I
Economic Implications of the Uruguay Round
Richard Harmsen and Arvind Subramanian 1
he Final Acr of the Uruguay Round was signed in the real gains of the Round. A broader. more qualitative T Marrakesb in April1994, bringing to a conclusion assessment or the impact of trade liberalization is pro lhe eighth and most ambitious set of multilateral trade vided below. negotiations. One hundred and twenty-five countries participated in the Round, which will reduce tariff and Tariffs on Industrial Products nontariff barriers to trade in goods, strengthen trade rules and extend multilateral rules to new areas The Uruguay Round agreement will result in signifi services and intellectual property-and establish the cant red uctions in the level of bound import tariffs on World Trade Organization. Developing countries par industrial products and an increase in the coverage of ticipated more actively in lhe negotiations than hitherto bindings. and will be more fully integrated into the multilateral trading system after the Round. Thjs paper investigates Industrial Countries the economic implications of these different aspects of Under the Round. industrial countries will reduce the Uruguay Round on industrial, developing. and tran import-weighted average bound tariffs on indur;trial sition economics, based on information available at the products4 from 6 percent to 3.6 percent in equal annual time of preparation of the paper. A quick reference installments over a five-year implementation period guide to the Round provides a synopsis of the main re sults (Appendix I) and should be read in conjunction (with some exceptions)5 (Table I). However, as applied with individual sections below. rates arc lower than bound rates in the base period for many industrial countries. the fanner provide a better basis to measure actual liberalization; taking applied Trade Liberalization rates as a point of departure, import-weighted average tariffs on industrial import� will decline from 5.0 per A number of studies have estimated the implications cent to 3.6 percent.6 of the Uruguay Round agreement for global income and A closer look at lhe structure of tariff reductions b] trade.l Almost all predated the conclusion of the Round groups or industrial products reveals that these have been and were, in general, based on assumptions about the uneven across sectors (Table 2). The highest proportio likely outcomes with respect to reductions in tariffs on nate cuts, ranging from about 60 percent to 70 percent industrial and agricultural products, rather than the final (measured in tem1s of bound rates), have been made in results. Also, estimates of price effects of trade liberaliz sectors where tariff levels were already modest (wood, ation are confined to the agricultural sector and therefore very partial. Calculations of overall terms of trade ef paper. pulp, and furniture: metals: and nonelectric ma fect'>, including the effects of the liberalization of trade in chinery). More limited cuts, ranging rrom about 20 per industrial products. are not available. cent to25 percent, pertain to sectors that continue to face Annual gains in world income from full implementa structural adjustment difficulties and where current tion are estimated at between $212 billion and $274 bil levels of protection are high (textiles and clothing: lion, of which $78 billion annually would be attributa ble to developing countries.3 These results, however. �Throughoul tim paper. the definilion of indu�trial produch t:x provide only a partial picture and likely underestimate cludcs petroleum. �Thc,e e�limate� diller from 1ho�e of the GATr ( 1994bJ (6.:\per· cent and 3.9 percent. re�pecJively). a� GATI defimlion' mclude IThe principal authors of this paper. South Africa among 1he induMrial country category. For �orne coun· 2See, for example. GATT ( 199;\a), Goldin. Knudl.cn. and van dcr tries and 'ome products. the implemenlation period will differ from Men�brugghe (1993). and Nguyen. Pt:rroni.and Wigle (1993). For a the norm of five year�. critique of quantitative estimates in extsling �tudiel. of the Round, �>As 111 pas1 MTN�. 1he Uruguay Round tariff cuts will have an see IMF(I994). impacl on li\cal revenue� 10 I he ex1ent tha1 applied rate� arc broughl 1See IMF(199�). 1n October 1994.1he GATI' DircctorG�:ncrJIindi· down. E\limatJOn of 1he true budgetary CO\ts need� 10 take ;�ccount cated that the global mcome gams from lhe Uruguay Round could be of 1hc second round effec1s on revenues deriving from the mcomt! in excess of $500 billion. Thb cs1ima1e was based on recent analysis gain' gcnera1ed by the Round. In general, reliance on trade taxes 1 ©International Monetary Fund. Not for Redistribution I ECONOMIC IMPLICATIONS OF THE URUGUAY ROUND Table 1. Industrial Countries: Uruguay Round Tariff Reductions on lndustrial Products by Country ' (In percem} (I) (2) (3) Import-Weighted Import-Weighted Import-Weighted Average Bound Rates, Average Applied Rates, Average Bound Rates, Pre-Uruguay Round Pre-Uruguay Round Post-Uruguay Round Australia 20.1 10.0 12.2 Austria 10.5 9.0 7.1 Canada 9.0 4.9 4.8 European Union 5.7 5.7 3.6 Finland 5.5 5.42 3.8 Iceland 18.2 5.1 11.8 Japan 3.9 1.9 1.7 New Zealand 23.8 20.4 11.9 Norway 3.6 3.6 2.0 Sweden 4.6 3.8 3.1 Switzerland 2.2 2.2 1.5 United States 5.4 5.4 3.5 Industrial countries 6.0 5.0 3.6 Sources: Hoda (1994); and IMFstaffestimates. 1These numbers are based on available GATT and IMF data. In cases where only a pan of tariff lines is bound (columns I and 3), average bound rates are calculated as an average of bound and applied rates. The definition of industrial products excludes petroleum. 2Simple arithmetic mean. transport equipment; and leather, rubber, footwear, and Duty-free imports entering industrial country mar travel products). Measured in absolute terms, however, kets will grow considerably. The average share of trade tariff cuts in some of these industries are sizable; average at zero duty is expected to increase from 20 percent to tariffs in the textiles and clothing sector will decline by 43 percent. The growth of the share of duty-free trade 3.4 percentage points from 15.5percent to 12. 1 percent. wiU be particularly high in sectors such as machinery, Moreover, many products of the highly protected metals, mineral products, wood, pulp, paper, furniture sectors will remain subject to high tariff peaks (defined and chemical products. However, the share of duty-free as tariffs exceeding 15 percent), in particular those of trade in the more protected sectors mentioned above sensitive sectors, such as textiles and clothing. In those will remain relatively low at 4 percent to 21 percent. sectors subject to more fa r-reaching liberalization, such Table 3 shows that tariff escalation remains, but at as wood, pulp, paper, and furniture, tariff peaks have lower levels. For example, the decline in nominal aver been reduced significantly or fully eliminated. age tariffs on imports of finished industrial products Table 2. Industrial Countries: Uruguay Round Ta riff Reductions by Sector (In percellf} Developing Economies Reduction with High Export Interest1 Wood,pulp, furniture,paper 69 Cameroon, Congo, Ghana, Indonesia, Paraguay Metals 62 Bolivia, Cameroon, Sierra Leone, Za'ire, Zimbabwe Nonelectric machinery 60 Mali, Singapore Mineral products 52 Congo, Sierra Leone, Za'ire, Zimbabwe Electric machinery 47 Malaysia, Singapore Chemicals and photographic supplies 45 Jamaica, Namibia, Niger Fish and fish products 26 Belize, Cuba, Ecuador, Honduras Transport equipment 23 Textiles and clothing 22 Bangladesh, Egypi, China, Hong Kong, India, Korea, Morocco, Macau. Pakistan, Sri Lanka, Tunisia Leather, rubber 18 Kenya, Nigeria, Paraguay, Uruguay, Cambodia Source: GATT (1994b). 1This column shows selected developing economies where exports of the mentioned categories of prod ucts exceed 20 percent of total exports. 2 ©International Monetary Fund. Not for Redistribution Trade Liberalization rahle 3. Tariff bcalation on Industrial Countries· lmpnrb frnm De\elnpinJ! Countries (/II f' Tariff� Pre Post Share of Uruguay Uruguay Percentage Each Stage Round Round reduction All industnal products (excluding petroleum) Raw materials 22.0 2.1 0.8 62.0 Semimanufactures 21.0 5.:1 2.8 47.0 Finished products 57.0 9.1 6.2 32.0 Total 100.0 6.8 4.3 37,0 A II tropical industrial products Raw materials 35.0 0.1 0.0 100.0 Sem1rnanufactures 30.0 6.3 3.5 44.0 Finished products 34.0 6.6 2.6 61.0 Total 1 00.0 4.2 1.9 55.0 Natural resource-based products Raw materials 11.0 3.1 2.0 35.0 Semimanufactures 40.0 3.5 2.0 43.0 Finished products 17.0 7.9 5.9 25.0 Total 100.0 4.0 2.7 33.0 Source: GATT( 1994b). from developing countries amounts to 32 percent, applied rates (Table 5).x Also, notwithstanding major somewhat lower than the average tariff reductions on tariff reductions in recent years, the average level of semimanufactures and raw materials (47 percent and tariffs and the number of products subject to tariff peaks 62 percent, respectively). will remain very high in many developing countries. In some countries (e.g., Indonesia, Jamaica, Tunisia, and Uruguay) the differential between bound and applied Develupin� and Trausitiou Cuuutrie,\ rates remains large even after full implementation of the Uruguay Round agreement. There are a few excep Many developing countries continued lheir policies tions, notably India, the Philippines, and Thailand. In of unilateral trade liberalization, including a reduction dia agreed to bind future tariff reductions that it will in tariffs, in lhe past several years.7 However, prior to implement in the context of a comprehensive reform of the Uruguay Round, they were in general reluctanl to its trade regime. bind lower tariffs�r. in many cases, any tariffs at East European countries have also increased the all-under the GATT (Table4). As a result of this fail scope of bindings. from 74 percent of imports currently ure to lock in reforms. a high degree of uncertainty con to 96 percent after the implementation of the agreement tinued to exist about future tariff policies in developing (Table 4). Further, East European countries will in gen countries. This situation will improve considerably eral reduce lheir applied tariffs (Table 6). An exception with lhe implementation of lhe Uruguay Round agree is Romania, where applied tariffs are considerably ment, as many developing countries have undertaken to lower than the bindings under the Round. bind all or a large pan of their tariff lines. The coverage The impact of the tariff cuts for developing coun of bindings on industrial products will increase from 14 tries' access to industrial country markets is mixed. De percent to61 percent of imports. A number of countries veloping and transition countries that are likely to gain agreed to increase the coverage of tariff bindings from are those whose exports are heavily biased toward quite low levels to 100 percent (e.g., Argentina. Brazil. products where tariff cuts are large. The group of ex Colombia, Jamaica, and Uruguay). porters that will benefit from high proportionate cuts in The increased coverage of bindings will result in in tariffs on metals, nonelectric machinery. wood, pulp. creased predictability of developing countries' trade re paper, and furniture includes Cameroon, Ghana, and gimes but will not lead to actual trade liberalization, as the newly bound tariffs generally exceed currently SThu�. the direct budgetary effect� of developing countries' tariff concession� under the Uruguay Round are negligible. In tran�ition 'The discussion m th1s section 1s based on GATT { 1994b) data on economics. the direct effects will vary from zero in Romania to tariffs that cover selected developing countrie�, somewhat more �ignificant levels in Hungary. 3 ©International Monetary Fund. Not for Redistribution I ECONOMIC IMPLICATIONS OF THE URUGUAY ROUND Table 4. Tar· i ff Bindings Industrial Products Argicultural Products Perc ent of Percent of Percem of Percem of tariff I ines imports tariff li nes imports Pre- Post- Pre- Post- Pre- Post- Pre- Post- Uruguay Uruguay Uruguay Uruguay Uruguay Uruguay Uruguay Uruguay Round Round Round Round Round Round Round Round By major country group Industrial countries 78 99 94 99 58 100 81 100 Developing countries 21 73 13 61 18 100 25 100 Transition economies 73 98 74 96 51 100 54 100 By selected regi on North America 99 100 99 100 92 100 96 100 Latin America 38 100 57 100 36 100 74 100 Western Europe 79 82 98 98 45 100 87 100 Central Europe 63 98 68 97 45 100 50 100 Asia 17 68 32 70 17 100 40 100 Source: GATT (1994b). countries of the former Soviet Union, although it tries. Nontariff barriers continue to be significant (cov should be kept in mind, as noted before, that the initial ering around 14 percent of imports) and often take the level of tariffs is already quite low for most of these fonn ofVERs. VERs are often subject to discretionary products. The sizable absolute cuts in tariffs on electric action by the authorities. They reduce competition and machinery and chemicals and photographic supplies predictability of market access for foreign suppliers, will give a boost to exports of countries like Mexico, raise prices, and create rents for domestic industries Malaysia, Singapore, and some Caribbean countries. and foreign suppliers with privileged market access. The cuts in industrial countries' tariffs on tropical in Various studies confirm the considerable negative dustrial products and natural resource-based products effects ofVERs.1° For instance. VERs on Japanese cars (Table 3) will also increase exporr opportunities for a in the 1980s resulted in increases in domestic car prices large number of developing countries and transition of12-20 percent in the United States and the European economies. The group of countries that on the basis of Union (EU).11 Similar conclusions apply to the U.S. its export structure is less well positioned to benefit textiles and clothing sectors and the semiconductor from widened market access includes, for example, Ec trade agreement between Japan and the United States. uador, Honduras, and Kenya. The export earnings of The elimination ofVERs may therefore have consider these countries are heavily dependent on industrial able positive welfare effects in industrial countries. The products where absolute tariff cuts are limited, such as full benefits from the elimination of VERs will be felt leather, rubber, footwear, travel goods, fish. and fish only if they are not replaced by other forms of protec products. tion, such as antidumping measures. Furthermore, as officially sponsoredVERs are ended, there is a risk that Nontariff Barriers on Industrial Products more industry-to-industry VERs may crop up. Because such actions are nontransparent, vigilance is needed to In most industrial countries, the use of" gray area mea ensure that the Uruguay Round agreement is imple sures." such as voluntary export restraims (V ERs) and mented in letter and spirit. import surveillance, against imports of industrial prod ucts had increased significantly dUiing the 1980s to be come the most important category of nontariff barriers. Developing and Transition Countries The Uruguay Round agreement provides for the virtual Given the fact that developing countries and transi elimination of gray area measures within four years after tion economies normallydo not impose gray area mea the entry into force of the agreement.9 Signatories are sures as instruments of trade protection, the elimination allowed to retain one VER until the end of199 9. of these measures under the Uruguay Round agreement will have little or no immediate impact on their own Industrial Countries trade liberalization. The Round will, however, have im plications for access to industrial country markets. In The elimjnation ofVERs may have far-reaching im plications for future trade policies in industrial coun- 10See Goldberg and Ordover (1991) for a summary of these studies. 9VERs in the area of textiles and clothing are subject to the provi liThe EU. which came into effect in 1993, is w;ed in this paper 10 sion of the agreement on textiles and clothing. also refer to the European Community. 