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Reconciliation of non-market economies : GATT trade rules Xia, Yao Yuan 1990

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RECONCILIATION OF NON-MARKET ECONOMIES: GATT TRADE RULES By YAO YUAN XIA LL.B. B e i j i n g U n i v e r s i t y , 1983 LL.M. Fudan U n i v e r s i t y , 1986 A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF LAWS i n THE FACULTY OF GRADUATE STUDIES (Law School) We a c c e p t t h i s t h e s i s as c o n f o r m i n g t o t h e r e q u i r e d s t a n d a r d THE UNIVERSITY OF BRITISH COLUMBIA A p r i l 1990 @ YAO YUAN XIA, 1990 In presenting this thesis in partial fulfilment of the requirements for an advanced degree at the University of British Columbia, I agree that the Library shall make it freely available for reference and study. I further agree that permission for extensive copying of this thesis for scholarly purposes may be granted by the head of my department or by his or her representatives. It is understood that copying or publication of this thesis for financial gain shall not be allowed without my written permission. Department of LAM The University of British Columbia Vancouver, Canada D a t e A p r i l , 1990 DE-6 (2/88) ABSTRACT Due t o t h e a b o r t i o n o f t h e proposed Havana C h a r t e r and n o n - p a r t i c i p a t i o n o f t h e USSR and o t h e r S t a t e t r a d i n g economies i n t h e C h a r t e r n e g o t i a t i o n s , GATT has been a c t i n g as a t r a d e r s ' c l u b - a c l u b m a i n l y b e n e f i c i a l t o w e s t e r n •market economies. I t s r u l e s a r e f o r m u l a t e d a l m o s t e x c l u s i v e l y i n f a v o r o f f r e e t r a d e on a c o m p a r a t i v e advantage and p r i v a t e e n t e r p r i s e b a s i s . There i s v i r t u a l l y no p l a c e f o r NMEs t o have e f f e c t i v e a c c e s s . As one o f t h e p i v o t s o f po s t - W o r l d - W a r - I I m u l t i l a t e r a l i s m , GATT assumes a major r o l e i n compromising, i n t e g r a t i n g , r e g u l a t i n g and s u p e r v i s i n g d i v e r s i f i e d member n a t i o n s ' t r a d e laws and p o l i c i e s . I t s l e g a l framework, however, i s i n a d e q u a t e t o d e a l w i t h t h e i n t e g r a t i o n o f NME. T h i s i s because GATT i s framed e s s e n t i a l l y a l o n g t h e l i n e o f market i d e o l o g y and m i n i m a l government i n t e r v e n t i o n . NMEs, on t h e o t h e r hand, d i s c a r d market i d e o l o g y and adopt w h o l e s a l e government i n t e r v e n t i o n and c e n t r a l p l a n n i n g as a b a s i c form o f economy. W h i l e t r a d i n g p r a c t i c e i n NMEs i s b a s i c a l l y i n c o m p a t i b l e w i t h t h e GATT-promoted f r e e t r a d e r u l e s , accommodations were made t o f a c i l i t a t e NMEs' r e q u e s t f o r membership. C o n s e q u e n t l y , P o l a n d , Romania, Hungary and Y u g o s l a v i a became GATT members r e s p e c t i v e l y d u r i n g t h e 1960s and 70s. A t t h a t t i m e E a s t European c o u n t r i e s m a i n t a i n e d command s t a t e t r a d i n g t h u s were u n a b l e t o be f u l l y i i i i n t e g r a t e d i n t o t h e GATT-based i n t e r n a t i o n a l t r a d e o r d e r . D u r i n g n e g o t i a t i o n s on terms o f NMEs' a c c e s s i o n t o GATT, GATT c o u n t r i e s adopted an i m p o r t commitments approach t o s o l v e t h e c e n t r a l and much debated i s s u e o f market a c c e s s t o NME c o u n t r i e s . D e s p i t e i t s m e r i t s , t h e appr o a c h has been c r i t i c i z e d n o t w i t h s t a n d i n g t h e f a c t t h a t no a l t e r n a t i v e has been s u g g e s t e d . A c c o r d i n g l y , t h e p r i m a r y o b j e c t i v e o f t h e t h e s i s i s t o r e t h i n k t h e e x i s t i n g approaches t o NMEs i n o r d e r t o e x p l o r e new ways o f e f f e c t i v e l y i n t e g r a t i n g NMEs i n t o t h e GATT l e g a l framework. By a p p r o a c h i n g t h e t h e s i s problem c a r e f u l l y , t h e w r i t e r a r r i v e s a t t h e c o n c l u s i o n t h a t a l t h o u g h GATT would need new assumptions w i t h a v i e w t o r e g a i n i n g a new consensus o f b r o a d e r i n t e r n a t i o n a l r e p r e s e n t a t i o n and p a r t i c i p a t i o n , a c o n s i d e r a b l e and s u b s t a n t i a l d e c e n t r a l i z a t i o n i n t h e NME i s u n a v o i d a b l e i n o r d e r t o adapt t h e m s e l v e s i n t o t h e GATT framework. I n t h e meantime, i t i s s t r e s s e d t h a t a l l GATT c o u n t r i e s s h o u l d c o n t i n u e t o f a c i l i t a t e NMEs' a c c e s s t o t h e GATT forum i n t h e hope t h a t NMEs b e i n g p o t e n t i a l w o r l d t r a d e r s would i n c r e a s e w o r l d p r o s p e r i t y and u n d e r s t a n d i n g by b r o a d e r p a r t i c i p a t i o n . World p r o s p e r i t y , n e e d l e s s t o say, i s t h e b e s t g u a r a n t e e o f w o r l d peace and s e c u r i t y . i v TABLE OF CONTENTS Pages A b s t r a c t i i L i s t o f A b b r e v i a t i o n s . v i i Acknowledgements v i i i P a r t I : I n t r o d u c t i o n 1 1.1 T h e s i s Problems: Main Theme o f t h e T h e s i s 1 1.2 T h e s i s O r g a n i z a t i o n and A n a l y s i s 2 1.3 T h e s i s Methodology 4 1.4 O p t i o n s and P r e l i m i n a r y C o n c l u s i o n s 5 P a r t I I : Overview o f t h e GATT Framework and NME 12 2.1 H i s t o r i c a l Background 12 2.2 Comparative Advantage as t h e P i v o t o f GATT 15 2.3 NME and GATT M u l t i l a t e r a l i s m 20 2.3(1) C o n f l i c t i n g I d e o l o g i e s : R e c o n c i l a b l e ? 20 2.3(2) GATT Framework: A L e g a l and S t r u c t u r a l O verview 22 2.4 NMEs' Membership: I s s u e o f C o m p a t i b i l i t y R a i s e d 32 2.4(1) E v o l u t i o n o f East-West R e l a t i o n s h i p 32 2.4(2) NME Membership i n GATT 34 V 2.4(3) I s s u e o f C o m p a t i b i l i t y R a i s e d : G e n e r a l F i n d i n g s 38 P a r t I I I : Fundamental R u l e s o f GATT: C o m p a t i b l e W i t h NME System 58 3.1 GATT R u l e s on S t a t e t r a d i n g and NME 59 3.1(1) GATT R u l e s on S t a t e T r a d i n g 59 3.1(2) A r t i c l e 17 and NME 64 3.1(3) C o n c l u s i o n s and S u g g e s t i o n s 70 3.2 N o n d i s c r i m i n a t o r y A d m i n i s t r a t i o n o f QRs and NMEs 74 3.2(1) GATT R u l e s On QRs 74 3.2(2) A r e NMEs C o m p a t i b l e W i t h N o n d i s c r i m i n a t o r y Use o f QRs 76 3.3 T a r i f f P r o t e c t i o n v. T a r g e t P r o t e c t i o n 78 3.4 Domestic P r i c e Formation:Dumping o r S u b s i d i e s ? 81 3.4(1) GATT An t i d u m p i n g and C o u n t e r v a i l i n g Duty Law and NME 85 3.4(2) Problem o f Dumping and S u b s i d i e s W i t h NME....87 3.5 C o n c l u s i o n s 94 P a r t IV: R e c o n c i l i a t i o n o f NME Wi t h GATT Framework 110 4.1 Weaknesses o f GATT Approaches t o NME S t a t e T r a d i n g System 110 4.2 C r i t i c i s m o f t h e Import-commitment Approach.... 113 4.3 I m p r o v i n g t h e E x i s t i n g Approaches 119 v i 4.4 D i s c o v e r i n g New Approaches t o R e c o n c i l i a t i o n . . . 1 2 1 4.4(1) " G r a d u a l and R e a l i s t i c " Approach.. 124 4.4(2) M o d i f i c a t i o n o f GATT R u l e s 130 4.4(3) " D e c e n t r a l i z a t i o n " : F i r s t - b e s t S o l u t i o n t o t h e I n c o m p a t i b i l i t y ? 134 4.5 O p t i o n s f o r R e g a i n i n g C h i n a ' s GATT Membership..137 P a r t V: Summary and C o n c l u s i o n s 147 S e l e c t e d B i b l i o g r a p h y 153 v i i LIST OF ABBREVIATIONS c . i . f — c o s t , i n s u r a n c e and f r e i g h t C M E A — C o u n c i l f o r M u t u a l Economic A i d , a l s o r e f e r r e d t o as COMECON C P s ( c p s ) — C o n t r a c t i n g P a r t i e s E C S C — E u r o p e a n C o u n c i l o f S t e e l and C o a l s E E C — E u r o p e a n Economic Community E F T A — E u r o p e a n F r e e Trade A s s o c i a t i o n f . o . b . — f r e e - o n - b o a r d F M E s — f r e e - m a r k e t economies G A T T — G e n e r a l Agreement on T a r i f f s and Trade G S P s — G e n e r a l i z e d S p e c i a l P r e f e r e n c e s I M F — I n t e r n a t i o n a l Monetary Fund I T O — I n t e r n a t i o n a l Trade O r g a n i z a t i o n L D C s - - l e s s - d e v e l o p e d c o u n t r i e s M F N — m o s t - f a v o r e d - n a t i o n M T N — M u l t i n a t i o n a l Trade N e g o t i a t i o n s NMEs—-non-market economies N T B s — n o n - t a r i f f b a r i i e r s O E C D — O r g a n i z a t i o n f o r Economic C o o p e r a t i o n and Development O P E C — O r g a n i z a t i o n o f P e t r o l e a m E x p o r t i n g C o u n t r i e s Q R s — q u a n t i t a t i v e r e s t r i c t i o n s S D R s — S p e c i a l Drawing R i g h t s S T E s — s t a t e t r a d i n g e n t e r p r i s e s U N — U n i t e d N a t i o n s UNCTAD—United N a t i o n s C o n f e r e n c e s on Trade and Development J v i i i ACKNOWLEDGEMENTS W h i l e many a r d e n t s c h o l a r s and w r i t e r s have bro u g h t d i s t i n g u i s h e d c r e d e n t i a l s t o t h e d i s c i p l i n e o f t h e G e n e r a l Agreement on T a r i f f s and Trade (GATT), t h e r e i s y e t a gap l e f t f o r us t o f i l l i n t h e r e l a t i o n s h i p between t h e GATT t r a d i n g system and nonmarket economies (NMEs). The p r i m a r y o b j e c t i v e o f t h e t h e s i s i s t o f i l l t h i s gap. I would l i k e t o thank O s i e r , H o s k i n & H a r c o u r t - a law f i r m i n T o r o n t o f o r t h e i r generous f i n a n c i a l s u p p o r t , and t o my s u p e r v i s o r s , P r o f e s s o r s P a t e r s o n and H e r b s t f o r t h e i r g u i d a n c e and comments. I am p a r t i c u l a r l y g r a t e f u l t o P r o f . M a r i l y n MacCrimmon f o r h e r u n f a i l i n g and t i r e l e s s h e l p i n d o i n g a c r i t i c a l and c o n s c i e n t i o u s r e s e a r c h . My s p e c i a l t h a n k s go t o my p a r e n t s f o r t h e i r c o n s t a n t encouragement d u r i n g my lonesome s t a y away from C h i n a . W i t h o u t t h e i r a s s i s t a n c e , a d v i c e and encouragement my academic p u r s u i t s h e r e would have been i m p o s s i b l e . On my f i n a l n o t e I s h o u l d add t h a t I am s o l e l y r e s p o n s i b l e f o r t h e f a c t s and o p i n i o n s s e t out i n t h i s t h e s i s . X i a , Yaoyuan Vancouver 1988-89 1 P A R T O N E : I N T R O D U C T I O N 1. THESIS PROBLEMS: MAIN THEME OF THE THESIS The t h e s i s c e n t e r s on t h e i s s u e o f r e c o n c i l i a t i o n o f market-based GATT l e g a l framework w i t h non-market economies ( h e r e i n a f t e r "NME"). The purpose o f t h e t h e s i s i s f i r s t t o examine whether t h e NME system i s c o m p a t i b l e w i t h t h e GATT t r a d e r u l e s . As GATT r u l e s a r e a l m o s t e x c l u s i v e l y f o r m u l a t e d a l o n g t h e p a t t e r n o f market economy i d e o l o g y w h i c h i s i n c o n s t a n t c o n f l i c t w i t h t h e c e n t r a l l y p l a n n e d s o c i a l i s t system, t h e e f f e c t i v e n e s s o f NME c o u n t r i e s ' a c c e s s t o GATT i s d o u b t f u l , and t h e a b i l i t y o f NMEs t o meet t h e GATT code of conduct i n t r a d e i s r a t h e r l i m i t e d . Because GATT i s e s s e n t i a l l y c r e a t e d on t h e p r i n c i p l e o f f r e e r t r a d e and non-d i s c r i m i n a t i o n f o r market economies p a r t i c u l a r l y p r i v a t e -e n t e r p r i s e economies, i t i s u n l i k e l y t o p r o v i d e an adequate framework t o d e a l w i t h NMEs and p a r t i c u l a r l y s t a t e - t r a d i n g economies. I n vi e w o f t h i s p roblem t h e t h e s i s u n d e r t a k e s t o e x p l o r e some f e a s i b l e and r a t i o n a l mechanisms t h a t w i l l accommodate NMEs t o p a r t i c i p a t e i n t h e GATT. GATT s o l v e d t h e problem o f t h e a c c e s s i o n o f E a s t European c o u n t r i e s t o membership on a c o u n t r y - b y - c o u n t r y and v e r y p r a g m a t i c b a s i s . The GATT pragmatism i s o b v i o u s by u s i n g an im p o r t - c o m m i t m e n t - o r i e n t e d approach t o s o l v e r e c i p r o c a l 2 m a r k e t - a c c e s s i s s u e s p u t t i n g a s i d e i t s c a r d i n a l p r i n c i p l e of n o n - d i s c r i m i n a t i o n . The r e q u e s t s o f C h i n a and even t h e USSR f o r GATT membership pose new c h a l l e n g e s t o t r a d e l i b e r a l i z a t i o n and i n t e g r a t i o n w i t h i n t h e ambit o f t h e GATT. Some u n s o l v e d t h e o r e t i c a l and s t r u c t u r a l problems p e r t a i n i n g t o t h e c o m p a t i b i l i t y and r e c o n c i l a b i l i t y o f t h e NME and GATT r u l e s must be examined and c o n s i d e r e d . The s t u d y i s a l s o d e s i g n e d t o deepen u n d e r s t a n d i n g o f t h e GATT l e g a l framework, t o r e c o n c i l e t h e i n c o m p a t i b i l i t y o f NME w i t h GATT t r a d e r u l e s , t o propose p o s s i b l e s o l u t i o n s t o i n t e g r a t i o n o f NMEs i n t o GATT l e g a l regime. 