I presented this
article that follows 30 years ago at a conference in Seoul, South Korea, which
I was co-organizing. I post it here today unedited, given that, from Tokyo
Round; Uruguay Round; GATT and WTO, few things have changed in what I was
postulating then, concerning such things as Most Favored Nation; National
Treatment; subsidies and anti-dumping; reciprocity; problems with bilateral
negotiations; developing countries and trade liberalization; arguments for
protectionism; the role of Europe; shipping and trade in services and more. Of
course, trying to put all this in twenty pages might be described as an
exercise in futility but, still, I hope I furnish some insights to the present imbroglio
that is nothing less than an earthquake to the foundations of the global
economy; a foundation which took us 40 years to build.
And since one must
always end on a note of optimism: The economy is like a pendulum that, no
matter how much we move it away, it always comes back to its original
equilibrium position after a few oscillations. So it is now: a return to
normality will not be long in coming, as long as we keep our composure. For the
only things that can undermine our foundation are 'expectations' which often
have a strong destabilizing character. HX
Athens, Easter 2025
GATT and its Effects on Shipping and Ports[1]
Introduction
The General Agreement on Tariffs and Trade
The
GATT System operates in three ways:
• as a set of multilaterally-agreed rules
governing the trade behaviour of countries providing, in essence, the “rules of
the road” for trade;
• as a forum for trade negotiations in
which the trade environment is liberalized and made more predictable either
through the opening of national markets or through the reinforcement and
extension of the rules themselves;
• as an international "court" in
which governments can resolve disputes with other GATT members.
The
basis of the GATT has always been its rules and procedures: the most basic
commitment is not to liberalise trade, but to maintain equal treatment of
trading partners, "Most Favoured Nation" (MFN) treatment for
all fellow members, and to avoid disruptive changes in policies affecting
trade, most notably by the "binding" of tariffs.
GATT
does not prohibit protection for domestic industries. However, a second basic
principle is that where such protection is given, it should be extended
essentially through tariffs and not through other commercial measures. Among
other things, the aim of this rule is to make the extent of protection clear
and to minimize the trade distortion caused.
The
method of GATT negotiations has embodied a mercantilist approach to trade,
offering reductions in trade barriers as a "concession" rather than
viewing them as a gain to those making them, combined with the requirement that
all such concessions be extended to all other members. A concession is
defined as a reduction in restrictions on imports whereby concessions from
other countries are won at the "cost" of relaxations in one's own
import regime.
GATT
comprises a set of trading rules that apply generally across commodities and
contracting parties. There are exceptions both for countries (developing
countries in particular) and commodities (e.g. agricultural products). One of
the main exceptions to the general GATT rules against quantitative restrictions
concerns cases of balance-of-payments difficulties (article XII). Even then,
restrictions must not be applied beyond the extent necessary to protect the
balance-of-payments and must be progressively reduced and eliminated when they
are no longer required. This exception is broadened for developing countries,
by the recognition (article XVIII) that they may impose quantitative
restrictions to prevent an excessive drain on their foreign exchange reserves
caused by the demand for imports generated by development, or because they are
establishing or extending their domestic production. Where quantitative
restrictions are allowed, they should be applied without discrimination
(Article XIII).
There
are also "waiver" procedures (article XXV) under which a country may,
when its economic or trade circumstances so warrant, seek a derogation from
particular GATT obligations. Customs Unions and Free Trade Agreements
(FTA) are allowed (article XXIV) as an exception to the general MFN rule,
provided that certain conditions are met. In a nutshell, article XXIV requires
that (a) all trade within the "Area" be liberalized and (b) tariffs
applicable to countries outside the "Area" should not be more restrictive
than those in existence before the creation of the FTA.
GATT's
two principal pillars are non-discrimination and reciprocity.
Non-discrimination has two dimensions: the Most Favoured Nation clause requires
that, subject to identified exceptions, imports from all sources should face
identical barriers, while National Treatment, (NT), requires that, once
through customs, foreign goods are not subject to taxes or regulations more
onerous than those on equivalent domestic goods. On the other hand,
"reciprocity" was never defined in detail. The means to achieve it
were developed informally and have changed over time, but its centrality has
never been -nor could ever be- challenged in the context of voluntary
agreements between sovereign nations. An obvious tension, however, exists
between "reciprocity" and MFN, making the combination of bilateral
reciprocity and MFN rather difficult to manage due to the resulting
"free-rider" problem (see below).
Services
in the GATT Negotiations
In
1982, the United States submitted a document to the GATT that placed great
emphasis on the importance of services to the world economy and on the GATT as
a "solid basis" for a framework for trade in services. In all
previous Rounds, the major issues were tariffs; agriculture was excluded and
the major bargains were among the industrial countries. Four main regional
clusters became apparent in the period just preceding the Punta del Este
meeting:
1. the United States and some OECD countries
that favoured the original proposal;
2. the European Union, some OECD members and
some developing countries that were working towards an overall compromise;
3. the G10 group of ten developing
countries, led by Brazil and India, which strongly opposed the U.S. initiative;
4. a group of twenty developing countries
(G20) that were prepared to accept the U.S. proposal depending on the terms.
Negotiations
on trade in services were launched through part II of the Punta del Este
declaration of September 1986. Following the adoption of the Punta del Este
declaration, the Group of Negotiations on Services (GNS) was
established, with a program for the initial phase of the negotiations that, in
broad terms, aimed at addressing underlying issues that were not resolved in
the ministerial declaration while, at the same time, shedding some light on how
to satisfy the guidelines and objectives agreed upon in Punta del Este.
