Cornell International Law Journal
Volume 13
Issue 2 Summer 1980
Article 4
The Tokyo Round of Multilateral Trade
Negoatiations and the Developing Countries
Gerald M. Meier
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Meier, Gerald M. (1981) "The Tokyo Round of Multilateral Trade Negoatiations and the Developing Countries," Cornell International
Law Journal: Vol. 13: Iss. 2, Article 4.
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THE TOKYO ROUND OF MULTILATERAL
TRADE NEGOTIATIONS AND THE
DEVELOPING COUNTRIES
Gerald M. Melert
The intensifying economic tension between rich and poor nations is a
crucial issue confronting the international legal community. At no time has
the dilemma of accommodating the needs of developing countries been
more apparent than during the Seventh Round of Multilateral Trade
Negotiations. Following an examination of the results of the Tokyo
Round, this Article will address the fundamental question whether the
agreements sufficiently meet the demands of the less developed countries to
justify their signature.
THE CONTEXT
The need for international trade reform was greater than at any time in
the postwar period, but the legal-economic context was unfavorable.
According to the Tokyo Declaration of September 1973, the negotiations
had two basic goals: first, to expand and liberalize world trade and, second,
to improve the trading strength of the developing countries.' Since the
t Professor of International Economics, Stanford University. Consultant to the World
Bank. B.A. 1947, Reed College; B. Litt. 1951, University of Oxford; Ph.D. 1952, Harvard
University. The views expressed in this paper are the sole responsibility of the author and do
not purport to represent those of the World Bank, its officers, or other staff members.
1. 2. The negotiations shall aim to:
-achieve the expansion and ever-greater liberalization of world trade and improvement
in the standard of living and welfare of the people of the world,
.. . inter alia, through the progressive dismantling of the international
frame work for the conduct of world trade.
-secure additional benefits for the international trade of developing countries
so as to achieve a substantial increase in their foreign exchange earnings, the
diversification of their exports, the acceleration of the rate of growth of their
trade.. . and a better balance between developing and developed countries
in the sharing of the advantages resulting from this expansion. ....
240 CORNELL INTERATIONAL LAW JOURNAL [Vol. 13:239
Tokyo Declaration,2
commentators in the international development field
have increasingly urged the liberalization of trade regimes in the developig
countries, and have advocated outward-looking export policies coupled
with a comprehensive incentive program to promote exports.3
To remove
trade barriers resulting from an inward-looking import substitution strategy,
the developing countries must have the opportunity to promote their
exports under more liberal trade arrangements.
The developing nations have long demanded that industrially
advanced countries grant tariff preferences on manufactures and semimanufactures
imported from poorer countries. Besides increasing the developing
country's exports, tariff preferences effectively raise prices in the
importing countries above the world market price. The result, therefore, is
to transfer resources from the developed to the developing nations.4
The developing countries view preference systems as a form ofpositive
compensatory discrimination. Critics in the developed countries, however,
speak of "inverted protectionism" and "trade diversion.' 5
The developed
countries have begrudgingly granted preferences, but have limited their effectiveness
through the use of exemptions, tariff quotas, and "market disruption"
escape clauses. 6 Although preferences may have symbolic value
from the standpoint of international equity and distributive justice, the less
developed countries have begun to realize that other forms of trade liberaliDeclaration
of Ministers Approved at Tokyo on 14 September 1973, para. 1, reprintedinGENERAL
AGREEMENT ON TARIFFS AND TRADE, BASIC INSTRUMENTS AND SELECTED DocuMENTS
(20th Supp.) 19, 19-20 (1974) [hereinafter cited as Tokyo Declaration].
2. Id.
3. See, e.g., B. BALASSA, POLICY REFORM IN DEVELOPING COUNTRIES (National Bureau
of Economic Research 1977); J. BHAGWATI, ANATOMY AND CONSEQUENCES OF EXCHANGE
CONTROL REGIMES (National Bureau of Economic Research 1978); A. KRUEGER, LIBERALIZATION
ATTEMPTS AND CONSEQUENCES (National Bureau of Economic Research 1978).
4. To illustrate the effects of tariff preferences, assume that developed country A imports
shoes from both B, another developed country, and from C, a developing country. Developed
country B's export price is 100 compared with developing country C's export price of 120. If
country A initially imposes a 50%ad ,aloremduty on all imported shoes, the import price plus
duty of B's and C's shoes are 150 and 180 respectively. In this situation, country 4 clearly
chooses to import from the other developed country B.
Suppose, however, that A retains the 50% duty on Bfs exports while levying no duty on
developing country C's exports (a 100% preferential margin). Country C'sexported shoes will
now be competitive in country A at a price up to 150 (price plus duty of imports from B).
Prior to granting the preference, .4paid customs receipts of 50 (the duty imposed on imports
from developed country B8)to itself. By granting such preferences, therefore, developed country
A will now import shoes from developing country C, resulting in a transfer of real resources
to C in an amount equal to the foregone customs revenue.
5. See generally H. JOHNSON, ECONOMIC POLICIES TOwARD LESS DEVELOPED COUNTRIES
(1967).
6. See Jacobs & Hove, Remediesfor UnfairImport Competitionin the UnitedStates, 13
CORNELL INT'L L.J. 1 (1980).
THE DEVELOPINGCOUNTRIES
zation may prove more beneficial in increasing their foreign exchange earnings
and promoting nontraditional exports.