2. THESIS ORGANIZATION AND ANALYSIS The t h e s i s c o n s i s t s o f t h r e e p a r t s b e s i d e s t h e i n t r o d u c t i o n ( P a r t I) and t h e c o n c l u s i o n ( P a r t V) . As i t s dominant theme r e v o l v e s around t h e r e c o n c i l i a t i o n o f NME s t a t e - t r a d i n g system and GATT framework, P a r t I I o f t h e t h e s i s b e g i n s by s e t t i n g out t h e i d e o l o g i c a l , h i s t o r i c a l and p h i l o s o p h i c a l background f o r t h e e s t a b l i s h m e n t o f t h e GATT system and t h e e x c l u s i o n o f NME c o u n t r i e s from GATT membership. T h i s p a r t i s c r u c i a l because i t i l l u s t r a t e s b a s i c t h e o r i e s , a s s u m p t i o n s and d o c t r i n e s on w h i c h t h e GATT m u l t i l a t e r a l i s m was framed. I t w i l l p r o v i d e r e a d e r s w i t h a b e t t e r sense o f how and i n what c o n t e x t t h e GATT r u l e s were n e g o t i a t e d and f o r m u l a t e d . 3 I t t h e n s t a t e s t h e economic and p o l i t i c a l t h e o r y upon w h i c h GATT i s based and o u t l i n e s M a r x i s t economic t h e o r y d o m i n a t i n g a l m o s t e v e r y s o c i a l i s t c o u n t r y and how o r why t h e t h e o r y has been m o d i f i e d by t h e E a s t e r n b l o c and C h i n a . P a r t I I I o f t h e t h e s i s examines some major a r e a s which would r a i s e t h e i s s u e o f c o m p a t i b i l i t y between t h e f u n c t i o n o f non-market s t a t e - t r a d i n g economies and GATT r u l e s . To t h i s end, t h e t h e s i s u n d e r t a k e s a r u l e - b y - r u l e a pproach, as opposed t o a " l i n e a r a pproach" employed i n p a r t I , t o a n a l y z e s e l e c t e d GATT p r i n c i p l e s o r r u l e s and t h e i r a p p l i c a b i l i t y t o non-market economies. P r i n c i p l e s o f n o n - d i s c r i m i n a t i o n , r e c i p r o c i t y , t a r i f f p r o t e c t i o n , and r u l e s and r e q u i r e m e n t s c o n c e r n i n g s t a t e - t r a d i n g , use o f p r o t e c t i o n i s t mechanisms f o r t h e purpose o f ^ t r a d e c o n t r o l s i n c l u d i n g t h e use o f q u a n t i t a t i v e r e s t r i c t i o n s (QRs) a r e examined. I t i s b e l i e v e d t h a t by u s i n g t h i s approach t h e q u e s t i o n o f t h e c o m p a t i b i l i t y and r e c o n c i l a b i l i t y o f t h e NME and GATT t r a d e r u l e s c o u l d be b e t t e r answered and be made c l e a r e r . S i n c e non-market economies a r e e s s e n t i a l l y s t a t e - t r a d i n g , 1 t h e f o c u s o f t h i s a n a l y s i s i s on s t a t e t r a d i n g systems i n major NMEs, namely, C h i n a , t h e USSR and t h e E a s t e r n European c o u n t r i e s . M e x i c o , and some o t h e r OPEC s t a t e t r a d i n g c o u n t r i e s a r e e x c l u d e d due t o t h e l i m i t e d r e s o u r c e s o f t h o s e c o u n t r i e s and t h e c o n f i n e d scope o f t h e s t u d y . P a r t IV o f t h e t h e s i s p r o p o s e s c e r t a i n mechanisms d e s i r a b l e f o r t h e i n t e g r a t i o n and r e c o n c i l i a t i o n t a k i n g i n t o a c c o u n t GATT's p r e v i o u s e x p e r i e n c e w i t h i n t e g r a t i n g t h e 4 E a s t e r n b l o c i n t o t h e GATT. S i n c e t h e most immediate c o n c e r n o f GATT i s w i t h C h i n a ' s membership r e q u e s t , a p o r t i o n o f t h i s p a r t w i l l be d e v o t e d t o d i s c u s s i n g t h e c o m p a t i b i l i t y o f C h i n a ' s economy w i t h GATT and e x p l o r i n g o p t i o n s f o r Chi n a ' s a c c e s s i o n . I n e s t a b l i s h i n g a r e c o n c i l i a t i o n mechanism, t h i s p a r t o f t h e t h e s i s a l s o u n d e r t a k e s t o r e v i e w t h e GATT approaches towards a c c e p t i n g E a s t e r n European c o u n t r i e s i n t o i t s framework. I t a l s o r e v i e w s t h e GATT e x p e r i e n c e s i n d e a l i n g w i t h some a p p a r e n t l y i r r e c o n c i l a b l e problems a t t h e t i m e o f some E a s t European NMEs' a c c e s s i o n t o GATT. W i t h t h e s e approaches and e x p e r i e n c e s as g u i d a n c e , t h e t h e s i s t h e n p a r t i c u l a r i z e s t h e problems c o n c e r n i n g C h i n a ' s a c c e s s i o n o r r e s u m p t i o n . 2 The t h e s i s c o n c l u d e s w i t h a summary o f t h e s t u d y and assessment o f GATT's r o l e i n i n t e g r a t i n g t h e NMEs i n t o i t s r e g u l a t o r y framework. 3. THESIS METHODOLOGY T r a d i t i o n a l approaches t o academic t h e s e s a r e devo t e d more t o p h i l o s o p h i c a l o r d o c t r i n a l a n a l y s i s . Today, many s c h o l a r s a r e more i n c l i n e d t o be p r o b l e m - s o l v i n g t h e o r i s t s . The. o v e r r i d i n g methodology o f t h i s s t u d y i s a p r o b l e m - s o l v i n g approach w h i c h r e q u i r e s a d e d u c t i v e and i n d u c t i v e r e a s o n i n g , a m u l t i - d i m e n s i o n a l a n a l y s i s o f t h e o r y and c u r r e n t p r a c t i c e , a c o m p a r a t i v e s t u d y w i t h a c o m b i n a t i o n o f d e s c r i p t i v e , 5 a n a l y t i c a l , i m a g i n a t i v e and presupposed mechanics. As compared t o a t r a d i t i o n a l p h i l o s o p h i c a l o r d o c t r i n a l approach, t h e p r o b l e m - s o l v i n g approach may have more p r a c t i c a l s i g n i f i c a n c e . I t c o n c e n t r a t e s more on p a r t i c u l a r problems and aims a t p r a c t i c a l a p p l i c a t i o n . There i s , however, a danger i n t h i s a pproach t h a t w i l l undermine t h e c r e a t i v i t y o f t h e s t u d y . Such an approach may meet t h e u t i l i t y and n o v e l t y r e q u i r e m e n t s b u t may l a c k p r o v o c a t i v e i d e a s , w h i c h a r e e s s e n t i a l t o advance a g e n e r a l f i e l d . L i k e any o t h e r r e s e a r c h , t h i s s t u d y b e g i n s by l a y i n g down p r e l i m i n a r y a s s u m p t i o n s . E f f o r t s have been made t o a n a l y z e , j u s t i f y , and e s t a b l i s h t h e a s s u m p t i o n s . T h e s i s arguments w i l l h o p e f u l l y be e v i d e n c e d and s u p p o r t e d i n t h e c o u r s e o f a n a l y s i s , though t h e y would remain d e b a t a b l e i n changed c i r c u m s t a n c e s . A d m i t t e d l y some o f t h e s u b j e c t c o n t e n t i o u s i s s u e s might re m a i n u n s o l v e d and o t h e r s might have s e v e r a l s o l u t i o n s . C o n c l u s i o n s o f t h e t h e s i s t h u s may appear open-ended. T h i s i s e s p e c i a l l y so because t h e two major NMEs-China and t h e S o v i e t Union-have not y e t a c q u i r e d GATT membership. T h i s , would r e n d e r i t h a r d l y p r e d i c t a b l e as t o how GATT member c o u n t r i e s a r e t o i n t e g r a t e them i n t o GATT's framework and what terms o f a c c e s s i o n need t o be n e g o t i a t e d . 4. OPTIONS AND PRELIMINARY CONCLUSION As r e g a r d s t h e i n t e g r a t i o n o f E a s t and West t r a d i n g systems, one o f t h e most f r u s t r a t i n g and much d i s c u s s e d 6 problems i s S t a t e t r a d i n g . 3 S t a t e t r a d i n g e x i s t s i n b o t h market and non-market economies. S t a t e t r a d i n g remains a n o t a b l e b a r r i e r t o t r a d e , a tough t r a d e i n s t r u m e n t w h i c h i s a t odds w i t h GATT-promoted t r a d e l i b e r a l i z a t i o n . To a l a r g e degree GATT r u l e s on s t a t e t r a d i n g have n o t become an e f f i c i e n t i n s t r u m e n t i n d e a l i n g w i t h s t a t e t r a d i n g problem. R e v i s i o n o f some GATT r u l e s i s b e l i e v e d t o be b o t h c r u c i a l and demanding w i t h a v i e w t o r e c o n c i l i n g NMEs w i t h GATT. Economic a n a l y s i s o f s t a t e t r a d i n g system shows t h a t s t a t e t r a d i n g can be b o t h an o b j e c t o f t r a d e p o l i c y and i n s t r u m e n t o f t r a d e p o l i c y . T r a d i t i o n a l l y , GATT a t t a c h e d t o o much w e i g h t t o d e f i n i n g s t a t e t r a d i n g e n t e r p r i s e s (STEs) t h e m s e l v e s . I t n e g l e c t e d t h e f u n c t i o n o f government c o n t r o l b e h i n d t h e a c t i v i t i e s o f STEs. I t i s t h u s s u b m i t t e d t h a t GATT, w i t h an o b j e c t i v e o f d e c e n t r a l i z i n g s t a t e t r a d i n g system, s h o u l d f o c u s on r e g u l a t i n g s t a t e t r a d i n g as an i m p l e m e n t a t i o n o f government t r a d e p o l i c y r a t h e r t h a n on STEs p e r se. Some o f p r e v i o u s GATT approaches t o NME's s t a t e t r a d i n g such as "n o r m a t i v e a p p r o a c h " 4 , " r e s u l t - o r i e n t e d a p p r o a c h " 5 o r " i m p o r t commitment a p p r o a c h " 0 d e a l t w i t h "on a c o u n t r y - b y - c o u n t r y b a s i s " ' might no l o n g e r be a p p r o p r i a t e . Some r e t h i n k i n g o f t h o s e approaches would be c o n d u c i v e t o i d e n t i f y i n g t h e problems and would o f f e r us some w o r k a b l e o p t i o n s f o r r e - i n t e g r a t i n g t o d a y ' s d i v e r s i f y i n g t r a d e systems. However, t h e r e v i e w o f t h e GATT approaches ( n o r m a t i v e a p p r o a c h , r e s u l t - o r i e n t e d approach o r i m p o r t commitment 7 approach and c o u n t r y - b y - c o u n t r y approach) would show t h a t t o i n t e g r a t e t h e NME i n t o t h e GATT system i s by no means an easy t a s k . I t would be s i m p l y i r r e c o n c i l a b l e i f n e i t h e r t h e NME system n or t h e o r i g i n a l GATT ass u m p t i o n s on w h i c h t h e GATT r u l e s were based were t o be changed. I n a d d r e s s i n g t h i s r e c o n c i l i a t i o n i s s u e t h e GATT c o u n t r i e s s h o u l d c o n t i n u e t o be r e a l i s t i c o t h e r w i s e t h e g o a l o f r e c o n c i l i a t i o n would n ot be a t t a i n e d . To r e c o n c i l e t h e NME w i t h t h e GATT framework o r t h e GATT w i t h t h e NME system, t h e f o l l o w i n g f o u r o p t i o n s m e r i t c o n s i d e r a t i o n : O p t i o n I : E i t h e r NMEs r e f o r m t h e i r economies and f o r e i g n t r a d e r e g i m e s t o such a degree t h a t t h e i r economies a r e c o m p a t i b l e enough w i t h t h e GATT system and f o l l o w GATT t r a d e r u l e s as though t h e y were market economies, o r O p t i o n I I : R e g a r d l e s s o f i t s d e e p - r o o t e d t r a d e l i b e r a l i z a t i o n n o t i o n w i t h t h e f u n c t i o n o f market f o r c e , GATT s h o u l d r e v i s e and i n s e r t r e l e v a n t a r t i c l e s d e a l i n g w i t h NMEs' s t a t e t r a d i n g a l o n g t h e l i n e s s u g g e s t e d i n t h e U.S. "Suggested C h a r t e r " f o r t h e f o u n d i n g o f t h e I n t e r n a t i o n a l Trade O r g a n i z a t i o n (ITO) a t t h e London C o n f e r e n c e , 8 o r " t h e Havana q , C h a r t e r " t o r e c o g n i z e s t a t e t r a d i n g as an i n s t r u m e n t o f t r a d e c o n t r o l and t o use " e f f e c t s o f m a t e r i a l i n j u r y " 1 0 approach t o overcome t h e dilemma w i t h t h e s t a t e t r a d i n g problem, o r O p t i o n I I I : I n t e g r a t i n g NMEs, C h i n a and t h e USSR i n p a r t i c u l a r , i n t o t h e GATT framework on t h e b a s i s o f s p e c i a l arrangements. B a s i c a l l y t h i s i s a c o u n t r y - b y - c o u n t r y approach 8 by w h i c h t h e E a s t e r n European b l o c has f o r m e r l y been i n t e g r a t e d , o r O p t i o n IV: NMEs g i v e up any a t t e m p t t o j o i n t h e GATT because o f t h e i r i n a b i l i t y o r u n w i l l i n g n e s s t o c o m p l e t e l y a c c e p t t h e market-based GATT forum - a forum w h i c h i s l a b e l l e d a " r i c h men's c l u b " . The above p r o p o s a l s a r e i l l u s t r a t i v e b u t by no means e x h a u s t i v e . There may e x i s t o t h e r o p t i o n s w h i c h w i l l h o p e f u l l y be mentioned i n c o u r s e o f d i s c u s s i o n . The f o c a l p o i n t o f t h e o p t i o n a n a l y s i s i s t o see i n t h e f i n a l a n a l y s i s w h i c h o p t i o n i s most a p p r o p r i a t e t o s o l v e t h e problem o f i n t e g r a t i n g s t a t e t r a d i n g systems i n t o GATT l e g a l regime. FOOTNOTES S t a t e t r a d i n g , as compared t o p r i v a t e t r a d i n g , denotes a t r a d i n g system where t h e volume and p r i c e s o f a c o u n t r y ' s e x p o r t s and i m p o r t s a r e p r e - d e t e r m i n e d by t h e s t a t e . F o r e i g n t r a d e i s a p p a r e n t l y an e x c l u s i v e domain of government r e g u l a t i o n . See K.W. Dam, The GATT Law and International Economic Organization (1970), c o n c e r n i n g " s t a t e t r a d i n g " , pp. 316-31. C h i n a was once t h e o r i g i n a l member o f t h e GATT. I n 1958 t h e N a t i o n a l i s t Government i n Taiwan w i t h d r e w i t s membership from t h e GATT due t o economic f a c t o r s . I n s p i t e o f t h e n a t i o n a l i s t s ' w i t h d r a w a l , PRC's B e i j i n g Government d e c l a r e s t h a t i t was i n v a l i d s i m p l y because o n l y B e i j i n g government i s t h e l e g a l r e p r e s e n t a t i v e o f C h i n a . T h i s c l a i m i s c o n s i s t e n t w i t h t h e v i e w e x p r e s s e d i n resuming C h i n a ' s s e a t s i n t h e U n i t e d N a t i o n s , t h e I n t e r n a t i o n a l Monetary Fund and t h e World Bank i n s t i t u t i o n . See L i , Chungzhou "Resumption o f C h i n a ' s GATT Membership" (1987) 21 J.W.T.L., pp.25-48. 