The work program of the GNS that was agreed in February 1987 consisted of five
agenda items:
• definitions and statistics;
• concepts;
• sectoral coverage;
• existing sectoral arrangements and
disciplines (the GNS extended invitations to participate in the relevant GNS
discussions to, among others, UNCTAD);
• measures and practices contributing to
or limiting the expansion of trade in services.
Services
were included in the Uruguay Round in a rather semi-formal way that resulted in
questions as to whether they were part of the GATT system or not. For many
services, particularly transport and finance, there were already international
agreements or regulatory frameworks in existence, so that the principle of
international intervention was not the issue. However, such agreements were
normally collections of bilateral arrangements or unilateral concessions, with
no provision for MFN-type extension to all participants. The reasons for
bringing them under the GATT included the taking of advantage of their
enforcement mechanisms and the use of multilateral frameworks both to
accelerate negotiations, which otherwise had to be country by country, and to
permit the striking of deals across services and merchandise trade.
The
General Agreement on Trade in Services (GATS)
The
concept of Market Access played a central role in the discussions on
services, reflecting the interests of export-oriented multinational service
industries and government agencies seeking liberalisation and/or deregulation
of domestic service markets. Services (particularly direct ones) differ from
merchandise goods in that international transactions frequently require
consumers and suppliers to be at the same place at the same time (something,
however, that is changing fast with the advances in telecommunications). As a
result, market access restrictions for services may involve not only barriers
to the cross-border exchange of services, but also policies affecting the
physical entry of service producers into markets where consumers are located.
The
final draft of the General Agreement on Trade in Services (GATS) was presented
on December 20, 1991. Article I distinguishes four modes of supply to
which the Agreement applies. These are (a) the cross-border supply of a service
(i.e. not requiring the physical movement of supplier or consumer); (b) the
provision implying movement of the consumer to the location of the supplier;
(c) services sold in the territory of a Party by (legal) entities that have
established a commercial presence there but originate in the territory
of another Party; and (d) the provision of services requiring the temporary
movement of natural persons (service suppliers or persons employed by
them who are nationals of a country that is Party to the Agreement).
A
core general obligation of the GATS is the unconditional MFN treatment.
Other general obligations deal with transparency; economic integration;
recognition of licenses and certification; domestic regulation; behaviour of
public monopolies and behaviour of private operators.
National
Treatment is defined as treatment no less favourable than that
accorded to "like" domestic services and service providers. However,
such treatment may or may not be identical to that applying to domestic firms,
in recognition of the fact that identical treatment may actually worsen the
conditions of competition for foreign-based firms (e.g. a requirement for
insurance firms that reserves be held locally). Although quite similar in
wording to GATT's NT provision, it implies significantly different obligations
in an operational sense, given that NT is not a general obligation in GATS:
Once access to a market has been achieved through one or more of the modes
of supply, the NT commitments of the relevant party specify the conditions
under which the foreign service providers can compete in the domestic market
for each of the modes concerned.
Although,
conceptually, the distinction made in GATS between Market Access and National
Treatment is relatively clear, the distinction may be difficult to draw in
practice. This is because market access restrictions in the form of limitations
or conditions on modes of supply are likely to violate NT for these
modes as well. The articles are not integrated, because the market access
obligation also pertains to quantitative limitations that are applied on a non-discriminatory
basis. An example of such a non-discriminatory quantitative restriction is a
requirement that only a given number of firms -whether of foreign or domestic
origin- may provide a specific service. Such policies are in principle
prohibited under article XVI. Any such measures that countries might desire to
maintain for services that are included in their Schedules must be
listed. While the use of separate Market Access and National
Treatment provisions partly reflects a desire to maintain the GATT
distinction between measures that are applied at the border (market access
restrictions) and measures that are applied inside the border (national
treatment), it also reflects one of the distinguishing characteristics of
service markets: the fact that the contestability of such markets is frequently
restricted by non-discriminatory regulations.
The
Principles of GATT
Most
Favoured Nation (MFN)
Non-discrimination
in the GATT is expressed in the Most Favoured Nation concept in its
unconditional form. Article I of the GATT provides:
...with
respect to customs duties and charges of any kind imposed on ... importation or
exportation ... any advantage, favour, privilege, or immunity granted by any
contracting party to any product originating in or destined for any country
shall be accorded immediately and unconditionally to the like product
originating in or destined for the territories of all other contracting
parties.
There
are exceptions to this rule relating to customs unions and free trade areas
that were part of the GATT from its inception, and preferences for developing
countries that were added later.
The
requirement of article I that a concession given to one has to be given
to all could actually discourage negotiations on the reduction of barriers.
Each country could drag its feet in negotiations knowing that it would get the
benefit from reductions in other countries' barriers whether it reduced any of
its own or not: it could "free-ride" on the negotiations of others.
Free-riding has been curtailed in the successive rounds of GATT talks by
negotiating concessions between principal suppliers on narrowly defined
products while at the same time covering a wide range of products in the
negotiations as a whole. During the Tokyo Round, a formula reduction in
barriers (with exceptions) was adopted, and this also helped to curtail the
problem of "free-riding".
It
appears, however, that unconditional MFN is being eroded in the trade of goods,
as many countries focus more on the bilateral rather than on the multilateral
and systematic aspects of trade policies. In recent years, the main players in
GATT have shown considerable reluctance to extend the benefits of the new
Agreements to all members, even when these Agreements had been interpretations
of the GATT articles. Many signatories have extended the benefits only to the
co-signatories of the particular Agreement. With such attitudes prevalent,
there might be little chance that the benefits of the Agreements on services
would be extended to any, except the signatories to the relevant Agreements.