4 ©International Monetary Fund. Not for Redistribution Trade Liberalization Table 5. Developing Economies: Uruguay Round Tariff Reductions on Industrial Products• (In perce111) (1) (2) (3) lmpon-Weighted Import-Weighted Import-Weighted Average Bound Rates, Average Applied Rates. Average Bound Rates. Pre-Uruguay Round Pre-Uruguay Round Post-Uruguay Round Argentina 38.2 20.0 30.9 Brazil 40.7 15.0 27.0 Chile 34.9 15.0 24.9 Colombia 44.3 11.0 35.3 Costa Rica 54.9 24.02 44.1 El Salvador 34.5 17.82 30.6 Hong Kong 0.0 0.0 0.0 India 71.4 54.0 32.4 Indonesia 20.4 20.4 36.9 Jamaica 16.5 13.6 50.0 Korea 18.0 7.9 8.3 Macau 0.0 0.0 0.0 Malaysia 10.0 9.1 9.1 Mexico 46.1 13.02 33.7 Peru 34.8 15.3 29.4 Philippines 23.9 23.9 22.5 Singapore 0.4 0.4 5.1 Sri Lanka 28.6 25.1 28.1 Thailand 35.8 35.8 28.1 Tunisia 28.3 27.02 40.2 Turkey 25.1 9.72 22.3 Uruguay 20.9 17.0 30.9 Venezuela 50.0 12.0 31.1 Sources: Hod a (1994): and IMF staff estimates. I See Table 1. footnote I. In some cases. column 3 shows higher rates than column I. This is due to the fact that these figures are calculated as averages of bound and applied rates for unbound items and that the coverage of bindings has been expanded at higher levels than applied rates. 2Simple arithmetic mean. 1992, nearly one tenth of developing countries' exports multilateral trading system. The agreed reductions in to industrial countries were covered by gray area mea domestic market supports and export subsidization sures. Fish and fish products are the group of goods (Appendix I) will mitigate distortions in world markets most often hit by restrictions; nearly half of these ex and increase export opportunities for more efficient ports were subject to gray area measures. Other sectors producers. where gray area measures against exports from devel oping and transition countries are highly significant in clude footwear, iron and steel, consumer electronics, Industrial Countries textiles and clothing, and agriculture (the latter two cat Given the significant cost of agricultural subsidiza egories of products are discussed below). The elimina tion in most industrial countries, the welfare gains from tion of gray area measures by industrial countries will liberalization are considerable. Goldin, Knudsen, and increase export opportunities for developing countries. van der Mensbrugghe (1993), for instance, estimated Low and Yeats (1994) estimate that the average trade the positive impact on GOP of liberalization in line coverage ratio of nontariff measures (NTMs), includ with the Draft Final Act of the Uruguay Round at $57 ing quantitative restrictions (QRs) and restrictions un billion for the EU. $16 billion for Japan, $12 billion for der the Multifiber Arrangement (MFA), against im the United States. $9 billion for the European Free ports from developing countries will decline from 18.0 Trade Association (EFTA), and about $2 billion for percent at present to 4.2 percent to 5.5 percent after the Canada and Australia and New Zealand (1985 prices). implementation of the Round. Nguyen, Penoni, and Wigle (1993) come to roughly comparable numbers.12 Agriculture An outstanding achievement of the Uruguay Round 12for a discussion of these studies. see IMF (1994). Note that the was the integration of the agricultural sector into the studies may overestimate the magniwde of actual liberalization un- 5 ©International Monetary Fund. Not for Redistribution I ECONOMIC IMPLICATIONS OF THE URUGUAY ROUND Table 6. Transition Economies: Uruguay Round Tariff Reduction!) on Industrial Products1 (In p;•n·em) Import-Weighted Import-Weighted hnpon-Weighted Average Bound Average Applied Average Bound Rates. Pre Rates. Pre Rates, Post Uruguay Round UruguayRound UruguayRound Czech Republic 4.9 5.72 3.R Hungary 9.6 11.02 6.9 Poland 16.0 11.6� 9.9 Romama I 1.8 II.!! 33.9 Slova� Republic 4.9 5.72.• 3.R Sources: Hoda (1994); and I MF�taffestimates. 1See Table I, footnote I. 2Simple average of MFN statutory rates. These averages typiCally differ from import-weighted averages. which explains that average applied rates exceed the pre-Uruguay Round bound rates. 3Excluding the 6 percem import �urcharge in Poland and 10 percent import >urchargc in the Slovak Republic. In the EU. the costs and distortionary effects of the ports (especially grains and animal products) are ex EU's Common Agricultural Policy (CAP) had already pected to increase by $1.6 billion to $4.7 billion in induced EU members to agree on the 1992 CAP reform. 2000.15 The reform provides for a phased shift away from sub The main implications for the Japanese agricultural sidization of production to direct payments to farmers. sector result from commitments on market access for and significant reductions in guaranteed prices for ce rice. Japan will provide minimum access to the domes reals and beef to be completed in lhe marketing year tic rice market equivalent to 4 percent of domestic con 1995/96. Scenarios on the future development of agri sumption (about400,000 metric tons) in lhe first year of cultural production in the EU made by the European implementation (1995). rising to 8 percent of domestic Commission show a significant decline in output of ce consumption at the end of the six-year period of imple reals during the 1990s as a result of the CAP reform.t� mentation (2000). The Round's provisions on domestic If events prove that the CAP reform is insufficient to supports and expo1t subsidies arc not expected to have produce lhe outcome required by the Uruguay Round consequences for Japanese agricultural policies. Japan agreement, further measures will be needed. had already achieved the Round's target on domestic The implications of the agreement for agricultural supports by 1992 through cuts in domestic prices and a policies in the United States seem to be less far production limitation program since 1986. Also, Japan reaching. The commitment to reduce trade-distorting does not provide any export subsidies for agriculture. domestic supports is expected to have rather limited consequences, because supports for a number of com Developing and Transition Countries modities have already been reduced in recent years. Re ductions in domestjc intervention prices likely will not Developing and transition countries made an impor exceed I percent a year during the Uruguay Round im tant contribution to the security of market access by plementation period.14 The commitment to reduce ex binding lOO percent of agricultural product tariff lines. port subsidies will have consequences for U.S. exports However. as a result of the high level of bound tariffs. of subsidized commodities (including those under the the direct impact of the Uruguay Round agreement on Export Enhancement Program), which are expected to access to agricultural markets in developing countries decrease from baseline program levels by over $500 is expected to remain limited in the short run. At the million a year by the end of the implementation period same time. a number of food-exporting developing and and beyond. On the other hand, U.S. agricultural ex- transition economies stand to gain from higher prices and lower subsidies in industrial countries, such as the members of the Cairns Group,16 sugar producers (e.g., der the Round for three reasons. First. the flexibility allowed in the Cuba, Brazil, Dominican Republic, Thailand), and East process of '·tanffication •· of existing QRs may result in higher than European countries (e.g., Bulgaria and Poland). Fur actual base tariff rates. implying less liberalization; second. the base tariffs in some major importing countries are also high because ther, a large number or developing and transition coun world pn ces were generally depressed during the base period tries with potentially strong agricultural sectors (e.g., (1986-88); and third, the exemption from the required subsidy cuts of support, which is not entirely decoupled from production. would re 1�Scc USDA(1994). �ull in less liberalization than assumed in the studies. tbThe 13Commission of the European Communities ( 1993a). Cairn� Group compri�e� Australia. Argentina, Brat.il,Can '4See Advisory Committee on Trade Policy and Negotiation� ada. Chile, Colombia, Fiji. Hungary.Indonesia, Malaysia, New Zea· (1994). land. the Philippines. Thailand, and Uruguay. 6 ©International Monetary Fund. Not for Redistribution Trade Liberalization China, Kenya. Mexico, South Africa) may benefit from of basic foodo,tuffs i-, provided to least-developed and a more liberaliLed and market-oriented environment if net food-importing developing countries in fuJJy grant they succeed in implementing the needed structural ad form and/or on appropriate concessional terms... ·· '9 justment measures with a view to developing domestic production capacities. The world market price effects of the expected de Textiles and Clothin� crease in supply of temperate zone product<; as a result of agricultural reforms in industrial countries have been Data on world trade in textiles and clothing are pre the subject of various quantitative studies.17 Although sented in Tables 7 and 8. The Round's agreement will the magnitudes of the estimated price effects differ con have important effects on these sectors, which have siderably. most studies show relative price increases for hitherto not been covered by important GAITrules. a limited number of heavily protected commodities, no tably wheat, rice. meat, dairy products. and sugar. Bran dao and Martin (1993), for instance, show that price in Industrial Countries creases for these products as a result of reduced protection under the agreement could reach 4-10 per Notwithstanding the continued prevalence of high cent over the medium term. tariffs and t '7See Brandaoand Manm (1993). t'IScc GAll (1994a), p. 395. IX Their net re,uh lor ,ub-Saharan Alncan countries i' 7ero. 2uscc GATT( 1994a), p. 95. 7 ©International Monetary Fund. Not for Redistribution I ECONOMIC IMPLICATIONS OF THE URUGUAY ROUND Table 7. Exports of Te xtiles and Clothing (In perce/11 of ow11 exports ) Textiles and Te xtiles Clothing Clothing 1980 1992 1980 1992 1980 1992 World 2.7 3.2 2.0 3.6 4.7 6.8 Industrial coumries Portugal 13.0 7.9 13.6 22.0 26.6 29.9 Italy 5.3 5.7 5.9 6.9 11.2 12.6 Austria 6.1 4.6 3.3 2.9 9.4 7.5 Belgium-Luxembourg 5.5 5.3 1.5 1.9 7.0 7.2 Germany 3.3 3.2 1.5 1.9 4.8 5.1 France 3.0 2.7 2.0 2.2 5.0 4.9 Switzerland 5.1 3.5 1.2 1.0 6.3 4.5 United Kingdom 2.8 2.3 1.7 1.9 4.5 4.2 Netherlands 3.1 2.1 1.2 1.9 4.3 4.0 Spain 3.4 2.5 1.5 1.1 4.9 3.6 Japan 3.9 2.1 0.4 0.2 4.3 2.3 United States 1.7 1.3 0.6 0.9 2.3 2.2 Developing economies Macau 19.2 9.4 78.4 67.8 97.6 77.2 Pakistan 33.5 49.5 3.9 19.9 37.4 69.4 Bangladesh 52.2 15.4 0.2 51.5 52.4 66.9 Mauritius' .17.0 51.1 17.0 51.1. Turkey 11.8 11.0 4.5 28.5 16.3 39.5 Tunisia1 15.4 36.6 15.4 36.6 Chi.na 14.0 10.1 8.9 19.7 22.9 29.8 Hong Kong 9.0 9.2 25.2 16.8 34.2 26.0 Morocco 4.9 4.4 4.4 20. 1 9.3 24.5 Indonesia 0.2 9.7 0.4 10.8 0.6 20.5 Korea 12.6 10.7 16.8 8.8 29.4 19.5 India 133 14.32 6.9 15.9 20.2 30.22 Thailand 5.1 3.8 4.1 11.7 9.2 15.5 Uruguay 4.1 4.7 11.4 10.4 15.5 15.1 Taiwan Province of China 9.0 9.3 12.3 5.1 21.3 14.4 Colombia 3.4 2.5 3.0 6.4 6.4 8.9 Malaysia 1.2 1.4 1.2 4.6 2.4 6.0 Singapore 1.9 1.7 2.2 2.9 4.1 4.6 Brazil 3.3 2.8 0.7 1.0 4.0 3.8 Source: GATT ( 1993c). •Data on textiles are not available; total refers to clothing only. 2The number for textiles refers to 1991. Developing and Transition Countries the existence of binding quota restraints on some countries has probably led to the relocation of produc GATT (1 993a) notes that developing countries' ex tion toward less quota-restricted countries. Eliminat ports to major countries of the Organization for Eco ing MFA restrictions may lead to production being nomic Cooperation and Development (OECD) could concentrated in more efficient producers (e.g., China increase by 82 percent for textiles and 93 percent for andViet Nam) or new locations. Second, although re clothing over the ten-year implementation period of the straints under the MFA apply to most developing Uruguay Round agreement on textiles and clothing. A countries, some exporters currently enjoy preferential major part of the gains will come at the end of the pe access to specific markets (e.g., Morocco, Tunisia, riod. Trela and Whalley (1990) estimate that the re and Mexico). Eliminating the MFA may erode their moval of protection in Canada, the EU, and the United relative competitive position in these markets, but it States would gain around $8 billion (in 1986 prices) for may expand their trading opportunities in other mar the 34 developing countries included in their study on kets previously restricted. Third, several exporting the assumption of elimination of tariffs and quotas. economies have been able to maintain market shares Abolishing the MFA will also have important effects due to the rigidities of the quota system, notwithstand on specific groups of developing countries. These ef ing declining competitiveness (e.g., Hong Kong and fects may work in opposite directions for individual Korea). When the MFA is phased out, these econ producers and are, in general, hard to measure. First, omies may experience a gradual weakening of their 8 ©International Monetary Fund. Not for Redistribution New Areas Table 8. Leading Exporters and Importers of Textiles and Clothing (Value c.if. in !Jilliom of U.S. dollars: share: in percelll) Te xtiles Clothing Share in world Share in world Value imports/exports Value imports/exports 1992 1980 1992 1992 1980 1992 Exporters Germany 13.9 11.4 11.9 8.4 7.1 6.4 Italy 10.2 7.6 8.7 12.2 11.3 9.4 France 6.3 6.2 5.4 5.3 5.7 4.0 United States 5.9 6.8 5.0 4.2 3.1 3.2 United Kingdom 4.3 5.7 3.7 3.7 4.6 2.8 Netherlands 3.0 4.1 2.5 2.7 2.2 2.1 Hong Kong 11.0 20. 1 Domestic 2.2 1.7 1.9 1 0.0 1 1 .5 7.6 Re-ex pons 1 8.8 10.1 China2 8.6 4.6 7.3 16.7 4.0 12.8 Korea 8.2 4.0 7.0 6.8 7.3 5.2 Taiwan Province of China 7.6 3.2 6.5 4.1 6.0 3. 1 Indonesia 2.8 0.1 2.4 3.2 0.2 2.4 Importers Germany 12.4 11.9 10.1 24.8 1 9.5 18.1 United State� 8.2 4.4 6.7 33.0 16.3 24.0 France 7.5 7.1 6.1 9.8 6.2 7.1 United Kingdom 6.9 6.2 5.7 7.9 6.7 5.7 Italy 5.6 4.5 4.6 4.3 1.9 3.1 Japan 4.2 2.9 3.4 I 1.2 3.6 8.1 etherlands 3.6 3.9 3.0 5.8 6.7 4.2 Belgium-Luxembourg 3.6 4.0 2.9 4.2 4.3 3.0 Spain 2.5 0.6 2.0 3.2 0.4 2.3 Canada3 2.5 2.2 2.0 2.4 1.7 1 .8 Hong Kong 13.1 10.3 Retained imports4 4.3 3.6 3.5 0.3 0.9 0.2 Source: GATT ( J993c). 1World trade figures including re-exports are not available. 21ncludes trade through processing zones. lJmports f.o.b. 4Rctained importsare defined as imports less re-exports. market positjons as a result of increased competition (GATS), therefore, represents an important achieve from more efficient producers. ment of the Uruguay Round. By setting up a muiU Iateral framework based on nondiscrimination and transparency, and by instituting a forum for negotia New Areas tions of market access among participant countries, the GATS has extended the reach of multilateral rules and Trade in Services disciplines to the services sector, and will thus also pro International transactions in services have become vide a stimulus to the world economy by fostering lib increasingly important in both industrial and develop eralization of trade in services.22 ing countries over the last few decades. During the pe riod 1982-92, world exports of services grew at an an nual average rate of 9.5 percent, compared with 7.1 22Libcralization of trade in services takes place through negoti· percent for merchandise exports. As a result, the share ated market access and national Lreatment for each of the four modes of services in total exports of goods and nonfactor ser of supplying services defined in the GATS (Article 1). namely. (I) cross-border supply (the user receives the service from a provider vices increased from 17.7 percent in 1982 to 21.1 per locaLed in another country); (2) consumption abroad (the user con 1 cent in 1992.2 sumes the service outside his country of residence); (3) commercial The General Agreement on Trade in Services presence (the service provider establishes a fac ility in the user·s country); and (4) movement of natural persons (the service provider needs the temporary presence of nonresidenl natural persons in the 21 OECD (1993). user's country). 