9 S t a t e t r a d i n g r e f e r s t o t r a d i n g p l a n n e d and t a r g e t e d by t h e S t a t e r a t h e r t h a n by p r i v a t e e n t e r p r i s e s (see s u p r a note 1) . The f o l l o w i n g i s M. K o s t e c k i ' s d e f i n i t i o n o f s t a t e t r a d i n g : " S t a t e t r a d i n g o c c u r s when a government o r a government-backed agency d e t e r m i n e s t h e e s s e n t i a l terms ( i n c l u d i n g p r i c e s o r q u a n t i t i e s ) on w h i c h e x p o r t s and i m p o r t s have t o t a k e p l a c e . " R e g a r d l e s s o f t h e s i g n i f i c a n c e o f p u b l i c o w n e r s h i p , government management, p u b l i c g r a n t o f e x c l u s i v e r i g h t s o r s t a t e monopoly of f o r e i g n t r a d e , K o s t e c k i adopts a f u n c t i o n a l approach t o d e f i n e s t a t e t r a d i n g as one o f many methods o f government i n t e r v e n t i o n i n f o r e i g n t r a d e . See K o s t e c k i , " S t a t e T r a d i n g By t h e Advanced and D e v e l o p i n g C o u n t r i e s : The Background," i n STATE TRADING IN INTERNATIONAL MARKETS (1982, K o s t e k i e d . ) , a t 6-8. The f u n c t i o n a l approach perhaps p r o v i d e s t h e b e s t s t a r t i n g p o i n t f o r l a t e r d i s c u s s i o n s i n P a r t I I I o f t h e d i s s e r t a t i o n s i n c e s t a t e t r a d i n g i s i n terms o f f o r e i g n t r a d e a t t h e h e a r t o f non-market economy. Under " n o r m a t i v e approach", t h e GATT d e c l a r e s t h a t t h e p a r t i e s must no t i n d u c e o r t o l e r a t e p r a c t i c e s o f s t a t e t r a d i n g e n t e r p r i s e s t h a t have e f f e c t s w h i c h would be v i o l a t i o n o f commitments under t h e G e n e r a l Agreement. R o e s s l e r , " S t a t e T r a d i n g and Trade L i b e r a l i z a t i o n " , i n STATE TRADING IN INTERNATIONAL MARKETS (1982 K o s t e c k i , e d . ) , a t 275. V i e w i n g GATT from a n o r m a t i v e a n g l e , t h e a u t h o r d i s t i n g u i s h e s rules from measures (a r u l e , b e i n g a d d r e s s e d t o an unknown number o f e n t e r p r i s e s , n e c e s s a r i l y has t o be made p u b l i c b e f o r e i t can become e f f e c t i v e , a measure, however, b e i n g a d d r e s s e d t o one o r s e v e r a l s p e c i f i c e n t e r p r i s e s , need n o t be made p u b l i c ) . T h i s r u l e - o r i e n t e d approach o f t h e GATT i s n o t an e f f i c i e n t i n s t r u m e n t t o p r e v e n t s p e c i f i c government measures o f a d i s c r i m i n a t o r y o r p r o t e c t i v e n a t u r e , made e f f e c t i v e t h r o u g h s t a t e - c o n t r o l l e d e n t e r p r i s e s . For d e t a i l e d d i s c u s s i o n o f t h e drawbacks o f t h e a pproach, see R o e s s l e r , id., a t 261, 263, 275-76. T h i s approach p r o v i d e s f o r commitments t o a c h i e v e agreed t a r g e t s t h r o u g h s t a t e t r a d i n g e n t e r p r i s e s . I t was f i r s t u sed by F r a n c e . (See GATT C o n s o l i d a t e d S c h e d u l e s of T a r i f f C o n c e s s i o n s , V o l . 2 Geneva: 1952, p. 200.) and l a t e r o v e r u s e d when d e a l i n g w i t h P o l i s h and Romanian problems o f a c c e s s i o n t o GATT. I t i s b a s i c a l l y synonymous w i t h " i m p o r t commitment approach". See R o e s s l e r , supra n o t e 4, a t 262, 276. 10 Import commitment approach i s such t h a t t h e b a s i s o f a d m i s s i o n was t o be p r o v i d e d n o t by t a r i f f c o n c e s s i o n s b u t by a commitment t o a c h i e v e a m i n i m a l volume o f i m p o r t s from t h e GATT c o u n t r i e s . F o r i n s t a n c e t h e p o l i s h P r o t o c o l o f A c c e s s i o n s e t t h e a n n u a l i n c r e a s e o f i m p o r t s from t h e GATT members a t 7%. (GATT Doc. L/2851 J u l y 1976). The P r o t o c o l o f A c c e s s i o n w i t h Romania i n 1967 s t a t e d t h a t Romania i n t e n d s " . . . t o i n c r e a s e i t s i m p o r t s from t h e c o n t r a c t i n g p a r t i e s as a whole a t a r a t e n o t s m a l l e r t h a n t h e growth o f t o t a l Romanian i m p o r t s p r o v i d e d i n i t s F i v e Year P l a n . " (GATT Doc. L/3557, A c c e s s i o n o f Romania 5 Aug. 1971, 807 UNTS 312). A " c o u n t r y by c o u n t r y approach" became n e c e s s a r y when E a s t e r n European c o u n t r i e s were a p p l y i n g f o r t h e GATT membership n o t s i m u l t a n e o u s l y and each had more o r l e s s d i f f e r e n t s t a t e t r a d i n g system. Some o f them adopted "command" o r d i r e c t i v e s t a t e t r a d i n g system; some used r e l a t i v e l y " l o o s e " s t a t e t r a d i n g system. See K o s t e c k i , East-West Trade and the GATT System (1978), pp. 46-51. K o s t e c k i a t t a c k e d t h i s approach because i t c o u l d not s o l v e t h e u l t i m a t e problem o f i n t e g r a t i n g t h e NME c o u n t r i e s i n t o t h e GATT framework, b u t he f a i l e d t o p r o v i d e a b e t t e r s u b s t i t u t e . I n v i e w o f t h i s a n o t h e r w r i t e r t e n d s t o choose " P a r t V app r o a c h " , i . e . a d d i n g P a r t V w h i c h e x c l u s i v e l y d e a l s w i t h NMEs t o t h e o r i g i n a l t e x t o f t h e GATT, t o s o l v e t h e problem. See E. P a t t e r s o n , " I m p r o v i n g GATT R u l e s f o r NMEs", 20 J.W.T.L. 185 (1986). Suggested C h a r t e r f o r an I n t e r n a t i o n a l Trade O r g a n i z a t i o n o f t h e U n i t e d N a t i o n s . See U.S. Dept. o f S t a t e Pub. No. 2598, Commercial P o l i c y S e r i e s No. 93 (1946), P. I l l ( h e r e i n a f t e r c i t e d as Suggested Charter). The Havana C h a r t e r a l s o known as ITO C h a r t e r began w i t h a Suggested C h a r t e r s u b m i t t e d by t h e U.S. d e l e g a t e s . I t was i n t e n d e d t o be a f o u n d i n g c h a r t e r o f t h e ITO. The GATT w h i c h was deemed o n l y p r o v i s i o n a l would have been o ut o f f o r c e , s h o u l d t h e C h a r t e r had been approved and ITO e s t a b l i s h e d . U n f o r t u n a t e l y , t h e C h a r t e r was a b o r t e d and t h e GATT c o n s e q u e n t l y has been used t o d a t e . F o r d e t a i l e d d e s c r i p t i o n o f ITO C h a r t e r n e g o t i a t i o n s , see R.E. Hudec, the GATT Legal System and World Trade Diplomacy (1975 P r a e g e r P u b l i s h e r s ) , pp. 14-17. 11 T h i s approach i s s u g g e s t e d by P r o f . B e r n i e r who c o n c l u d e s t h a t , " i f s t a t e t r a d i n g i s a c c e p t e d as an a l t e r n a t i v e method o f i n t e r v e n t i o n o f s t a t e i n economic m a t t e r s , i t s t r e a t m e n t s h o u l d r e m a i n b a s i c a l l y c o n s i s t e n t w i t h t h a t g r a n t e d by t h e GATT t o o t h e r methods o f i n t e r v e n t i o n . 1 1 GATT has o v e r w h e l m i n g l y adopted a " m a t e r i a l i n j u r y p h i l o s o p h y " i n d e a l i n g w i t h t h e i n j u r i o u s e f f e c t s r e s u l t i n g from dumping and s u b s i d i z a t i o n . B e r n i e r , " S t a t e t r a d i n g and t h e GATT", i n STATE TRADING IN INTERNATIONAL MARKETS (1982 K o s t e c k i e d . ) , pp. 257-58. 12 P A R T T W O  OVERVIEW OF THE GATT FRAMEWORK AND NON-MARKET ECONOMY 2.1 HISTORICAL BACKGROUND The f a i l u r e o f t h e peace and economic c o o p e r a t i o n e f f o r t s made by t h e League o f N a t i o n s and Woodrow W i l s o n ' s F o u r t e e n P o i n t s i n d i r e c t l y l e d t o t h e G r e a t D e p r e s s i o n and W o r l d War I I . 1 The l e s s o n s and e x p e r i e n c e o f t h e s e i n c i d e n t s were r e f l e c t e d i n t h e p o s t-war m u l t i l a t e r a l s y s t e m . 2 I t became i n c r e a s i n g l y c l e a r a f t e r t h e War t h a t p r o s p e r i t y can be a c h i e v e d t h r o u g h economic c o - o p e r a t i o n and g l o b a l o r r e g i o n a l t r a d e l i b e r a l i z a t i o n . 3 P o s t - w a r m u l t i l a t e r a l framework was based on numerous i n t e r n a t i o n a l and r e g i o n a l o r g a n i z a t i o n s w h i c h were d e s i g n e d t o r e d e f i n e t h e common i n t e r e s t s o f t h e i n t e r n a t i o n a l s o c i e t y and n o r m a l i z e i n t e r n a t i o n a l r e l a t i o n s . The G e n e r a l Agreement - on T a r i f f s and Trade (GATT), I n t e r n a t i o n a l Monetary Fund (IMF) and W o r l d Bank Group ( f o r m e r l y known as I n t e r n a t i o n a l Bank f o r R e c o n s t r u c t i o n and Development - IBRD ) were formed t o reduce n a t i o n a l economic b a r r i e r s and i n c r e a s e w o r l d economic p r o s p e r i t y . 4 I n a d d i t i o n , some r e g i o n a l o r g a n i z a t i o n s such as European Economic Community ( E E C ) , 5 O r g a n i z a t i o n f o r Economic C o o r d i n a t i o n and Development (OECD) emerged t o promote r e g i o n a l economic management. They have been e n d e a v o r i n g t o a c h i e v e w o r l d economic u n i t y t h r o u g h r e g i o n a l c o o p e r a t i o n . F o l l o w i n g t h e f o r m a t i o n o f t h e UN t o s e c u r e w o r l d peace and u n i t y , t h e i n t e r n a t i o n a l community became committed t o c o n s t r u c t a new i n t e r n a t i o n a l economic o r d e r t h a t would d i s m a n t l e t r a d e and monetary b a r r i e r s w h i c h were t h e main cause o f t h e G r e a t D e p r e s s i o n and World War I I . 7 S e v e r a l w o r l d - w i d e c o n f e r e n c e s , such as t h e B r e t t o n Woods Conference ( 1 9 4 4 ) , 8 and c o n f e r e n c e s h e l d a t London (1946), Geneva (1947) and Havana (1947-48), a t t e m p t e d t o e s t a b l i s h t h e IMF and I n t e r n a t i o n a l Trade O r g a n i z a t i o n (ITO) b o t h o f w h i c h were aimed t o p r o v i d e a s e t o f common r u l e s and code o f conduct t o be o b s e r v e d i n i n t e r n a t i o n a l economic r e l a t i o n s . 9 The GATT has now been i n f o r c e f o r t h r e e decades as t h e c e n t r a l l e g a l regime o f i n t e r n a t i o n a l t r a d e . I t i s a m u l t i l a t e r a l i n t e r n a t i o n a l t r e a t y w h i c h f i r s t came i n t o e f f e c t on J a n u a r y 1, 1948, and has now been acceded t o by more t h a n 86 n a t i o n s . Most t r a d i n g n a t i o n s a r e GATT members w i t h t h e e x c e p t i o n o f some o f t h e Comecon (CMEA) c o u n t r i e s , C h i n a , M e x i c o and some OPEC c o u n t r i e s . The d r a f t i n g o f GATT was l a r g e l y a s s o c i a t e d w i t h t h e U.S. t r a d e p o l i c y . 1 0 The s p i r i t b e h i n d t h e G e n e r a l Agreement can n o t be p r o p e r l y u n d e r s t o o d w i t h o u t r e f e r e n c e t o t h e vi e w s of t h e A m erican d e l e g a t e s because post-war i n t e r n a t i o n a l economic o r d e r was l a r g e l y i n f l u e n c e d by American p o l i c y . 1 1 The g o a l t h e U.S. n e g o t i a t o r s sought t o a c h i e v e was t o e s t a b l i s h an 14 economic o r d e r p r o m o t i n g f r e e and n o n - d i s c r i m i n a t o r y t r a d e under w h i c h n o n - t a r i f f b a r r i e r s would be removed and t a r i f f s • 1 9 r e d u c e d t h r o u g h i n t e r n a t i o n a l n e g o t i a t i o n s . * W i t h t h e s e g o a l s i n mind, t h e American n e g o t i a t o r s a t t h e London Conf e r e n c e s u g g e s t e d a model c h a r t e r t o be used as a f o u n d i n g c h a r t e r of 13 t h e ITO. I n t h e mean t i m e , t a r i f f n e g o t i a t i o n was b e i n g c o n d u c t e d a t Geneva C o n f e r e n c e . U n f o r t u n a t e l y , however, a t t h e t i m e o f ITO C h a r t e r n e g o t i a t i o n s , t h e major t r a d i n g s t a t e s , were n o t r e a d y t o commit t h e i r t r a d e p o l i c i e s t o such an i n t e r n a t i o n a l o r g a n i z a t i o n , and t h e ITO C h a r t e r ( a l s o known as t h e Havana C h a r t e r s i n c e t h e n e g o t i a t i o n s were h e l d a t Havana) f a i l e d t o r e c e i v e t h e r a t i f i c a t i o n n e c e s s a r y t o b r i n g i t i n t o o p e r a t i o n . 1 4 The f a i l u r e o f t h e ITO C h a r t e r was r o o t e d i n t h e many e x c e p t i o n s and escape c l a u s e s i n i t s p r o v i s i o n s . 1 5 Moreover, because t h e ITO C h a r t e r was d e s i g n e d t o i n c o r p o r a t e t h e S o v i e t s t a t e t r a d i n g economy i n t o i t s p r o v i s i o n s , t h e non-p a r t i c i p a t i o n o f t h e S o v i e t U n i o n i n t h e C h a r t e r n e g o t i a t i o n s made much o f what t h e American had s u g g e s t e d m e a n i n g l e s s . 1 6 However, a P r o t o c o l o f P r o v i s i o n a l A p p l i c a t i o n was s u c c e s s f u l l y s i g n e d by 23 n a t i o n s a t t h e Geneva C o n f e r e n c e . The p r o t o c o l p r o v i s i o n a l l y b r o u g h t t h e GATT i n t o f o r c e p e n d i n g a l a t e r a d o p t i o n o f t h e ITO C h a r t e r . 1 7 Due t o t h e a b o r t i o n of t h e ITO C h a r t e r , t h e ITO never came i n t o b e i n g and t h e GATT was f o r c e d t o p l a y t h e r o l e o f a major i n t e r n a t i o n a l t r a d e o r g a n i z a t i o n w i t h t h e o b j e c t i v e o f t r a d e l i b e r a l i z a t i o n . 1 8 Under t h e a u s p i c e s o f GATT t h e r e have been seven major rounds 15 o f t a r i f f s and t r a d e n e g o t i a t i o n s i n c l u d i n g t h e on-going Uruguay R o u n d . 1 9 The s u c c e s s f u l r e c o n s t r u c t i o n o f t h e post-war i n t e r n a t i o n a l p o l i t i c a l and economic o r d e r i s l a r g e l y a t t r i b u t e d t o t h e p a i n f u l l e s s o n s o f t h e G r e a t D e p r e s s i o n and World War I I . 