By
its very nature, MFN is weighted in favour of the developed countries and it
may hamper the development process of LDCs and their efforts to achieve growth
through trade. In a global economic climate which remains ever more uneven and
lopsided, it is unrealistic to assume absolute equality among Contracting
Parties. In recognition of the inequity occasioned by the MFN-principle, the
GATT Part IV on Trade and Development (Art. XXXVI-XXXVIII) introduced the Differential
and More Favourable Treatment for LDCs, which provides the recognition
of tariff and non-tariff preferential treatment in their favour as a permanent
legal feature of the global trading system.
National
Treatment
National
Treatment is to be distinguished from MFN; it refers to the
treatment of foreign products (or suppliers) not with respect to each other but
with respect to national products (or suppliers). Article III of the GATT
requires that internal taxes, regulations and the like should not be applied to
imported or domestic products so as to afford protection to domestic
production. It has sometimes been implied that, for some services, NT means
equality of treatment of foreigners and nationals.
In
certain cases, GATT may authorize or legitimize certain forms of discrimination
against goods produced by foreigners. The generally authorized form of
discrimination according to source is an import tariff, although in some
circumstances quantitative restrictions on imports are also permitted. NT then
implies that once the authorized form of discrimination has been imposed on a
product, there should be no further discrimination according to national
source. When one views national treatment in this manner, the way in
which it could be extended to services is readily apparent. A general agreement
on services could include a provision for specifying particular means of
discrimination against foreign-produced services. Sector-specific agreements
could then identify the particular form or forms of authorized discrimination
for the services in that sector, and particular levels of these forms of
discrimination could be bound among the parties to that agreement. National
treatment would then imply that in all other respects domestic and foreign
producers should be treated equally.
Dumping
and Safeguard
Dumping
is traditionally defined as selling at a lower price in one national market
than in another. Accordingly, Viner, in his classic study of dumping, concluded
that dumping should be confined to "price discrimination between national
markets". The classic dumping case is that in which a country sells goods
abroad at a price lower than the price prevailing in its home market. The rationale
for dumping products in a foreign market is analogous to that for price
discrimination within a domestic market: the discriminating firm can maximize
its profits by charging different customers different prices for essentially
the same products.
Abuse
is central to the negotiations on anti-dumping. These actions are meant to
protect domestic producers against predatorily priced imports, but they may now
have become a preferred protective instrument in some countries. For example,
since 1980, the four leading users of anti-dumping measures (Australia, Canada,
the EC, and the United States) have initiated over 1,000 investigations, of
which some 50 percent have led to action. As a result, the countries that are
often subject to such actions -led by Japan and other Asian exporters- want
clear rules to prevent unpredictability; they suggest an agreed methodology for
calculating dumping margins and strict limits for the period between initiation
and definitive findings of anti-dumping actions. On the other side, the EC and
the United States want the rules to cover circumvention (e.g. assembly of
dumped inputs in the domestic or third markets). However, the framing of rules
to determine "intent" in investment decisions is difficult in the face
of the internationalization of production that can make exporting via third
countries, or moving assembly operations into markets, an economically sensible
undertaking.
The
definition of dumping, as described in GATT and elsewhere, is often expressed
as the sale of products for exports at a price less than normal value,
where the latter is roughly defined as the price for which those same products
are sold in the "home" or exporting market. The difference is called
the "margin of dumping". It is often very difficult to determine the
correct prices which have to be compared in order to determine whether dumping
is present or not. Things become even more complicated in cases of countries
where a "home" price does not exist due to barter trading
arrangements (former Soviet Block) or when the inconvertibility of national
currencies makes price comparisons meaningless.
The
opportunities for profits from dumping will depend upon the interaction of
three variables:
(1) the demand for the dumping firm's
product in its own country and abroad: the firm will be more likely to
profit from dumping if the home demand for the dumped goods is inelastic while
the foreign demand for the same goods shows a high price elasticity.
(2)
the barriers to re-entry into the
exporting market: a condition for a successful dumping scheme is,
therefore, the effective insulation of the home market from the world market
for dumped goods.
(3) the nature of the firm's cost structure:
in general, a firm will not dump unless the marginal revenue that it derives
from abroad is substantially greater than its marginal costs of production for
dumped goods. Generally, this can be achieved at a lower foreign price only
when the cost curve is descending at the margin, i.e. when there is a declining
cost industry involving economies of scale.
Given
the long history of national and international concern on dumping, it is not
surprising that when the GATT was negotiated in 1947, special attention was
given to such cases. Article VI of GATT allows Contracting Parties to utilize
anti-dumping duties in order to offset the margin of dumping, provided that it
can be shown that such dumping is causing or threatens to cause "material
injury" to competing domestic industries.
As
time passed, however, some countries in GATT began to feel that other countries
were applying their anti-dumping laws in such a way as to raise new barriers to
trade. Thus, during the Kennedy Round of GATT trade negotiations (1962-1967),
the GATT contracting parties negotiated an "Anti-Dumping" (AD) Code,
which set forth a series of procedural and substantive rules regarding the
application of anti-dumping duties, partly due to the desire to limit
anti-dumping duty practices and procedures of governments which were damaging
international trade. During the Tokyo Round (in 1973), a new anti-dumping code
was negotiated whose official title was "Agreement on the Implementation
of Article VI of the General Agreement on Tariffs and Trade". The code came
into effect in 1979. Although GATT reports that as many as twelve countries
have used anti-dumping laws from time to time, it is commonly understood that
four traders are the principal users of anti-dumping laws, sometimes allegedly
in order to inhibit imports: the United States, the EU, Canada, and Australia.
