Challenging the perimeters

The fifth round of the GATT was called the Dillon Round and was named after Douglas Dillon, the then Treasury Secretary of the US. Dillon played an important role in the Round and was instrumental in getting the US President the power to offer reciprocal tariff concessions under the Trade Expansion Act, 1962. The Dillon Round, which followed the fourth Round held in Geneva (1956), was also held in Geneva from 1960-1962. Twenty-Six countries participated in the round, which led to deep tariff cuts by the US and the newly formed European Economic Community (EEC).

Main features

The US and the six EEC countries were the main players in this round, as was the case in earlier rounds. In addition, 11 developed countries and six less developed countries participated and agreed to reduce tariffs on imports worth USD two billion. There were 4,400 tariff concessions in this round covering USD 4.9 billion of trade. Most of the concessions offered by the US and developed countries were on trade with each other and concentrated in manufactured goods. This was because the negotiations were on a bilateral basis and tariff concessions were offered on an item-by-item basis. These concessions were, of course, extended to all GATT members through the MFN.

There were three main components of the Dillon Round:

* Renegotiations with the EEC and its six members, which became necessary because these six members had changed their tariff rates to align with a common external tariff (CET) of the EEC and, as a result, individual countries had digressed from their bound rates. GATT rules required that members who changed their bound rates had to renegotiate with all members who were affected as a result. These negotiations began in September 1960 and concluded in May 1961.

* General Round of negotiations in which all members participated began in May 1961 and concluded in July 1962.

* There were negotiations with countries wishing to accede to GATT, wherein four countries, namely Spain, Portugal, Cambodia and Israel, participated to get full accession. In addition, Switzerland and Tunisia got provisional accession and the United Arab Republic applied for accession.

For the USA, which was one of the main drivers of the round, the main problem was to minimise the impact of the changed common EEC tariff on its trade. The EEC’s common external tariff (CET) was basically an average of the high tariffs of France and Italy and the low tariffs of West Germany and Benelux (Belgium, Netherlands and Luxembourg) countries. The US itself was constrained by the ceiling of 20 per cent tariff cut it could offer, which was set under the Reciprocal Tariff Act, 1958. Not only that, the US could not even offer this full 20 per cent because of the ‘peril point’ re-introduced by the US Congress whereby the US Tariff Commission had to determine a tariff level below which domestic US producers would be hurt. The US President had to report to the Congress whenever there was a breach of the ‘peril point’.

For sure, this was a problem for other countries as well. Negotiations with the EEC under Article XXIV of GATT, which required EEC to compensate affected members, were arduous and yielded sub-optimal outcomes. While the EEC wanted to offer an average of the six countries as the CET, the affected countries wanted trade-weighted averages. As it turned out, the EEC’s compensation was disappointing for most members.

Some of the other important issues that GATT members faced at the onset of the Dillon Round were the emergence of the EEC as a strong economic bloc, the increasing competitiveness of manufacturing in Japan and the active participation of less developed countries, mainly India. It was also evident from the tariff concessions that most of these were for trade among developed countries. Only a few tariff concessions impacted the trade (in value and volume) with less developed countries.

The Arrangement on Cotton Textiles was also agreed upon during this round. Under this arrangement, countries could negotiate quota restrictions with cotton-exporting countries. An important win for developing countries was the acceptance of trade in tropical goods on a priority basis.

The Dillon Round also demonstrated the need for a fresh negotiating approach. It was clear that the item-by-item negotiations based on the principal supplier rule could not get further tariff concessions and an alternative method of negotiation would have to be found. It may be recalled that the principal supplier rule required that countries would propose for negotiation for only those of their products of which they were, or were likely to be, the principal suppliers, individually. This method, along with reciprocity, was limiting the ambit of world trade, because most of the trade between principal suppliers was already covered. Furthermore, with more and more countries joining GATT, most of them being developing countries with few concessions to offer, a new approach was all the more necessary. At the end of the Dillon Round, a committee was constituted with Rodney Grey, a Canadian official, as Chairman, to propose alternative negotiating approaches. As we will see in forthcoming articles, there was a shift from item-by-item bilateral negotiations to formula based, linear tariff cuts on a multilateral basis.

The Dillon Round also saw another important development: with a growing membership, the less developed and developing countries were making their presence felt. More importantly, they were disillusioned with the negotiating methods and getting left out of the gains from trade. They wanted a more active role and wanted their concerns addressed.

The Dillon Round also highlighted two more important issues: that non-tariff barriers could still impede trade even if tariff concessions were granted, and that trade distorting subsidies in agriculture given by the USA and EEC could not be ignored anymore.

Conclusion

The Dillon Round was held at a time when the EEC had started functioning, and the tariff schedules of its six members had changed to a Common External Tariff (CET). Most of the Dillon Round was about negotiations of GATT members with six members of EEC, to discuss possible compensation in lieu of the adverse impact of higher tariffs. Some other important developments in the Round were: the increased restiveness among developing countries, whose numbers had increased, a felt need for alternative negotiating approaches and the need to address non-tariff barriers and trade distorting agriculture subsidies of the US and EEC. These and other issues would continue into the Kennedy Round, which began soon thereafter in 1964.

The writer is Additional Chief Secretary, Department of Mass Education Extension and Library Services and Department of Cooperation, Government of West Bengal.