2 0 The wave o f t h e s o - c a l l e d "new m u l t i l a t e r a l i s m " i n t r a d e i s t h e d i r e c t r e s u l t o f m u l t i l a t e r a l n e g o t i a t i o n s o f major economic powers. But n o t a l l c o u n t r i e s were a c t i v e p a r t i c i p a n t s i n t h i s new wave o f m u l t i l a t e r a l i s m . Some d e v e l o p i n g c o u n t r i e s were t h e n p o l i t i c a l l y and e c o n o m i c a l l y dependent and u n a b l e t o have a say i n t h e f o r m a t i o n o f t h o s e t r a d e r u l e s . Many c o u n t r i e s were not members o f t h e GATT; f o r example, t h e S o v i e t U n i o n , C h i n a , E a s t Germany, V e n e z u e l a , Mexico and most M i d d l e E a s t OPEC c o u n t r i e s . Thus GATT, as an i n t e r n a t i o n a l o r g a n i z a t i o n , was not r e p r e s e n t a t i v e o f t h e whole w o r l d . I t s r o l e i n i n t e r n a t i o n a l r e g u l a t i o n has been l i m i t e d t o some major t r a d i n g c o u n t r i e s . A d m i t t e d l y t h e dream o f a c h i e v i n g w o r l d p r o s p e r i t y and g l o b a l peace t h r o u g h f r e e t r a d e has been p a r t i a l l y f u l f i l l e d t h r o u g h GATT d e s p i t e t h e f a c t t h a t some i m p o r t a n t n a t i o n s r e m a i n o u t s i d e t h e GATT. However, t h e g o a l o f g l o b a l t r a d e l i b e r a l i z a t i o n s t i l l has a l o n g way t o go. 2.2 COMPARATIVE ADVANTAGE AS THE PIVOT OF GATT The GATT system r e s t s on an u n d e r l y i n g economic t h e o r y w h i c h h o l d s t h a t i n t e r n a t i o n a l t r a d e s e r v e s t o i n c r e a s e g l o b a l 16 p r o s p e r i t y , as w e l l as t h e p r o s p e r i t y o f i n d i v i d u a l t r a d i n g c o u n t r i e s . 2 1 I t a l s o r e s t s on t h e c o n c e p t t h a t an o r d e r l y t r a d e system governed by w i d e l y a c c e p t e d r u l e s f o r w o r l d t r a d e l e s s e n s t h e r i s k s o f t r a d e wars and t h u s i s an e s s e n t i a l p a r t o f b r o a d e r e f f o r t s t o m a i n t a i n d u r a b l e w o r l d peace and s t a b i l i t y . 2 2 The f u n damental b e l i e f o f t h e GATT i s " f r e e t r a d e " on t h e b a s i s o f t h e c l a s s i c t h e o r y o f c o m p a r a t i v e a d v a n t a g e s . 2 3 F r e e t r a d e , as opposed t o p r o t e c t i o n , i s a p o l i c y by which a government does n ot d i s c r i m i n a t e a g a i n s t i m p o r t s i n f a v o r o f d o m e s t i c p r o d u c t s o r i n t e r f e r e w i t h e x p o r t s i n o r d e r t o f a v o r consumers i n t h e home m a r k e t . 2 4 The b e n e f i t s o f f r e e t r a d e were advanced by t h e S c o t t i s h p h i l o s o p h e r Adam Smit h i n h i s c l a s s i c t h e o r y e l a b o r a t e d i n Inquiry Into the Nature and Causes of the Wealth of Nations ( 1 7 7 6 ) . 2 5 Smith's t h e o r y was f u r t h e r e l a b o r a t e d by t h e E n g l i s h S c h o o l o f c l a s s i c a l e c o n o m i s t s headed by D a v i d R i c a r d o (1772-1823), who propounded t h e t h e o r y o f c o m p a r a t i v e a d v a n t a g e . 2 6 The argument f o r " f r e e t r a d e " on a c o m p a r a t i v e advantage was s y s t e m a t i z e d by John S t u a r t M i l l ( 1 8 0 6 - 7 3 ) 2 7 and a c c e p t e d by t h e m a j o r i t y of ec o n o m i s t s w e l l i n t o t h e 20th c e n t u r y . 2 8 However, f r e e t r a d e can h a r d l y be a b s o l u t e . Government i n t e r v e n t i o n might always be j u s t i f i e d on non-economic, grounds. 3 P r o t e c t i o n i s m always e x i s t s due t o c o n f l i c t i n g i n t e r e s t s o f n a t i o n s . I n some s i t u a t i o n s , p ure economic t h e o r y may c o n f l i c t w i t h t h e n a t i o n a l i n t e r e s t s o f a p a r t i c u l a r c o u n t r y . P o l i t i c a l and economic r e a l i t i e s may p r e s s u r e t h e 17 government i n t o e n a c t i n g p r o t e c t i o n i s t r e s t r i c t i o n s on t r a d e . 3 0 A l s o , i n d i v i d u a l n a t i o n s always have d o m e s t i c and f o r e i g n p o l i t i c a l g o a l s t h a t a r e m o t i v a t e d by p o l i c y c o n c e r n s o t h e r t h a n m a x i m i z i n g o u t p u t . 3 1 O b v i o u s l y p r o t e c t i o n i s m poses an economic problem t o e x p o r t i n g c o u n t r i e s . I n i t i a l l y , b i l a t e r a l c o m m e r c i a l t r e a t i e s i n w h i c h r e c i p r o c a l t a r i f f c o n c e s s i o n s and re m o v a l o f t r a d e b a r r i e r s and o t h e r f o r m a l i t i e s were ag r e e d upon, were seen as t h e way t o re d u c e t h e impact o f p r o t e c t i o n i s m . 3 2 C l a u s e s such as " n a t i o n a l t r e a t m e n t " , "minimum i n t e r n a t i o n a l s t a n d a r d " , and "most f a v o r e d nation"(MFN) were adopted t o a f f o r d l e g a l s e c u r i t y t o i n t e r n a t i o n a l e n t e r p r i s e and i n v e s t m e n t under p r o g r e s s i v e i n t e r n a t i o n a l l a w . 3 3 W i t h t h e i n c e p t i o n o f t h e new m u l t i l a t e r a l i s m under t h e GATT, t h e p r i n c i p l e o f n o n - d i s c r i m i n a t i o n i n terms o f MFN c l a u s e and n a t i o n a l Treatment was i n c o r p o r a t e d as an e s s e n t i a l i n g r e d i e n t o f f r e e t r a d e . 3 4 The main g o a l o f t h e GATT i s t o c r e a t e a f r e e - t r a d e w o r l d market on t h e b a s i s o f n o n d i s c r i m i n a t i o n , 3 5 t o p r o v i d e a s e t o f common r u l e s w i t h i n w h i c h i n d i v i d u a l t r a d i n g c o u n t r i e s c onduct t h e i r t r a d e w i t h one a n o t h e r , and t o p r o v i d e an i n t e r n a t i o n a l forum f o r p e r i o d i c o r emergency n e g o t i a t i o n s o f i n t e r n a t i o n a l t r a d e and t a r i f f s . Based on t h e n o t i o n o f n o n - d i s c r i m i n a t i o n and t r a d e l i b e r a l i z a t i o n , a l l t a r i f f b a r r i e r s a r e t o be r e d u c e d t o t h e l o w e s t p o s s i b l e l e v e l . The r e s u l t s o f t a r i f f n e g o t i a t i o n s "on a r e c i p r o c a l and m u t u a l l y advantageous b a s i s " a r e b i n d i n g and un w i t h d r a w a b l e u n i l a t e r a l l y . 3 6 The g e n e r a l o b j e c t i v e was t h e 18 r e d u c t i o n o f t a r i f f b a r r i e r s . M o d i f i c a t i o n o f t h e e s t a b l i s h e d T a r i f f S c h e d u l e c o u l d o n l y be done t h r o u g h t h e p r o c e s s of " r e n e g o t i a t i o n " , " c o n s u l t a t i o n " and " c o n c i l i a t i o n " . 3 7 O t h e r w i s e o t h e r c o n t r a c t i n g p a r t i e s a f f e c t e d a r e e n t i t l e d t o wi t h d r a w o r m o d i f y s u b s t a n t i a l l y e q u i v a l e n t c o n c e s s i o n s as a r e t a l i a t o r y m e a s u r e . 3 8 A l l n o n - t a r i f f b a r r i e r s (NTBs) w h i c h h i n d e r f r e e - t r a d e a r e t o be removed t h r o u g h m u l t i l a t e r a l n e g o t i a t i o n s o r r e n e g o t i a t i o n s . 3 9 T a r i f f s as opposed t o o t h e r i n s t r u m e n t s o r measures s h o u l d be t h e main weapon f o r i m p o r t c o n t r o l s o r f o r t h e p r o t e c t i o n o f d o m e s t i c i n d u s t r y . 4 0 However, GATT t o l e r a t e s c e r t a i n l e v e l o f p r o t e c t i o n i s m , such as t h e use o f a n t i d u m p i n g and c o u n t e r v a i l i n g d u t i e s , 4 1 s t a t e - t r a d i n g , 4 2 and o t h e r d i r e c t o r i n d i r e c t t r a d e c o n t r o l s , 4 3 i n c l u d i n g , i n s p e c i a l c i r c u m s t a n c e s , n o t o r i o u s s a f e g u a r d o r "escape c l a u s e " 4 4 and a g e n e r a l w a i v e r p r o c e d u r e . 4 5 P r o t e c t i o n i s m i s p a r t i c u l a r l y s t r o n g i n t i m e s o f w o r l d economic d e p r e s s i o n o r when a c o u n t r y e x p e r i e n c e s economic problems such as sl o w economic growth, s h r i n k i n g d o m e s t i c m a r k e t s , h i g h unemployment, and s e v e r e d e b t p r o b l e m s . 4 6 New forms o f p r o t e c t i o n emerged t o g e t h e r w i t h t h e GATT p e r m i t t e d p r o t e c t i o n i s t m e a s u r e s . 4 7 A d i s t u r b i n g f e a t u r e o f t h e more r e c e n t t r a d e c o n t r o l s i s t h e t r e n d t o w a r d s imp o s i n g p r o t e c t i o n i s t measures under b i l a t e r a l o r u n i l a t e r a l arrangements o u t s i d e t h e GATT f r a m e w o r k . 4 8 19 As n o t e d e a r l i e r , t h e GATT m u l t i l a t e r a l i s m i s a compromise o f t r a d e p r o t e c t i o n i s m and t r a d e l i b e r a l i s m . T h i s compromise somewhat b a l a n c e s t h e c o n f l i c t i n g i n t e r e s t s between p r o d u c e r s , on t h e one hand, and consumers, on t h e o t h e r . 4 9 As t h e GATT system i s framed b a s i c a l l y i n f a v o r o f f r e e t r a d e , i t s r u l e s a r e l a r g e l y c o n cerned w i t h t h e p r o d u c e r s and t r a d e r s o f goods, and w i t h t h e laws and p o l i c i e s o f governments i n s u p p o r t o f t h e s e e n t e r p r i s e s . 5 0 GATT r u l e s a r e l i t t l e c o n c e r n e d w i t h b r o a d e r a s p e c t s o f d o m e s t i c economic p o l i c y o r w i t h t h e i n t e r e s t s o f consumers. N o n e t h e l e s s , GATT does o b l i g a t e i t s members n o t t o i n s t i t u t e d o m e s t i c t r a d e p o l i c i e s t h a t n egate f r e e t r a d e . 5 1 I n summary, t h e post-war GATT m u l t i l a t e r a l i s m i s a compromise between t r a d e l i b e r a l i s m and p r o t e c t i o n i s m . The u l t i m a t e o b j e c t i v e o f GATT remains t h e i n s t i t u t i o n o f an i n t e r n a t i o n a l economic o r d e r t h a t promotes f r e e and f a i r t r a d e . However, t h e f o r c e s o f p r o t e c t i o n i s m r e m a i n s t r o n g i n t h e p r e s e n t w o r l d and s u b t l e and smart measures a r e b e i n g used t o s i d e t r a c k GATT r u l e s . The c h a l l e n g e f o r GATT i s t o ensure t h a t t h e s e p r o t e c t i o n i s t f o r c e s do n o t wipe away t h e p r o g r e s s made so f a r i n p r o m o t i n g f r e e and f a i r t r a d e . 20 2.3 NME AND GATT MULTILATERALISM 2.3(1) CONFLICTING IDEOLOGIES: RECONCILABLE? The end o f World War I I d i v i d e d t h e d e v e l o p e d w o r l d and some o f t h e d e v e l o p i n g w o r l d i n t o two p a r t s : t h e E a s t and t h e West. The two p a r t s a r e based e n t i r e l y on d i f f e r e n t systems and i d e o l o g i e s . One i s based on t h e s o c i a l i s t system and communist i d e o l o g y ; and t h e o t h e r i s on t h e market system and c a p i t a l i s t i d e o l o g y . These two i d e o l o g i e s r e m a i n i n c o n s t a n t c o n f l i c t . A t t h e economic l e v e l , t h e cause o f c o n f l i c t i s o b v i o u s . W h i l e t h e " c a p i t a l i s m " 5 2 i s founded on t h e p r i n c i p l e o f m i n i m a l government i n t e r v e n t i o n i n t h e p r i v a t e e n t e r p r i s e economy, " s o c i a l i s m " 5 3 , by c o n t r a s t , r e v o l v e s around w h o l e s a l e government r e g u l a t i o n o f t h e economy. The government i n NME n o t o n l y owns t h e economy, but c o n t r o l s t h e d a i l y l i f e o f i t s economic e n t i t i e s . 5 4 Under c a p i t a l i s m d e c i s i o n c o n c e r n i n g p r o d u c t i o n a r e made by p r i v a t e e n t e r p r i s e s o p e r a t i n g f o r p r i v a t e p r o f i t s and l a b o r e r s a r e f r e e t o work f o r t h e owners o f t h e means o f p r o d u c t i o n . 3 I n s h a r p c o n t r a s t t o c a p i t a l i s m , communism i s a system o f s o c i a l o r g a n i z a t i o n w h i c h i s based on common p r o p e r t y , o r an e q u a l d i s t r i b u t i o n o f income and w e a l t h . 5 6 M a r k e t economy i s t h e e x p r e s s i o n o f c a p i t a l i s m i n economic t e r m s . Under t h e market economy, t h e d o c t r i n e o f f r e e c o m p e t i t i o n r e q u i r e s t h a t t h e r e be v e r y l i t t l e government i n t e r v e n t i o n i n t h e economy. By c o n t r a s t , s o c i a l i s t c o u n t r i e s adopt c e n t r a l p l a n n i n g as a b a s i c form o f t h e i r e c o n o m i e s . 5 8 Most Western c o u n t r i e s i n c l u d i n g Japan f o l l o w t h e p a t t e r n o f market economy, whereas t h e S o v i e t U n i o n , C h i n a , E a s t e r n European c o u n t r i e s a l l adopt M a r x i s t economic t h e o r y . 5 9 For NMEs t h e i r p o l i t i c a l systems a r e c o n c e n t r a t e d on t h e power p o l i t i c s o f c e n t r a l committee o f t h e Communist P a r t y . There i s v i r t u a l l y no s e p a r a t i o n between p a r t y p o l i t i c s and government management. P a r t y p o l i t i c s dominates a l m o s t e v e r y a s p e c t of t h e i r economies. The t h r u s t o f t h e i r economies, as w i l l be seen l a t e r , i s d i r e c t e d and m a n i p u l a t e d by government o f f i c i a l s a l o n g p a r t y l i n e s . 6 0 The economy i s n o t r e g u l a t e d by market f o r c e s o f s u p p l y and demand, but r a t h e r i s c o n t r o l l e d a t t h e c e n t e r by t h e g o v e r n m e n t . 6 1 Because t h e s e economies a r e c e n t r a l l y p l a n n e d and s u p p o s e d l y m a n i p u l a t e d , t h e y a r e o f t e n i n f l e x i b l e and d i s t o r t e d . The d i s t o r t i o n a r i s e s from t h e f a c t t h a t government i n t e r v e n t i o n p r e v e n t s t h e e f f i c i e n t a l l o c a t i o n o f r e s o u r c e s . 