The
original GATT (Article VI) called for the material injury test in
anti-dumping and subsidy cases, and the language of this test has been carried
over in the three codes concerning anti-dumping and countervailing duties,
namely the two anti-dumping codes (1967 and 1979) and the subsidies
countervailing code of 1979. Not surprisingly, the US law concerning the material
injury test for both the anti-dumping and the countervailing duty cases has
not always been completely consistent with the GATT rules. Since these laws
preceded GATT, the United States benefited from grandfather rights with
respect to injury test matters.
In
order to find "dumping", the rules compare the export price with some
"fair" benchmark. At some time this was essentially a price
discrimination test - a comparison of the price for export with the price in
the home (exporting) market. However, there was always allowance for the case
where the "home" price was not comparable, either because there were
no home market sales, or for other reasons. The traditional approach in such
cases has been to turn to comparisons with sales to third markets, or to a
"constructed cost" method of arriving at a "fair" home
price. During recent decades, however, more attention has been focused on the
"cost" of goods produced abroad and there has been a shift from
exploring potential "price discrimination" to a determination of
whether the exported goods have been sold at a price which is "below
cost".
Both
anti-dumping and countervailing duties require, under international rules,
fulfilment of the "material injury" test. The basic idea is that in
the case of imported dumped or subsidized goods, the importing country is not
authorized to respond with anti-dumping or countervailing duties (as an
exception to other obligations in GATT), unless it can be established that the
imported goods have caused "material injury" to the competing
industry of the "like" product in the importing country. Further, in
GATT 1994, no complaints are investigated unless they are lodged by at least
the 25% of those adversely affected; when the price movement represents less
than 2%; and/or when the change in the volume of imports is less than 3%.
Exporters threatened with an anti-dumping investigation can either negotiate an
Export Restrain Agreement, aimed at reducing the volume of imports, or
relocate production to the country threatening with anti-dumping action.
The
potential for proliferation of anti-dumping measures has increased considerably
as many developing countries are combining the liberalization of their import
regimes with the adoption of national legislation incorporating anti-dumping
measures. With the objective of reducing the possible abuse of anti-dumping
measures, efforts were undertaken in the Uruguay Round to establish more
precise and stringent multilateral disciplines aimed at introducing more
predictability and reducing arbitrariness in the application of anti-dumping
duties. The revised draft Agreement on Implementation of Article VI of the GATT
(Anti-dumping Code) was one of the major components of the rule-making area.
Compared
to the Tokyo Round, the Agreement contains more details on the
"determination of dumping" and the "determination of
injury"; something that could be generally considered as a positive
outcome for those countries that are subject to anti-dumping investigations. In
particular, the new specifications aim at making the determination of dumping
less arbitrary for exporters. New provisions concerning a) the examination of
additional factors (other than dumped imports) for ascertaining causality
between dumping and injury and b) the more precise factors pertaining to the
determination of threat of material injury, could be also considered as
improvements to the Tokyo Round Code. For the first time in any GATT
anti-dumping code, this Agreement also specifies that any definitive
anti-dumping duty is to be terminated on a date not later than five years from
its imposition (or from the date of latest review), unless the authorities
determine otherwise, in a new review initiated before that date.
GATT
and the Developing Countries
The
share of developing countries in total trade has increased from 21% in 1973,
the beginning of the Tokyo Round, to 26% in 1986 when the Uruguay Round opened.
As many of them are now significant markets for the exports of most industrial
countries, access to their markets and regulation of their trade policies have
become the objectives of the traditional participants of the Round. It could be
argued that, in the period since 1973, developed countries have increased their
protection while developing countries, by choice and because of pressure from
the international financial organizations, have liberalised their trade.
Interestingly, for the first time in economic history, the impetus to trade
liberalisation is not coming from industrial countries which profess to accept
liberal norms, but rather from countries whose past tradition has been to
reject them. A comprehensive passage in the Montreal Declaration, titled
"Increasing Participation of Developing Countries", could be
of special relevance here. It directly linked greater participation in world
trade in services and expanded services' exports by developing countries to the
strengthening of the capacity, efficiency, and competitiveness of the domestic
services' sectors of their economies.
In
the Uruguay Round of GATT trade negotiations, changes in policy towards, and
by, developing countries have been central objectives and concerns for both
industrial and developing countries. In the July 1991 review of progress (GATT,
1991b), the spokesman of the developing countries (the Brazilian ambassador,
Rubens Ricupero) pointed out that ...without awaiting the conclusion of the
Round, we have opened our markets, we have given away our non-tariff measures,
our exceptions for balance-of-payment-protection....having put aside our
weapons, having placed our faith in the system, we cannot afford to wait any
longer. We cannot allow the Round to drag on indefinitely...
Although
developing countries had not played an important part in previous Rounds,
demands on, and by, them had always been on the table, in all the major
"negotiating groups" into which the discussions were divided. The
reasons for this include:
• the increasing economic importance of
developing countries;
• the attempts to extend the role of GATT
into new areas, in some of which developing countries have a crucial role to
play;
• the significant changes in the nature of
trade policy on both sides.