Although the developed countries' average tariffs on manufactures are
low, their impact is comparatively greater on products imported from the
less developed nations. Prior to the Tokyo Round of Multilateral Trade
Negotiations, one study of market access revealed that, overall, the most
restricted products are those whose export the developing countries could
most easily expand.7
Moreover, the most heavily protected products in the
developed countries tend to be those whose impact would be most responsive
to a trade liberalization policy.8
These manufactures and semi-manufactures
are especially attractive to developing nations because they lend
themselves to labor-intensive production on a small or medium scale based
on local natural resource supplies.9
Another severe obstacle to the trading strength of less developed nations
is the escalation in developed country tariffs according to the imported
goods' degree of processing, resulting in different tariff rates on products at
the intermediate and final output production stages. 10
The resulting high
rate of effective protection on domestic value added imposes extreme
handicaps on potential developing country exports. Moreover, by discriminating
against imported processedgoods, developed country escalated tariffs
offset the cost advantages the developing countries possess with respect
to many processed commodities.
The rise of the "New Protectionism" since the Tokyo Declaration in
1973, however, is the most serious threat to the less developed countries'
prospects for new exports of manufactures and semi-manufactures."
Under the guise of preventing "market disruption," nations have imposed
numerous quantitative restrictions in the form of Orderly Market Agreements
(OMAs)12
and Voluntary Export Restraints (VERs).13 A striking
7. See generally H. LYDALL, TRADE AND EMPLOYMENT: A STUDY OF THE EFFECTS OF
TRADE EXPANSION ON EMPLOYMENT IN DEVELOPING AND DEVELOPED COUNTRIES (1975).
8. Examples of exports of special importance to developing nations include textiles,
clothing, footwear, and certain food products. These products are heavily protected in the
developed countries. Id. at 19.
9. See generalyUnited Nations Conference on Trade and Development, Comprehensive
Measures Required to Expand and Diversify the Export Trade of Developing Countries in
Manufactures and Semi-Manufactures, U.N. Doc. TD/230 & Supp. 1 (1979) [hereinafter cited
as UNCTAD Report on Manufactures and Semi-Manufactures].
10. See id. at 4.
11. See INTERNATIONAL MONETARY FUND, THE RISE IN PROTECTIONISM (Pamphlet Series
No. 24, 1978); Balassa, The "New Protectionism"and the InternationalEconomy, 2 J.
WORLD TRADE L. 409 (1978); United Nations Conference on Trade and Development, Implications
for Developing Countries of the New Protectionism in Developed Countries, U.N.
Doc. TD/226 (1979).
12. See THE RISE IN PROTECTIONISM, supranote 11, at 62-64.
13. See id. at 65-66.
1980]
242 CORNELL INTERNATIONAL L4W JOURNAL [Vol. 13:239
example of this form of protectionism were the textile quotas. 14
The
number of unreported government-to-government and industry-to-industry
"understandings" to limit exports to a "reasonable level" may greatly exceed
the number of reported OMAs and VERs. The less developed countries
fear that developed countries will continue such practices as textile
quotas, OMAs and VERs with respect to new developing country exports.
Since 1976, the industrialized nations have introduced new restrictive
trade measures through government aids to domestic industry. Examples
of defensively subsidized industries include: the British textile, clothing
and footwear industries; the shipbuilding industry in a majority of developed
countries; and the French automobile, data processing, pulp and
paper, steel and watch industries.' 5
Further potential restrictions stem from
proposals for international market sharing agreements in shipbuilding and
steel within the framework of the Organization for Economic Cooperation
and Development (OECD).
With the alarming rise in oil prices since the Tokyo Declaration and its
consequent damage to the balance of payments of non-oil-producing developing
countries, the less developed countries' need for export revenue is
now greater than ever.' 6
Because these unfavorable developments have also
adversely affected oil-importing developed countries, the transfer of
resources from rich to poor in the form of official development assistance
has declined.' 7
In addition, the International Monetary Fund has not been
a net lender over the past three years, as members' repurchases have
exceeded their purchases from the Fund.' 8
Because of persistent international
economic inequality, the World Bank has advocated redistribution of
income with growth in developing economies. The international community,
however, has done little to effectuate such redistribution. With
only about seventeen percent of world population, OECD member countries
still account for some sixty-three percent of total world output. The
less developed countries have seventy-five percent of world population, in-
14. See id. at 14-25. See also notes 37-41 infra and accompanying text.
15. Balassa, supra note 11, at 418-20.
16. Anthony M. Solomon, former Under Secretary of the Treasury for Monetary Affairs,
estimated that the current account deficits of oil-importing developing countries will total fifty
billion dollars in 1980. N.Y. Times, Feb. 23, 1980, at 103, col. 1.
17. Although official assistance from members of the Development Assistance Committee
did not decline in real terms in 1979, such assistance "shows no signs of a major advance."
ORGANIZATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT, DEVELOPMENT CO-OPERATION,
EFFORTS AND POLICIES OF THE MEMBERS OF THE DEVELOPMENT ASSISTANCE COMMITTEE
76 (1979). During the 1970's, however, the low-income developing countries' share of
total resource flows decreased. Id
.
at 68-70.
18. See IMF SURVEY, Feb. 4, 1980, at 33, 45.
THE DEVELOPINGCOUNTRIES
cluding about 800 million people living in absolute poverty, but share only
twenty percent of world product.
Because the probability of directly transferring real resources from rich
to poor nations through concessional aid has diminished, the less developed
countries now advocate indirect transfers through commercial policies
favoring developing countries. By discriminating in favor of imports from
their nations, the developing countries hope to improve their terms of trade
with the developed countries. As early as 1947, in the initial negotiations
for the International Trade Organization (ITO), representatives of the less
developed countries wanted "to incorporate wide authority for all waiver of
discriminatory practices, if these were intended to foster economic development."1
9
When the ITO did not absorb the General Agreement on Tariffs
and Trade (GATT),20
the "Economic Development and Reconstruction"
chapter of the Havana Charter became moot.2 1
The fundamental issue of
whether different trade rules should apply to countries according to their
different stages of economic development, however, has persisted.