6 2 D e s p i t e t h e c o n f l i c t i n g i d e o l o g i e s and d i f f e r e n c e s i n p o l i t i c a l and economic systems, post-war i n t e r n a t i o n a l r e l a t i o n s between E a s t and West have been r e s h a p e d . As y e a r s go by, t e n s i o n between E a s t and West has been eased i n t h e sense t h a t " c o l d war" has been r e p l a c e d w i t h detente, economic embargoes r e d u c e d and rapprochement e s t a b l i s h e d . The volume of East-West t r a d e has a l s o i n c r e a s e d . What i s more note w o r t h y i s t h e f a c t t h a t when t h e c a p i t a l i s t w o r l d s u f f e r e d from c y c l i c a l 22 economic f l u c t u a t i o n s , s t r e n g t h e n e d government i n t e r v e n t i o n , s t a t e - t r a d i n g and o t h e r measures o f p r o t e c t i o n i s m , 6 3 t h e s o c i a l i s t system i n t h e E a s t e r n European c o u n t r i e s , USSR and C h i n a , had r e v e a l e d c r i t i c a l problems t h a t needed r a d i c a l economic and p o l i t i c a l r e f o r m . 6 4 C o n s e q u e n t l y , t h e two economic systems seemed t o be d r a w i n g c l o s e r t o g e t h e r by changes c o n v e r g i n g from b o t h d i r e c t i o n s . 6 5 I t i s t h i s c h a n g i n g s i t u a t i o n t h a t l e a d s us t o p e r c e i v e t h e p o s s i b l e r e c o n c i l i a t i o n o f East-West t r a d i n g systems. 2.3(2^ GATT FRAMEWORK: A LEGAL AND STRUCTURAL OVERVIEW I f t h e Havana C h a r t e r r e l u c t a n t l y p u r p o r t e d t o t o l e r a t e t h e S o v i e t s t a t e t r a d i n g systems so as t o i n t e g r a t e them i n t o a s i n g l e i n t e r n a t i o n a l body-the ITO, GATT, as a t r a d e r s ' c l u b , was t o e x c l u d e from i t s membership c e n t r a l l y p l a n n e d economies, n o r m a l l y r e f e r r e d t o as NMEs. T h i s i s because t h e GATT's fundamental b e l i e f i s based s o l e l y on market c o n c e p t i o n and i d e o l o g i e s w h i c h a r e i n c o m p a t i b l e w i t h s o c i a l i s t NMEs. 6 6 From t h e h i s t o r i c a l and t e x t u a l p e r s p e c t i v e , GATT i s m a i n l y aimed a t d i s m a n t l i n g t a r i f f b a r r i e r s , i n c r e a s i n g t r a n s p a r e n c y o f s i g n a t o r i e s ' t r a d e r e g u l a t i o n s and p o l i c i e s , and p r o v i d i n g a forum f o r i n t e r n a t i o n a l c o o r d i n a t i o n and n e g o t i a t i o n . 6 7 GATT c o m p r i s e s f o u r p a r t s . P a r t I l a y s down f o u n d a t i o n s f o r n a t i o n a l t r a d e l e g i s l a t i o n and t r a d e p o l i c y . I t c o n s i s t s o f two A r t i c l e s w h i c h demonstrate t h e purpose and c a r d i n a l p r i n c i p l e o f t h e G e n e r a l Agreement and c o n s o l i d a t e t h e e s t a b l i s h e d t a r i f f S c h e d u l e . a A d m i t t e d l y , non-d i s c r i m i n a t i o n c o n s t i t u t e s t h e c o r e o f t h e GATT m u l t i l a t e r a l i s m . I t i s g e n e r a l l y b e l i e v e d i n t h e West t h a t l i b e r a l i z i n g t r a d e b a r r i e r s and e l i m i n a t i n g d i s c r i m i n a t o r y measures f o s t e r w o r l d economic p r o s p e r i t y and t h a t t h e a p p l i c a t i o n o f n o n - d i s c r i m i n a t o r y p r i n c i p l e a s s u r e s s e c u r i t y o f market a c c e s s and t h u s u n d e r w r i t e s i n v e s t m e n t t o e x p l o i t c o m p a r a t i v e advantage and s p e c i a l i z a t i o n . 6 9 Beyond t h a t , m i n i m a l government i n t e r v e n t i o n i s a l s o c o n s i d e r e d v i t a l t o t h e p r o m o t i o n o f c o m p e t i t i o n and economic w e l l b e i n g . 7 0 GATT i s d e s i g n e d t o f u l f i l l t h i s o b j e c t i v e . I t s r u l e s a r e f o r m u l a t e d t o ensure m i n i m a l government i n t e r v e n t i o n i n i n t e r n a t i o n a l t r a d e . The f o u n d a t i o n o f modern i n t e r n a t i o n a l t r a d e r u l e s among i n d u s t r i a l i z e d c o u n t r i e s i s n o n - d i s c r i m i n a t i o n . 7 1 The famous MFN c l a u s e ( A r t i c l e ) i s an o v e r a l l d e m o n s t r a t i o n o f t h i s p r i n c i p l e , w h i c h r e q u i r e s t h a t : "any advantage, f a v o r , p r i v i l e g e o r immunity g r a n t e d by any c o n t r a c t i n g p a r t y t o any p r o d u c t o r i g i n a t i n g i n o r d e s t i n e d f o r any o t h e r c o u n t r y s h a l l be a c c o r d e d i m m e d i a t e l y and u n c o n d i t i o n a l l y t o t h e l i k e p r o d u c t o r i g i n a t i n g i n o r d e s t i n e d f o r t h e t e r r i t o r y o f a l l o t h e r c o n t r a c t i n g p a r t i e s . " 7 2 T h i s i s comprehensive enough t o c o v e r n o t o n l y customs d u t i e s and c h a r g e s , b u t a l s o a l l r u l e s and f o r m a l i t i e s c o n c e r n i n g i m p o r t s and e x p o r t s . T h i s i s f u r t h e r s t r e n g t h e n e d by a r e q u i r e m e n t t h a t any m o d i f i c a t i o n o f c o n c e s s i o n s agreed on among c e r t a i n GATT c o u n t r i e s be a c c o r d e d t o a l l o t h e r GATT members a u t o m a t i c a l l y , u n c o n d i t i o n a l l y and m u l t i l a t e r a l l y . 7 3 24 I n t h e o r y , many o f d i s c r i m i n a t o r y b i l a t e r a l t r a d e agreements e n t e r e d i n t o between NMEs, such as E a s t e r n European c o u n t r i e s i n c l u d i n g C h i n a and GATT c o u n t r i e s a r e i n c o m p a t i b l e w i t h t h e GATT p r i n c i p l e . Those agreements a r e c h a r a c t e r i z e d by t h e i m p o r t commitments o r quo t a a l l o c a t i o n s , and p r e f e r e n t i a l t a r i f f t r e a t m e n t . 7 4 A l l o f them have c e r t a i n component o f c o u n t e r - m u l t i l a t e r a l i s m and d i s c r i m i n a t i o n . 7 5 But i n p r a c t i c e , w i t h i n GATT, n o n - d i s c r i m i n a t i o n i s n o t a b s o l u t e . A r t i c l e 1, w h i l e p r o v i d i n g f o r t h e MFN o b l i g a t i o n a l s o p r o v i d e s f o r g r a n d f a t h e r r i g h t s f o r e x i s t i n g margins o f p r e f e r e n c e s but s p e c i f i e s t h a t t h e margin may n o t be i n c r e a s e d . 7 6 The MFN o b l i g a t i o n i s f u r t h e r q u a l i f i e d by t h e e n t i t l e m e n t under A r t i c l e 24 under w h i c h two o r more c o u n t r i e s may e n t e r i n t o customs u n i o n s and f r e e t r a d e a r e a s t o e l i m i n a t e t r a d e b a r r i e r s between them and w i t h h o l d such t r e a t m e n t from o t h e r c o n t r a c t i n g p a r t i e s t o t h e GATT. 7 7 The r a t i o n a l e f o r t h i s major e x c e p t i o n i s t h a t such arrangements a r e t r a d e - c r e a t i n g , and w i l l convey compensating b e n e f i t s t o n o n - p a r t i c i p a n t s . 7 8 I n a d d i t i o n t o t h o s e e x c e p t i o n s , r e c i p r o c i t y o f t e n p r e v a i l s o v e r n o n - d i s c r i m i n a t i o n . T h i s was p a r t i c u l a r l y t r u e d u r i n g t h e n e g o t i a t i o n s on some o f t h e E a s t European c o u n t r i e s ' a c c e s s i o n t o GATT. As a s o l u t i o n t o market a c c e s s t o P o l a n d and Romania, an i m p o r t commitments approach r a t h e r t h a n n o n - d i s c r i m i n a t i o n was a d o p t e d . 7 9 P a r t I I p r o v i d e s b a s i c c ommercial p o l i c i e s and code of co n d u c t t o be o b s e r v e d i n i n t e r n a t i o n a l t r a d e m a t t e r s by p a r t i c i p a t i n g c o u n t r i e s . 8 0 I t c o m p r i s e s 21 a r t i c l e s , p r o v i d i n g 25 r u l e s o f n a t i o n a l t r e a t m e n t f o r f o r e i g n i m p o r t e d goods and goods t h a t a r e d o m e s t i c a l l y m anufactured o r p r o c e s s e d . 8 1 A r t i c l e s 7 and 9 c l a r i f y t h e r u l e o f o r i g i n f o r t h e purpose o f customs e v a l u a t i o n . A r t i c l e 6 a u t h o r i z e s t h e i m p o s i t i o n o f a n t i d u m p i n g and c o u n t e r v a i l i n g d u t y t o remedy t h e i n j u r i o u s e f f e c t s r e s u l t i n g from u n f a i r t r a d e p r a c t i c e s s u c h as e x p o r t s u b s i d i e s and dumping. W h i l e A r t i c l e 11 r e q u i r e s t h e i m p l e m e n t a t i o n o f t a r i f f s as t h e main i n s t r u m e n t o f t r a d e p o l i c y i n p r o t e c t i n g d o m e s t i c i n d u s t r i e s and r e g u l a t i n g i m p o r t and e x p o r t t r a d e , A r t i c l e 18 p r o h i b i t s e x p o r t s u b s i d i e s but exempts go v e r n m e n t a l a s s i s t a n c e t o economic development i n t h e ca s e o f d e v e l o p i n g c o u n t r i e s . F u r t h e r m o r e , A r t i c l e 19 s p e c i f i e s t h e c i r c u m s t a n c e s i n w h i c h t h e government can i n v o k e emergency s a f e g u a r d measures. I n a d d i t i o n t o t h e s e s u b s t a n t i v e r u l e s , P a r t I I a l s o c o n t a i n s some p r o c e d u r a l r u l e s f o r d i s p u t e r e s o l u t i o n , such as " c o n s u l t a t i o n " and " c o n c i l i a t i o n " i n A r t i c l e 2 2 8 2 and " n u l l i f i c a t i o n and impairment" i n A r t i c l e 23. These p r o c e d u r e s a r e re-em p h a s i z e d i n P a r t I I I o f t h e GATT. P a r t I I I c o n t a i n s r u l e s w h i c h a r e m a i n l y c o n c e r n e d w i t h p r o c e d u r a l p roblems. However, some o f t h e r u l e s can be c o n s i d e r e d as d e a l i n g w i t h s u b s t a n t i v e p roblems. F o r example, A r t i c l e 24 d e a l s w i t h customs u n i o n and f r e e t r a d e a r e a s and A r t i c l e 35 d e a l w i t h n o n - a p p l i c a t i o n o f t h e Agreement between c o n t r a c t i n g p a r t i e s . The p r o c e d u r a l r u l e s a l s o d e a l w i t h j o i n t a c t i o n o f t h e c o n t r a c t i n g p a r t i e s under A r t i c l e 25 and a c c e s s i o n under A r t i c l e 3 3 . 8 3 Moreover, a t h r e e y e a r p e r i o d i c 26 and " s p e c i a l c i r c u m s t a n c e " r e - n e g o t i a t i o n s p r o c e s s i s p r o v i d e d f o r w i t h d r a w a l s and m o d i f i c a t i o n s o f t h e T a r i f f S c h e d u l e . 8 4 Sometimes, t h e a p p l i c a t i o n o f t h e p r o c e d u r a l r u l e s l e a d s t o t h e s u s p e n s i o n , m o d i f i c a t i o n o r w i t h d r a w a l o f o b l i g a t i o n s under t h e GATT. However, any i n v o c a t i o n o f s u s p e n d i n g o r w i t h d r a w i n g p r o c e d u r e s i s o n l y p o s s i b l e under c e r t a i n c o n d i t i o n s , and must have t h e a p p r o v a l o f t h e C o n t r a c t i n g P a r t i e s . 8 6 Such a p p r o v a l may be b e f o r e o r a f t e r t h e i n v o c a t i o n . Moreover, c o u n t r i e s i n v o k i n g e x c e p t i o n s and v a r i o u s s a f e g u a r d p r o c e d u r e s must a l s o seek c o n s u l t a t i o n w i t h a l l t h e p a r t i e s c o n cerned and w i t h t h e o r g a n i z a t i o n . 8 8 I n most c a s e s compensation must be n e g o t i a t e d , o t h e r w i s e t h e a f f e c t e d c o n t r a c t i n g p a r t y may r e t a l i a t e . 8 9 T h i s i n d i c a t e s t h a t GATT law s h o u l d be viewed n ot o n l y as a s e t o f s u b s t a n t i v e r u l e s b u t a l s o as an e l a b o r a t e s e t o f p r o c e d u r e s . The aim o f t h e s e p r o c e d u r e s i s not o n l y t o make GATT r u l e s amenable t o c h a n g i n g c i r c u m s t a n c e s , but a l s o t o p r o v i d e a d i s p u t e s e t t l e m e n t mechanism. I t a l s o s e r v e s t h e common economic and p o l i t i c a l i n t e r e s t s o f members i n t h e complex and e v e r - c h a n g i n g economic and p o l i t i c a l s i t u a t i o n s . The p r o c e d u r e s a l s o h e l p t o form p u b l i c o p i n i o n w i t h i n t h e o r g a n i z a t i o n t h u s a l l o w i n g f o r c o l l e c t i v e p e r s u a s i o n and p r e s s u r e . 9 0 P a r t IV e n t i t l e d "Trade And Development" was added t o GATT r u l e s i n 1965 t o a d d r e s s t h e im p o r t a n c e o f e x p o r t s i n i n c r e a s i n g t h e l i v i n g s t a n d a r d s o f L e s s - D e v e l o p e d - C o u n t r i e s Q -1 (LDCs) . * P a r t IV c o n s t i t u t e s one o f t h e major changes o r e x c e p t i o n s t o t h e o r i g i n a l GATT framework. I t p r o v i d e s s p e c i a l 27 r u l e s and t r e a t m e n t f o r t r a d e w i t h d e v e l o p i n g c o n t r a c t i n g p a r t i e s i n c l u d i n g L D C s . 9 2 I t i s t h e o r i g i n o f G e n e r a l i z e d system o f P r e f e r e n c e s ( G S P ) 9 3 and t h e t h i r d w o r l d t r a d i n g c l u b - t h e UN C o n f e r e n c e on Trade and Development (commonly c a l l e d UNCTAD), 9 4 W h i l e t h e MFN c l a u s e i s aimed a t d i s m a n t l i n g d i s c r i m i n a t i o n a g a i n s t f o r e i g n goods a t t h e b o r d e r , t h e n a t i o n a l t r e a t m e n t c l a u s e i s d e s i g n e d t o p r e v e n t d i s c r i m i n a t i o n a g a i n s t i m p o r t e d goods i n a c o n t r a c t i n g p a r t y ' s i n t e r n a l market. N o n - d i s c r i m i n a t i o n e n u n c i a t e d i n t h e t w i n c l a u s e s o f t h e MFN and n a t i o n a l t r e a t m e n t i s f o r e m o s t p o l i c y o f t h e GATT. As G e r a r d Curzon s a i d : " N o n - d i s c r i m i n a t i o n i s p r o b a b l y t h e most i m p o r t a n t s i n g l e c o n c e p t t h a t i n f o r m s GATT. B i l a t e r a l i s m , q u a n t i t a t i v e c o n t r o l s , e x t e n s i o n o f p r e f e r e n c e s , s t a t e t r a d i n g and a l l s i m i l a r t o o l s o f co m m e r c i a l p o l i c y a r e i n p r i n c i p l e anathema t o t h e C o n t r a c t i n g P a r t i e s because t h e y make i n e v i t a b l e t h e p r e f e r e n t i a l t r e a t m e n t o f one c o u n t r y as a g a i n s t a n o t h e r f o r o t h e r t h a n c o m m e r c i a l r e a s o n s . " 9 5 N o n - d i s c r i m i n a t i o n i s a means t o a c h i e v e t r a d e l i b e r a l i z a t i o n . The con c e p t o f t r a d e l i b e r a l i z a t i o n i s p a r t l y r e a l i z e d by t a r i f f r e d u c t i o n s e f f e c t e d on a r e c i p r o c a l , non-d i s c r i m i n a t o r y b a s i s . The r e s u l t o f n e g o t i a t i o n s on a r e c i p r o c a l and m u t u a l l y advantageous b a s i s s h a l l be bound and u n a l t e r a b l e u n i l a t e r a l l y . 