THE KENNEDY ROUND THE SIX CLEAR THE WAY FOR THE GENEVA JIGSAW

Press, Volume CVI, Issue 31134, 10 August 1966, Page 14

THE KENNEDY ROUND THE SIX CLEAR THE WAY FOR THE GENEVA JIGSAW

lßy the Cmmun Market correspondent of the "financial Tunes" writing from General (Reprinted from the "financial Times" hy arrangement

By finally completing their negotiating mandate recently, the Six Common Market countries have rescued the Kennedy Round from over a year’s stagnation and prepared the ground for the decisive stage in the most ambitious attempt ever made at freeing international trade. When the negotiators return to Geneva in September all the pieces in the jigsaw puzzle should be ready, and about November the Herculean task of fitting them together will begin.

The initial tariff concessions each participant has offered must then be matched up and adjusted to secure an even balance of advantage between all the industrialised nations of the world. This should take until next spring when the shape of the final agreement must be known to give the lawyers time to draw up the final texts before the expiry of the United States President’s negotiating mandate on June 30. Mood Of Optimism Of course, there is no longer any hope of the 50 per cent across the board cut in protection that President Kennedy was hoping for. Probably the most to be expected in overall terms now is a reduction of between 20 and 30 per cent, though in many cases the full cut will be achieved. However, this would still be regarded as a success in Geneva, and after so many disappointments and delays the mood there is definitely optimistic. The Common Market has been the principle laggard in the negotiations all along. This I is hardly surprising since its members are negotiating jointly and find it exceedingly difficult to agree on a common line. The fact that they have finally done so not only allows the negotiations to go forward again: it also means that the French have let pass one more chance of exploiting the Six’s internal differences to squeeze the U.S. against the June 30 deadline and compel it to accept a negotiation on the European country’s terms. There will certainly be further chances to do this, however, notably when the Six are asked for additional concessions to match their partners’ more liberal opening offers. Politically, Gaullists have not forgotten that the Kennedy Round was conceived as the economic cement to a stronger North Atlantic partnership; and in trade terms Atlantic tariff cutting might cost French industry more than it gains. French Interests But, while there could still be a political veto, it seems increasingly unlikely that General de Gaulle will want to provoke a new crisis within the Western world on the eve of his parliamentary elections. And in any case there are substantial trade benefits for France in a reduction of European Free Trade Associa-

tion tariffs, not to mention the new Administration's interests in making French industry more competitive. Finally, it is argued that by lessening tariff discrimination between the Six and the Seven, a successful Kennedy Round wopld suit French interests by reducing the pressure for British membership of the Common Market. Originally, the Kennedy Round negotiations were to be swift, comprehensive and conducted largely under automatic rules. In practice, how-! ever, the negotiators have been bogged down for the last two years in a sector by sec-, tor haggle over each country’s opening offers. AU talk of mechanical formulae has ended (as many old hands at the tariff-cutting game predicted) and in the words of one community negotiator “there’s no Cartesianism left in Geneva these days " Difficult Sectors On the industrial side, the biggest difficulty at the moment arises in the chemical sector over the treatment of the American Selling Price Law. Both Britain and the Six have rejected the U.S. offer to convert its actual protection into normal tariff terms and cut this by 50 per cent. While European chemical sales to the U.S. may have only a limited growth potential (Britain dislikes the American Selling Price mainly because it prevents retaliation against American dumping) continuing disagreement here could lead to the sector being excluded altogether from the negotiations. On two other sensitive items—paper and aluminium —the Community’s offer was considered disappointing by its partners and the prospects are none too bright either. While the first sector is primarily a matter for the Six and the Scandinavians, the U.S. is still pressing for a substantial liberalisation in aluminium. It will be lucky to get this, however, since Continental producers seem determined to safeguard their stake in the growing European market and argue that the banks are reluctant to finance new plant if the Common Market reduces its external tariffs.

The discussions on steel remain deadlocked over the Common Market’s decision to seek compensation in the Kennedy Round for the unilateral reductions it made in 1958. Most of its partners are reluctant to go along with this, and Britain claims she has already paid the Six for her concessions. On the other hand, prospects in the engineering sector look quite bright, which is encouraging for Britain for a good slice of its exports to the Common Market lie here.

For some time agriculture has looked like the trip-wire in the whole negotiation, because the U.S. repeatedly threatened to cut back its industrial offers if the Six did not liberalise their farm policy. In practice the U.S. has been quietly increasing agricultural sales to the Common Market, despite the variable levy system, and there is a consensus in Geneva that a

world trade agreement on the lines of the Six’s proposal will be agreed for cereals and meat. Gesture To N.Z.? This should be enough to save face al) round and present a fresh crisis blowing up, though the prospects arc not promising for much further progress due to the shortage of time and the complexity of the subject. Some attempt might be made to freeze export subsidies of milk products as a gesture to New Zealand, but in general it looks as if the rest of the farm sector will be left over for a subsequent negotiation. The results of all these sectoral discussions will he brought together in the final bargaining session due to get under way next November. Squaring the books will not be easy. The obvious danger is that if some countries do not offer additional concessions, others will be compelled to make withdrawals which could spark off a chain reaction on a triangular basis. Thus the exclusion of chemicals, would certainly force a drastic revision in the Swiss position. And the Scandinavians have only offered their tariff code for the full cut subject to a satisfactory deal on such products as paper and aluminium of particular interest to them. While the Community's position may be the least liberal on paper, the Six will certainly resist pressure to increase their offer by citing the exclusion of petroleum products by the U.S. The disparity between many European and American tariffs means that an equal percentage cut would leave one party naked and the other still comfortably protected. But the problem about disparities is, that since most of the lower tariffs are on the European side of the Atlantir. a cut of less than 50 per cent in them would principally affect intra-European trade. Developing Nations At some point the developing nations will have to be slotted into the picture if the General Agreement on Tariffs and Trade is to prove itself more than a rich man’s club. Apart from cotton textiles—where a more liberal renewal of the world agreement has been proposed—they have little intrinsic role to play in the negotiations since commodities are being dealt with in a United Nations agency. However, they have asked ’o be excused reciprocity and fnr accelerated implementation of tariff cuts benefiting their exports.

A successful Kennedy Round would be a triumph for the international regulation of trade as well as leading to a substantial reduction of the barriers between existing trade blocs. It would also give rise to renewed pressure for the expansion of the world's monetary supply to finance the expected upturn in commerce. On the other hand, failure would discredit the General Agreement on Tariffs and Trade and all it stands for, and might also usher in a new era of protectionism on both sides of the Atlantic.