Against this background of increasingly restrictive trade policies,
spokesmen for developing countries stress the need for trade liberalization.
Liberalization, they feel, will permit the poorer countries to develop fully
their export potential in low-cost manufactured goods.22
Because of deteriorating
economic conditions in the developed countries since the beginning
of the Tokyo Round, however, the task of liberalization has become more
difficult. Stagflation has intensified concern over unemployment, and hence
the need to protect domestic jobs from competitive low-cost imports. Furthermore,
balance-of-payments problems of the oil-importing nations have
also discouraged trade liberalization.
The most fundamental impediment to trade liberalization, however,
has been the disintegration of the Bretton Woods System. The GATT's
role is inseparable from those of the IMF and the World Bank. The IMF
lost its power as a code of conduct in 1973, when nations turned to floating
exchange rate regimes. Since that time, international monetary affairs have
taken a course of "abandonment." Nations have eliminated fixed exchange
rates, currency convertibility, an official price for gold, and a multifaceted
19. G. PATTERSON, DISCRIMINATION IN INTERNATIONAL TRADE: THE POLICY ISSUES
1945-1965, 323 (1966).
20. General Agreement on Tariffs and Trade, openedforsignatureOct. 30, 1947, 61 Stat.
A-l, T.I.A.S. No. 1700, 55 U.N.T.S. 194. The current version is contained in 4 GENERAL
AGREEMENT ON TARIFFS AND TRADE, BASIC INSTRUMENTS AND SELECTED DOCUMENTS
(1969) [hereinafter cited without cross reference as GATT].
21. See G. PATTERSON, supranote 19, at 324.
22. See UNCTAD Report on Manufactures and Semi-Manufactures, supranote 9, at 1.
1980]
244 CORNELL INTERNATIONAL LW JOURN4L [Vol. 13:239
reform system.23
During this period of abandonment, the GATT, the
World Bank, and the IMF have remained separate institutions, with only
minimal consultation among the three.
Unlike the IMF or the World Bank, the GATT was neither the economists'
nor the lawyers' creation. It was, in Professor Hudec's language,
"diplomats' jurisprudence," a factor that may explain GATT's legal mal-
aise.24
These legal deficiencies of the General Agreement combined with
deteriorating global economic conditions to place the Tokyo Round of
MTN in a most inhospitable environment.
Attaining true international economic order may require the establishment
of supranational economic decision units. A system of functional federalism
among nations would allocate different economic functions to
different levels of government.2 5
The difficulty lies in finding the international
analogues to the national public policies of maintaining economic
stability, redistributing income, and correcting market failure. Achieving
world economic stability is a difficult task without an international fiscal
authority or an international central bank. Because of the absence of an
international mechanism for wealth redistribution through taxes and subsidies,
the world community must find alternative arrangements to transfer
resources from rich to poor countries. Finally, the search continues for
effective remedies for international market failure.
Absent policy coordination among nations and supranational decision
units, the world community will continue to seek international economic
order through a variety of regulatory alternatives. These alternatives range
from the self-regulating market price system to international codes of conduct,2
6
negotiating and bargaining, forms of arbitration, adjudication, and
simple unilateral action.
II
AN ASSESSMENT OF THE SEVENTH ROUND FROM
THE STANDPOINT OF THE DEVELOPING
COUNTRIES
After five years of intensive negotiations, the seventh round of Multilateral
Trade Negotiations yielded mixed results for the less developed
countries. Some benefits will flow from tariff reductions27
and from some
23. IMF SURVEY, Jan. 7, 1980, at 4.
24. R. HUDEC, THE GATT LEGAL SYSTEM AND WORLD TRADE DIPLOMACY 267-68
(1975).
25. See R. COOPER, ECONOMIC MOBILITY AND NATIONAL ECONOMIC POLICY 59 (1974).
26. See notes 49-55 infra.
27. See notes 31-48 infra and accompanying text.
THE DEVELOPING COUNTRIES
of the new non-tariff barrier codes.28 The new Framework Agreement29 is
a potentially significant source of benefit to the developing countries. A
major failure of the negotiations, however, stems from the failure to revise
the multilateral safeguard system under Article XIX of the GATT.30
A. TARIFFS
Tariff reductions granted in the Tokyo Round will result in a general
tariff reduction of about one-third.31 The negotiations will result in greater
percentage cuts in higher tariffs than in lower tariffs, but the most significant
reductions will affect traditional industrialized country exports such as
machinery, chemicals, and transport equipment.32 Moreover, on industrial
products of particular interest to the developing countries, the weighted
average reduction in tariffs is only about one-fourth, compared with the
approximately one-third weighted average reduction in all industrial tariffs.
33 Among sectors receiving less than average tariff reductions are textiles,
leather, and rubber, traditionally important exports of developing
countries.
34
Negotiated bilaterally or multilaterally, the tariff reductions apply to
the less developed countries through the Most-Favored-Nation (MFN) provision
of the GATT.35 Under other GATT provisions,36 the less developed
countries are not bound to extend full reciprocity. The nations will carry
out most reductions in equal installments over an eight-year period beginning
January 1, 1980. In so-called "sensitive" sectors such as steel and textiles,
however, the reductions will not begin until January 1982. Moreover,
a pre-condition to the reduction in tariffs on textiles is the further extension
of the Multifiber Arrangement, now scheduled to expire in 1981.37
Important developing country exports exempt from any tariff reduction
include certain textiles, apparel, leather goods, footwear, and steel.38
Significant textile exporters like Hong Kong, Taiwan, Korea, India, Mex-
28. See notes 49-73 infra and accompanying text.
29. See notes 74-102 infra and accompanying text.
30. See notes 103-08 infra and accompanying text.
31. See GENERAL AGREEMENT ON TARIFFS AND TRADE, THE TOKYO ROUND OF MULTILATERAL
TRADE NEGOTIATIONS 118-19 (1979) [hereinafter cited as GATT, THE TOKYO
ROUND OF MTN].