9 6 Only t h r o u g h r e n e g o t i a t i o n o r c o n s u l t a t i o n can t h e e s t a b l i s h e d s c h e d u l e be withdrawn o r m o d i f i e d . 9 7 Moreover, t h e l e v e l o f m o d i f i e d s c h e d u l e s h o u l d n o t be i n e x c e s s o f p r e v i o u s agreed s c h e d u l e . 9 8 I t i s thought t h a t w i t h c o n t i n u o u s t a r i f f s c o n c e s s i o n , t a r i f f b a r r i e r s r e s t r i c t i n g t r a d e w i l l be e v e n t u a l l y removed. 28 Due t o t h e d i f f i c u l t i e s i n r e a l i z i n g g l o b a l i n t e g r a t i o n , t h e g o a l o f t r a d e l i b e r a l i z a t i o n i s e x p e c t e d t o be f i r s t a c c o m p l i s h e d by r e g i o n a l i n t e g r a t i o n . T h i s i s o f t e n j u s t i f i e d on t h e ground t h a t c o u n t r i e s w i t h s i m i l a r l e v e l o f economy, r e l a t i v e l y s i m i l a r c u l t u r e , base norms and t r a d i t i o n s a r e e a s i e r t o i n t e g r a t e . Examples a r e t h e Be n e l u x customs u n i o n , European Economic Community, Canada-U.S. F r e e Trade Agreement and so on. I n many p r o v i s i o n s GATT e x p r e s s e d i t s a s p i r a t i o n s i n a c h i e v i n g i n t e g r a t i o n o f w o r l d t r a d e . However, i n f i n d i n g r e c i p r o c i t y f o r m u l a GATT c o u n t r i e s a r e e x t r e m e l y p r a g m a t i c and m a t e r i a l i s t i c . T h i s i s p a r t i c u l a r l y t r u e when c o n t r a c t i n g p a r t i e s t r y t o f o r m u l a t e t a r i f f c o n c e s s i o n s w i t h a l m o s t mathematic p r e c i s i o n . " Almost e v e r y s u b s t a n t i v e r u l e has been s o f t e n e d by i t s f l e x i b l e e x c e p t i o n s . T h i s shows t h e t e n s i o n between t h e p o l e s o f " l e g a l i s m " 1 0 0 and " p r a g m a t i s m . 1 1 1 0 1 The two e q u a l l y s t r o n g p o l e s d e c i d e s t h e l e g a l n a t u r e o f GATT t o be a c o m b i n a t i o n o f "norms o f o b l i g a t i o n s " and "norms o f a s p i r a t i o n s " . 1 0 2 A d m i t t e d l y , GATT has a l o f t y g o a l i n mind, b u t i t i s u n a t t a i n a b l e as l o n g as p r o t e c t i o n i s m remains s t r o n g . E x c e p t i o n s and escape c l a u s e s have t o be a t t a c h e d and d e l i c a t e l y e l a b o r a t e d t o p r e v e n t t h e c o l l a p s e o f t h e GATT regime. I t i s a s o r t o f " s o f t law" as opposed t o "hard i m law". U J The s o f t n e s s o f t h e GATT law i s i m p l i c i t i n i t s s o f t l y and v a g u e l y f o r m u l a t e d r u l e s . I t i s t h i s s o f t n e s s t h a t encourages a f l e x i b l e a l m o s t d i s c r e t i o n a r y i n t e r p r e t a t i o n . 29 However, one must n o t e t h a t i t i s n o t t h e vagueness of t h e i r f o r m u l a t i o n t h a t makes t h e GATT r u l e s " s o f t " , b u t r a t h e r t h e numerous e x c e p t i o n s and v a r i o u s p r o c e d u r e s t h a t may be i n v o k e d s o f t e n o b l i g a t i o n s t h a t a r e t o o r i g i d t o suspend o r wit h d r a w . GATT was i n t e n d e d t o c o n t a i n p r e c i s e l y f o r m u l a t e d r u l e s e s p e c i a l l y when n e g o t i a t i n g t a r i f f c o n c e s s i o n s . The f l e x i b i l i t y c o u p l e d w i t h vagueness r e f l e c t s t h e i n t r i c a c i e s o f n e g o t i a t i o n s . I t a l s o r e f l e c t s a compromise o f c o n f l i c t i n g i n t e r e s t s r e p r e s e n t i n g t r a d e l i b e r a l i s m and p r o t e c t i o n i s m . A c a r e f u l o v e r v i e w o f t h e GATT l e g a l framework e n a b l e us t o summarize GATT p r i n c i p l e s as f o l l o w s 1 0 4 : (1) N o n d i s c r i m i n a t i o n (MFN c l a u s e and n a t i o n a l t r e a t m e n t ) ; (2) r e c i p r o c i t y ; (3) c o n s o l i d a t i o n ; (4) g e n e r a l i z a t i o n and l i b e r a l i z a t i o n ; (5) t a r i f f n e g o t i a t i o n s on a p r o d u c t - b y -p r o d u c t b a s i s ; 1 0 5 (6) c o n s u l t a t i o n and c o n c i l i a t i o n ; (7) t r a n s p a r e n c y ; 1 0 6 (8) t a r i f f s p r o t e c t i o n . A t t a c h e d t o t h o s e p r i n c i p l e s a r e f o l l o w i n g e s s e n t i a l e x c e p t i o n s , namely: (1) GSP 1 07 s y s t e m ; - L U / (2) l i n e a r o r p l a n t a r g e t n e g o t i a t i o n s ( t o f i n d a symmetric r e c i p r o c a l f o r m u l a f o r NME's a c c e s s i o n ) ; (3) r e t a l i a t i o n ( i f compensation i s n o t o f f e r e d o r cannot be n e g o t i a t e d ) ; (4) remedies f o r u n f a i r t r a d e p r a c t i c e s by t a k i n g advantage o f f r e e t r a d e ( i n c l u d i n g i n v o k i n g s a f e g u a r d - e s c a p e c l a u s e , i m p o s i n g a n t i d u m p i n g and c o u n t e r v a i l i n g d u t y , and o t h e r a d m i s s i b l e forms o f remedies. Note t h a t t h e y s h o u l d g e n e r a l l y be used on a temporary o r emergency b a s i s ) ; (5) r e g i o n a l i n t e g r a t i o n ( A r t i c l e 2 4 ) . 30 A fundamental t e n e t o f GATT i s t h a t t a r i f f s a r e t h e o n l y a d m i s s i b l e form o f p r o t e c t i o n . T h i s p o l i c y i s based on t h e c o n v i c t i o n t h a t t a r i f f s as compared t o o t h e r t r a d e i n s t r u m e n t s s u ch as s u b s i d i e s , s t a t e t r a d i n g , p e r m i t p r i c e c o m p e t i t i o n , has t h e l e a s t i n t e r f e r e n c e w i t h a l l o c a t i o n o f r e s o u r c e s . They a r e more v i s i b l e , l e s s f l e x i b l e and more c a p a b l e o f b e i n g n e g o t i a t e d downwards and a d m i n i s t e r e d on a n o n - d i s c r i m i n a t o r y b a s i s . 1 0 8 I t i s t r u e , however, i f one contends t h a t GATT i s a t y p i c a l compromise between t r a d e l i b e r a l i s m ("mainstream") and p r o t e c t i o n i s m ("branch s t r e a m " ) . I t i s a l s o t r u e i f one argues t h a t t h e GATT r u l e s a r e "weakly e n f o r c e d , e a s i l y a v o i d e d , and w i d e l y a b u s e d " . 1 0 9 Y e t , t h e overwhelming theme o f t h e GATT law i s n o n d i s c r i m i n a t i o n and t r a d e l i b e r a l i z a t i o n . Thus one s h o u l d n o t a t t a c h t o o much w e i g h t t o t h e e x c e p t i o n s and f l e x i b i l i t y . A l s o , t h e f u n c t i o n o f t h e GATT regime s h o u l d n o t be u n d e r e s t i m a t e d j u s t because o f i t s " s o f t n e s s " . The GATT not o n l y c r e a t e s a s p o n s o r s h i p o r a forum f o r i n t e r n a t i o n a l n e g o t i a t i o n s , i t a l s o p l a y s a d e c i s i v e r o l e i n r e g u l a t i n g , compromising, and s u p e r v i s i n g d i v e r g i n g n a t i o n a l c o m m e r c i a l and t r a d e p o l i c i e s o f each i n d i v i d u a l p a r t i c i p a n t . 1 1 0 I n a sense GATT s h o u l d be viewed d y n a m i c a l l y r a t h e r t h a n s t a t i c a l l y . I t s h o u l d be viewed as a c o n t i n u i n g p r o c e s s o f i n t e r n a t i o n a l n e g o t i a t i o n s on t r a d e and t a r i f f s . As p r e s c r i b e d i n GATT, r e s u l t s o f n e g o t i a t i o n s s h o u l d become an i n t e g r a l p a r t o f t h e G e n e r a l A g r e e m e n t . 1 1 1 Moreover, many o f t h e GATT 31 r u l e s b e n e f i t t r a d i n g c o u n t r i e s - e s p e c i a l l y t h o s e who have t h e same o r s i m i l a r l e v e l o f economic development. H a v i n g a d d r e s s e d t h i s , i t s h o u l d be added t h a t t h e GATT regime has many s h o r t c o m i n g s and even a degree o f u n f a i r n e s s i f one l o o k s a t i t from t h e p e r s p e c t i v e o f d e v e l o p i n g c o n t r a c t i n g p a r t i e s , o r NMEs whose economies a r e e i t h e r u n d e r d e v e l o p e d o r s u b s t a n t i a l l y d i f f e r e n t from Western d e v e l o p e d economies. Some GATT r u l e s , s uch as r u l e s a g a i n s t dumping and s u b s i d i e s a r e s i m p l y i n a p p l i c a b l e t o N M E s . 1 1 2 O t h e r s i n c l u d i n g r u l e s on s t a t e - t r a d i n g , q u a n t i t a t i v e r e s t r i c t i o n s on i m p o r t s a r e h a r d l y e n f o r c e a b l e i n t h e c o n t e x t o f c e n t r a l l y p l a n n e d , t a r g e t - p r o t e c t e d N M E s . 1 1 3 Thus g l o b a l t r a d e i n t e g r a t i o n remains a dream, and t h e u n f a v o r a b l e GATT environment t o NMEs i s y e t t o be i m p r o v e d . 1 1 4 The r e a s o n f o r t h e s e drawbacks can be found i n i t s v e r y fundamental a s s u m p t i o n . As t h e GATT law i s a l m o s t e x c l u s i v e l y f o r m u l a t e d i n f a v o r o f f r e e t r a d e on a p r i v a t e e n t e r p r i s e b a s i s a l o n g t h e p a t t e r n o f market economy, t h e r e i s v i r t u a l l y no p l a c e f o r nonmarket economy c o u n t r i e s t o have an e f f e c t i v e a c c e s s . As one p r o f e s s o r w e l l p u t i t : "many o f t h e GATT r u l e s make sense o n l y i n t h e c o n t e x t o f such a market system, s i n c e t h e y r e s t r i c t t h e t y p e s o f r e g u l a t i o n s w h i c h governments can impose on i n t e r n a t i o n a l t r a d e r s , b u t do n o t p u r p o r t t o r e g u l a t e t h e t r a d e r s t h e m s e l v e s . " 1 1 5 T h i s l i m i t s t h e e x t e n t t o whi c h GATT r u l e s can be a p p l i e d . T h i s makes t h e problem o f i n t e g r a t i n g NMEs i n t o t h e GATT v e r y d i f f i c u l t . I t i s a l s o s a i d t h a t GATT r u l e s , 32 e s p e c i a l l y r u l e s on s t a t e t r a d i n g f i t p o o r l y i n t o t h e NME because: "t h e [GATT] system p r e s u p p o s e s t h a t i m p o r t a t i o n and e x p o r t a t i o n a r e h a n d l e d by p r i v a t e f i r m s w h i c h , s t i m u l a t e d by p r o f i t m o t i v e s , a r e g u i d e d by com m e r c i a l c o n s i d e r a t i o n s . " 1 1 6 2.4 NME'S GATT MEMBERSHIP: ISSUE OF COMPATIBILITY RAISED 2.4(1) EVOLUTION OF EAST^WEST RELATIONSHIP F o l l o w i n g t h e a b o r t i o n o f t h e Havana C h a r t e r upon which t h e ITO was supposed t o be based, GATT became a "richmen's c l u b " o r a t r a d e r s ' c l u b m a i n l y b e n e f i c i a l t o Western market e c o n o m i e s . 1 1 7 The s o c i a l i s t E a s t e r n b l o c t u r n e d away from t h e GATT l a r g e l y due t o t h e i r r e c o n c i l a b i l i t y o f t h e i r p o l i t i c a l i d e o l o g i e s and economic systems w i t h t h e GATT p r e f e r r e d market i d e o l o g y and m i n i m a l government i n t e r v e n t i o n i n economy. A n o t h e r r e a s o n was due p a r t l y t o t h e i r m i s u n d e r s t a n d i n g s o f th e p r o s p e c t o f c a p i t a l i s t w o r l d . 1 1 8 D e s p i t e t h e t e n s i o n r e s u l t i n g from d i f f e r e n t systems, t h e E a s t e r n b l o c ' s a t t i t u d e and b e l i e f have undergone fundamental changes s i n c e l a t e 1950s. An o v e r v i e w o f t h e E a s t European c o u n t r i e s ' a t t i t u d e t o w a r d s t h e GATT would show t h a t t h e y have gone t h r o u g h a t l e a s t t h r e e d i s t i n c t s t a g e s : from t h e i n i t i a l e n t i r e r e j e c t i o n (1947-55) t o t h e p a r t i a l a c c e p t a n c e (1955-66) and t o t h e f u l l a c c e p t a n c e ( 1 9 6 6 - 7 0 s ) . 1 1 9 33 The i n i t i a l s t a g e o f r e j e c t i o n was based on t h e f o l l o w i n g h i s t o r i c a l r e a s o n s and p o l i t i c a l c o n s i d e r a t i o n s : I n t h e l a t e 1940s t h e S o v i e t s b e l i e v e d t h a t t h e r e a l o b j e c t i v e o f t h e American p l a n f o r t h e post-war economic o r d e r was t o b u i l d U.S. d o m i n a t i o n o v e r w o r l d p o l i t i c s and e c o n o m i e s . 1 2 0 They f i r m l y b e l i e v e d t h a t s o - c a l l e d n o n - d i s c r i m i n a t o r y and m u l t i l a t e r a l t r a d e , f r e e r t r a d e , b e t t e r i n v e s t m e n t o p p o r t u n i t i e s a l o n g w i t h economic a i d were n o t h i n g but s t r a t e g i e s t o i n c r e a s e t h i s d o m i n a t i o n . 1 2 1 Moreover, m u l t i l a t e r a l and f r e e t r a d e p r i n c i p l e s were i n d i r e c t c o n f l i c t w i t h t h e S o v i e t s t a t e - t r a d i n g system and c e n t r a l i s m . There seemed no room f o r c o m p r o m i s e . 1 2 2 A l s o , t h e S o v i e t U n i o n c a u t i o u s l y n o t i c e d t h a t E a s t European a c c e s s i o n t o GATT would c a r r y a r i s k l e a d i n g t h e U.S. t o expand i t s economic and p o l i t i c a l power i n t o t h e S o v i e t s p here o f i n f l u e n c e . 