9 ©International Monetary Fund. Not for Redistribution I ECONOMIC IMPLICATIONS OF THE URUGUAY ROUND Box 1. The Multifiber Arrangement The textiles and clothing sectors have an important role The MFA's stated objectives were to achieve the expan in world trade, accounting in 1992, respectively, for 3.2 sion and progressive liberalization of world trade in tex percent and 3.6 percent of world merchandise exports. tile products, while at the same time avoiding disruptive For several countries, mostly in the developing world, ex effects in individual markets and lines of production. Rep pons of textiles and clothing represent a large share in resenting a major departure from the GAIT's principle of total merchandise exports (Table 7). In industrial and de nondiscrimination, the MFA envisaged essentially two veloping countries, imports and exports of textHes in types of quantity restrictions: (I) those under its Article 3, creased in 1990-92, while output generally stagnated or which permits bilateral or unilateral restrictions as a result declined. 1n industrial countries, employment in the sec of market disruption, and (2) those under Article 4, which tors declined: in the United States it fell by about I percent provides for bilateral agreements to eliminate the risks of between 1986 and 1992, and in the European Union it con market disruptions. The MFA has "flexibility" provisions tracted by about 14 percent between 1988 and 1992.1 that permit switching between individual quota categories ln many developing countries, the share of clothing and (swing), carryover of unutilized quota to the fo llowing textiles in total merchanruse exports has changed dramati year, or borrowing (carry forward) of next year's quota. cally during the past decade (Table 8). While existing Through the years, the number of participating countries trade restrictions may have contributed to the observed and the product coverage of the Arrangement has ex trends, these long-term fluctuations point to the impor panded. Although quotas generally have been increased tance of the textile and clotlling sectors in export-oriented annually by I percent for wool products and 6 percent for development strategies. ln some countries (e.g .. Ban aU other products, major suppliers are frequently subject gladesh, China, India, lndonesia, Mauritius, Morocco, to l.ower growth limits. According to the GATT Textile and Pakistan), the expansion of the textile and clothing Surveillance Body (TSB), the number of bilateral re sectors partly reflects industrialization and diversification straint agreements on expons of textiles and clothing ap away from resource-based exports. In other economies plied under the cover of the MFA was 99 as of July 1992.2 (e.g., Hong Kong, Korea, and Taiwan Province of China). Within the MFA framework, some participating coun the declining relative importance of the textiles and tries (e.g., Austria, Finland, Japan, and Switzerland) im clothing sectors suggests that economies that embraced an pose few restraints, but others (e.g., the European Union export-oriented trade strategy during the 1960s and the and the United States) have been more restrictive. MFA 1970s have been able during the past decade to move to restraints continue to apply almost exclusively to exports ward more technologically advanced sectors, reaping the from developing countries, as has been the case through gains of rapid physical and human capital accumulation. out the life of the Arrangement. Some countries not par Trade in textiles and clothing has been largely regu ticipating in the MFA (e.g., Sweden) maintain a very lib lated by international agreements over the past thirty-four eral trade regime in textile products. In others, several years. Following the Short-Term (1961-62) and the Long additional constraints on trade are imposed outside the Term (1962-73) Arrangements, the Multifiber Arrange MFA framework, often in nontransparent ways, both by ment (MFA) came into existence. The original MFA industrial and developing countries. Such constraints in (1974-78) was fo llowed by MFA II (1978-81), MFA ill clude bilateral restraint agreements, quotas applied on (1982-86) and MFA IV (1986-JuJy 1991). MFA IV was imports from specific origins or non-MFA products subsequenUy extended three times: first to December (e.g., silk), and less formal arrangements between govern 1992, then to December 1993, and recently to December ments, between government and industry, and between 1994. MFA participants-44 countries in July 1993- industries. accounted in 1992 for some 80 percent of world textiles and clothing exports (excluding iotra-EU rrade). •see Hutbauer and Elliott (1994), and Commission of the 2GATI (1993b). Between July 1992 and July 1993, the TSB EuropeanCo mmunities (1993b). was notiued of five additional new agreements. Industrial countries, the major world suppliers of ser significant stake in liberalization of trade in services. 23 vices (Table 9), are expected £O gain significantly from Indeed, this is reflected by the large number of develop an opening up of markets in this sector. Developing ing countries (77) that have submitted schedules of countries, however, over the period 1970-92, have in commitments in services underthe Uruguay Round . creased their share of exports of services from II per The composition of trade in services has changed cent to about 15 percent. In addition, revealed compara dramatically over the last two decades: the share of to tive advantage indices suggest that a number of tal exports of the traditional services consisting of developing countries are relatively specialized in ser vices and, therefore, developing countries will have a 21See Hockman ( 1994). 10 ©International Monetary Fund. Not for Redistribution New Areas Table 9. Leading E�por·ter� and Importer-. in \\'orld rradc in Commercial Sen icc'\, 1992 t £)(p0rtl> 1mpons Percentage Percentage �hare� in �hares in world export� world import� Industrial countries Industrial countries United States 16.2 Germany 11.3 France 10.2 United States 10.9 ltaly 6.5 Japan 9.9 Germany 6.4 France 8.5 United Kingdom 5.5 Italy 6.R Japan 5.0 United Kingdom 4.8 Netherlands 3.6 Netherlands 3.6 Spain 3.6 Belgium-Luxembourg 3.3 Belgium-Luxembourg 3.5 Canada 2.8 Austria 3.0 Spam 2.2 Developing economies Developing econom ic� Singapore 1.8 Taiwan Province of Ch ina 1.9 Hong Kong 1.7 Korea 1.5 Korea 1.3 Saudi Arabia 1.5 Mexico 1.3 Hong Kong 1.2 Taiwan Province of China 1.1 Mexico 1.2 China 0.9 Singapore 1.1 Thailand 0.9 Thailand 1.0 Turkey 0.& China 0.9 Egypt 0.7 Malaysia 0.8 Philippines 0.7 Brazil 0.7 Transition economics Transition economic� Poland 0.5 Poland 0.4 Czech and Slovak Federal Republic, former 0.3 Hungary 0.3 Memorandum (in hi/lions of Memorandum (in hi/lions of U.S. dollars) U.S. dollar.�) World Services Exports 1.000 World Services [mpons 988 Source: GATT { 1993c). 1This table presents the top ten leading exporters and tlte top ten leading Importers among industrial countries and among developing economies. Some industrial countries not shown in this table actually have higher trade shares than some developing economic� mentioned in the table. transport and travel has declined in favor of financial ments. By and large, the existing regime for financial services, nonmerchandise insurance, cultural services services in these three regions ismade applicable to all (films and videos), consulting, and other professional countries, although in some cases commitments have services. In the case of financial services, there has been made to increase market access. Japan, for exam been an increased integration of world markets, reflect ple, has offered to gradually O[pen up its pension fund ing, inter alia, the continued internationalization of management to foreign firms, and the EU has agreed business activities through the expansion of multina to make the benefits of the Single Market available to tional corporations, financial innovations, such as the all fore ign financial institutions. The United States, development of complex hedging techniques, rapid however, because it considered liberalization offers progress in telecommunications and information tech by some countries insufficient, decided to limit lhe nologies, and reduced exchange and capital controls in extent of its liberalization commitments for the time both developing and industrial countries. being to a number of basic financial services. Further Industrial and transition countries have included al access will be contingent on other countries providing most all services sectors in their commitments. The better access to their financial markets. Negotiations sectoral coverage of commitments made by developing are still continuing with a view to improving offers countries is in general more limited. and are scheduled to be completed within six months Commitments on financial services made by the after entry into force of the WTO. Appendix li United States, the EU, and Japan cover the banking and contains a list of limitations on market access and na securities sectors and insurance services. No financial tional treatment in the scheduks on financial services subsectors are exempted fTom lhe scope of the commit- for selected industrial and developing countries 11 ©International Monetary Fund. Not for Redistribution I ECONOMIC IMPLICATIONS OF THE URUGUAY ROUND (Brazil. the EU, India. Korea, Japan, and the United Ta ble 10. Major Industrial Countrie�' Intellectual States). Prope rty Income from Abroad' 1/11 /uflimt.\ l .S dollor1) 1970 1980 1990 1991 Intellectual Property Righb MaJOr induMrial countric\ Given the growing importance of intellectual Credit 1.9 8.4 28.1 30.0 property-based industries in international transactions, Debit 1.6 7.1 23.1 24.1 Net 0.3 u 5.0 5.9 the agreement on intellectual property rights (TRIPs) can be considered as one of the most important achieve Uniled States Credit u 5.0 17.1 18.5 ments of the Uruguay Round. Dehit 0.2 0.7 3.:2 4.2 Net t.l 4.3 13.9 t4.3 I ntclleciUal propeny llow� a\ Industrial Countries a percentage of total services trade Between 1970 and 1991, intellectual property in Major industrial countric� 4.4 3.X 5.6 5.8 come from abroad for seven major industrial countries United State� 5.7 6.9 8.3 8.X grew from $1.9 billion to $30.0 billion (Table 10). In Source: OECD ( t993). the short run, producers of goods based on intellectual 'Canada. France, Gcm1any. llaly. Japan, Un11ed Kingdom. and the property will benefit through increased sales and United Slates. profits at the expense of competitors hitherto supply ing the market through imitation, and through higher profits as they assert their market position mainly in welfare.24 These adverse static effects could in rime be developing countries. ln the long run. higher levels of offset by possible dynamic effects in the form of higher intellectual property protection may serve to increase research and development induced by stronger patent global levels of innovation. creativity, and research protection and new incentives for the development of and development, thereby lowering production costs specified pharmaceutical prod ucts (if developing coun and increasing product variety. benefiting coniourner� tries· markets are sufficientlylarge to induce higher re worldwide. search and development), which would reduce long The major beneficiaries of the TRIPs agreement will run costs and increase product variety. Also. the riming be in the high technology industry. the entertainment of the implementation of the TRIPs agreement is such sector, and the luxury goods industry. High technology that its fuJJ economic impact on the pharmaceutical sec industries, such as the pharmaceutical, chemical, and tor will only be fe lt 20 years after the WTO enters into information technology industries. the prime movers of fo rce. Further, developing countries will retain the right the TRIPs initiative, will benefit from better protection to use remedial measures in the event that the patent of technology through patent, trade secret, copyright, owner charges very high prices. Higher intellectual and computer ··chips'· protection. ln the entertainment property protection would benefit those developing sector, producers of sound and video recordings, mo countries that are important exporters of copyright tion pictures, and publishing will benefit from im based audiovisual products and may serve to attract for proved copyright protection. Finally. producers of lux eign investment and technology. ury brand products-perfumes. T- shins. watches-will in general benefit from better enforcement of their trademark against counterfeiting by imitators. Investment Measures Trade-related investment measures (TRIMs) refer to measures requiring or inducing fo reign enterprise� to Developing and Transition Countries meet certain yardsticks of performance. The most com monly used TRlMs are local content requirement!>, Developing countries, as net importers of technol when a firm must ensure that local inputs are used for a ogy. were initially reluctant to agree to higher level:, of specified amount or share of production: export perfor intellectual property protection because of concems mance req uirements. when a finn must ensure that a about its potentially adverse impact on prices and wel specified amount or share of local production be ex fare. Concerns were most acute in the pharmaceuticals ported; and trade (foreign exchange) balancing require- sector because paten! protection has a more decisive impact on market outcomes in this sector. The economic impact of higher patent protection in 2·1 Sec Chin and Grossman ( 1990). Estimate\ for the annual \lillie pharmaceuticab has static and dynamic dimensions. welfare losses for some developmg countries vary from $67 million to $387 million {Argentina). $220 million 10 $1.3 billion (India), For a net importer, the static effects are likely to be ad $t53 million to $879 million (Brazil). and $75 million to $428 mil verse because patent protection makes the market less lion {MexiCO). depending on the assumptions (see Subramanian competitive, thereby increasing prices and reducing (forthcoming) and Maskus and Konan ( t994}). 12 ©International Monetary Fund. Not for Redistribution Strengthened Rules and Institutions ments, when a finn must ensure that imports arc not lie notice for hearings. The implications or the elimina greater than a specified proportion of exports. The tion of VERs are discussed above. The provisions on Uruguay Round TRIMs agreement prohibits the use of the usc of safeguards may both strengthen and weaken local content requirements and trade and fo reign ex discipline in this area. The relatively strict conditions of change balancing requirements. but not export perfor GATT Article XIX had discouraged use of the safe mance requirements. guards clause and had induced resort to gray area mea TRIMs are employed more commonly by develop sures such as VERs. To reduce such disincentives. the ing than industrial or transition countries. A review of Uruguay Round modified some aspects of the safe trade regimes of selected developing countries de guard clause. Specifically, exporting countries a ff ected scribed in the GATT's Trade Policy Review Mecha by a safeguard measure are not allowed to suspend con nism reports shows that several countries employed lo cessions on their side for three years. Also. the new cal content requirements in the period 1991-94.25 The agreement provides for some selectivity, by allowing requirements were most prevalent in the automotive those safeguard measures that take the form of quan sector; specification of the extent of local content var titative restrictions to be imposed only against specific ied from about 25 percent to 70 percent. Studies show a exporting countries. On the other hand, discipline will disparity between the amount of foreign investment be strengthened by the increase in transparency, a theoretically affected by TRIMs and the amount of in stTengthening of rules on the provision of evidence of vestment reported by companies as covered by injury, the sunset clause. and, equally important. the re TRJMs. 