United States. Dept. of State. Office of Public Co.

Department of State bulletin (Volume v. 22, Apr- Jun 1950) online

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tiated either by a member which considers its in-
terests seriously prejudiced by compliance with
the ban on export subsidies or by a member which
considers its interests seriously prejudiced by a
subsidy granted by another member. If such pro-
cedures are initiated, a member granting an export
subsidy on the primary commodity involved must
cooperate at all times in efforts to negotiate an
intergovernmental agreement. Furthermore, a
member may not change its subsidization program
during a conference called by the Organization for
the purpose of negotiating an intergovernmental
commodity agreement.

If an effort to negotiate an intergovernmental
commodity agreement, under the procedures set
forth in chapter VI, is initiated but does not suc-
ceed within a reasonable period of time, or if it
does not appear that the negotiation of a com-
modity agreement would effect the desired result,
a member may continue to subsidize the export of
a primary commodity without prior approval of
the Organization in case it considers that its in-
terests would be seriously prejudiced without
such action.

Although, under certain circumstances, exemp-

May 8, 1950


tion is permitted with respect to export subsidiza-
tion of primary commodities, a member granting
any such subsidy may not thereby acquire more
than an equitable share of world trade in the com-
modity concerned. Furtliermore, a member
granting an export subsidy on a primary com-
modity is required to consult promptly with any
other member which considers its interests prej-
udiced by such subsidization. If, after a reason-
able jjeriod for consultation, no understanding is
reached the Organization is then required to de-
termine the equitable shai-e of the world market of
the member granting the subsidy and that member
is required to conform to such determination; that
is, to modify its subsidy if necessary.

In determining an equitable share of world
trade for a member granting an export subsidy,
the Organization is instructed to take into account
any factor affecting world trade in the commodity,
past and present, and particularly (a) the mem-
ber's share during a previous representative
period; (b) whether or not the member's share is
so small as to make the subsidy of minor signifi-
cance; (c) the relative importance of the export
trade in the commodity in the economies of all the
members concerned; (d) the existence of price
stabilization systems which permit exemption
from the ban on export subsidies ; and (e) whether
or not the subsidy makes expansion of production
unduly difficult in areas able to furnish large
quantities of the commodity to the world market
in the most effective and economical manner.

A further provision is made for exemption from
the ban on export subsidization. An export sub-
sidy is not forbidden if it is a part of a member's
program for stabilizing the domestic price of a
primary commodity, providing the Organization
determines (1) that the program operates in such
manner that the export price may at times be
above, although at other times below, the domestic
price and (2) that the subsidy does not seriously
prejudice the interests of other members.

Section D. State Trading and Related Matters

In recent years, for a variety of reasons, there
has been an increase in the conduct of trade by
state-owned or state-controlled organizations or
by private organizations which have been granted
special privileges by a government and which,
therefore, act in effect as government agencies.
Although it is clear that the conduct of trade by
a government is in general contrary to American
trade practices, it must be recognized that any
country may if it chooses so conduct its trade, or
a portion thereof. The purpose of including in
the Ito charter a section on state trading is to
assure that when government operations in foreign
trade are undertaken, they shall not function in
such a manner as to render ineffective the com-
mitments on commercial policy made elsewhere in
the charter. It is possible, for example, for a state-
trading organization to nullify the benefits of

tariff reductions simply by failing to buy at all ;
state conduct of trade can also avoid the formal
use of quantitative restrictions but can bring
about the same results, again by failure to buy
or sell ; and discriminatory trade practices can be
put into effect by a state organization with rela-
tive ease, because it may decide to favor certain
sources of supply or markets for other than com-
mercial reasons.

Nondiscrimination and Expansion of Trade

It was, therefore, considered essential to include
in the charter a pledge by all members that in
their conduct of state trading they would be
governed by the commercial considerations appli-
cable to private concerns. Members are also re-
quired by article 29 to afford potential buyers and
sellers in other countries a reasonable opportunity
to compete for the business of a state-trading
enterprise. Thus article 29 is in effect a supple-
ment to article 16, dealing with nondiscriminatory
treatment, and it covers the application of the
principles of articles 16 in the field of state trading.
In like fashion, article 31 is closely related to
article 17, which deals with the reduction of tariffs
and the elimination of preferences. Thus by the
terms of article 31, members are required to nego-
tiate concerning the degree of protection afforded
to domestic producei-s of a monopolized product,
in the same manner, where appropriate, as is pre-
scribed by article 17 for tariff negotiations.
Wliere this method is not appropriate, other types
of arrangements with the same effect may be nego-
tiated. Furthermore, where the country main-
taining the monopoly has granted a reduction or
a binding in the tariff rate on the product con-
cerned, article 31 prevents it from applying any
higher margin of protection through resale, mark-
up, or otherwise. In the case of an export monop-
oly, the member maintaining it is also required
to negotiate for the reduction of such barriers to
exports as might operate to benefit domestic users
of the monopolized product, in comparison to
potential foreign users. _^