Exceptions
for Developing Countries
A
constant stream of developing countries is seeking accession to GATT. As a
consequence, in 1965, a new chapter -Part IV- was added to the General
Agreement. Industrial countries also accepted that they would not expect
reciprocity for commitments they made to reduce or remove tariffs and other
barriers to trade. The only agreed exception to non-discriminatory treatment,
introduced in 1971 by amendment to the original treaty of 1948, was for
developing countries: they may receive special preferences, for example the
Generalised System of Preferences (GSP), or they may introduce
"exceptional" import controls. In practice, however, and in the past,
developing countries were allowed further special treatment, through indefinite
postponement of their obligation to bind tariffs. At the same time, developed
countries also enjoyed special privileges, which worked against developing
countries: GSP preferences were not "bound" or contractual, and the
agricultural, textiles and clothing sectors were largely outside the normal
GATT rules.
GATT
and Maritime Transport
As
it has been mentioned above, the aim of GATT is to liberalize world trade and
place it on a secure basis. With the reduction of tariff and non-tariff
barriers achieved in various rounds of negotiations, GATT is expected to
increase substantially the volume of international trade which in turn should
increase the demand for maritime transport services.
Quantifying
the overall effect of GATT 1994 on both world trade and world GDP is hard
because many of the most significant gains will come from outside the
traditional areas of merchandise trade. Despite this, a number of studies have
made the attempt. The studies carried out by the OECD, the World Bank and the
GATT broadly agree that the boost to world GDP will be between $213bn and
$274bn after ten years, or roughly 1.0-1.2% of world GDP as a step-gain. The
joint World Bank/OECD study, with the lower estimate, does not include
non-tariff barriers on industrial products, while the follow-up OECD study does
[EIU 1994]. If this increased volume of trade is realised, together with the
other dynamic effects of trade liberalisation, it could generate the equivalent
amount of sea transport demand which could help the shipping industry exit from
its current structural depression.
GATT
could affect shipping and ports in another way, namely in the furtherance of
liberalization of the maritime transport sector and its inclusion in the GATS
framework. As the Uruguay Round concluded without adopting an agreed position
for maritime transport (shipping is loosely included within a wider GATT
framework but excluded from the specific round settlement), the prospects of
the industry, with regard to further liberalization, become somewhat vague.
However, a strong appeal for further liberalization in shipping comes from both
traditional maritime nations and developing countries, though the understanding
of liberalization in shipping remains different.
Notwithstanding
shipping's exclusion from GATT 1994, it is believed in this paper that the
discussion is still open and relevant, on issues such as the applicability of
the various GATS principles in the shipping industry, the possible effects of
GATS on shipping and ports, the principles on which the liberalization of
shipping should be based and the way in which the GATS principles should be
implemented in the maritime transport sector.
Objectives
of Further Liberalisation in Shipping
Based
on the liberal spirit of GATS and the present situation in the shipping
industry, the following objectives could be considered as relevant within the
context of a GATS framework for the liberalization of the industry.
• The immediate or gradual removal of
all restrictive measures. This may mean that each country would now have
the possibility to participate, on a competitive basis, in international
seaborne trade. There should be no discriminatory treatment in any areas such
as ports, agency operations and freight forwarding. All arrangements with
regard to cargo reservation, preference and cargo sharing should be immediately
or gradually removed. Governmental financial and non-financial incentives
towards the domestic shipping and shipbuilding industries should be immediately
or gradually abandoned.
• The achievement of a more competitive
environment in shipping markets. As free competition has been hampered by
various commercial and institutional arrangements, further liberalization in
shipping, by being included in the GATS framework, should aim to remove the
obstacles which prevent free competition. In this sense, the conference system,
consortia and stabilization agreements should be re-examined under a
‘different’ light.
• Liberalization in maritime transport
should aim at a closer cooperation between the Traditional Maritime Nations
(TMN) and LDCs. The cooperation areas are wide, ranging from technical
cooperation, training of crews and management staff and policy consultation, to
commercial cooperation and even joint venture. Cooperation between TMNs and
LDCs can promote the development of international trade and the
industrialization of the developing countries while it could also contribute to
further liberalization in the sense that LDCs might give up their cargo
reservation and sharing systems, in exchange for a higher participation in
shipping. This cooperation could extend to environmental protection and to a
better implementation of international safety regulations.
Possible
Effects of GATS on Shipping and Ports
The
issue immediately arising with respect to the MFN principle is that of cargo
sharing through bilateral and multilateral agreements. Unconditional
application of the MFN clause in maritime transport could mean that all
countries who exercise cargo sharing should immediately or gradually phase out
all or some of their practices, or otherwise extend cargo reservation and/or
sharing privileges to other Parties. The following effects might result from
the implementation of this clause:
• Insufficient demand for the LDCs' fleets
caused by the removal of cargo reservation practices, which may shrink their
maritime industries.
• If MFN is binding, LDC governments may
seek other protectionist measures, in order to establish and develop their
national fleets. These measures may include governmental financial assistance
or other forms of cargo reservation such as government cargoes.
• As the UN Code of Conduct for Liner
Conferences appears not to be in conformity with the MFN clause, the strict
implementation of this clause may mean the end of the Code. Since the Code is
expected to prevent unilateral cargo reservation by LDCs, its end, or
withdrawal from it, may cause new or greater cargo reservation.
• Since the loss to LDCs from a strict
implementation of MFN to shipping could be rather heavy, LDCs may seek the
partial or complete non-application of the MFN clause. As MFN is the most
important clause in the GATS framework, if LDCs can successfully derogate from
this commitment and, without standstill and roll-back provisions, they could be
encouraged to continue, or introduce new, restrictive cargo reservation
measures. If so, the inclusion of maritime transport into GATS will have very
little effect on the promotion of liberalization in the shipping industry.