26 This is because the application of TRlMs by quirement of progressive liberalization of the measure countries is discretionary and hence negotiable: more if its duration is over one year (see Appendix I). over. TRIMs may often not be binding insofar as they requjre a course of action that the fim1 would otherwise Antidumping Measures pursue. The elimination of TRIMs will have economic ef The Uruguay Round also succeeded in clarifying fects broadly similar to liberalization in other areas of procedural issues and encouraging enhanced transpar trade policy.27 The most frequently used TRIM-local ency in the area of antidumping measures (Appendix I). content requirements-when it is binding serves to The new procedures are designed to enhance the fair raise the costs of production by forcing the use of ness of proceedings. Still uncertain is the extent to higher-cost. locally produced inputs over imported in which the new rules will substantively alter existing puts. For instance, the oil import quota scheme oper practice� and whether the use of antidumping measures ated by the United States in the 1960s and 1970s, which will be appreciably restrained upon implementation of amounted to a local content requirement, cost the con the agreement. Indeed. based on the trend over the la<;t sumers about $5 billion a year. Most of this represented several years in the use of antidumping among tradi a transfer to domestic oil producers. resulting in a net tional industrial country users, and emerging interest in welfare cost of about $1-2 billion.2s Trade and fo reign its use among developing countries, there is a risk that exchange balancing requirements are conceptually an resort to antidumping actions may continue to spread alogous to quantitative restrictions as they have the ef during the 1990s. fect of restricting imports. Subsidies and Countervailing Duties Strengthened Rules and Institutions Under the Uruguay Round agreement on indu!>trial subsidies, actions agrunst subsidies can be taken along The Uruguay Round also clarified or strengthened two tracks (Appendix I): first, they can be counter rules with respect to the usc of specific trade policy in vailed, pur-;uant to national procedures under which the struments, notably safeguards. antidumping. and coun existence of a subsidy. of injury to a domestic industry, tervailing measures. and of a causal link between the two need to be demon strated.2<> The Uruguay Round does not specify which Safeguards sub�idies can be countervailed under national law. al though it does define two kinds of subsidies that may The agreement on safeguards provides for the elim not be countervailed: ··green box" subsidies (see be ination of gray area measures (including VERs). a sun low) and "de minimis'' subsidies (subsidies less than I set clause, and procedural requirements, including pub- percent of the value of the product. and less than 2 per cent in the case of developing countries). By implica :!�These included Banglade�h. Chile. Egypt. Ghana, lndonc�ia. tion, all other subsidies are countervailable pursuant to MeXICO. Nigeria, Peru, Philippme�. Senegal. South Africa. Thai national laws and procedures. land. and Uruguay. 2�>See Evans and Walsh (t994). !<) However. the Uruguay Round also �e•� condition� on the;c n 13 ©International Monetary Fund. Not for Redistribution I ECONOMIC IMPLICATIONS OF THE URUGUAY ROUND The second track is those subsidies governedby mul Round agreement. For example, debt forgiveness was tilateral procedures. In this connection, the Uruguay countervailable under the Tokyo Round and continues Round defines three groups of subsidies: prohibited to be so under the Uruguay Round. ("red box"), actionable ("amber box"), and nonac The improved definitions and dispute settlement tionable subsidies (''green box"). The red box covers procedure may lead to a reduction in trade distortive export subsidies, including currency retention schemes state supports in industrial countries. lt is not clear how and subsidized export credits, and subsidies for the use the exemption of green box subsidies and the longer of domestic over imported goods. The amber box cov implementation periods for developing and transition ers nonprohibited subsidies that cause injury to a do economies will affect future progress in encouraging mestic industry, cause nullification or impaim1ent of reduction in subsidies. ln generaL however, the benefits for other WTO members, or "serious preju strengthening of procedures and transparency with re dice" to the interests of another member. Serious preju spect to countervailing measures as well as the exclu dice arises if the subsidy affects exports to the subsidiz sion of relatively small subsidies from counter ing country or to third country markets, or if it leads to vailability may increase discipline, although much will significant price undercutting or an increase in the depend on the practical application of the agreement. world market share of the subsidizing country. Serious prejudice is presumed to exist in the case of production Other subsidies exceeding 5 percent of the value of a product, subsidies to cover operating losses of an industry or an The Uruguay Round agreement will also lead to a enterprise (other than one-time measures to provide number of institutional changes, including changes time for the development of long-tenn solutions or for with respect to the Trade Policy Review Mechanism social reasons), direct forgiveness of debt, and grants to (TPRM), a strengthening of rules on dispute settlement, cover debt repayment. Such subsidies are therefore vir and the establishment of the World Trade Organization. tually prohibited. The green box covers subsidies that At the conclusion of the Mid-Tem1 Review of the are not specific to (a group of)enterprises, or that pro Uruguay Round in 1989. it was agreed that decisions on vide support for research activities, assistance to disad the work of dispute panels would no longer be depen vantaged regions, and to environmentaJ adaptation. dent on the consent of the parties to the dispute. The (Brazil, the EU, India, Korea, The agreement pro Uruguay Round agreement has further strengthened vides for a number of important exceptions for devel dispute settlement arrangements by eliminating the oping countries and transition economies in terms of right of parties to a dispute to veto the conclusions of actions that can be taken against subsidies granted by the dispute panel and the authorization of the right to them pursuant to multilateral procedures (in other retaliate when a country does not comply with a panel words. these exceptions do not apply to countervailing ruling; this will lend greater automaticity to dispute set measures that can be taken against such subsidies). tlement procedures. It is expected that this change will Least-developed and developing countries with per strengthen the role of WTO panels in international capita GNP of less than $1,000 a year need not elimi trade disputes. It is also important that the agreement nate export subsidies.3D Other developing countries and has limited the scope for unilateraJ action. transition economies need to do so after eight and seven years, respectively. Also, developing countries' sub sidies arising from debt forgiveness in the context of P ..eferences privatization programs are exempt from the presump tion of serious prejudice; transition economies are also The most-favored-nation (MFN) tariff cuts under the exempt, but only for a period of seven years. Uruguay Round will lead to a small erosion in the pref The major difference between the Uruguay Round erence margins that beneficiaries currently enjoy under and Tokyo Round agreements on subsidies are first, the schemes such as the Generalized System of Preferences Round gives a clearer definition of different types of (GSP). Lome Convemion, and the Mediterranean subsidies that are actionable or nonactionable. Second, Agreements (see Box 2); Tables II and 12 present the it clarifies the concept of serious prejudice and thereby value of impotts enjoying preference under these strengthens the disciplines on subsidies. And third, not schemes. This erosion is less than suggested by the withstanding exceptions. the new rules will apply more MFN tariff cuts.3 t The impact of preference erosion broadly to developing countries and transition econ will vary across groups of countries. The major bene- omies (Appendix I). In relation to specifying which subsidies may be countervailed, however, the Uruguay 11 Accord ing to UNCTAD (1994), the reduction in GSP preferen Round agreement is broadly similar to the Tokyo tial margin� in the EU. United States, and Japan would be23 percent. 9 percent. and 15 percent. re�pectively (or about 18 percent on aver age. compared with an average MFN tariff cut of bound rates of 40 30This will not apply if such countries have allained "expon com percent). The differences between the MFN tarif cuts and reduc petitiveness" in particular products. that b. greater than 3.25 percent tion� in preferential margins are due to the product composition of share of world trade for a product in two consecutive years. MFN tariff cuts. 14 ©International Monetary Fund. Not for Redistribution Preferences Box 2. Coverage of Preferences The most important existing preferential schemes are ExportS of the least-developed countries (excluding ACP the GSl>, under wllich preferences are granted by many countries) that received preferences in OECD markets un industrial countries to at least 130 developing countries, der the GSP amounted to $1.0 billion, or about 19 percent the Lome Convention (granted by the EU to certain Afri of these countries' total exportS to OECD markets can, Caribbean, and Pacific (ACP) developing countries), (UNCTAD (1994)). The EU accounted for the largest the Mediterranean Ag.reements (granted by the EU to share of preferential imports (46 percent,or $35.7 billion) North African developing countries), and the Caribbean granted by OECD countries, followed by the United Basin Initiative (granted by the United States to develop States (22 percent or $16.7 biJiion) and Japan (16 percent, ing countries in the Caribbean). Preferential schemes dif or $12.3 billion). fer from regional trading arrangements mainly in that the The major beneficiaries of preferences are the more ad preferences are nonreciprocal. Preferences represent a vanced developing countries. The major beneficiaries in derogation from the GAIT's MFN principle. This deroga each market, listed in order of the magnitude of their ex tion was frrst sanctified by a waiver granted by the Con portS that benefit from preferential treatment, are as fol tracting Parties in 1971, and later made permanent under lows. Ten countries accounted for about 83 percent of the the Enabling Clause of the Tokyo Round in 1979. Other total U.S. imports receiving preferential treatment in 1992 preferential arrangements such as the Caribbean Basin (Mexico, Malaysia, Thailand, Brazil, the Philippines, In Initiative are covered by waivers from GAIT rules. donesia. India, Israel, Ve nezuela, and Argentina). In the The GSP covers a wide range of industrial (excluding EU, ten beneficiaries accounted for 72 percent of imports textiles and clothing in the case of the U.S. scheme) and receiving preferential treatment in 1989 (China, Brazil, agricultural products (excluding some processed agri India, Thailand, Indonesia, Hong Kong, Singapore, cultural products in the case of the EU scheme). There Kuwait, Romania. and Malaysia). The top nine benefici are numerous conditions attached to the granting of pref aries of the Japanese GSP scheme in 1990 were Korea, erences. The Lome Convention grants unrestricted and China, Taiwan Province of China, Brazil. Hong Kong, duty-free access in industrial products, including coal, Thailand, the Pllilippines, Indonesia, and Chile. The top steel, textiles and clothing: ACP countries also benefit three beneficiaries accounted for 50 percent of Japanese from duty reductions and preferential quantitative ac preferential imports. cess on a number of agricultural products. The Mediter The Lome Convention and the Mediterranean Agree ranean Agreements cover a wide range of industrial and ments each provided preferences covering over $9 billion agricultural products. The Caribbean Basin Initiative of EU imports in 1989 (Table 12). Willie smaller than the covers most products with the exception of textiles and GSP in the value of preferential importS affected by pref clotlling. Preferential access takes the form of goods erences. these schemes cover fewer countries (64 and 12 usuaUy being allowed to enter duty free or at lower-than countries, respectively). Under the Lome Convention, MFN rates. preferences are more important in agriculture compared The annual average increase in GSP imports of OECD with industry, as a large amount of imports of industrial countries between 1976 and 1992 was almost twice that of products from ACP countries face zero MFN tariffs . Un total imports from all beneficiaries and about 1.5 times der the Mediterranean Agreements, preferences are more that of imports from all sources. Total OECD imports in important in industrial products as exports of agricultural 1992 from GSP beneficiaries amounted to $426 billion. of products are relatively small. which 71 percent represented dutiable imports (Table II). Preferences under the Caribbean Basin Initiative cov Imports amounting to $77 billion (about 26 percent of du ered $1.5 billion of imports in 1992, or 16 percent of im tiable imports) actually received preferential treatment. ports from beneficiary countries. ficiaries of preferences (in terms of the value of impons aries of the Round because of market opening in agri affected) are the more advanced developing countries culture and textiles.JJ Furthennore, the benefits from under the GSP.J2 Furthennore, effective preferential MFN cuts are Likely to outweigh any losses from pref margins are on average higher for these countries as erence erosion, as preferential exports represent about their exports are weighted in favor of higher value 26 percent of total dutiable exports in OECD markets. added products that face higher MFN tariffs. Accord The African. Caribbean. and Pacific developing ingly, the impact of erosion of preferences due to de countries (ACP) receive preferential treatment affect clining MFN tari ffs is likely to be important for these ing about $10 billion of their expons under the Lome countries. However, the advanced developing countries in Asia and Latin America will also be major benefici- n Advanced developmg countries in any case face the prospect of be•ng graduated out of GSP \Chemes. The European Comm1ssion announced in June 1994 a phaJ.ed graduation of count riel. and se ctors '1The least-developed countries account for about I percent of from preferential tariff treatment based on a combination of per cap imports that received preferential treatment under the GSP. ita GOP and industrial and expon performance at a �ectorallevel. 15 ©International Monetary Fund. Not for Redistribution I ECONOMIC IMPLICATIONS OF THE URUGUAY ROUND Ta ble ll. OECO Imports Under the Generalized System of Preferences (GSP) !In hillums of U.S dollars) GSP Duty-Free lmpon� GSP alo Shareof Total MFN Dutiable Duty-Free Total MFN dutiable Year Import� Import� Import� imports import� 1976 136.5 52.0 10.4 7.6 20.0 1986 237.3 160.8 35.6 15.0 22.1 1990 385.0 259.7 54.3 14.1 20.9 19911 392.2 263.0 64.1 16.3 24.4 1\1922 426.0 302.9 77.4 IR.2 25.6 Sourct:: UNCTAD(I994). 1 Excluding the Czech Republic, Hungal). Poland, and the Slovak Republic undenhe EU scheme. lfor Australia and Canada, the figuresarc for 1991. Table U. Imports Under Preferential Schemes requirement In the agriculture agreement of the Other Than the Generalized System of Uruguay Round to guarantee a certain amount of im· ports as a share of domestic consumption can be met by Preferences providing market access to preference-receiving coun (In billions of U.S. dollars) tries in line with their current market shares. Thus, cur Total Dutiable rent level� of access and the implicit preference for Imports Import� high-cost exporters can be preserved. Finally, owing to Caribbean Bas111 Initiative ( 1992) the phase-in of the tariff cuts. the full impact of prefer All products 9.4 7.3 ence erosion will only be felt five years (industrial Lome Convention C 1989) products) and six years (agricultural products) after the All products 21.3 9.1 entry into force of the WTQ.35 There may. however, be Agricultural 6.5 6.0 a few countries that are overwhelmingly dependent on Industrial 14.1! 