32. Id. at 120.
33. Id. at 121.
34. Id. at 119.
35. GATT Art. 1.
36. See note 83 infra and accompanying text.
37. Arrangement Regarding International Trade in Textiles, BISD (21st Supp.) 3-18
(1975) [hereinafter cited as Multifiber Arrangement].
38. Most of these products were already admitted duty-free or subject to very low tariffs.
See GATT, THE TOKYO ROUND OF MTN, supranote 31, at 120.
1980]
246 CORNELL INTERNATIONAL LAW JOURNAL [Vol. 13:239
ico, the Philippines, Singapore, and Brazil had already negotiated quota
agreements.39 As a political price paid to obtain congressional approval of
the multilateral agreements, the United States has taken even more restrictive
action in regard to textiles, slowing the growth rate of quotas from six
percent under the Multifiber Arrangement 4o
to the rate of domestic market
expansion, about one percent to three percent annually.4'
To the extent of the erosion of preference margins under the Generalized
System of Preferences (GSP),42 the overall tariff cuts will actually
weaken the trading position ofthe developing countries. Although experts
disagree on the relative reliability ofestimates in this area, trade liberalization
should result in export increases sufficient to offset the loss in export
revenues due to reduced preferences.43
One positive result ofthe tariffreductions may be to diminish the longstanding
concern of developing nations over tariffs escalated according to
their product's stage of production.44
The less developed countries view
tariff structures imposing higher duties on semi-processed and manufactured
imports than on imports of raw materials as an impediment to industrial
transformation in primary product exporting countries. Believing that
these high effective rates ofprotection in the developing countries condemn
them to remain hewers of wood and drawers of water, the less developed
countries have called for removal of tariff escalations of this type. In this
respect, the Tokyo Round will produce the most marked tariff reduction in
the area of finished industrial manufactures, where reductions based on
simple averages will amount to about thirty-nine percent, compared with
39. THE RISE IN PROTECTIONISM, supra note 11, at 16.
40. Multifiber Arrangement, note 37 supra.
41. Textile imports from developing countries amounted to about five billion dollars in
1978. If the quota growth rate is cut from six percent to two percent annually, tariffs on textiles
imported from developing nations will total about one billion dollars less than they otherwise
would.
42. See generally United Nations Conference on Trade and Development, Review and
Evaluation of The Generalized System of Preferences, U.N. Doc. TD/232 (1979).
43. An UNCTAD Report reaches a different conclusion, calculating that a $1.7 billion
expansion in industrial exports from the developing countries due to tariff reductions on nonGSP
products would be more than offset by a $2.1 billion decline in exports because of the
erosion of preferences under the GSP. United Nations Conference on Trade and Development,
Multilateral Trade Negotiations: Evaluation and Further Recommendations Arising
Therefrom, at 12-13, U.N. Doc. TD/227 (1979).
Bela Balassa argues, however, that the methodology used to arrive at the estimates seriously
biases the results and that, under reasonable assumptions, increase in the exports of developing
countries should exceed by several times the decline in exports caused by a partial loss of
preference margins. B. BALASSA, THE TOKYO ROUND AND THE DEVELOPING COUNTRIES 9-
14 (World Bank Staff Working Paper No. 370, 1980). See also Birnberg, Tar&flReform Options:
EconomicEffects on DevelopingandDevelopedCountries,in POLICY ALTERNATIVES FOR
A NEW INTERNATIONAL ECONOMIC ORDER 217, 237-39 (W.R. Cline ed. 1979).
44. See note 10 supra and accompanying text.
THE DEVELOPINGCOUNTRIES
thirty-two percent for industrial raw materials and only seven percent for
agricultural products.45
A final source of potential benefit to the less developed countries involves
reductions of tariffs imposed on tropical products. In this area, the
developed countries approved 2,930 of the developing countries' 4,400 initial
requests for concessions.46
The most important concessions involve
products such as coffee, tea, spices, cocoa, and animal products.47 Although
the developed countries did not accede to the developing countries' demands
for complete abolition of internal taxes on tropical products like coffee
and tobacco, some developed countries did agree not to increase existing
levels of taxation of these products.48
B. NON-TARIFF BARRIER CODES
The most significant accomplishment of the Multilateral Trade Negotiations
is its series of codes and agreements regarding non-tariff matters.
The agreements cover: agricultural products, including dairy and beef
products;4 9
valuation for customs purposes;50 government procurement;5I
technical barriers to trade relating to national product standards; 52
import
licensing;53 antidumping duties;54 and subsidies and countervailing
duties.55
The latter two hold the greatest significance for the less developed
countries.
45. GATT, THE TOKYO ROUND OF MTN, supranote 31, at 122.
46. Id. at 157, 162-63.
47. Id. at 157.
48. Id. at 159.
49. At the multilateral level, the negotiators agreed to the International Dairy Arrangement,
GATT Doc. MTN/DP/8, reprintedin AGREEMENTS REACHED IN THE TOKYO ROUND
OF MULTILATERAL TRADE NEGOTIATIONS, H.R. Doc. No. 153, 96th Cong., 1st Sess., 341-412
(1979) [hereinafter cited without cross reference as H.R. Doc. No. 153]. With respect to
cheese, other dairy products and meat, numerous bilateral agreements resulted from the Tokyo
Round. See H.R. Doc. No. 153, at 414-618.
50. Agreement on Implementation of Article VII of the General Agreement on Tariffs and
Trade, GATT Doc. MTN/NTM/W/229/Rev. 1, reprintedin H.R. Doc. No. 153, at 5-65.