• If all kinds of cargo reservation are
phased out immediately, it will be difficult, if not impossible, for LDCs to
participate in maritime transport. This is contrary to the principle of increasing
participation of developing countries. A compromise may be the gradual
phasing out of cargo reservation, i.e. LDCs may demand a time-limited
derogation from MFN. During this period of derogation, LDC governments can
strengthen their national fleets by promoting improvements in management know-how
and by seeking technical and commercial cooperation from developed countries
while at the same time diminishing the extent of their dependence on cargo
reservation or other restrictive measures.
As
far as the EU and some OECD countries are concerned, the 1992 Regulation on the
implementation of Regulation (EU) 4055/86 has shown that there still exist some
bilateral agreements concerning cargo sharing cases which have not yet been
phased out or adjusted. However, examples of cargo reservation arrangements
between EU Member States are not so often seen as in the case of the developing
world. Since there are only some cargo sharing practices with third
countries under the UN Liner Code, the MFN clause would have only limited
effect on EU shipping. EU countries may benefit from the implementation of this
clause in the following aspects:
• The immediate or gradual phasing out of
cargo reservation and cargo sharing will increase the total cargo tonnages
available to them in the sense that they can provide high quality services,
compared with those of LDCs. This tonnage increase, however, will depend on the
comparative advantage of their fleet and, of course, on the extent to which
restrictive measures will be relaxed.
• If the phasing out of cargo reservation
and cargo sharing arrangements could adequately increase the cargo volumes
available to EU fleets, this might also help them to walk out of the current
depression. In this case, and with freight rates returning to normal levels,
governments may consider reducing some of their various assistance schemes,
which are both a burden to them and a target for LDCs.
National
Treatment and Maritime Transport
NT,
if binding, can be the most important principle applicable to maritime
transport. As the GATS states, ...Parties shall accord to other Parties no
less than that accorded to domestic services or domestic service providers...
Equality of treatment between foreigners and nationals imply that protectionist
measures, such as cargo reservation and preference for national shipping,
discriminatory taxes and charges towards foreign flag ships etc., are contrary
to this principle.
Cargo
reservation may be arranged by national legislation. For example, in Ecuador,
the Export Facilitation Law still stipulates that all exported oil products,
which along with their derivatives account for approximately 52 per cent of
total Ecuadorian exports, have to be transported by national ships. In South
Korea, the cargo reservation law which confined the carriage of many bulk
imports to the country's ships is now to be relaxed. In mid-1992, the Nigerian
National Maritime Authority announced its intention to bring into force
legislation, dating from 1987, requiring shippers to notify it of intended
cargoes, in order to allow it to allocate them to domestic conference lines.
In
the United States, cargo reservation is exercised through the various
definitions of government cargoes such as government-financed cargoes,
foreign aid cargoes, surplus agricultural commodities and relief aid, itemised
or designated cargoes, energy transport, defence and security transportation,
government supplies etc.
The
implementation of the National Treatment clause may bring about at least
the following effects.
• Under a strict implementation of NT, any
restrictive measures in favour of domestic shipping should either be removed or
extended to foreign shipping companies. For LDCs, this would mean a further
reduction of the demand for their national fleets, if they are not competitive
enough. Concerning US shipping, the effects would be similar but less
destructive.
• The implementation of National
Treatment would also mean the removal of any discriminatory charges and
taxes levied against foreign flag ships by, mainly, LDCs. In Nigerian ports for
example, national carriers are allowed to pay charges in Naira (the local
currency), while foreign lines must pay in U.S. dollars. A similar situation
exists in China where foreign lines are asked to pay in US dollars, according
to a particular tariff, while domestic shipping companies are allowed to pay in
RMB (the local currency). Thus, although the effects could be negative for many
LDCs, TMNs would benefit as they are the victims of discriminatory charges and
taxes.
• Although the above restrictive measures
provide less effective protectionism than cargo reservation and similar
arrangements, their removal may reduce national tax income, the income of
stevedoring and other companies and the income of the Port Authority. Port
conditions in LDCs are inferior to those of TMNs and port charges constitute an
important source of foreign currency, which is a commodity in scarce supply in
these countries. The reduction of port income might reduce investment in port
infrastructure and maintenance and the implementation of NT may cause further
deterioration of port conditions in LDCs. Of course, the extent of the
deterioration will depend on the level of discrimination that individual ports
exercise. The alternative may be that LDCs increase the tax and charges levied
on domestic carriers to the same level as that of foreign flags. China is now
in a process of making domestic shipping companies pay the same amount as the
foreign ones. This will increase the revenue of the ports which in turn could
improve the port facilities. Obviously, all ships calling at the port would
benefit but the national fleet would now be less protected than before.
• The implementation of National
Treatment (and Market Access) may also mean the entitlement of
foreign ships to access and use the port infrastructure and facilities. These
may include the physical port infrastructure, like anchorage, berths,
lightering, garbage collection etc. as well as services related to navigation
and cargo handling, like pilotage, towing and tug assistance, stevedoring and
terminal services and communications. It may also include customs, maritime
agency, freight forwarding and so on. With respect to all these facilities or
services, foreign ships should be treated in the same way as domestic ones and
the priority of the latter in using port facilities should be lifted. In cases
of port congestion, domestic ships could suffer more than before. On the other
hand, for ports with under-utilised facilities (and low marginal costs),
increased market access could mean higher port revenues, operational
improvements, lower turnaround times and transport costs, and an increase in
overall consumer welfare.