3.1 preferences on industrial products and could. lherefore, Mediterranean Agreement!.C 1989) be seriously affected by preference erosion. The impact 16.5 9.2 All products on individual countries will need to be closely mon Agricultural 2.5 1.3 Industrial 14.1 7.9 itored in the context of Fund- and Bank-supported pro grams as lhe Uruguay Round agreement is imple UNCTAD (1994); ( 1993b). Sources: and USITC mented. Mediterranean countries enjoy preferences affecting $9.2 billion of their exports. Industrial prod Convention and the Caribbean Basin Initiative. Al ucts are lhe major beneficiaries of the preferences (Ta lhough smaller in absolute value than preferences re ble 12). While the Uruguay Round would allow for the ceived by the more advanced developing countries, preservation of existing levels of access in agriculture. preferential exports account for a larger share of dutia it would not do so for industrial products36 For this ble exports. The actual effect on these counu·ies is nev reason, the overall impact of preference erosion is ertheless likely to be small for three reasons. First. likely to be more significant for countries under the preferential margins are on average smaller for these Mediterranean Agreements. Even so. this impact will countries because the composition of exports is often be felt gradually over five years after the entry into weighted in favor of commodities that in any case face force of the WTO. low MFN tariffs (Table 13). An 18 percent reduction in From a forward-looking perspective, it is likely that preferential margins would entail very small annual ex preferences will continue to be eroded not only as a re pon losses to sub-Saharan African countries.34 Second, sult of current and post-Uruguay Round multilateral the composition of exports of ACP countries suggests liberalization, but also because of proliferating regional that even this estimate could be overstated. Two thirds trade liberalization initiatives. Reliance on preferences. of the preferences received by ACP countries are in the even where they have static positive effects. is therefore agricultural sector. which take the fonn of guaranteed not a viable long-term strategy for current benefici- quantitative access for exports of ACP countries. The �Sfuture renegotiation of the Lome Convention and the Mediter· 'J Yeat\ ( 1993) e�timates the value of preferences enjoyed by �lib ranean Agreements. a process under way currently. could change Saharan African countries in OECD markets at $5 bilhon. This 1s preference marg111s under those schemes. calculated as the present discounted value of forgone eKports conse 36Howcver. preferential treatment to high-co�t c>-porter� embod· quent to the elimination of all preferences. On a rough calculation, ied in guaranteed quotas may be de facto preserved to some .:xrent in the expon losses consequent ro rhe Uruguay Round would be less textiles and clothing during the transiuon period owmg 10 the back· than 0.3 percent of the value of their exports in 1992. loaded nawrc of I ibcralization in the�e sector\. 16 ©International Monetary Fund. Not for Redistribution Integration Issues Table 13. Sub-Saharan Africa: Preferences for Non-Oil Exports in Industrial Countries• (In perc em) OECD Average European Union United States Japan African Preference African Preference African Preference African Preference ExportingCountry tariff margin2 tariff margin2 tariff margin2 tariff margin2 Angola 0.2 -1.5 0.3 -3.2 0.1 -0.4 1.8 0.0 Botswana 0.3 -2.8 0.1 -2.9 3.5 -1.1 0.0 - 2.1 Cameroon 0.4 -2.5 0.1 -2.8 2.1 -I.I 0.0 0.0 Central African Republic 0.2 -2.2 0.2 -2.3 0.0 - J. J 0.0 0.0 Chad 0.4 -2.7 0.2 -2.9 1.6 0.0 2.5 0.0 Congo 0.1 -1.4 0.0 -2.2 0.3 -0.6 0.0 0.0 Cote d'lvoire 0.7 -3.1 0.3 -3.3 3.3 -2.0 1.2 -0.5 Ethiopia 0.7 -1.3 0.1 -1.9 2.0 0.4 1.5 -1.3 Gabon 0.6 -2.0 0.0 -2.7 2.9 0.7 0.0 0.0 Ghana 1.0 -2.2 0. 1 -3.1 2.6 -0.9 2.3 0.0 Guinea 0.6 -2.3 0.0 -2.9 1.9 -1.0 1.8 -1.9 Kenya 0.5 -3.3 0.2 -3.5 3.1 -2.3 2. 4 -I.I Liberia 0.6 -1.7 0.3 -1.9 2.5 -1.1 0.0 -0.3 Madagascar 0.5 -2.0 0.4 -2.7 0.8 -1.0 0.8 -0.2 Malawi 1.1 -2.4 0.1 -3.5 5.4 -0.6 0.0 -0.1 Mali 0.4 -3.4 0.2 -3.5 3.1 -2.2 0.0 -1.6 Mauritania 1.7 -2.3 0.2 -3.9 1.2 -1.6 3.6 -0.4 Mauritius 1.3 -3.1 0.2 -3.4 6.4 -1.8 4.8 -I.I Niger 0.1 -3.0 0.0 -3.0 3.3 -1.6 0.0 0.0 Nigeria 2.7 -0.9 0.1 -2.6 5.2 0.7 3.7 -0.8 Senegal 0.5 -3.3 0.3 -3.5 4.9 -1.2 3.6 0.1 Sierra Leone 0.5 -3.1 0.0 -4.0 2.3 -0.2 2.6 -0.7 Sudan 0.1 -1.5 0.1 -1.9 0.7 -1.0 0.0 0.0 Swaziland 0.8 -4.4 0.5 -4.9 3.5 -1.9 6.7 -3.0 Ta nzania 0.1 -2.3 0.0 -2.5 0.0 -2.4 1.4 -1.0 Togo 0.3 -2.8 0.2 -2.8 0.2 -2.8 9.8 -0.8 Uganda 0.9 -2.4 0.6 -3.0 2.1 -0.3 0.0 0.0 ZaYre 0.3 -2.1 0.1 -2.4 1.3 -1.1 0.0 -0.5 Zambia 0.3 -1.7 0.5 -2.9 1.4 -1.4 0.0 -0.6 Zimbabwe 0.9 -2.5 0.2 -3.3 4.0 -1.0 1.2 -1.0 Source: Yeats (1993). 1Tariffs are simple (unweighted) averages of nominal duties levied on the country's exports. 2The preference margin is the difference between the simple average tariff on the African country's ex pons and the simple average tariff on other exporters of the same products. aries. At the same time, preferences have not been an Integration Issues unmixed blessing. They have been subject to frequent changes, particularly where preferences have led to The Uruguay Round was unique in terms of the successful exports, and have therefore not offered a re breadth and intensity of the developing countries' par liable or secure bas.is for export growth. Preferences ticipation in the negotiating process compared with have also been used as a bargaining tool by industrial previous rounds. Ninety-one developing countties par countries to secure policy changes in areas such as ticipated in the Round, considerably more than in pre workers' rights, intellectual property, and services, vious Rounds. In the Tokyo Round, preserving special with unpredictable consequences. While preferences and differential treatment (S&D) had been a high prior may have a beneficial effect on exports, the superior ity for developing countries (Box 3). In the Uruguay export performance of the newly industrializing econ Round, however, many developing countries offered omies has resulted from thei.r outward-oriented growth tariff concessions, and the least-developed countries strategies rather than preferences.37 will need to do so by April 1995. The most important symbolic indicator of the developing countries' status in the new trading system is their universal adherence 37The EU market which grants preferences to newly industrializ to all the multilateral agreements of the Uruguay ing economies. ACP. and Mediterranean countries witnessed aver 1980 1989 Round. The principle that all countries should bave age annual import growth between and from these three � groups of 12.1 percent, -5.5 percent. and 3.7 percent. respectively broadly similar rights and obligations is thus ensh ined (Pohl and Sorsa (1992)). in the WTO. 17 ©International Monetary Fund. Not for Redistribution I ECONOMIC IMPLICATIONS OF THE URUGUAY ROUND Box 3. Evolution of Special and Differential Treatment Developing countries have traditionally had a special TheMFA, a system of discriminatory and restrictive mea status in the GATI in terms of their rights and obligations sures on exports of textiles and clothing from developing relative to industrial countries-the so-called special and countries, and the wide-ranging quantitative restrictions, differential (S&D) treai.ment. This was legally enshrined variable levies, and export subsidies deployed by several in the GAIT in 1965 when Part IV on Trade and Develop industrial cow1tries in agriculture were testimony to the ment was added, in the Enabling Clause of the Tokyo inability of developing countriesto effectively secure lib Round in 1979,1 and in the Punta del Este Declaration, eralization in products of interest to them; this was inher which launched the Uruguay Round. In essence. S&D ent to the nonreciprocal relationship engendered by S&D treatment had three elements. treatment. More recently. they were also unable to pre First, and foremost, it allowed a greater freedom to take vent d1e growing use of contingent protection measures trade restrictive measures than industrial countries. This that were increasingly directed at their exports. was a consequence of the pursuit of inward-oriented poli ln the middle to late 1980s, however, the status of de cies by developing countries coupled with the bargaining veloping countries in the multilateral trading system un framework of the GAIT, which implied that liberaliza derwent a significant change in the di rection of fuJler inte tion, being costly ("a concession·· given), should not be gration. Thiswas spurred by a change in thinking in favor required of developing countries. A logical corollary was of more outward-oriented policies. often under Fund- and that even less liberalization should be sought of the least Bank-supponed structural adjustment programs. A large developed countries. This greater freedom to take restric number of developing countries acceded to the GATI. tive measures was reflected in (I) fewer tariff bindings Between 1987 and April 1994, 29 developing countries than in dustrial countries (see Table 4); (2) persistent re had acceded to the GAIT compared with 17 in the 20 course to QRs for balance-of-payments reasons under Ar years preceding 1987. Unlike in the past, a number of de ticle XVlll:B of the GATT; and (3) fewer commitments in veloping countries undertook significant liberalization regard to other restrictive measures, such as export and commitments in recent accessions. Further, since 1989. 6 domestic subsidies, import licensing, and government out of 18 developing countries invoking QRs for balance procurement, as reflected in limited adherence by devel of payments purposes ceased to do so.3 Also, developing oping countries to the relevant Tokyo Round codes. countries, confirming their growing status, became more Second, developing countries sought preferential ac involved in GAIT disputes. Prior to 1988. developing cess for their exports to the markets of industrial coun countries had been involved in 14 percent of all disputes; tries; a related feature was the right of developing coun after 1988, more than one in three disputes involved de tries to grant preferences to each other's exports under veloping countries. Finally, there were increasing moves less stringent conditions than permitted under Article £Oward "graduation.·• namely, withdrawing the eligibility XXIV of the GAIT. These features were enshrined in var of certain countries to preferences under the GSP ious GAIT provisions. That developing countries needed scheme:� The United Slates. for example. withdrew GSP preferential access to compete internationally followed in eligibility in 1989 for the four dynamic Asian economies part from the infant industry view of developing country (Hong Kong. Korea, Singapore, and Taiwan Province of industrialization; but it also resulted from inward-oriented China). Graduation was an inevitable concomitant of the policies that acted as a tax on exports and hence rendered underlying rationale for preferences, namely, that their them uncompctitive without preferential access.2 grant was related to the weak competitive position of de By reserving the ri ght to protect and seek preferential veloping countries: success, therefore, should obviate the access, developing countries effectively disqualified need for preferences. themselves from participating equally in the GAIT pro cess of bargaining and were consequently unable to seek a JThis fi gure understates the extent to which developing coun reduction in protection in products of particular interest to tries reduced reliance on QRs for balance of payments purposes them-(agriculture. textiles and clothing, and footwear). because several of them did not notify their QRs to the GATI. and hence did not invoke Article XVIJl:B in the first place. 4 Implicit graduation began even before these countries were 1Formally called "Decision on Differential and More Favor officially declared ineligible under the GSP: it took the form of able Treatment. Reciprocity and Fuller Participation of Develop removal of products of expon interest to these countries from the ing Countries." GSP list and more restrictive conditions imposed on them (Lang· 2Sce Wolf(l987). hammer and Sapir (1987)). In terms of the substantive commitments under the move closer to the levels achieved by industrial Round, moves toward equality are reflected in the fol countries. lowing major areas: (2) Quantitative restrictions. Resort to QRs and (I) Ta riff bindings. As noted earlier, the scope of other trade restrictions for balance of payments reasons tariff bindings undertaken by developing countries will under GATT Article XYIII:B has decreased an1ong de- 18 ©International Monetary Fund. Not for Redistribution Integration Issues veloping countries.38 Under the Uruguay Round, future iffs, agriculture, government procurement. and sub disciplines on Lhe balance of payments provisions sidies), developing countries will continue to have would require emphasis on price-based measures in greater freedom to take trade restrictive actions. stead of QRs. (2) Tra nsitional arrangemellfs. The most impor (3) Other nontariff measures. Developing coun tant element of S&D treatment in the Uruguay Round i!. tries will in principle have to adhere ro the rule� on sub that developing countries will have longer time periods sidies, antidumping. safeguards, TRIMs, import licens in assuming the levels of obligations of Lndustrial coun ing, customs valuation, and technical barriers to trade, tries. Important examples include agriculture, TRIPs. although they will have recourse to transitional ar TRIMs. subsidies. and safeguards. rangements (see below). (3) Preferential exemption fr om restrictive trade (4) New areas. Developing countries will have to action. A positive aspect of preferential treatment will adhere to the same standards with respect to TRIPs and be that the standards of trade restrictive actions in cer the same general rules in the area of services. tain areas (such as safeguards and countervailing du (5) Integration of sectors of importance to del'el ties) will be higher for imports from developing coun oping countries. As discussed in Box 3, a consequence tries, rendering them less susceptible to such actions. of S&D treatment was the inability of developing coun {4) Te chnical and financial assistance. Several tries to secure nondiscriminatory market opening, agreements (e.g .. TRIPs and services) provide for tech according to normal GATT principles, in sectors of im nical assistance to developing and least-developed portance to Lhem. In the Uruguay Round, developing countries to implement the results of the Uruguay countries have been able lo correct the anomaly that Round. There is also a recognition of the need to assist sectors of interest to them (textiles and clothing, and least-developed and net food-importing countries (in agriculture) are exempted from the scope of GATT the form of food aid and technical and financial assis rules. tance) if they are adversely affected by an increase in (6) Preference erosion. As discussed earlier. the the price or reduced availability of food imports. decline in most-favored-nation tariffs will erode prefer While the Uruguay Round represents a watershed in ences currently enjoyed by developing countries under the process of fuller integration of developing countrie� schemes such as the GSP, Lome Convention. and the in the multilateral trading system, the process is not yet Caribbean Basin Initiative. complete. Much remains to be done, both in terms of The Uruguay Round agreement will nevertheless developing countries· own liberalization efforts and of continue to provide S&D treatment for developing securing greater market access in areas of interest to countries in various ways: them. One important lesson of the Round is that fuller (I) Fewer substantive obligations or greater ji·ee participation-the willingness of countries to commit dom to take restrictive mea.wres. In several areas (tar- themselves to international liberalization-has been re warded in tern1s of locking in unilateral refonns, secur ing greater market access in crucial areas, and, above all, maintaining and strenglhening a rules-based system 1KJ n 1988. 