51. Agreement on Government Procurement, GATT Doc. MTN/NTM/211/Rev. 2, reprintedinH.R.
Doc. No. 153, at 69-172.
52. Agreement on Technical Barriers to Trade (Relating to Product Standards), GATT
Doc. MTN/NTM/W/192/Rev. 5, reprintedin H.R. Doc. No. 153, at 205-56.
53. Agreement on Import Licensing Procedures, GATT Doc. MTN/NTM/W/231/Rev.
2, reprintedin H.R.Doc. No. 153, at 193-208.
54. Agreement on Implementation of Article VI ofThe General Agreement on Tariffs and
Trade, GATT Doc. MTN/NTM/W/232, reprintedin H.R. Doc. No. 153, at 311-38 [hereinafter
cited as 1979 Antidumping Code]. See notes 56-59 infraand accompanying text.
55. Agreement on Interpretation and Application of Articles VI, XVI and XXII of the
General Agreement on Tariffs and Trade, GATT Doc. MTN/NTM/W/236, reprintedin H.R.
Doc. No. 153, at 259-307 [hereinafter cited as Code on Subsidies and Countervailing Measures].
See notes 60-73 infra and accompanying text.
1980]
248 CORNELL INTERNATIONAL LAW JOURNAL [Vol. 13:239
L The 1979Antidumping Code
The 1979 Antidumping Code5 6
reinterprets Article 6 of the GATT5 7
in
an attempt to bring the existing Code5 8
into conformity with the new Code
on Subsidies and Countervailing Measures.5 9
With the exception of Yugoslavia
and Malta, no member of the Group of 77 acceded to the 1967 Antidumping
Code. At the Tokyo Round, therefore, the developing countries
pressed for substantial modification of the Code, seeking in particular: special
and more favorable treatment for developing countries; determination
of "normal value" through comparison of the export price with the price of
like products exported to third countries; a requirement that "dumped imports
should be the principal cause of material injury;" and that, when imports
from developed and developing countries are together causing the
injury, investigation into developing country practices be commenced only
when such imports are clearly the principal cause of material injury. The
developed countries refused to accept these provisions, however, and the
developed and developing countries submitted alternative texts for the new
Code. Both texts appear in the Proces-Verbal for signature, and reconciliation
of the two will likely be difficult.
2. Subsidies Code
The new Subsidies Code60
prohibits the use of export subsidies on industrial
and mineral products,6
' precisely defines the rule on export subsidies
on agricultural products, 62
and provides guidelines for the use of
domestic subsidies in general.63
The developing nations will receive special
and differential treatment under the new Code."a
Moreover, the Code provides
for further restrictions on the use of countermeasures. 65
In the interest of developing countries, the Subsidies Code recognizes
the integral role of domestic subsidies in development programs.66
Government financial support measures of developing countries, therefore,
56. 1979 Antidumping Code, supra note 54, H.R. Doc. No. 153, at 259.
57. GATT Art. VI.
58. Agreement on Implementation of Article VI of the General Agreement on Tariffs and
Trade, BISD (15th Supp.) 24-35 (1968) [hereinafter cited as 1967 Antidumping Code].
59. Subsidies Code, note 55 supra.
60. See note 55 supra.
61. Subsidies Code, supra note 55, art. 10, H.R. Doc. No. 153, at 278-79.
62. Id.
63. Subsidies Code supra note 55, art. 14, H.R. Doc. No. 153, at 279-81.
64. Id. art. 14, H.R. Doc. No. 153, at 284-85.
65. Id. art. 15, H.R. Doc. No. 153, at 286. The United States, for example, will adopt an
injury requirement for countervailing action against other code signatories.
66. Id. art. 15(7), H.R. Doc. No. 153, at 285.
THE DEVELOPING COUNTRIES
"shall not, perse, be considered subsidies. ' 67
Moreover, developing countries
are exempt from the commitment of the developed countries not to use
export subsidies on industrial and mineral products.68
Developing country
signatories do agree, however, not to use such subsidies "in a manner which
causes serious prejudice to the trade or production of another signatory."69
Developing nations are nonetheless subject to the imposition of countervailing
duties if their subsidized exports cause "material injury to a domestic
industry, threat of material injury to a domestic industry or material
retardation of the establishment of such an industry. . .. "70
The Code requires that developing countries endeavor to enter into
commitments to reduce or eliminate subsidies inconsistent with development
needs.7 1
The Agreement also extends special and differential treatment
to developing countries in cases of third market subsidization.7 2
Finally, the Code envisages the possibility that the Committee of Signatories
might extend this preferential treatment when authorizing countermeasures
against developing country subsidies.73
In the hope of joining the ranks of "newly industrializing countries,"
many developing nations are currently instituting incentive programs to
promote exports. Determinations of legitimate subsidization levels on
exports will, therefore, be crucial to the developing countries. Indeed, the
future interpretation and application of the Subsidies Code will largely determine
the overall value to developing nations of the entire Tokyo Round
of MTN.
C. FRAMEWORK FOR CONDUCT OF INTERNATIONAL TRADE
The results of the "Framework" negotiations may represent one of the
most significant accomplishments in recent years in the area of North-South
relations.74
Consistent with the Tokyo Declaration, the Framework negotiations
were to "seek to negotiate improvements in the international framework
for the conduct of world trade, particularly with respect to trade
between developed and developing countries and differential and more
67. Id.
68. Id. art. 14(2), H.R. Doc. No. 153, at 284.
69. Id. art. 14(3), H.R. Doc. No. 153, at 284.
70. Id. art. 2(1), H.R. Doc. No. 153, at 261 n.l.
71. Id. art. 14(5), H.R. Doc. No. 153, at 284.
72. Id. art. 14(6), H.R. Doc. No. 153, at 284-85.
73. Id. arts. 8 & 9, H.R. Doc. No. 153, at 285.
74. The various texts of the Group "Framework" are contained in GATT Doc. MTN/
FR/W/20/Rev. 2, reprintedinH.R. Doc. No. 153, at 621-62 [hereinafter cited as Framework
Agreement]. See R. KEMPER, THE TOKYO ROUND: RESULTS AND IMPLICATIONS FOR DEVELoPING
CouNmiEs ii (World Bank Staff Working Paper No. 372, 1980).