There is also a requirement in article 31 which
parallels the other provisions of the charter deal-
ing with quantitative restrictions. Thus a mern-
ber is obligated to purchase and offer for domestic
sale enough of a monopolized product to satisfy
fully domestic demand for the import, with allow-
ance being made for rationing. It should be clear
from the above that, although the form of nego-
tiation provided for in article 31 is new and un-
te.sted, a tariff concession granted by a country
maintaining a monopoly may not be nullified by
protection afforded through the operation of the

The purpose of this section is, therefore, to
place state trading in the same framework as gov-
ernment regulation of private trade, so that the
same principles govern in both cases. Essentially
there are two principles involved : nondiscrimina-


Department of State Bulletin

tion and the expansion of trade through the re-
duction or limitation of barriers. These are
covered by two of the articles in the section, as
noted in the preceding paragraph. The other two
articles deal with special topics of a related nature.
Article 30, for example, covers marketing organi-
zations such as are maintained by a number of
countries, partially for regulatory purposes and
partially lor buying and selling. Here it is
stated that such organizations are subject to the
rules of article 29 only when they are engaged in
purchases and sales and that otherwise they are
subject to the other provisions of the charter.

Liquidation of Certain Stocks

The fourth article in section D was included
because some governments are engaged in acquir-
ing stock piles of goods for noncommercial pur-
poses, and there was concern over the possibility
that such a government might decide to release
such stocks in a manner which would upset world
markets in the products involved, bringing injury
to producers and consumers. Article 32 conse-
quently requires that membere intending to liqui-
date stocks acquired for noncommercial purposes
give public notice, and, if requested, consult with
interested members and the Organization.

The inclusion of the state-trading articles in the
charter should be of substantial benefit to private
enterprise countries, because this is the first time
state-trading countries have considered accepting
commitments involving any restraint on state-
trading activities.

Section E. General Commercial Provisions

This section covers the field of customs admin-
istration and related matters, sometimes referred
to as "invisible tariffs," or simply the red tape
which an importer must go through in importing
goods. These articles (arts. 33 to 39) are some-
times called the "technical" articles.

Freedom of Transit and Antidumping

Article 33 spells out the principle of freedom of
transit for goods and their means of transport via
routes convenient for international traffic. Traffic
in transit is not to be subject to special transit
duties or unnecessary delays or restrictions. All
regulations dealing with transit are to be reason-
able. Nondiscriminatory treatment of transit
trade as between member countries is also required.

Article 34, although condemning injurious price
dumping, sets out rules designed to prevent the
misuse of antidumping and countervailing meas-
ures to hamper normal competition in interna-
tional trade. The article limits the use of anti-
dumping and countervailing duties in scope and
amount to the purpose of otisetting price dumping
and subsidies and provides that such special duties
may not be imposed unless the effect of the dump-

ing or subsidization would cause or threaten mate-
rial injury to an industry in a member country.

Valuation for Customs Purposes

The provisions of article 35, which are designed
to assure that fair valuation systems will be used
in assessing ad valorem duties, are of great impor-
tance to traders. They set forth the principle that
the values to ha used should be based on the actual
value of the kind of goods imported and not on
arbitrary or fictitious values nor on the values of
domestic goods. Provision is made for the co-
operation of member countries through the Ito
looking toward the eventual standardization, so
far as practicable, of definitions of value and valu-
ation methods and procedures. The article estab-
lishes fair rules for the conversion of currencies in
assessing ad valorem duties and provides that
whatever valuation method is used oy a country,
the methods and bases for determining value for
customs purposes should be stable and should be
given sufficient publicity to enable traders to esti-
mate with reasonable certainty what the value will

Formalities, Marks of Origin

Article 36 aims at the simplification of all kinds
of customs formalities and documentation require-
ments вАФ the red tape involved in clearing goods
through the customs, which is not only irksome
and annoying but which may seriously burden
trade. The article also establishes the principle
that fees and charges (other than tariff duties and
internal taxes) should not be used to afford in-
direct protection to domestic goods or for fiscal
purposes but should be limited in amount to the
cost of services rendered. It prohibits the imposi-
tion of substantial penalties for minor breaches of
customs regulations, such as clerical errors in docu-
mentation and contains provisions looking toward
the elimination of unnecessary customs require-

Article 37 looks toward the elimination of un-
necessary marking requirements and the adminis-
tration of marking laws and regulations in a
liberal and nondiscriminatory manner.

Publication and Administration
Information and Terminology

Article 38 provides for the prompt publication
of all laws and regulations affecting foreign trade
in such manner as to enable govermnents and
traders to become acquainted with them; for the
administration of such laws regulations in a uni-
form, impartial, and reasonable manner; for the
establishment of judicial or other independent tri-
bunals or procedures for the prompt review and
correction of administrative action relating to cus-
toms matters; and for the setting up of suitable
facilities to enable traders to consult with the ap-

May 8, 7950


propriate authorities regarding any of such- laws
and regulations.