16 countrie� had invoked the balance of payments that will be vital to ensure the success of developing cover for trade restriction� under GATT Aniclc XVIII:B, including countries' structural adjustment efforts. Fuller partici (year of disinvocation in parentheses): Argentina ( 1991 ). Bungladesh and Brazil (1991). Colombia (1992). Egypt and Ghana (1989). India pation is also essential in giving developing countries and Korea ( 1989). Nigeria. Pakbtan, and Peru (199t), and the Philip· more effective influence in addressing the policy chal pine�. Sri Lanka, Tunisia. Turkey, and Yugoslavia. Today. the num· lenges that lie al1ead, many of which are likely to im 10 ber has been reduced to (Bangladesh. Egypt. India. Nigeria. pinge crucially on developing countries· interests (e.g., Pakbtan. the Philippines. Sri Lanka, the Slovak Republic. Tunbia, and Turkey). w1th a few invoking this provision under GATT Anicle trade and the environment, trade and labor <>tandards, XII (Israel, Poland, and South Africa). and investment rules). 19 ©International Monetary Fund. Not for Redistribution Appendix I Quick Reference Guide to the Results of the Uruguay Round Quick Reference Guide to the Results of the l'ruguay Round Subject Results A. Market Liberalization I. Tariffs Cut� in impon-weightcd average bound tariffs in five equal annual reduction� (with some exceptions). beginnmg with entry into force of the World Trade Organization (WTO) (expected January 1995). 1 a. lnduMrial country tariffs on • Fony percent cut in impon-weighted average bound tariff� on all industrial product\ by industrial products1 industrial countries and an increase in tariff' bindings Oegal maximum rates) to cover 98 percent of impons (previously 94 percent). Peaks of over 1.5percent in tariffs on industrial products reduced from7 percent to 5 percent of all impons. and the weighted average bound tariff i� down from6.3 percent to 3.9 percent. • Zero-for-zero agreements in ten major secto� incre�e the �hare of duty-free impons from 20 percent to 43 percem in mdustnal coumnes. Lower-than-average tariff cuts made in sensitive sectors. such a\ textiles. clothing, footwear. and transport equipment. • lmpon-weighted average bound tariff on industrial sector tropacal products falls from 4.2 percent tO 1.9 percenl. resulting in a 55 percent reduction. • Bound tariffs on natural resource-based products are cut by 33 percent. reducing the weighted average from 4.0 percent to 2.7 percent. Larger-than-average gains in �ome metals and minerals. and lower gain� for fish. I b. Developing country and transiuon Tanff bindings increased from 13 percent to 61 percent of impom by developing countncs and economy tariffs on industrial from 74 percent to 96 percent of import� by transition economics. products1 2. Agriculture The stan of a gradual liberalization proccs� in the sector-initially over �ix year� for indu�trial countries and ten years for developing countries. In the final year of the implementation period (defined in the agreemcm as six ye 2a. Market access • All nontariff measures. except those justified under normal GATT exception� (e.g .. halance ofpayments), to be converted to tanffs (tariffication) at the stan of the implementation period. with average tariff cuu; by industrial countries of 36 perccm over �ix years from a 1986-.SR base, and a minimum cut of 15 percent on all tariff lines. There are a few exemptions from the tariffication commitment (utilized by Japan (rice) and Israel (sheepmeat. skim milk powder. and cheese)) and, in these cases, 4 percent of domestic con�urnption in the 1986-8R ba�e period is a minimum access guarantee that must increase by 0.8 percent annually to 8 percelll by the end of the implementation period. This exempt aon willbe reviewed tn the linal year of the implementation period. • Tariffbtndings increased from 81 percemao I00 percent of amports in industrial coumnes. from 25 percent to I 00 pcrccm in developing countries. and from 54 percent to I 00 percent tn Lran�ilion economic�. lndu�trial countries cut agricultural tropical product� by 43 percent. • Minamum import access by tariff quota!.10 be guaranteed in respect of all tariffied products. If impon!>are less than 3 percent of domestic con�umption in 1986-88 base period. access mu�t increase to at least 3 percent and 5 percem at the beginning and end of the implementation period, rc�pcctivcly. If the access level is greater than 5 percent in the base period. this level of acces� mu�t be maimaincd (current acces�). 2b. Internalsuppon • Domestic support, as calculated by the total Aggregate Measurement ofSuppon 20 ©International Monetary Fund. Not for Redistribution Quick Reference Guide Quick Reference Guide (continued) Subject Results 2c. Expon subsidies Expon subsidies must be reduced by 36 percent in value and subsidized exports by 21 percent in volume for each product over the implementation period froma l 986-90 base.ln cenain cases, in the initial years. the reduction commitments can be calculated from a 1991-92 base, and there is some flexibility in phasing the cuts between the second and fifth years. 2d. Special safeguard Special safeguard provisions, triggered by volume increases or price reductions. permit the impo�ition of additional duties up to specified limits.The volume trigger is sensitive to the degree of import penetration. The price trigger is relmed to 1986-88 average prices expressed in domestic currency. The volume trigger leads to the nondiscriminatory application of additional duties, whereas the price trigger leads to additional duties fixed on a consignment· by-consignment basis. 2e. Developing countries Several provisions introduce greater flexibility for dcveloping countries: • Reductions in tariffs, domestic suppon, and export subsidies are set at two thirds the levels specified above. and spread over ten years. • Least-developed countries are exempted from all reduction commitments. • Exemption from the tariffication commitment on any agricultural product that is a primary staple in a traditional diet. subject also to the tariffication exemption provisos mentioned above (utilized by Korea and the Philippines for rice), but with slightly different minimum access commitments. Minimum access must rise from I percent of base period domestic consumption to 4 percent at the beginning of the tenth year. • Ceiling bindings (legal maximum tariffs set above applied rates) are permitted as the basis from which tariff reductions arc to be calculated during the implementation period. If a ceiling binding is adopted instead oftariffication. the special safeguard remedy (2d) above is not available and the current and minimum access commitments do not apply. • Exemptions from domestic subsidy commitments when subsidies relate to investment (and are generally available). diversification away from production of illicit narcotic crops and input subsidies for low-income producers. The de minimis provisions on domestic subsidies apply at a I 0 percent level of suppon (5 percent for industrial countries). • Exemptions from expon subsidy reduction commitments when the subsidies relate to export marketing and transpon. • Food aid exempted from expon subsidy commitments. provided aid is not tied to commercial exports. complies with Food and Agricultural Organization principles, and is supplied on term� no less favorable than those of the I 986 Food Aid Convention. • The Ministerial Decision on Measures Concerning the Possible Negative Effects of the Refonn Program on Least-Developed and Net Food-Importing Developing Countries contains provisions on maintaining adequate levels of food aid and preferential treatment in relation to agricultural export credits. It also notes that developing countries may be eligible to draw on the resources of international financial i nst it ut ions under existing faci Iit ies, or such faci Iit ies as may beestablished. in order to meet any adjustment needs emanating from the Uruguay Round. 2f. Peace clause A "peace clause" (nine-yeardurMion) constrains the use of antisubsidy actions.For subsidies excluded from the reduction commitments (the green box subsidies). the measures will be considered nonactionable in terms of countervailing duties and legal challenge in the WTO (on grounds of violation, nullificationor impaim1ent. injury, and serious prejudice). For subsidies subject to domestic reduction commitments and expon subsidies. countervailing duties may be levied upon proof of injury or threat thereof. and cenain restraints are imposed on legal challenges. 3. Textiles and Clothing • Gradual integration of the sector into the WTO/GATT 1994 in a four-stage phaseout over ten years. under the supervision of a Textiles Monitoring Body. • Products accounting for not less than I 6 percent of total volumes of imports(in tern1sof the stated Harmonized System lines or categories) in I 990 to beintegrated into GATT I 994 upon entry into force of the WTO. After the third year of the phaseout period, at least a funher 17 percent of total I 990 impon volumes of the listed products to beintegrated, followed by at least I 8 percent after the seventh year, and the remainder (49 percent) at the end of the ten-year period. Each phaseout must encompass products (chosen by the restricting country) from four groups-tops and yarns, fabrics, made-up textiles.and clothing. • Outstanding quota restrictions shall beexpanded by the prevailing (bilaterally negotiated) quota growth rate plus 16percent annually in the first three years, by 25 percent in the subsequent four years, and by 27 percent in the final three years. Swing. carryover, and carry forward provisions shall continue 10 apply as they do under the MFA. • A commitment is made to take the necessary anticircumvention measures to deal with transshipment, rerouting. false declaration of origin, and forgery. 21 ©International Monetary Fund. Not for Redistribution APPENDIX I QUICK REFERENCE GUIDE TO RESULTS OF URUGUAY ROUND Quick Reference Guide (continued) Subject Results • Establishment of a "transitional safeguard" only on producLS not yet integrated into GATT I 994, which could include products not subject to restriction. This safeguard may be applied selectively to panicular exponers. Safeguards may be maintained for a maximum of three years and phased out over their duration. There is less flexibility in the use of safeguards against small exporters, least-developed coumries, wool producers, outward processors. and cottage industries. • Provisions to redistribute quotas in favor of quota-constrained and efficient exponers. B. Rules 1. Safeguards • More flexible use of safeguards under tighter disciplines is to be monitored by a newly established Commiuee on Safeguards. Disciplines include specification of procedures for investigation, publication of findings and notification, and relevant criteria for detern1ination of injury and causality. Importquotas for safeguard purposes may discriminate among suppliers only in exceptional circumstances, where impons from a member increase disproportionately. • Duration of safeguard measures is a maximum of four years in the first instance. but can be extended for a funher maximum period of four years, provided conditions warrant this. appropriate procedures are followed, and there is evidence the industry concernedis adjusting. Degressivity of safeguard measures taken for more than one year is required. Developing countries can maintain measures for a maximum often, instead of eight years. • Existing safeguards to be eliminated in five to eight years. • New safeguard measures cannot usually be reintroduced for a period equal to the time they have been previously applied, and in any event not until two years after the previous application of the measure. Developing countries may reimpose safeguard measures after half the time of a previous application, provided the minimum two-year period of nonapplication has elapsed. • Under specified conditions, no retaliation is foreseen during the first three years during which a measure is applied. • Developing countryexponers accounting for less than 3 percent of a country's impons of a product shall be exempt from safeguard action. provided that all developing members with less than a 3 percent share account for less than a 9 percent share overall. • VERs and similar measures on expons or impons are to be eliminated within four years, although each member has the right to maintain one such measure until the end of 1999. Governmentsare not to encourage or suppon the adoption of VER-Iike measures by public or private enterprises. A safeguard measure taken in the form of a quota under this agreement could. by mutual consent, be administered by the exporting member. 2. Antidumping • Some improved provisions, including those in relation to dumping margin calculations. injury determination. the definition of domestic industry, investigation procedures. and standard of evidence. Tighter disciplines include reducing discretion in the calculation of dumping, specification of panics with standing, of conditions under which provisional measures and price undertakings can be resorted to, of pubI ic notice and judicial review requirements, of refunds of antidumping duties, and of the use of best information available in investigations. • There are de minimis provisions relating to the margin of dumping (less than 2 percent), the volume of dumped imports {less than 3 percent of imports, or cumulatively 7 percent among exponers supplying Jess than a 3 percent share), and the extent of injury. Cumulation of impons from more than one country in an injury investigation i not permitted under circumstances of de minimis (nor unless circumstances so warrant). • A "sunset" provision requires that antidumping duties remain in place not longer than five years unless a review demonstrates that the removal of a duty would likely lead to continuation or recurrence of dumping and injury. • The standard of review provisions could cunail the reach of dispute settlement procedures. In addressing the facts of a case, panels are limited to a consideration of whether facts were properly established and their evaluation unbiased and objective. If these standards are satisfied, a decision by national authorities cannot be ovenurned, even if a panel might have reached a different conclusion. In considering matters of law, in accordance with customary rules of public international law. if there is more than one permissible interpretation, a panel shall find in favor of the national antidumping authorities if their case rests upon one of these interpretations. • Anticircumvention provisions, allowing for antidumping action against producers that shift the locationof production in order to avoid antidumping duties. are not included in the agreement, but remain subject to negotiation. 