1980]
250 CORNELL INTERNATIONAL LAW JOURNAL [Vol. 13:239
favorable treatment to be adopted in such trade."'7 5
The only GATT provisions
presently giving a degree of differential and favorable treatment to
developing countries are those in Article XV11176
and Part IV.77
Moreover,
the GATT did not incorporate the GSP, negotiated in the United Nations
Conference on Trade and Development,7 8
in this framework. Instead, the
GSP gave only temporary legal cover through waivers permitting deviation
from the basic GATT principle of unconditional MFN treatment.7 9
The
developing countries, therefore, viewed the framework negotiations as another
area in which to press for special treatment.
Several developing countries, led by Brazil, made detailed proposals to
the Framework Group. These proposals treated the subjects of differential
treatment for developing nations, safeguard action for purposes of balanceof-payments
and economic development, consultations, dispute settlement
and surveillance under Articles XXII and XXIII and, for the purposes of
future negotiations, applicability of the reciprocity principle and the
developing countries' broader participation in an improved GATT framework,
taking into account development needs. Although the substantive
negotiations fell short of the developing nations' objectives, the Framework
Group made notable progress toward integrating the "differential and more
favorable treatment" notion into the GATT itself,thus eliminating the need
to obtain waivers.80
In its final enabling clause, the Framework Group combined the topics
of a "legal framework" and "reciprocity and fuller participation by developing
countries."'8 1
The final text of this agreement calls for special treatment
in tariff preferences under the GSP, non-tariff measures under codes
negotiated pursuant to the GATT, tariff and non-tariff preferences negotiated
regionally or globally among developing countries, and special treatment
of the least developed among developing countries.8 2
The agreement
also recognizes the special needs of developing countries by excusing the
latter from extending reciprocity to developed country trade liberalization
commitments.
83
75. Tokyo Declaration, supra note 1, at 22.
76. GATT Art. XVIII.
77. GATT Arts. XXXVI-XXXVIII.
78. See GATT, THE TOKYO ROUND OF MTN, .supranote 31, at 98.
79. See id.
80. See GATT, THE TOKYO ROUND OF MTN, supranote 31, at 99; R. KEMPER, supra
note 74, at 30.
81. See Framework Agreement, note 74 sulra,H.R. Doc. No. 153, at 622.
82. Id.
83. The developed countries do not expect reciprocity for commitments made by them
in trade negotiations to reduce or remove tariffand other barriers to the trade of developing
countries .... Developed contracting parties shall therefore not seek, neither
THE DEVELOPINGCOUNTRIES
Point 2B of the Framework Agreement permits less developed countries
to invoke relevant GATT safeguard provisions to modify existing production
structures to promote economic development.8 4
Because Article
XVIII of the GATT allows use of such measures as the withdrawal or modification
of granted preferences and imposition ofspecial measures only "to
promote the establishment ofa particular industry,"85
Point 2B extends Article
XVIII of the GATT in favor of the the less developed nations.86
Point 2A of the Framework Agreement imposes additional restrictions
on the developed nations' use of safeguard action for balance-of-payments
purposes. 87
Such action would be appropriate only when the measure involved
is that having "the least disruptive effect on trade,"88
when only one
type of measure is involved,8 9
and when the developed country "publicly
announcels] a time schedule for the removal of the measures." 90
Developed
countries taking safeguard action of this type are to consider the adverse
effects ofthe measures on the export interests of the developing countries.9 1
The Agreement would authorize "simplified consultation procedures"'92 for
less developed countries wishing to impose their own balance-of-payment
restrictions.93 In the event of consultations, developing countries may
request that the committee focus on possible external causes of their balance-of-payment
difficulties94 and may request the technical assistance of
the GATT secretariat in preparing for the consultations. 95
A final aspect of the Framework negotiations ofspecial importance to
the developing countries involves the "graduation" principle.96
Unfortunately,
the Enabling Clause is vague and ambiguous in its recognition of
shall less-developed contracting parties be required to make, concessions that are inconsistent
with the latter's [sic] development, financial, and trade needs.
Id, H.R. Doc. No. 153, at 624.
84. Id. Point 2, H.R. Doc. No. 153, at 632.
85. GATT Art. XVIII, sees. A & C.
86. See GATT, THE ToKYo ROUND OF MTN, supranote 31, at 104.
87. Framework Agreement, supranote 74, Point 2A, H.R. Doc. No. 153, at 626.
88. Id. Point 2A, para. l(a), H.R. Doc. No. 153, at 627.
89. Id. para. l(b), H.R. Doc. No. 153, at 627.
90. Id. para. 1(c), H.R. Doc. No. 153, at 627.
91. Id. para. 2, H.R. Doc. No. 153, at 627.
92. Basically, this procedure involves prior consideration of balance-of-payments restrictions
by a Committee on Balance-of-Payments Restrictions whenever a developing country is
involved. Submitting to such consideration may avoid the need for a full consultation under
Article XVIII of the GATI'. See Procedures for Regular Consultations on Balance-of-Payments
Restrictions with Developing Countries, GATT Doc. L/3772/Rev. 1(1972), BISD (20th
Supp.) 47-49 (1974).