• Another implication of this article may
relate to the ability of foreign companies to own and operate the port
infrastructure and installations, i.e. to allow shipping companies or other
organizations to establish and run terminals and related installations in other
countries. In many developed countries port investment is treated as investment
in any other sector and foreign companies are allowed to invest in port and
related infrastructure without too many restrictions. In LDCs, however, there
are still some legal procedures that prevent this kind of investments, mainly
due to considerations of sovereignty and the perceived importance of transport
infrastructure in international trade. Port facilities built by foreign companies
can be either exclusive or public. If they are meant for public use, the
benefits accrued to LDCs would be substantial, especially in those countries
that lack port facilities or money to invest in port improvements. But if these
facilities are for private use only, they may not directly contribute to LDC
shipping. However, they may generate taxes and other contributions, such as
employment and increased consumption of domestic goods and services. The
P&O Group investments in terminals in two Chinese ports (Shekou and
Zhangjiagang) are expected to contribute both to the improvement of port
capacity, especially the container handling capacity, and to employment, tax
revenue and management know-how.
• The last important effect of the
implementation of NT to shipping and ports concerns cabotage restrictions. The
lifting of cabotage is an important step towards the integration of coastal and
international shipping and the efficiency of multimodal transport. The opening
of this area to outsiders, even conditionally, i.e. only when coastal shipping
is an extension of international transport, might affect significantly the
industry as whole, particularly in developing countries. The real effect will
depend on the competitiveness of the domestic shipping companies which, due to
the near-monopolistic structures prevailing in cabotage arrangements, appears
to be doubtful in many cases.
Market
Access
Together
with MFN and NT, Market Access (MA) is the third most important clause
for implementing the principle of non-discrimination. MA implies that Parties
shall grant treatment to services and service providers of other Parties no
less favourable than that provided for under the terms of their Schedule.
Where access to more than one mode of supply is provided for in a
Party's Schedule, other Parties shall be free to choose the preferred
mode.
Two
issues immediately arise with regard to MA: the establishment of commercial
presence in foreign countries and the right to provide services.
Regarding
the establishment of commercial presence, the effect could differ considerably
among different countries. Commercial presence could take various forms and
could be in charge of different activities. These activities may be the
marketing and sale of maritime transport services; the purchase and use of any
transport and related services; transport documentation; customs and other
activities; provision of business information and agency services and related
activities.
• In LDCs, these activities are mostly
performed by local companies in a relatively rather inefficient way. The
establishment of commercial presences may cause severe competition
between local and foreign firms. In certain cases this may mean -at least in
the beginning- the complete loss of business for local companies (or agencies)
since they lack extensive international business networks and experience, and
they operate less efficiently. Understandably, therefore, the allowance of
foreign shipping companies to set up various commercial presences in the
domestic markets of LDCs might at least harm the business of ship agency and
forwarding which are a part of the shipping industry. A further consideration, which
is more critical to domestic shipping, has to do with the fact that commercial
presences may compete for national cargoes on behalf of the shipping companies
they represent.
• In the above context, inland transport
can also be an objective of further liberalization. As international transport
becomes more integrated, and considering the advantages of multimodal
transport, many shipping companies, or their subsidiaries, are trying to start
their business in inland transport, particularly in trucking. As a first step,
the possibility of freely contracting with any local transport service
providers should be granted to foreign shipping companies, especially those in
liner shipping. This free choice of local transport suppliers will surely
increase the competitiveness of the local transport market. Secondly, foreign
shipping companies may wish to provide local transport services themselves,
i.e. to provide origin and/or destination related port and associated services.
In many countries, the trucking services of foreign shipping companies are
confined within port regions. However, it seems possible that, in the future,
trucking services could be extended beyond the port, as foreign shipping
companies may wish to provide door-to-door services to their customers. In
China, Sea-Land cooperates with the local trucking companies (Guangdong
Sinotrans) in order to start its trucking services between HongKong and the
Guangdong province.
It
has been mentioned already that the provisions of National Treatment and
Market Access are binding only in so far as Parties' Schedules specify.
If they are strictly implemented, LDC shipping may suffer significantly,
provided all protectionist measures are abolished completely. This is not in
conformity with the other articles of the GATS framework, notably with the
principle of increasing participation of developing countries. A standstill
commitment which would prevent the introduction of new restrictive measures,
within a given period of time, may be the acceptable compromise. During that
time LDC shipping will have to strength itself and adjust in order to be able
to compete with others under terms of free and fair competition.
The
Impact of Articles Favouring Protectionism
Although
the aim of the inclusion of MTS into the GATS framework is to liberalize
international shipping and to remove or restrict business practices which
hinder its development, some articles and/or provisions give countries who
exercise such measures the tacit consent to continue or even introduce
additional ones or leave some "loopholes" through which they may
continue their protectionism and interventionism.
Increasing
Participation of Developing Countries
Article
IV of the GATS is specially created for developing countries. As stated, the
GATS is to
...
facilitate developing countries to strengthen domestic services, improve access
to distribution channels and information networks and liberalize market access
in areas of export of interest to them by providing information on their
respective markets...
This
article effectively recognizes the infant industry principle and the
right of developing countries not only to participate in maritime transport,
but also to have the privilege of getting help from developed countries, in
order to strengthen their maritime transport industries, and to get access to
the shipping markets of the developed world without much obligation or
commitment for reciprocation.
Understandably,
this is one of the most criticised principles of GATT. Whilst recognising the
aspirations of developing countries to develop and increase the size of their
fleets and their share in world shipping under competitive conditions, OECD
countries have not accepted that a less developed status confers a right to
promote increasing participation in maritime transport services via
discriminatory flag measures. This argument sounds very reasonable
notwithstanding the fact that the LDC fleet is still relatively small compared
with their increasing share in world trade.