Provision is made in article 39 for the Ito to
collect and publish international trade statistics
and to cooperate with other international organ-
izations in improving the methods of collecting,
analyzing, and publishing economic statistics.
The Ito is authorized to recommend the general
acceptance of standards, nomenclatures, terms,
and forms used in international trade.

In the formulation of these "technical" articles,
the experience of the past was heavily drawn upon.
Many of the detailed provisions are based upon
earlier multilateral and bilateral agi-eements and
domestic legislation such as the Barcelona conven-
tion of 1921 on freedom of transit, the United
States Anti-dumping Act of 1921, the Geneva con-
vention of 1923 for the simplification of customs
formalities, various studies prepared under the
auspices of the League of Nations, and the trade
agreements concluded by the United States with
many foreign countries.

These "technical" articles are not, of course,
satisfactory to all countries in all their details.
But, taken as a whole, they are of great advantage
to countries generally and, particidarly, to every
businessman who may find it necessary to enter
what has appropriately been called "the maze of
customs procedure." Perhaps the most significant
aspect of these provisions is the guidance they will
provide for an unprecedented cooperative effort
through the new Organization to free and simplify
the day-to-day operations of world trade.

Section F. Special Provisions
Emergency Action

Article 40 authorizes emergency action for the
protection of domestic producers. It permits a
member of the Ito to suspend obligations under
the commercial policy chapter with respect to
particular products (e.g. to apply quotas) or with-
draw or modify particular tariff concessions if, in
view of unforeseen developments, the obligations
or concessions result in increased imports of the
product so substantial as to cause or threaten
serious injury to doiuestic producers of directly
competitive products. There must be consulta-
tion with the other affected member country with
a view to reaching agi-eement. However, if agree-
ment is not readied, action may nevertheless be
taken, in which case the other affected countries
may then withdraw equivalent concessions. In
cases of special urgency, action may be taken pro-
visionally without prior consultation.

The inclusion of this article represents world-
wide recognition of a special provision developed
by the United States as a result of experience un-
der the reciprocal trade agreements program.
(The inclusion of such a provision in Uiiited
States trade agreements is now required under
Executive order.) This article will make the

charter more acceptable to countries in general
and more practicable and workable. Without it
the Ito might run into difficulties because of in-
adequacy to deal with unforeseen developments
which may arise in the future and which threaten
serious injury to particular industries.


Article 41 establishes the formal basis for full,
frank, and sympathetic consultation on all matters
affecting the operation of the commercial policy
chapter with respect to wliich one member country
may make representations to another.

Territorial Application

Article 42 deals with the territorial application
of the chapter on commercial policy. It provides
in effect that, if there are two or more separate
customs territories under a single member and the
charter has been accepted on behalf of such terri-
tories, the relevant provisions of the commercial
policy chapter of the charter (MFN treatment
regarding tariffs; negotiations regarding tariffs
and preferences; national treatment on internal
taxes; quota provisions, etc.) shall apply to each
customs territory separately in its relations with
other members. The article also defines the term
"customs territory" to mean any territory which
has its own separate tariffs or other regulations of
commerce (such as quotas) for a substantial part
of its trade with other territories. Thus, Puerto
Rico is part of the customs territory of the United
States becavise the regular United States tariff'
applies to foreign imports into Puerto Rico; on
the other hand, the Virgin Islands, which main-
tains its own tariff's for foreign imports, is a cus-
toms territory separate from the United States,
although under United States jurisdiction.

Article 43 provides that the commercial policy
chapter shall not be construed to prevent (a)
advantages accorded to adjacent countries to fa-
cilitate frontier traffic or (b) advantages accorded
to trade with the Free Territory of Trieste by
adjacent countries (Italy and Yugoslavia), if not
in conflict with Second World War peace treaties.
This article in effect provides an exception from
most-favored-nation treatment for frontier traffic,
an exception which is customarily included in
cormnercial treaties and trade agreements.

Customs Unions and Free-Trade Areas

Article 44 permits members of the Ito, as an
exception to the general rules on nondiscrimina-
tion, to form a customs union or a free-trade area
or to enter into an interim agreement for the for-
mation of a customs union or free-trade area,
subject to certain carefully defined safeguards.
Briefly stated, a customs union (a) eliminates the
tariff's and other barriers on substantially all the
trade between the parties to the union and (b)


Deparfmenf of Sfafe Bulletin

establishes a common schedule of tarilFs iiiul re

Online LibraryUnited States. Dept. of State. Office of Public CoDepartment of State bulletin (Volume v. 22, Apr- Jun 1950) → online text (page 42 of 116)