93. Framework Agreement, supra note 74, Point 2A, para. 6, H.R. Doc. No. 153 at 628.
94. Id. Point 2A, para. 12, H.R. Doe. No. 153, at 631.
95. Id. para. 10, H.R. Doc. No. 153, at 629.
96. See generally I. FRANK, THE "GRADUATIoN" ISSUE IN TRADE POLICY TowARDs
LDCs (World Bank Staff Working Paper No. 334, 1979).
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252 CORNELL INTERNATIONAL LAW JOURNAL [Vol. 13:239
the graduation concept, providing merely that, as poorer nations develop
and their trade situations improve, "they would accordingly expect to participate
more fully in the framework of rights and obligations under the
General Agreement through participation in the operation of the GATT
System."
97
The "graduation" principle merits more attention than it received in
the final Framework Agreement. The principle should apply, for example,
to the non-reciprocity rule.9 8
The World Bank recognizes such a concept
by "graduating" developing nations from eligibility for International Development
Association credits, and applies the principle in formulating ceilings
for most generalized preferences.9 9
A modified principle of reciprocity must necessarily depend on more
effective safeguards against market disruption. Special and differential
treatment may be legitimate under certain conditions, but it is exceedingly
difficult to maintain a reasonably open international trading system when
the rules apply to the small group of OECD nations while all other nations,
without regard to their stage or rate of development, are indefinitely free of
such constraints. The best approach would be to establish a graduation
principle requiring newly industrializing countries with rapidly expanding
exports and satisfactory per capita incomes progressively to relinquish the
right to favorable treatment. Such an approach would gradually bring the
trade policies of developing countries into accord with regular GATT and
code obligations.
One meritorious proposal would establish a new GATT Committee on
Graduation. t
o This Committee might develop criteria for graduation,
encourage qualifying countries to participate in the process, and enlist the
cooperation of other countries to facilitate a smooth transition for the graduating
country.'Ol Moreover, the Committee might mobilize the World
Bank and the International Monetary Fund to help graduating countries
overcome any short-term balance-of-payments problems and long-term
structural problems associated with the program. 0 2
D. ABSENT THE SAFEGUARD CODE
The effectiveness ofthe GATT has suffered most in recent years in the
area of safeguards. Nations have routinely circumvented Article XIX of
97. Framework Agreement, supranote 74, Point 2A, para. 7, H.R. Doc. No. 153, at 629.
98. See note 83 supra and accompanying text.
99. See I. FRANK, supra note 96, at 13.
100. Id. at 20-24.
101. Id. at 20-21.
102. Id. at 21.
THE DEVELOPINGCOUNTRIES
the Agreement 03 through the use of OMAs and VERs. 1°4 The negotiators
have been unable, however, to reach an agreement in this crucial area. The
parties have managed only to establish a Safeguards Committee that is to
continue negotiations on a Multilateral Safeguard System and to report by
June 30, 1980 on its progress.
The primary difficulty in the negotiations has been the less developed
countries' refusal to accept the European Community's insistence on each
member's right to impose unilateral safeguards on individual suppliers
without multilateral approval. Resolving this "selectivity" issue may require
a broader approach to the revision of Article XIX. An improved international
mechanism is necessary, for example, to regulate the actions of
countries claiming "injury" from imports. The Tokyo Declaration called
for consideration of "the modalities of application of Article XIX,"105 but
this remains to be done.
Reform of Article XIX should begin with a recognition that the provision
is at the same time overly exacting and overly lenient; too restrictive to
maintain nondiscrimination, but insufficiently restrictive to impose other
obligations on those who invoke the GATT rules. Elsewhere, this author
has proposed a number of possible revisions to remove these Article XIX
weaknesses. 106
Effective revision ofArticle XIX requires the establishment ofan international
body to review national determinations of"serious injury." Such a
system would require countries whose national finding ofinjury is deemed
unacceptable internationally to offer compensation to its trading partners
or, alternatively, to suffer corresponding retaliations. If, however, the national
finding were deemed acceptable, other GATT members would waive
their rights to compensation or retaliation. Ifnations refused to waive these
rights, they should at least agree to permit the country invoking the safeguards
not to compensate through MFN 10 7 concessions on selected exports
from adversely-affected countries. Once nations adopt an adversary posture
toward one another, the danger is that the MFN provision may provoke
a downward spiral in the bargaining process.
A nondiscriminatory Article XIX may appear particularly inequitable
to developing countries that are new suppliers or entrants. These countries
may not gain access to the safeguard-invoking country's market even
103. GATT Art. XIX.
104. See notes 12-14 supra and accompanying text.
105. Tokyo Declaration, supranote 1, at 21.
106. Meier, ExternalityLaw andMarket Safeguards:Applicationsin the GATTMulilateral
TradeNegotiations, 18 HARV. INT'L L.J. 491, 508-17 (1977). See notes 107-08 infraand accompanying
text.
107. See note 35 supraand accompanying text.
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254 CORNELL INTERNATIONAL LAW/JURAL [Vol. 13:239
though the safeguard was initially a response to exports from developed
countries. The MFN provision adversely affects all countries. If the legitimate
purpose ofretaliation is punitive, the MFN clause should not apply to
retaliatory increases. There is no justification for ihjuring other contracting
parties unnecessarily. Waiver of the MFN rule and reciprocity does not,
however, mean there should be no international discipline concerning the
use of Article XIX. On the contrary, the use of common responsibilities,
joint decisions, and international surveillance might actually strengthen the
multilaterality principle, without use of the MFN provision.
Another essential Article XIX reform would require a commitment
and a procedure to assure countries continually growing access to protected
markets and a foreseeable removal of market safeguards. Such assurances
are especially important for less developed countries entering new export
markets. At least three requirements should be pre-conditions to the imposition
of safeguards. First, protective measures should be degressive over a
designated number of years and should terminate at the end of this period.