1 2 3 F u r t h e r m o r e , t h e S o v i e t as w e l l as E a s t European c o u n t r i e s e x p e c t e d t h a t t h e c a p i t a l i s t might s u f f e r a n o t h e r g r e a t e r economic c r i s i s and, as a r e s u l t , c a p i t a l i s t system would e v o l v e t o be more c e n t r a l i z e d . 1 2 4 T h i s premature p r e d i c t i o n t o g e t h e r w i t h S o v i e t p o l i t i c a l c o n s i d e r a t i o n s and d i s t i n c t economic and t r a d e system had k e p t them away from p a r t i c i p a t i n g i n t h e GATT. As an a l t e r n a t i v e , t h e y p r e f e r b i l a t e r a l t r a d e as a more advantageous d e a l . 1 2 5 F i n a l l y , t h e r e e x i s t e d a t t h a t t i m e c e r t a i n c o n t r a d i c t i o n s between t h e Western c o n c e p t o f n o n - d i s c r i m i n a t i o n , m u l t i l a t e r a l i s m and t h e method o f c o u n t r y - s p e c i f i c p l a n n i n g i n f o r e i g n t r a d e s e c t o r of b o t h S o v i e t U n i o n and E a s t e r n E u r o p e . 1 2 6 Compliance w i t h non-34 d i s c r i m i n a t i o n c o u l d r e q u i r e s u b s t a n t i a l r e f o r m s i n t h e i r p l a n n i n g m e t h o d s . 1 2 7 The l a t e r change i n t h e E a s t European a t t i t u d e grew from a complex p o l i t i c a l and economic developments. The ex p e r i m e n t o f t h e m a r k e t - t y p e GATT t r a d i n g system c o n s e q u e n t l y made them t o r e a l i z e t h a t t h e GATT-based t r a d e o r d e r p r o m o t i n g f r e e r t r a d e , n o n - d i s c r i m i n a t i o n and m u l t i l a t e r a l i s m would be i n t h e i n t e r e s t s o f s m a l l - and m i d d l e - s i z e d t r a d e r s . A n o t h e r i m p o r t a n t r e a s o n was t h a t t h e s t r o n g v i t a l i t y o f c a p i t a l i s m d i s p r o v e d t h e M a r x i s t p r e d i c t i o n t h a t t h e c a p i t a l i s t w o r l d would s u f f e r a n o t h e r economic c r i s i s g r e a t e r t h a n t h e d e p r e s s i o n between 1929-33. Such change o f a t t i t u d e towards m a r k e t - t y p e o f GATT was t h e o r e t i c a l l y j u s t i f i e d by t h e t h e n w i d e - s p r e a d d o c t r i n e o f " p e a c e f u l c o - e x i s t e n c e " 1 2 8 w h i c h h o l d s t h a t s i n c e s o c i a l i s m p r e v a i l s o n l y i n some c o u n t r i e s , one must i m p l y a n e c e s s a r y p e r i o d o f c o e x i s t e n c e between c o u n t r i e s w i t h a s o c i a l i s t economy and t h o s e w i t h a c a p i t a l i s t economy. The p e a c e f u l c o e x i s t e n c e o f two d i f f e r e n t systems was t h e o n l y o p t i o n l e f t i f t h e peace were t o be m a i n t a i n e d . 2.4(2) NME MEMBERSHIP IN GATT Based on t h e a b o v e - i n d i c a t e d c o n s i d e r a t i o n s , mutual u n d e r s t a n d i n g s and changed environment i n t h e s p h e r e o f E a s t -West r e l a t i o n s h i p , many o f t h e E a s t b l o c c o u n t r i e s began e x p r e s s i n g t h e i r g e nuine and s t r o n g i n t e r e s t i n p a r t i c i p a t i n g i n t h e GATT s y s t e m . 1 2 9 35 P o l a n d was t h e f i r s t t o i n d i c a t e i t s i n t e r e s t i n j o i n i n g t h e GATT i n 1 9 5 7 . 1 3 0 F o l l o w i n g t h a t Romania showed i t s d e s i r e t o be a d m i t t e d i n t o GATT c l u b i n t h e same y e a r . 1 3 1 However, t h e s e two c o u n t r i e s j o i n e d t h e GATT on t h e b a s i s o f i m p o r t commitments as a r e c i p r o c i t y f o r m u l a s o l v i n g t h e market a c c e s s 132 i s s u e . -LJ'S F o l l o w i n g t h e P o l i s h and Romanian i n t e r e s t i n j o i n i n g GATT, Hungary l a u n c h e d i t s r e q u e s t f o r o b s e r v e r s t a t u s i n t h e GATT i n 1 9 5 8 . 1 3 3 A l t h o u g h t h e i n i t i a l a p p l i c a t i o n was f r u s t r a t e d , from t h e mid-1960s on, Hungary was p r e o c c u p i e d w i t h t h e r e f o r m aimed a t i n c r e a s i n g t h e market r o l e i n t h e d o m e s t i c economy and f o r e i g n t r a d e . 1 3 4 The r e f o r m made p o s s i b l e p a r t i a l a d j u s t m e n t o f t h e H u n g a r i a n t r a d e regime t o t h e t r a d i t i o n a l GATT system. When Hungary p r e s e n t e d i t s second r e q u e s t f o r o b s e r v e r s t a t u s i n 1966, i t was a c c e p t e d w i t h o u t c o m p l i c a t i o n s . N o t i c i n g t h e weakness o f t h e P o l i s h and Romanian p a t t e r n , and h a v i n g enough l e s s o n s from t h e i r n e g o t i a t i o n s w i t h GATT, Hungary dogge d l y b e l i e v e d t h a t t o have an e f f e c t i v e a c c e s s t o GATT and GATT ma r k e t s , a c o u n t r y ' s economy and t r a d e conduct s h o u l d be c o m p a t i b l e w i t h t h e GATT r e q u i r e m e n t s . Based on t h i s b e l i e f i t b r a v e l y adopted a "new economic mechanism" commencing 1968 and r e m a r k a b l y d e c e n t r a l i z e d i t s e c o n o m y . 1 3 5 The r e f o r m e n a b l e d h e r t o accede t o t h e GATT on t h e b a s i s o f t a r i f f n e g o t i a t i o n s i n 1 9 7 3 . 1 3 6 When Y u g o s l a v i a was a c c e p t e d by t h e GATT, i t s economy had a l r e a d y been t r e a t e d as i f i t were a market e c o n o m y . 1 3 7 From t h e moment o f i t s break w i t h t h e E a s t European b l o c ( 1 9 4 8 ) , 36 Y u g o s l a v i a p r o g r e s s i v e l y engaged i n t h e d e c e n t r a l i z a t i o n p r o c e s s t o e s t a b l i s h a s o - c a l l e d "market s o c i a l i s m " . 1 3 8 The remov a l o f p o l i t i c a l o b s t a c l e s k e p t h e r c l o s e r t o G A T T . 1 3 9 F u r t h e r r e f o r m s r e s u l t e d i n t h e i n t r o d u c t i o n o f t a r i f f s , a b o l i t i o n o f m u l t i p l e exchange r a t e s , s i m p l i f i c a t i o n o f t r a d e c o n t r o l , and t h u s b r o u g h t t h e Y u g o s l a v economic and f o r e i g n t r a d e system f a r c l o s e r t o t h e r e q u i r e m e n t s o f G A T T . 1 4 0 A t t h e t i m e o f i t s f u l l a c c e s s i o n i n 1966, Y u g o s l a v i a c l a i m e d t o use t a r i f f s as t h e o n l y i n s t r u m e n t o f t r a d e c o n t r o l under normal c o n d i t i o n s . The S t a t e t r a d i n g mechanism was s a i d t o be used o n l y on an o c c a s i o n a l b a s i s . 1 4 1 There e x i s t e d f r e e p r i c e f o r m a t i o n , a u n i f i e d exchange r a t e and no e x p o r t s u b s i d i e s . And i t a d m i n i s t e r e d i t s d e s i r a b l e QRs i n a n o n d i s c r i m i n a t o r y f a s h i o n . 1 4 2 C z e c h o s l o v a k i a had o r i g i n a l membership i n GATT and so had no a c c e s s i o n problem when i t s economy became nonmarket t y p e o f s t a t e t r a d i n g i n 1948. N o n e t h e l e s s , t h e U.S. r e s e r v e d i t s r i g h t t o a p p l y MFN t r e a t m e n t t o Czech and some o t h e r GATT members r e t a i n e d QRs on Czech i m p o r t s . 1 4 3 The same s i t u a t i o n was f a c e d when Cuba became a s a t e l l i t e o f t h e Communist b l o c . 1 4 4 B u l g a r i a has been an o b s e r v e r i n t h e GATT s i n c e 1967 and was a c t i v e i n t h e Tokyo Round n e g o t i a t i o n s . But i t never became a member. 1 4 5 Beyond E a s t European b l o c , C h i n a has e x p r e s s e d i t s i n t e r e s t i n p a r t i c i p a t i n g i n G A T T . 1 4 6 The i n t e r e s t became c l e a r e r when C h i n a s i g n e d t h e M u l t i f i b r e Agreement and 37 a c q u i r e d o b s e r v e r s t a t u s i n many o f t h e GATT-sponsored i n t e r n a t i o n a l n e g o t i a t i o n s . 1 4 7 I n t e r e s t i n g l y enough, even t h e USSR a t t e m p t e d t o a c q u i r e an o b s e r v e r s t a t u s i n t h e Uruguay Round n e g o t i a t i o n w i t h an i n t e r e s t i n s e e k i n g i t s f u l l GATT membership i n f u t u r e . 1 4 8 Not s u r p r i s i n g l y , i t s r e q u e s t has been r e j e c t e d by t h e m a j o r i t y o f GATT c o u n t r i e s . Perhaps t h e S o v i e t a p p l i c a t i o n i s worth r e c o n s i d e r a t i o n s i n c e t h e S o v i e t u n i o n seems t h e l a s t s t r o n g -h o l d o f t h e s o c i a l i s t b l o c . The above s u r v e y e n a b l e s us t o c o n c l u d e t h a t t h e d i v e r s i t y o f E a s t Europe's f o r e i g n t r a d e systems e x p l a i n s why d i f f e r e n t models have been a p p l i e d t o each c o u n t r y . Among t h e f i v e s o c i a l i s t c o u n t r i e s a d m i t t e d t o GATT, P o l a n d , Romania and Hungary a r e most r e v e a l i n g c a s e s i n t h e c o n t e x t o f NME's a c c e s s i o n t o GATT. C z e c h o s l o v a k i a e n t r a n c e p r o v i d e s l i t t l e e x p e r i e n c e f o r r e c o n s i d e r i n g t h e t e c h n i c a l i t i e s o f East-West t r a d e r e l a t i o n s h i p . Y u g o s l a v i a , though once a c e n t r a l l y p l a n n e d economy, e n t e r e d t h e GATT c l a i m i n g t a r i f f p r o t e c t i o n , i n t e r n a l c o m p e t i t i o n and t h e absence o f s t a t e t r a d i n g . I t i s P o l a n d ' s rapprochement w i t h GATT t h a t p r o v i d e s t h e f i r s t o p p o r t u n i t y t o n e g o t i a t e some c o n c r e t e t e c h n i c a l arrangements f o r t a r g e t - p r o t e c t e d (as opposed t o t a r i f f - p r o t e c t e d ) economies i n GATT. The P o l i s h model was most c l o s e l y f o l l o w e d by Romania and somehow i n f l u e n c e d H u n g a r i a n n e g o t i a t i o n s w i t h GATT. H u n g a r i a n f o r m u l a o f a c c e s s i o n was made p o s s i b l e by t h e bro a d d e c e n t r a l i z a t i o n o f i t s economy. Tog e t h e r w i t h Y u g o s l a v i a , Hungary's approach p r o v i d e s NME's new-comers t o 38 GATT w i t h v e r y u s e f u l p r e c u r s o r y e x p e r i e n c e s of r e c o n c i l i a t i o n . 2.4(3) ISSUE OF COMPATIBILITY RAISED-GENERAL FINDINGS When E a s t e r n European c o u n t r i e s were a p p l y i n g f o r GATT membership, t h e most f r u s t r a t i n g p r o b lem was t h e c o m p a t i b i l i t y o f t h e i r s t a t e t r a d i n g system w i t h t h e GATT r e q u i r e m e n t s , and a p p l i c a b i l i t y o f GATT r u l e s - s u c h as s u b s i d i e s and dumping t o t h e i r NMEs. A t t h a t t i m e many o f t h e o r e t i c a l and s t r u c t u r a l problems w i t h i n t h e GATT l e g a l framework had been n e g l e c t e d . B o t h GATT CPs and E a s t European c o u n t r i e s were o v e r l y c o n c e r n e d w i t h r e c i p r o c a l exchange o f b e n e f i t s and r i g h t s . They b l i n k e d a t t h e c a r d i n a l p r i n c i p l e o f n o n d i s c r i m i n a t i o n . I n s t e a d o f s o l v i n g t h e o r e t i c a l and s t r u c t u r a l i n c o m p a t i b i l i t y o f NMEs w i t h GATT, most o f GATT CPs e s p e c i a l l y Western European CPs were more i n t e r e s t e d i n f i n d i n g a f a s t and p r a g m a t i c s o l u t i o n . 1 5 0 They were more c o n c e n t r a t e d on f i n d i n g a r e c i p r o c i t y f o r m u l a t o s o l v e t h e most c r u c i a l i s s u e of market o p e n i n g s i n b o t h d i r e c t i o n s . 1 5 1 As a r e s u l t o f t h e i r pragmatism a l o n g w i t h t h e E a s t e r n B l o c ' s h a s t e i n o b t a i n i n g a d m i s s i o n s , t h e approach i n v e n t e d was i m p o r t commitments-a v e r y p r a g m a t i c way o f a d m i s s i o n and y e t a t s u r p r i s i n g l y cheap c o s t . 1 5 2 The approach has s u f f e r e d f a t a l weakness w h i c h w i l l be seen l a t e r , and i t i s v i r t u a l l y i n a p p l i c a b l e t o t h e case o f Ch i n a ' s a c c e s s i o n p r o b l e m . 1 5 3 I t has been i n e f f e c t i v e i n f o s t e r i n g t h e growth o f East-West t r a d e . As t o E a s t e r n Europe, 39 i t won t h e b a t t l e o f o b t a i n i n g t h e c e r t i f i c a t e o f GATT membership b u t l o s t t h e war a g a i n s t Western CPs' d i s c r i m i n a t i o n . T h i s r e s u l t s from t h e i r n e g l e c t o f such e s s e n t i a l p r e s u m p t i o n on w h i c h GATT has l o n g been founded. Such a s s u m p t i o n r e q u i r e s i n t h e f i r s t p l a c e t h a t GATT members' economy be t a r i f f - p r o t e c t e d and e s s e n t i a l l y p r i v a t e e n t e r p r i s e economy w i t h m i n i m a l government i n t e r v e n t i o n . F r e e t r a d e w i t h n o n - d i s c r i m i n a t i o n and f a i r t r a d e w i t h m i n i m a l government i n t e r v e n t i o n i s t h e s u b s t a n c e o f GATT. The main purpose o f t h e t h e s i s a t t h i s t i m e i s t h e r e f o r e t o d i s c u s s more t h e o r e t i c a l and s t r u c t u r a l problems w h i c h have been i g n o r e d b o t h i n academic and o f f i c i a l c i r c l e s . To t h i s end i t i s u n a v o i d a b l e t o a n a l y z e whether t h e GATT major r u l e s a r e c o m p a t i b l e w i t h NME and whether t h e GATT can be used as an adequate and e f f e c t i v e framework i n i n t e g r a t i n g t h e NME i n t o w o r l d t r a d e . I n ex a m i n i n g t h e c o m p a t i b i l i t y o f GATT framework w i t h NME, a b r i e f c omparison o f c h a r a c t e r i s t i c s o f NME and f u n c t i o n o f f r e e - m a r k e t economy (FME) i s n e c e s s a r y t o deepen our u n d e r s t a n d i n g o f t h e s u b j e c t . FME v. NME: I n a FME, i n t e r n a t i o n a l t r a d e i s conducted by t h e independent d e c i s i o n s o f bu y e r s and s e l l e r s a c t i n g out of economic s e l f i n t e r e s t . 