22 ©International Monetary Fund. Not for Redistribution Quick Reference Guide Quick Reference Guide (cuutinued) Subject Results 3. Subsidies • Subsidies are explicitly defined as involving a financial contribution by the government and being speci fie to certain enterprises or industries (i.e., not generally available). Subsidie� are categorized: (I) prohibited (exportsubsidies and subsidies favoring the use of domestic over imported goods): (2) actionable (if they cause injury. nullification or impainnent of benefits. or serious prejudice): and (3) nonactionable (nonspecific subsidies, assistance for certain research activities, regional subsidies. and subsidies for environmental adaptation). • Subsidies that may be countervailed pursuant to national procedures are not specitied, except that they must involve a financial contribution and be specific as defined above. However, two categories of subsidies-nonactionable ((3) above) and de minimis (less than I percent ad valorem, less than 2 percent in the case of developing countries)--cannot be countervailed under national law. • Serious prejudice is presumed to exist when subsidization of a product exceeds 5 percent. subsidies are used to cover operating losses (except in certain circumstances), or where there is direct debt forgiveness. Nonrec urring subsidies, including debt forgiveness. linked to privatization programs in developing countries are not actionable for serious prejudice or nullification or impairment of benefits. • Least-developed countries are allowed to maintain export subsidies. as are other developing countries whose per capita income is less than $1,000a year. Developing countries that arc not. or cease to be, in these categories, arc required to phase out export subsidies within eight years (with the possibility of extension). Developing countries and least-developed countries are exempted from the presumption of serious prejudice. The prohibition of subsidies linked to the use of domestic over imported products shall not apply to developing countries for five years, and to least-developed countries for eight years. • Economies in transition are granted a seven-year period within which to eliminate prohibited subsidies and are exempted during this period from the presumption of serious prejudice for subsidies on debt forgiveness. • Export subsidies cannot be increased from I 986 levels, or levels prevailing when the agreement enters into force. and must be removed if export competitiveness is auained (defined as 3.25 percent of world trade in the relevant product for two consecutive years). • Provisions very similar to those on antidumping are included in the text on countervailing duties. The de minimis provisions establish exemptions for developing countries from countervailing duties when subsidy levels do not exceed 2 percent (or 3 percent if a country accelerates the timetable for eliminating export subsidjes), or import shares are less than 4 percent, and cumulatively among countries benefiting from this provision, less than 9 percent of total imports. 4. Preshipment Inspection • Creates a framework for dealing with activitiesofpreshipmcnt inspection companies relating to the verification of the quality. quantity. price. and customs classification of goods in the territory of an exporting member. • Sets out obligations of user govemments on nondiscrimination, transparency. confidentiality and appeals procedure. and nondiscrimination, transparency, and technical assistance commitments of exporter governments.Establishes guideI ines for price verification. and the basis on which comparisons may be made (but leaves customs valuation aside). • Introduces independent review procedures for disputes between preshipment inspection emities and exporters. Majority decisions are taken by the review body and are binding on both parties. 5. Rules of Origin • Eswblishes disciplines for rules of origin used in nonpre ferential commercial policy instruments, explicitly excluding origin rules relating to preferential trading arrangements. Sets out a three-year work program to hannonize nonpreferential rules of origin (in cooperation with the Customs Cooperation Council). • Disciplines spelled out on transparency. consistency.the use of positive criteria for the definition of origin, transparency, consultation, review, and protection of confidential infonnation. Seeks a common definition of' substantial transformation and creates a presumption in favor of the change in tariff heading criterion over an ad valorem rule or criteria relating to processing operations. • Contains a Common Declaration on preferential rules of origin that commits members to general disciplines. but not to harmonization. 23 ©International Monetary Fund. Not for Redistribution APPENDIX I QUICK REFERENCE GUIDE TO RESULTS OF URUGUAY ROUND Quick Reference Guide (continued) Subject Results 6. Technical Barriers to Trade • Technical regulations (mandatory st • Creates a presumption in favor ofhannonized international standards. technical regulations. and confonnity assessment systems, without, however, denying any member the right to establish levels of standards it considers appropriate to fulfill legitimate objectives. • Extends the coverage of the agreement to subnation a I entities and to product-related proce�s and production methods. and establishes new disciplines for voluntary standards. 7. Sanitary and Phytosanitary • Measures related to food safety and animal and plant regulations must not arbitrarily or Measures unjustifiably discriminate between members or be used as disguised trade barriers. They should be applied only to the extent necessary to achieve objectives, be based on scientific principles. and not bemaintained against scientific evidence. • Measures should be based on internationalstandards. StTicter standards are perrnincdif there is scientific justification or as a consequence of appropriate risk assessment. Stricter standards are not to be more trade restrictive than necessary. given economic and technical feasibility. 8. GArr (1994) Articles2 8a. Bound tariff schedule, (Article • Requirement to include other duties and charges in bound schedules: other duties and charges II: I (b)) arc to be bound at the level of the most recent rather than the first negotiation of a tariff. 8b. Balance of payments provisions • Recommendation for the greater usc of price-based measures (e.g., import surcharges) rather (AniclesXII, XIV, XV. XV[JJ:B, than quantitative restrictions. and 1979 Declaration on Trade • Public announcement of time schedules for removal of measures. Measures Taken for Balance of Payments Purposes) • Improved procedures for balance of payments consultations. 8c. State-trading enterprises (Article • Develops a clearer working definition of state-trading enterprises for notification purposes XVIJ) and makes provision for the review of notifications and countcmotifications. 8d. Customs unions and free trade • Establishes a methodology for the evaluation of duties before and after the fom1ation of areas (Article XXJV) regional trading arrangements. • Sets out clearer criteria for the review of new or enlarged regional trading areas. Interim agreements should lead to full-nedged regional trading areas within ten years. • Clarifies procedures to be followed when tariff bindings are renegotiated. 8e. Waivers from GATT obligations • Sets conditions and time limits for waivers in accordance with WTO provisions. All existing (Article XXV:5) waivers arc 10 betermi n,ated in two years unless their renewal is agreed upon. 8f. Renegotiation of tariff bindings • ew procedures for detem1ination of members with negotiating rights: in addition to (Article XXVOI) established negotiating rights, one additional negotiating right is established-for the member with the highest proportion of the product concerned in its exports. 9. Import Licensing • Establishes greater clarity on. and expediting for automatic and nonautomatic licenses, strengthening provisions on the administration of licensing procedures. and on publication requirements. Emphasizes that licensing requirements should not in themselves constitute obstacles to trade. 10. Customs Valuation • The Tokyo Round agreement remains unchanged, but a ministerial decision recognizes difficulties faced by some customs administrations in detecting fraud. The decision permits a partial reversal of the burden of proof away from the authorities and onto the importer in cases where doubts persist regarding the transaction value. • Another ministerial decision reiterates the right of developing countries to retain officially established minimum plfices for valuation purposes undertem1s and conditions agreed to by the members. Developing countries can delay implementation of the customs valuation agreement for a five-year period. which may be extended if conditions so warrant. On the question of valuation of imports by :sole agents, sole distributors. and sole concessionaires, the decision recommends suppo11 and studies from the Customs Cooperation Council. C. NewAreas 1. Trade-Related Intellectual Property • Establishes standards for the acquisition and protection of intellectual property rights, Rights (TRIPs) provisions for their national enforcement, and for multilateral dispute prevention and settlement. 24 ©International Monetary Fund. Not for Redistribution Quick Reference Guide Quick Reference Guide (continued) Sub·ect Results • National treatment and most-favored-nation treatment arc to apply in respect of all intellectual propeny rights covered by the agreement. • Minimum standards of protection for intellectual propeny are provided in respect of copyright, trademarks. geographical indications, industrial designs, patents, layout designs of integrated circuits. protection of undisclosed information. • In the patent area, for example. minimum standards provide for patent protection in all areas of technology. including pham1aceuticals. for 20 years. Members cannot require the local working of patents. but can license non-patentees (compulsory licensing) to produce the patented product under ccnain conditions. • The agreement recognizes the right to control anticompetitive practices and. to this end. provides for consultation and cooperation among members. • The enforcement provisions are designed to ensure that intellectual propeny rights established under the agreement can be effectively and expeditiously enforced under national law. • A one-year delay period is envisaged for the implementation of the TRIPs agreement following the establishment of the WTO. Developing countries and transition economics are pennitted to delay implementation for a fun her four years. except for the national treatment and most-favored-nation commitments. Where patent protection is called for in areas of technology not currently protected in developing countries, a grace period of an additional five years is provided in respect of the technologies in question. The least-developed countries are permitted ten years on the same basis, with the possibility of funherextensions. Notwithstanding the above transition provisions, all patentable inventions on pharmaceuticals and agricultural chemical products made after entry into force of the WTO must be protected. 2. Trade-Related investment Measures • All TRIMs inconsistent with Anicles [II and XI of GATT 1994 are to be notifiedwithin 90 (TRJMs) days and eliminated within two years, five years. and seven years for developed, developing. and least-developed countries, respectively; possibility under certain circumstances of an extension of the transit ion period for both developing and least-developed countries. • An illustrative list of prohibited TRIMs identifies local content requirements and trade balancing requirements as contrary to Anicle Ill, and foreign exchange balancing and expon limitation requirements as contrary to Article XI. 3. Trade in Services • Extends multilateral rules to a large segment of world trade (about 20 percent- 25 percent). improves predictability of conditions for investment in service sectors, although many initial liberalization commitments consolidate the status quo in the first instance. • The General Agreement on Trade in Services (GATS) establishes the nondiscrimination principle. It includes most of the GATT-type provisions for controlled depanures from GATS commitments (regional arrangements. general exceptions. security exceptions, etc.). Specific exemptions from the MFNcommitment have been listed by members and shall be reviewed if they are still in existence after five years. In principle, they should be eliminated after ten years. More than 70 countries have registered exemptions from the MFN provision. • National treatment and conditions of market access are subject to negotiation. Access restrictions may be defined in terms of mode of delivery (cross-border trade, consumption abroad, commercial presence, movement of service providers). Additional commitments may be negotiated on such maners as professional qualifications, standards, and licensing. All liberalization undenakings negotiated by members are inscribed in their schedules of specific commitments. The GATS provides for progressive liberalization through successive rounds of negotiations, startingnot later than five years from the establishment of the WTO. However, shorter deadlines arc provided for negotiations on specificsectOrs (e.g .. natural persons, financial services)and specific subjects (e.g., governmentprocurement, safeguards). • The GATS provides the necessary framework for establishing and maintaining liberalization commitments, including provisions on transparency. domestic service-related regulations and adjudication procedures. and recognition of qualifications and other prerequisites for service suppliers. • Conrinuing negotiations are called for on provisions elar ting to safeguards. subsidies. government procurement. and hannonization of domestic regulations. • While the schedules of commitments of developing countries are more limited in scope than those of industrial countries. the participation of developing countries in services liberalization is expected to continue as a gradual process, in line with the development situation of each member. • Special annexes and decisions have been drawn up on the movement of natural persons. professional services, financial services. telecommunications, transpon services, and on negotiations relating tO basic telecommunications. These annexes and decisions address the specificities of the sectors and the tem1s and conditions of negotiations in these areas. 25 ©International Monetary Fund. Not for Redistribution APPENDIX I QUICK REFERENCE GUIDE TO RESULTS OF URUGUAY ROUND Quick Reference Guide (concluded) Subject Result� D. Institutional I. World Trade Organization ( WTO) • Establishe� the legal ba\i� for t he WTO a\ a single, indivibible undenaking requiring adherence to all the agreements on goods (including the GAIT 1994). and the agreement\on services. and TRIPs I only the "PI uri lateral Trade Agreemcnts"'-on civil aircraft and government procurement. and the InternationalDairy Arrangement and Arrangement Regarding Bovine Meat-remain legally distinct and do not require universal adherence). Mcmber�hip in the WTO is conditional on countries having schedules of conce�siom. and commitments on market acce�'> (induMrial and agricultural produc� and -.crviccs).1 • Regular mmistenal meet1ngs are provided for 111 order 10 improve the effectivene�s of the WTO. • Collaboration on policy coherence and ongomg cooperation between the WTO and the World Bani. and lmernationalMonetary Fund • The WTO <�greement mcorporatesconditions forthe grant and review. and lime limits for waivers from WTOobligations. • The WTO eliminates the grandfathering of existing legislation incom.istent with the GATT. but allowed under the GAIT's Protocol of Prov1sional Application; the only exception will be certain U.S. maritime law\. • The WTO cnshnncs the smglc undertaking concept by only allowing non application of WTO agreemem� a� a whole; GATr Contracting Panic� can in vol-enonapplication only if. at the date of entry into force ofthe WTO. nonapplication wa� effective between them. • The normal practice of decbion making by consensus will continue. with varymg voting majorities where consensus cannot be reached. 