Navigating the turmoil

The Tokyo Round was launched in 1973, which was eight years after the Kennedy Round in 1964. This was perhaps because the commitments that were taken by various countries in the Kennedy Round were to be spread over five years, i.e., from 1967 to 1972. Furthermore, it was felt that the unfinished work of Kennedy Round should be taken forward and that there was a need to renew the commitments to trade liberalisation.

While the Kennedy Round commitments were unfolding, there was an important development in February, 1965, when an additional chapter was added to the GATT text. Part IV titled ‘Trade and Development’ was added to the GATT text, in response to the demands of developing countries, which formed the majority of the GATT membership. A Committee on Trade and Development was also formed, which was supposed to facilitate trade of goods of interest to developing countries.

Key features

While the Tokyo Round was formally launched in 1972, the decision to begin another round of trade negotiations was taken in the 27th session of the Contracting Parties (which basically means the members of GATT) in end-1971. In the 28th session in November 1972, the members decided to begin the preparations for the next Round. Japan suggested the holding of a Ministerial meeting in 1973 to frame the guidelines for the negotiations and also suggested the setting up of a Preparatory Committee for the Tokyo meeting. One important outcome of the Preparatory Committee chaired by the Director General of GATT was the recommendation to set up a Trade Negotiating Committee (TNC), which would decide the negotiating procedures. The Preparatory Committee could not decide on the special and differential treatment (S&DT) to developing countries and the issue of international monetary reform, which was left for the Ministerial meeting.

The Tokyo meeting of Ministers was held in 1973, where the two issues of S&DT and international monetary reform were discussed. The meeting announced the setting up of the Trade Negotiating Committee (TNC). The Tokyo Declaration also set out the negotiating guidelines and framework, and identified six subjects for discussions:

* Reduction of tariffs;

* Reduction or elimination of non-tariff barriers;

* Reduction or elimination of trade barriers in selected sectors;

* Adequacy of the multilateral safeguard system;

* Trade in agriculture;

* Trade in tropical products.

However, two important developments occurred close to the time that the Tokyo Round was launched: the US suspended the convertibility of the dollar into gold in August 1971, thereby abandoning the fixed exchange rate system, which existed since the Bretton Woods conference. This led to most currencies being fixed at a new value to the US dollar. The other major development was the Yom Kippur War in October 1973, which led to a rise in energy prices and an uncertain future in respect of global supply of oil.

The exchange rate disturbances, the energy crisis, and the challenging economic environment in developed countries led to the conclusion of the Tokyo Round being repeatedly pushed back because of a lack of appetite to take decisions, which promoted trade liberalisation. The Round, which was supposed to end in 1975 was pushed back to 1977 and eventually was wrapped up only in 1979. An important reason which held up negotiations was the domestic deadlock in the US Congress on the Trade Bill (which gave the US President the authority to execute trade agreements). Just after the launch of the Tokyo Round, President Nixon himself asked Congress to hold the Trade Bill because of his reluctance to grant Most-Favored Nation (MFN) status to Communist countries. Ultimately the Trade Act came into being under President Ford, but by that time, the US was into the election cycle. It was only after President Carter took office in January 1977, that negotiations began in right earnest.

Accordingly, the breakthrough in the Tokyo Round came only in end-1977, when the US and EEC negotiators agreed on a timetable whereby all the issues should be on the table by January 1978. All countries were to submit their tariff concessions, non-tariff codes, and offers on industrial and agricultural goods by this time. While the offer of tariff concessions on industrial goods was straightforward, the non-tariff codes and agricultural trade became an issue between the US and the EEC. On the non-tariff issues, the general approach was to find a way by which government intervention through subsidies or other measures was minimal. The EEC wanted the US practice to be in line with global trade rules, i.e., a country would have to demonstrate ‘material injury’ because of a subsidised import, before imposing a countervailing duty on that good. The US position was that, not only would this require an amendment to their law, but it also wanted a strict code of subsidies and a list of illustrative subsidies which were trade distortive. The EEC was not in agreement because it had to grant subsidies on a large scale to meet social, economic and regional needs. On agriculture, the EEC wanted to defend its common agriculture policy, while the US wanted to include agriculture trade in the ambit of tariff concessions.

The Tokyo Round negotiations were concluded in April 1979 and signed off in December 1979. In all, 102 countries participated, and offered concessions and bindings on USD 4,300 billion worth of trade. The weighted average tariff on industrial goods declined from 7 per cent to 4.7 per cent in the nine developed countries. Under non-tariff barriers, the following codes were agreed on, namely, the Codes on Subsidies and Countervailing Duties, Government Procurement, Technical Barriers to Trade, Customs Valuations and Import Licensing. In agriculture, there was an agreement on bovine meat and dairy products for the first time. There was also an agreement on trade in civil aircraft, which was again the result of shadow boxing between the US and EEC. On trade in tropical products, there was an agreement on the reduction of import duties and other trade barriers by industrial countries on tropical products exported by developing countries.

Another significant development during the Tokyo Round was the adoption of the Arrangement Regarding International Trade in Textiles, better known as the Multi Fibre Agreement (MFA) in 1973. We will discuss this in a separate article.

The phased tariff cuts were to spread over eight years starting from the beginning of 1980. Most of the non-tariff codes came into force from January 1980, except the code on customs valuation which took effect in June 1980 and the code on government procurement which took effect in the beginning of 1981.

Conclusion

The Tokyo Round was negotiated in the face of a challenging global environment. Even after all the tariff and non-tariff concessions were finalised in 1979, there was high unemployment in the developed countries, in addition to low growth, high inflation, oil price hikes and large budget deficits. Even so, the Tokyo Round commitments managed to hold up the spirit of trade liberalisation and consolidate the multilateral trading system under GATT.

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