Second, the scheme should require the invoking country to promote adjustments
designed to reduce dislocation costs in the invoking country in order
to hasten the removal of the safeguards. Third, the use ofsafeguard measures
and adjustment efforts must be subject to multilateral surveillance.
Moreover, to encourage adjustment assistance that will convert resources to
more productive use, the Safeguard Code should permit retaliation or require
additional and proportionately larger concessions whenever reduction
or removal ofthe safeguards does not occur within the designated time period.
At the least, a system of international surveillance would serve to
disclose prevailing types of adjustment policies and to monitor their pro-
gress.
Finally, the less developed countries should receive special and differential
treatment in the application of market safeguards on a variation of
the graduation principle.108 This approach would exempt nations from being
subject to safeguards until they graduate out of the category of least
developed countries. The clause should also allow any least developed
country to maintain its prior share of the safeguard imposing country's
market. For new entrants into the market, an exemption should be available
that would remain in effect until exports ofthe product in question to
the country invoking the clause exceed a certain volume or value.
A revised Article XIX might also accord favorable treatment to the
developing countries through a more favorable scale for any quota or tariff
quota imposed. Instead ofpermitting every country to expand its exports to
108. See notes 96-99 supra and accompanying text.
THE DEVELOPINGCOUNTRIES
the importing country by a set rate per annum, the rate should be graduated
according to market penetration. Such an approach would grant to a developing
nation the right to expand its exports without limit as long as it has,
for example, less than one percent of the market. This growth rate might
then decline toward, for example, five percent as the country's share of the
market rises to, for example, five percent. Moreover, a developing country
should be able to increase its exports to each developed country by a minimum
percentage (ten percent, for example), even though the share-of-market
formulation would call for a slower rate of export growth.
III
TO SIGN OR NOT?
The Group of 77 Declaration on the Multilateral Trade Negotiations
adopted at UNCTAD V10 9
indicates that the results of the Tokyo Round
are unsatisfactory to the developing countries. In fact, these nations complain
that the negotiations failed in every respect to achieve the objectives
ofthe Tokyo Declaration.' 10
Although the Tokyo Round did not live up to
initial expectations of both developed and developing countries, the developing
nations still have an interest in becoming signatories.
Immediate direct benefits will accrue to the developing countries under
the new agreements. More importantly, however, future benefits depend on
the developing nations' participation in shaping the interpretation and application
of the codes, and on their participation in dispute settlement and
surveillance procedures. The future interpretation and implementation by
code committees will ultimately determine the real significance of the Multilateral
Trade Negotiations. Furthermore, this process will depend less on
loosely-worded legal and quasi-legal language that lacks adequate institutional
basis than on economic and political factors. Although the developed
countries will likely have even more power in the committees than
they have had under the GATT alone, the developing nations have no better
way to protect their interests than by actively participating in the implementation
and future revisions of the agreements.
An important conclusion is that nations must still acquire access to
multilateral mechanisms designed to solve on-going trade problems and
new ones as they arise. Nations cannot await an eighth round of negotiations.
This problem recalls initial complaints that the GATT was "diplomats'
jurisprudence" and that the results of the Tokyo Round represent
109. Report of the United Nations Conference on Trade and Development on its Fifth
Session, U.N. Doc. TD/268/Add. 1, at 3-14 (1979).
110. See id. at 10-11; Tokyo Declaration, supra note 1, at 19-22.
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256 CORNELL INTERNATIONAL LAW JOURNAL [Vol. 13:239
"trade negotiations" and not the still-needed "law reform negotiations."'
The basic question whether developing countries should receive special
and differential treatment will undoubtedly arise repeatedly in the future.
Another question is how the graduation principle should relate to such
treatment.1 1 2
These issues raise, in turn, the ultimate question whether new
efforts are necessary to effectively integrate the activities of the GATT, the
International Monetary Fund, and the World Bank. Despite language to
the contrary in the Tokyo Declaration," 13 the negotiations had a fragmentary
and adhoc character. Only the Framework Group possessed any quality
approaching vision. To attain the International Monetary Fund's goals
of international monetary reform and a stronger code of international conduct,
to increase the efficacy of the World Bank's efforts, and to liberalize
trade and foster development through trade in the developing countries, the
IMF, the Bank, and the GATT must share more common activities.114
Like another familiar subject, development policy is a seamless web. In the
McDougal-Laswell-Reisman tradition, therefore, the international community
must adopt a macro-legal approach to the problem.
111.R. HUDEC, supra note 24, at 265.
112. See notes 96-99 supra and accompanying text.
113. The Tokyo Declaration speaks of "comprehensive multilateral trade negotiations"
designed to achieve "an overall balance of advantage at the highest possible level." Tokyo
Declaration, supranote 1, at 19-21.
114. In this vein, the chairman of the OECD Development Assistance Committee stated
The hidden agenda of OECD policymakers in the early 1980s should be to open
their system by every honorable and politically viable means to the astringent challenge
of developing-country competition. If they should be so motivated, they will
also need to design measures that cushion and mitigate the social costs of structural
adjustment-for humane as well as political reasons. Yet the principal balm to the
particularized and localized pains of adjustment would be provided by the accelerated
growth that the expanded trade would permit .... Instead of backing reluctantly
into post-Tokyo Round negotiations on grounds of high principle, the impulse of the
OECD negotiators should be to converge enthusiastically with those of the "77" who
have also come more clearly to appreciate the usefulness of the international market.
The Tokyo Round ended a chapter but not the book.
Lewis, A Possible Scenario/orthe Development Strategy, 101 THE OECD OBSERVER 3, 6
(1979).