2. Integrated Dispute Settlement • Introduce� greater \peed and automaticity into di�pute �elllemcnt proccdur.:s under fully integrated arrangements (eliminating competing dispute senlernent forums within the �ysteml. • Provide� greater automaticily in the adoption of repom by dispute 'ett lement panels and 111 the right of retaliation in the event that a member doe� not comply with adopted panel recommendations; this is accomplished by a change in the voting procedure from cons.:nsu�to adopt repon., (or authorize retaliation) to consensus not to do �o. • Establishes a binding appellate review process. • Limit' unilateral actions by requiring that multilateral dbpute settlement procedure� mu\t be followed in respect of, and that unilateral determinations must not be made of. violation ol obligation.., of, or nullification or impairn1en1 of benefit\under, or impediment to the allainment of the objective' of, the Uruguay Round agreements. • Allows. under pn:scribed conditions, for the possibility of cross-n:taliation. that i'>. retaliating in one sector or agr.:crncm for violations in another. • Prov1des for greater access by the public to mfonmuion of a nonconlidcntial nature. • E'>tablishes that members are answerable for noncompliance by �ubnational authontie� wuhm their lerritorie� with WTO obligations. J. Trade Policy Review Mechanism • TI1e TPRM. which ha� been operating provisionally '>ince 1989. hn� been made pem1ancnt. ITPRM) The scope of trade policy surveillance. through regular reviews of members' policies. has also been widened to encompus� all areas covered by the WTO. including go E. Plurilaleral Trade Agreements� I. Civil Aircraft • This sector is subject to the WTO subs1dics discipline�. with cenain exemption,, and to the di�pulc �cttlement system. Funher negot iat iono; may rc�ult in disci piines addit ion a I to thm.e in the WTO and 1979 colic on 1radc in c i vi I aircraft. 2. Government Procurement • The new agreement expand\ coverage to serv1ces and to o;ubcemral leveb of government and to public utilitic�. Procurement covered i' likely to increase tenfold from the current amount of $30 hill ion. Cenain commitment� arc not extended to all other member' or arc only extended on a r.:ciprocity basi�. Many ofthc�e derogation� are likel; 10 be removed a.\a result of the U.S. EU bilateral agreement in April 1994 and of future negotiations involving other member\. 1Excluding petroleum data on tariff> are hahed on GATT (1994b) and cover '>electeddevelop111g countries. 2A text on nonapplicauon modifies the provisions of GATT 1947. 'The least-developed countries have to submit their �chedule' by April IS. 1995. 4Aithough not fonnall) part of the Umguay Round. negoliation' on civ1l 26 ©International Monetary Fund. Not for Redistribution Appendix II Summary of Specific Commitments in the Financial Services Sector of Selected Countries Summary of Specific Commitments in the Financial Services Sector of Selected Countries' Limitations on Market access Limitations on National Treatment United States2 Banking and orherftncmcia/ sen·ices (excluding Banking and orherftnancial services (excluding insurance). No limitations are maintained on the cross insurance). No limitations are maintained on the cross border supply of this category of services. Limitat.ions border supply of this category of services. Foreign banks affect mainly the supply of these services through are required to register in order to engage in securities commercial presence. These limitations include the advisory and investment management. This registration following: (i) branches of corporations organized under a involves record maintenance, inspections. submission of foreign country's Jaw are not pennitted to carry out credit reports, and payment of a fee. union, savings bank, home loan. or thrift business Foreign banks cannot be members of the Federal Reserve activities in the United States; (ii) in order to accept or System. and thus cannot vote for director of a Federal maintain domestic retail deposits of Jess than $100,000. a Reserve Bank. Branch, agency, and representative offices foreign bank must (with some exceptions) establish an of foreign banks are required to be charged for Federal insured banking subsidiary; (iii) initial entry or expansion Reserve examinations. by a foreign person through acquisition or cstablishmem is restricted in some states. Insurance and insurance-related services. No restrictions Insurance and in.wrance-relared sen•ices. A federal excise are maintained on the cross-border supply of this category tax is imposed on insurance premiums covering U.S. risks of services except in the states of Nevada and Maine where that are paid to companies not registered in the United some restrictions apply tO the purchase of reinsurance. States. Restrictions in this subsector affectmainly the commercial In some states, agency licenses are issued to nonresidents presence of foreign insurance or insurance-related service for only cenain lines of insurance. and a higher fee for providers, and include the following: (i) insurance nonresidents may be charged. companies owned or controlled by governmentsoutside the United States are not authorized to conduct business in some states; (ii) some states have no mechanism for licensing initial entry of a non-U.S. insurance company as a subsidiary, unless that company is already licensed in another U.S. state; (iii) U.S. citizenship is required for all or acenain proponion of the members of the board of directors of licensed companies in some states. European Union For all subsec10rs. in some EU members, an authorization is required forcenain type or ru110unt of foreign investment. Banking and otherftnancial services (excluding Banking and otherjinancial sen•ices (exrluding insurance). In all members states (i) establishment of a insurance). No limitations arc imposed on the cross-border specialized management company is required to perfonn supply of this category of services. Issues denominated in the activities of management of unit trusts and investment French francs may be lead managed only by authorized companies; and (ii) only finl1S having their registered French subsidiaries of foreign banks. office in the communities can act as depositories of the assets of investment funds. In some EU members, establishment is required in order to In italy, offices of foreign intennediaries cannot carry out provide cenain types of financial services. These include. promotional activities in the area of investment in for example, the provision of investment advisory services securities. in Belgium, investment research, asset management, and In the Netherlands, branches and subsidiaries of non-EU services regarding mergers and acquisitions in Italy. lead banks need permission to lead manage guilders management of issues of securities denominated in denominated paper. domestic currency in Germany and the United Kingdom. and securities trading in Belgium. Denmark. Greece. and Spain. In Ponugal, the establishment of non-EU banks may be subject to an economic need test. 27 ©International Monetary Fund. Not for Redistribution APPENDIX II SUMMARY OF SPECIFIC COMMITMENTS Summary of Specific Commitments (continued) Limitations on Market access Limitations on National Treatment Insurance and insurance-relmed services. Limitations in Insurance and insurance-relared sen•ices. No limitations this subsector generally involve requircmems that foreign are imposed on the cross-border supply of this category of insurance companies be established in the Community, or services. in the member country in order to be able to supply cenain Italy and Spain have a residence requirement for actuarial types of insurance or insurance-related services (e.g .. air profession. transpon insurance in Denmark, Gennany, and Ponugal; insurance of CTF ex pons by residents in Italy. and The general agent of an insurance branch will need to have insurance of risks relating to ground transponation in resided in Denmark for the last two years. France). ln some EU countries, the establishment of commercial presence is subject to an authorization, or certain requirements (e.g., a cenain length of prior experience). Japan Banking and otherflnancial services (excluding Banking and otherflnancial sen-ices (excluding insurance). Commercial presence is required for insurance). Deposits taken by branches of foreign banks discretionary investment management services as well as are not covered by the deposit insurance system. for financial/securities futures and options transaction services. Commercial presence for the purpose of supplying Japan has not made a standstill commitment regarding the investment trust management ser vices must be through a issuance of licenses required for establishing subsidiaries juridical person established in Japan. and branch offices. and for granting authorization for licensed service suppliers to expand existing operations or conduct new activities. Overseas deposits and trusts contracts denominated in foreign currencies, and over¥ I 00 million value, and those denominated in yen are subject to approval. Cenain services, including trade in payments instruments and foreign exchange. swaps, and fa ctoring may besupplied through authorized foreign exchange banks in Japan. Cross-bordersupply of these services are in principle subject to approval. Japan maintains restrictions on the assets of pension funds, which could be managed by investment management firms. Japan has not made standstill commitment regarding the issuance of licenses required for establishing subsidiaries and branch offices. and for granting authorization for licensed service suppliers to expand existing operations or conduct new activities. Insurance and insurance-related services. Commercial Insurance and insurance-related services. No Iimitation is presence is in principle required for insurance contracts imposed on the cross-border supply of this category of covering goods being transponed within Japan and for services. ships and aircraft of Japanese registration. Insurance services are not allowed to be supplied through Foreign companies are required to retain in yen an amount an intermediaryin Japan, and establishment of commercial corresponding to their technical and claim reserves for presence as insurance brokers is not allowed. yen-denominated insurance policies in Japan. Japan intends to take measures for making substantial liberalization of cross-border insurance transactions for ships of Japanese registration used for international maritime transportation,and aircraft ofJapanese registration, as well as for introducing the insurance brokerage system. Brazil For all subsectors, all foreign capital invested in Brazil must beregistered with the Central Bank of Brazil to be eligible for remiuances of profits abroad. Banking and otherfinancial services (excluding Banking and other financial sen•ices (excluding insurance). Brazil has not undenaken commitment to insurance). Brazil has not undertaken specific market access for the cross-border supply of this category commitment to grant national treatment to the cross-border ofservices. supply of this category of services. Establishment of new branches and subsidiaries of foreign Banks controlled by foreign capital and branches of financial institutions. as well as increases in their foreign banks are (i) subject to higher minimum panicipation in the capital of Brazilian financial requirements for paid-in-capital and net wonh. and (ii) not institutions. is not pennitted. The number of branches of allowed to set up automatic reller machines. each foreign bank is limited to the number existing on October 5. 1988. 28 ©International Monetary Fund. Not for Redistribution Summary of Specific Commitments Summary of Specific Commitments (concluded) Limitations on Market access Limitations on National Treatment Insurance and insurance-relared sen•ir·es. A special fonn Insurance and insurance ri!lared services. Brazil has not oflegal entity is required when selling up a commercial undertaken specific commitment with respect to the cross presence for the purpose of supplying freight, life, border supply of freight, life. propeny. liability. and propeny, medical care. and liabilities insurance. Foreign medical care insurance. panicipation is limited to 50 percent oft he capital of a company and to one third of its voting stock. The establishment of insurance brokcring agencies is restricted to natural persons only. in all the insurance lines mentioned above. Brazil has not undenaken commitment regarding the cross-border supply of these services. India Banking and nrherjlnancial sen•ices (excluding Banking and mherjinancial sen•ices (excluding insurance). India has not undertaken commitment with insurance). Once licensed. foreign banks are virtually not respect to the cross-border supply of this category of subject to any restrictions to national treatment, except that services. The amount branches of fore ign banks could they are required to (i) establish a local advisory board. and invest in other financial services companies is subject to (ii) publish periodically a consolidated financial statement ce•1ain limits. Licensing of foreign banks may be denied of their Indian branches. when the share of these banks in the total assets of the banking system exceeds 15 percent. Insurance and insurance re/ared sen•ices. India has not Insurance and insumnce re/ared services. India has not mnde commitments in this sector, except for fre ight undenaken commitment to grant national treatment for insurance and reinsurance. For fre ight insurance, there is this category of services. no requirement that goods in transit to and from India should be insured with Indian insurance companies only. Reinsurance can be taken with foreign reinsuresr to the extent of the residual uncovered risk after obi igatory or statutory placements domestically with Indian insurance companies. Korea-' Foreign investment is subject to certain restrictions, including ceilings on investment in stocks. For all financial services subsccto rs , cross-border supply of financial services and financial services supplied abroad to Korean consumers may not be settled in Korean currency. New financial products are subject to approv Bankinfi and orher(inancial services (excluding Banking and orherfinancial sen·ices (excluding insurance). Korea has not undenaken commitment insurance). Korea has not undertaken commitmcm regarding the cross-border supply of this category of regardi ng the cross-border supply of this category of services. services. Commercial presence in banking business (including Securities finns are required to have a minimum amount of deposit, loan, fo reign exchange. seulement, and clearing operating funds and are not allowed to establish multiple services) is pennined only through representative offices branches. and branches. No commitmenr is undenaken regarding financial-leasing services. Issuance of debentures is prohibited, and limitations apply to deposits and loans in foeir gn currency. Insurance and insurance-re/ared services. Korea has not Insurance and insumnce-relared serl'ices. Ceding insurers undertaken commitmem regarding the cross-border supply are required to reinsure with priority given ro reinsumnce for this category of services, except for marine export companies established in Korea. except for aviation cargo insurance. and reinsurance and retrocession. insurance. The establishment of a commercial presence is subject to Top executive personnel of insurance establishments are an economic need test, and the number of sales offices that required to reside in Korea. can beset up is limited. No commitment has been made with respect to claim seulement and actuarial businesses. 1 Under the GATS (Pan Ill), countries undenake commitments according to a positive list approach whereby they offer market access and national treatment only for the service industries listed in their schedules, and for each of the four modes of supply, subject ro whatever limitations are included in these schedules. None of the selected countries in this table has undertaken commitment regarding the presence of natural pesonsr in its territory for the purpose of supplying services, except (subject to certain conditions) for the entry and temporary stay of managers, executives, and specialists. 2The United States, the European Union, and Japan specified their commitments according to the Understanding on Commitments in Fin 29 ©International Monetary Fund. Not for Redistribution Bibliography Advisory Committee on Trade Policy and Negotiations, The Wo rkshop on the New World Trading System (Pans. 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