotiate with this arrangements cannot be original members, but they can negotiate to accesion to the Organization after the entering into force. It is also foreseen that Governments that are entitled to be original, if they should not be in a position to accept the new organization from the very beginning, essentialy because the internal formalities of parliament may not ratify the accession of the country concerned to the World Trade Organization. There is a period of two years were countries could still acceed without further negotiations, but after that two year period, the countries must start again negotiations if they are not been able finally accepted at that time. There are 123 members of GATT and we believe about two thirds of them will join from the beginning and the rest will join later on.

There are two GATTs: one is as exists now from 1947, the other one is the amended GATT that is a part of the World Trade Organization framework. The old GATT will continue in operation for number of years in parallel with the new WTO framework, the new members will join the new GATT and the old GATT would disappear. The entering into force of the new organization is not very clear, but there are some problems for countries in ratification to that date. We hope this difficulties would be overcome and the entering into force would be January 1995, if not, for July next year.

There is an agreement were Governments undertake to apply most favored nation treatment and national treatment in the service area; they would treat foreign service suppliers in the same way as national service suppliers. That is subject to a number of exceptions: one is that the provisions applied to certain which governments specify in a list of commitments that they have negotiated in the course of the negociations. These general commitments are not automaticaly accepted and these areas which governments had taken specific commitments, are listed in a special anex to the service agreement which there is such an anex for every participant. For some countries there are very extensive lists, for others there are minimum lists that only mantain problem taken commitments. There is another posibility for governments to except from the most favored nation treatment in certain service areas wich they have listed in another annex.

Another area which is an essential part for small countries is the dispute settlement. That is, in GATT, a sistem for settlement of dispute between member governments of GATT; what it means is, essentialy if two governments have a trade dispute, could directed covered in a GATT aspect. The two governments should try to settle it bilateraly. If not the complaining country should call for experts to be set up to examine the conflict. This consist of five independant experts who are not government representatives, they are just individual personal experts that examine the case; they come up with a proposal to settle the dispute which they present to the GATT council or the respected committee. As soon as this report has been adopted by the council, the country concerned is obliged to follow the recomendations. GATT cannot force a government to do something that the government concerned is not willing to do, GATT can only take retroactory measures in a Government that has not followed the recomendations. This settlement dispute system have improved very much as a result of the Uruguay Round.

One complain was the slowness of the system but in WTO strict rules had been adopted. Another weakness is that decisions to a council to establish a panel, must be taken by concensions, concequently a country complain against cannot permanently or for a long time block the setting up of a panel be simply not being a part of the concension to setting it up.

To this result was introduced something called "negative unanimety", that means that if a government requests setting up of a panel and it will be set up unless it is a concensious against. The settling applies to adoption of reports that are taken unless there is a concensious against and in practical it means automatic setting up of adoptional panel reports and authorization to ones which make the whole system much more efficiently. The "appeals board" is, that if a government thinks that the panel report that goes against it is not correct, the country can appeal to this appeals board that would be set up, and would look again at the legal aspects of the case. This appeal board will be composed of seven eminent international lawyers that have not been appointed yet, but the idea is that there should be a very highly respective persons. The actual body that will authorize setting up all panels and recieve the reports, will be a new body: the "Dispute Settlement Body". This is refered to the general council that would meet in a special session to talk about dispute settlement. The Dipute Settlement Mecanism is very important to small countries because for example: Costa Rica has a conflict with United States, it is very difficult for such a country to make their own views prevail in a conflict with a large country. If one can foreback on impartial international Dispute Settlement Mecanism, that certainly is a big advantage for smaller countries.