Domestic
Regulation and Transparency
Domestic
regulation affords Parties the right to require, from foreign
shipowners and operators, the adherence to domestic regulations, standards or
qualifications, in conformity with national policy objectives. Some
countries, LDCs in particular, may use this loophole to implement their policy
of protecting their domestic fleets. As OECD argues, this article may be used
by individual signatories to either disguise restrictions on international
trade or to exclude the whole MTS sector. Some governments may even use it in
order to retain the right of refusing the establishment of commercial presences
and it might be used even in the absence of national policy objectives,
which need to be clearly defined. Ambiguity and lack of transparency
with regard to national and local laws, regulations, prices, fees and their
alteration etc. may also have similar effects.
Restrictions
to Safeguard the Balance of Payments and Public Procurement
Concerning
exemptions aiming to safeguard the balance of payments, the relevant articles
acknowledge that a Party in the process of economic development is more
vulnerable to difficulties and that it may need to ensure the maintenance of a
level of external financial reserves for the implementation of its programme of
economic development. Developing countries have often used these provisions
in order to withdraw MFN rights in cases of a balance of payments crisis. A
number of them, however, including Brazil and Korea, have waived their right to
appeal to these provisions. As developing countries are by definition in a
process of economic development and as shipping is considered by most of them
as a prime foreign exchange earner, the balance of payments considerations of
GATT can constitute a very strong argument for the continuation of
protectionist practices.
With
respect to Government and Public Procurement, the relevant article implies
that, within two years after the entry into force of the Agreement,
multilateral negotiations may still be used and in the meantime Market Access
and National Treatment shall not apply. This article provides another loophole
with which some Parties may enjoy the advantage of sharing cargoes through
multilateral negotiations without being obliged to commit themselves to the
Market Access and National Treatment clauses. OECD argues that the allowance of
a blanket non-application of MFN, National Treatment and Market Access to such
procurement would restrict Parties' access to cargoes in a number of countries.
In order to reduce government protectionism to the minimum, it should be
clearly stated what kind of public and government procurement may be allowed
and in what sense the MFN, NT and MA clauses may not be applied. The EU argues
that cargo reservation and preference for government cargoes or for public
procurement, except for military goods, is not in conformity with the
Agreement.
Subsidies
and Anti-dumping
One
way or the other, a number of governments today afford their domestic shipping
and shipbuilding industries some of the following subsidies or other financial
support: operational subsidies; construction subsidies; modernization
subsidies; actual depreciation subsidies; loan and interest subsidies; investment
allowances and grants; investment guarantees and deferred credits; tax
benefits; construction deposits; customs exemptions; compensatory subsidies; inflation
and insurance subsidies; seamen's welfare benefits and ship research grants.
For
example in South Korea since 1962, the government has used considerable public
funds for the expansion of the major ports of Incheon and Pusan and the
construction of industrial ports, container and bulk terminals. According to
Korean experts, this investment in infrastructure has indirectly stimulated the
growth of Korean shipping. In Africa, Zaire and Nigeria, among others, give
financial incentives, such as rebates, tax credits, low interest rates and
waivers of import duties to their domestic shipping industries. In its 1993
budget, Malaysia decided to establish a M$800 million shipping fund. Of the
total, M$500 million were planned to be allocated to new investments, to
encourage entrepreneurs into shipping, and M$300 million was earmarked as help
to existing owners to fund new building and second-hand ship acquisitions.
Various
types of financial aid are used in the developed countries too. In the United
States, a certain amount of tonnage is required to be built under the Jones
Act. Counter-measures are accepted only in case these limits are
surpassed. The Home Credit Scheme of Japan is considered by other countries as
indirect assistance to domestic shipbuilding. Restructuring aid is considered
to be in compliance with EU rules provided it does not involve an increase in
shipbuilding capacity.
The
article on subsidies stresses their distortive effects and the need for the
establishment of disciplines to eliminate them. However, a special provision is
made which recognizes the role of subsidies in developing countries, in
relation to their development programmes. This article is very favourable to
LDCs, as it recognises that the LDC shipping industry is an infant one and
special assistance from governments may help to develop its potential
efficiency. Subsidies are simply an effective way to protect the domestic fleet
and if their aim is primarily promotional, i.e. to develop merchant marines in
developing countries, then direct government subsidies are more efficient.
As
far as the liberalization of shipping is concerned, the implementation of this
Article may increase the extent of protectionism in the industry. Since
subsidies to shipping may result in unfair pricing, many countries, especially
TMNs, have suggested that criteria and procedures for dealing with unfair
pricing should be established on a coordinated basis and the rights of Parties
to introduce or apply legislation aimed at dealing with unfair pricing should
be retained. To this effect, the United States have reinstated their
"famous" "Super 301" clause of their Trade Law which
permits unilateral action against unfair traders [EIU 1994].
The
only anti-dumping case known in shipping is the judgement against the Korean
Hyundai Merchant Marine (HMM), after a complaint by the European Conference
carriers (plus the Belgian independent ABC Container Line). The European liner
operators claimed that the South Korean service was charging uneconomic and
unfair freight rates on the southbound trip from North Europe to Australia.
HMM, however, argued that their route was a lot slower, consisted of a
different cargo mix and it called at different ports than those of the
complainants. This case has helped to stress how difficult and thorny the
anti-dumping issues can be, particularly in the case of (intangible) services,
and how elusive and subjective is the definition of a fair price or normal
value.
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