1 5 4 P r i c e s s e t by t h e market a r e used t o a l l o c a t e s c a r c e r e s o u r c e s . 1 5 5 But i n NME, key i n v e s t m e n t , p r o d u c t i o n , p u r c h a s e and d i s t r i b u t i o n d e c i s i o n s a r e , f o r t h e most p a r t , d e t e r m i n e d not by market f o r c e s , law o f s u p p l y and demand, b u t by s t a t e p l a n n i n g . 1 5 6 T h e i r i n t e r n a t i o n a l t r a d e and r e s o u r c e s 40 a l l o c a t i o n a r e a l s o r e g u l a t e d by s t a t e p l a n n i n g w i t h l i t t l e c o m m e r c i a l c o n s i d e r a t i o n s o f c o s t - b e n e f i t . 1 5 7 T h e i r p r i c e s do no t have t h e same meaning as i n FME because: "Not o n l y a r e t h e p r i c e s o f NME e n t e r p r i s e c o n t r o l l e d , b u t i t s c o s t s . . . a l s o a r e c e n t r a l l y d e t e r m i n e d . W i t h a d m i n i s t e r e d c o s t s and p r i c e s , p r o f i t s a r e e f f e c t i v e l y a d m i n i s t e r e d as w e l l . F i n a l l y , economic a c t i v i t y i s c e n t r a l l y d i r e c t e d t h r o u g h t h e use o f a d m i n i s t r a t i v e p r i c e s , p l a n s and t a r g e t s . " 1 5 8 I n FME t h e p r i c e o f a p r o d u c t t e n d s t o i n f l u e n c e b o t h t h e q u a n t i t i e s f o r consumption and p r o d u c t i o n , whereas i n NME t h e p r i c e s have l i t t l e i n f l u e n c e on p r o d u c t i o n q u a n t i t i e s . 1 5 9 I n NME p r o d u c t i o n q u a n t i t i e s a r e p l a n n e d i n advance and t h e p r i c e f o r a p a r t i c u l a r p r o d u c t i s s e t a t a l e v e l t h a t w i l l c l e a r t h e m a r k e t . 1 6 0 F u r t h e r m o r e , t a r i f f r a t e s i n NME have a much more l i m i t e d i n f l u e n c e on t h e l e v e l o f i m p o r t s t h a n t h a t i n F M E . 1 6 1 The t a r i f f s c h e d u l e i n NME i s n o t e s s e n t i a l i n d e t e r m i n i n g t h e o r i g i n s o f i m p o r t s , and a MFN commitment can be d i s c h a r g e d s i m p l y by i m p o s i n g i d e n t i c a l t a r i f f s on i m p o r t s from a l l c o u n t r i e s . The r e a s o n f o r t h i s l i e s i n t h e f a c t t h a t most i m p o r t i n g a g e n c i e s i n NME f o l l o w p o l i t i c a l c r i t e r i a r a t h e r t h a n s o - c a l l e d "commercial c o n s i d e r a t i o n s " i n s e l e c t i n g f o r e i g n s u p p l i e r s and u n i f o r m i t y o f customs d u t i e s i s i r r e l e v a n t . 1 6 2 Even i f t h e d e t e r m i n a t i o n o f t h e s o u r c e s o f i m p o r t s f o l l o w c o m m e r c i a l c o n s i d e r a t i o n s , t h e NME's p l a n n i n g a u t h o r i t i e s can s t i l l use i n t e r n a l p r i c i n g power t o i n f l u e n c e t h e c h o i c e o f t h o s e s o u r c e s , p a r t i c u l a r l y when i m p o r t e d goods a r e f u n c t i o n a l l y s i m i l a r b u t p h y s i c a l l y d i s t i n g u i s h a b l e . 1 6 3 41 The i n c o m p a t i b i l i t y o f NME system w i t h market economy i s worsened by t h e i n c o n v e r t i b i l i t y o f i t s c u r r e n c i e s and d u a l i t y o f i t s exchange r a t e s . 1 6 4 F i n a l l y , t h e NME system can e x c l u d e f o r e i g n p r o d u c t s from i t s market t h r o u g h a d m i n i s t r a t i v e c o n t r o l o v e r p u r c h a s i n g o r p r i c i n g d e c i s i o n s , w i t h o u t r e c o u r s e t o t a r i f f s o r t h e non-t a r i f f measures t r a d i t i o n a l l y s u b j e c t t o GATT r e g u l a t i o n . 1 6 5 Such system c r e a t e s a dilemma f o r t h e m a r k e t - o r i e n t e d GATT and so i t i s d i f f i c u l t t o i n t e g r a t e NME i n t o t h e GATT t r a d i n g system. I t a l s o makes r e c i p r o c i t y between t h e E a s t and West t r a d e e l u s i v e and u n d e r c u t s t h e g e n e r a l p r i n c i p l e o f non-d i s c r i m i n a t i o n . D e s p i t e t h e above i n d i c a t e d d i f f e r e n c e s , FME and NME s h a r e c e r t a i n s i m i l a r i t i e s p a r t i c u l a r t o t h e c a s e o f t h e i r p o l i t i c a l i n f l u e n c e on s t a t e t r a d i n g e n t e r p r i s e s (STEs). STEs of b o t h economies may f a v o r one f o r e i g n s o u r c e o v e r a n o t h e r on t h e non-commercial g r o u n d s . 1 6 6 F o r i n s t a n c e , U.S. because of i t s over-whelming i d e o l o g i e s embargoed a l l t h e i m p o r t s f o r communist c o u n t r i e s d u r i n g t h e c o l d war. A l s o , i t i s w o r t h w h i l e t o n o t i c e some i n s t i t u t i o n a l changes i n b o t h NME and FME systems t h a t have b l u r r e d t h e d i s t i n c t i o n between NME and F M E . 1 6 7 F o r i n s t a n c e , i n o r d e r t o r e d u c e i n f o r m a t i o n a l i n a c c u r a c y o r i n e f f i c i e n c y and t h e number o f d e c i s i o n s t o be made by t h e c e n t r a l p l a n n e r s , NMEs have been d e c e n t r a l i z e d t o some degree by i n t r o d u c i n g i n c e n t i v e s ystems - 1- 0 0 and p r i c e r e f o r m and by i n c r e a s i n g t h e autonomous power o f f o r e i g n t r a d e o r g a n i z a t i o n s o r c o r p o r a t i o n s . 1 6 9 As a 42 r e s u l t , some NME c o u n t r i e s l i k e Hungary, Y u g o s l a v i a , and China a f t e r t h e i r economic r e f o r m s t u r n o u t t o be l o o s e s t a t e t r a d i n g c o u n t r i e s . 1 7 0 Even i n P o l a n d , Romania and t h e USSR some measures o f r e f o r m have been i n t r o d u c e d . I s n o t Mr. Gorbachev p r o p o u n d i n g r e m a r k a b l e new t h i n k i n g i n r e f o r m i n g t h e S o v i e t economic and p o l i t i c a l s t r u c t u r e . 1 7 1 I n FMEs on t h e o t h e r hand, government i n t e r v e n t i o n s i n c l u d i n g s t a t e t r a d i n g a c t i v i t i e s have i n c r e a s e d s i n c e t h e w o r l d war I I . Many STEs as opposed t o t r a d i t i o n a l p r i v a t e e n t e r p r i s e s have been e s t a b l i s h e d i n most o f Western W o r l d . 1 7 2 F o r example, A i r b u s i n E u r o p e , 1 7 3 t h e Wheat Board and beverage s t a t e t r a d i n g i n C a n a d a , 1 7 4 u n i q u e a d m i n i s t r a t i v e g u i d a n c e measures i n J a p a n , ' 3 and o i l and some key p r o d u c t s m o n o p o l i e s i n t h e U.S., t h e U.K. and i n a l m o s t e v e r y market e c o n o m y . 1 7 6 Perhaps t h e d i f f e r e n c e between s t a t e t r a d i n g i n NME and FME i s o n l y a m a t t e r o f degree. One i s s y s t e m a t i z e d and c e n t r a l i z e d whereas t h e o t h e r i s u s i n g s t a t e t r a d i n g o n l y o c c a s i o n a l l y . T h e r e f o r e t h e r e i s n o t h i n g a b s o l u t e l y e x c l u d i n g NME c o u n t r i e s from p a r t i c i p a t i n g i n t h e GATT-based w o r l d t r a d e . N e v e r t h e l e s s t h i s does n o t d i m i n i s h t h e e a l i e r f i n d i n g on t h e i s s u e o f c o m p a t i b i l i t y o f NME w i t h t h e GATT. I t can be c o n c l u d e d t h a t u n l e s s NMEs opt t o d e c e n t r a l i z e t h e i r c e n t r a l l y c o n t r o l l e d , t a r g e t - p r o t e c t e d economic system and remove r i g i d , b u r e a u c r a t i c p o l i t i c a l o b s t a c l e s t o f r e e t r a d e , t h e e f f e c t i v e n e s s o f t h e i r p a r t i c i p a t i n g and competing i n t h e 43 f r e e - t r a d e w o r l d under t h e p r o m o t i o n o f t h e GATT i s u n d o u b t e d l y q u e s t i o n a b l e . I n t h e p a s t many s c h o l a r s and p r a c t i t i o n e r s t a l k e d about i n c o r p o r a t i n g new r u l e s i n t o t h e GATT framework accommodating NMEs i n GATT membership. T h i s i s n o t p r a c t i c a b l e s i n c e i t w i l l c o n f l i c t w i t h t h e w e l l founded GATT regime and may cause i t t o c o l l a p s e . T h i s p r o p o s a l has pr o v e n c o n t r a d i c a t o r y i n C h i n a and o t h e r s i m i l a r NME c o u n t r i e s . F o r example, Mr. Deng X i a o p i n g , one o f t h e most s e n i o r l e a d e r s i n C h i n a , wants c a p i t a l i s t market mechanisms t o c o - e x i s t w i t h c e n t r a l p l a n n i n g under h i s p r a g m a t i c t h i n k i n g t h a t "a c a t i s a good c a t i f i t c a t c h e s r a t s r e g a r d l e s s o f i t s b e i n g w h i t e o r b l a c k " . I n t h e meantime he f o l l o w s t h e communist i d e o l o g y i n i t s p o l i t i c a l s t r u c t u r i n g . R e g r e t t a b l y , t h i s p h i l o s o p h y has caused problems i n t h e c o u r s e o f economic r e f o r m . I t i s , i n e f f e c t , not w o r k a b l e f o r t h e o b v i o u s r e a s o n t h a t communist p o l i t i c a l i d e o l o g y i s s i m p l y i n c o m p a t i b l e w i t h c a p i t a l i s t economic i d e o l o g y . W h i l e d e c i p h e r i n g such i n c o m p a t i b i l i t y one s h o u l d a l s o c o n s i d e r t h e p o s s i b i l i t y o f r e c o n c i l i a t i o n i n a way t h a t much o f t h e i n s t i t u t i o n a l changes i n NME would ease t h e t e n s i o n between t h e East-West r e l a t i o n s h i p . As economic and f o r e i g n t r a d e r e f o r m s c o n t i n u e t o d e c e n t r a l i z e t h e economy, t o l o o s e n i m p o r t c o n t r o l s measures, and t o remove u n n e c e s s a r y t r a d e b a r r i e r s , t h e p o s s i b i l i t y o f t h e two becoming r e c o n c i l e d w i l l become b i g g e r . As a m a t t e r o f f a c t , some NMEs l i k e Hungary, Y u g o s l a v i a a r e a l r e a d y c o m p a t i b l e w i t h t h e GATT fundamental 44 r e q u i r e m e n t s . Other NMEs l i k e P o l a n d , Romania and Ch i n a a r e a l s o making e f f o r t s t o i n t e g r a t e t h e i r economic system i n t o t h e GATT system. Even t h e USSR and E a s t Germany have s t a r t e d p r o g r e s s i v e economic r e f o r m s t h a t w i l l b r i n g them c l o s e r t o t h e G A T T - r e q u i r e d system. N o n e t h e l e s s , most o f t h o s e NMEs would have a l o n g way t o go b e f o r e t h e y can f i l l t h e gap w i t h t h e w e s t e r n p o l i t i c a l and economic model. A t t h e p r e s e n t s t a g e a l l t h a t can be s a i d i s t h a t NME and t h e GATT t r a d i n g system w i l l r e m a i n i r r e c o n c i l a b l e i f n e i t h e r t h e GATT system nor t h e i r s t a t e t r a d i n g system i s t o be changed. However, t h e y w i l l be r e c o n c i l a b l e i f e i t h e r t h e as s u m p t i o n s upon wh i c h GATT r u l e s a r e based o r upon which s t a t e t r a d i n g systems o f NMEs a r e based a r e t o be changed. F o o t n o t e s J a c k s o n , Implementing the Tokyo Round (1984), p. 11. 2 Id. 3 Encyclopedia Britannica: "Free Trade" (1978), V o l . 9, pp. 849-52. 4 J a c k s o n and Davey, Legal Problems of International Relations (1986 2d e d . ) , pp. 281-84. 5 Id. pp. 199-204. OECD was e s t a b l i s h e d i n 1961 as an expanded s u c c e s s o r t o t h e O r g a n i z a t i o n o f European Economic C o o p e r a t i o n (OEEC). F o r a d e t a i l e d e x p l a n a t i o n see M. Camps, " F i r s t World" Relationships: The Role of the OECD ( C o u n c i l on F o r e i g n R e l a t i o n s , 1975). 45 10 11 12 13 14 15 J a c k s o n , supra n o t e 1, p. 11. (The b a s i c themes t o be c o n s i d e r e d i n t h e post-war r e c o n s t r u c t i o n c e n t e r on: (1) t h e r e l a t i o n s h i p o f economic f o r c e s t o t h e causes o f war and t h e need t o d e v e l o p i n s t i t u t i o n s t h a t c o u l d p r e s e r v e t h e peace; and (2) t h e economic t h e o r y o f c o m p a r a t i v e advantage t h a t s u p p o r t e d a p o l i c y o f t r a d e l i b e r a l i z a t i o n ) . Id. G e r a l d M. M e i e r , "The B r e t t o n Woods A g r e e m e n t s — 2 5 Y e a r s a f t e r " (1971) 39 Stanford L.Rev.235, 237, 245-46. (The ter m " B r e t t o n Woods System" i n c o r p o r a t e s t h e GATT as w e l l as t h e IMF and World Bank, because t h e B r e t t o n Woods C o n f e r e n c e l o o k e d f o r w a r d t o t h e c r e a t i o n o f an a n c i l l a r y i n s t i t u t i o n t h a t would r e d u c e o b s t a c l e s o f i n t e r n a t i o n a l t r a d e and g i v e s e f f e c t t o t h e p r i n c i p l e o f m u l t i l a t e r a l n o n d i s c r i m i n a t o r y t r a d e ) . E. McGovern, International Trade Regulation—GATT, the United States and the European Community (1982); K.W. Dam, The GATT Law and International Economic Organization (1970); J . J a c k s o n , World Trade and the Law of GATT (1969); R. Hudec, The GATT Legal System and World Trade Diplomacy (1975) F o r h i s t o r i c o v e r v i e w o f t h e b a s i c d e s i g n o f GATT, see R.E. Hudec, The GATT Legal System and World Trade Diplomacy ( P r a e g e r P u b l i s h e r s , 1975), pp. 44-46. Dam, supra note 9, pp. 5-7. Id. a t 6. London R e p o r t , UN Doc. EPCT/34 (1947); UN Doc.EPCT/c.6/w.55(1947). W i t h r e s p e c t t o t h e t r o u b l e d h i s t o r y o f t h e GATT, see J . J a c k s o n and Davey, supra n o t e 4, pp. 293-96; G. Curzon, M u l t i l a t e r a l Commercial Diplomacy (1965); K. Dam, supra n o t e 9, 10-16; R. Hudec, supra n o t e 9, 4-53; K. Kock, International Trade P o l i c y in the GATT, 1947-67 (19 6 9 ) ; P. L o r t i e , Economic Integration and the Law of GATT (1975); E. McGovern, supra note 9, p. ; G. & V. Curzon, "The Management o f Trade R e l a t i o n s i n t h e GATT" i n A. S h o n f i e l d , G. & V. Curzon, T. Worley and G. Ray, International Economic Relations of the Western World 1959-1971, V o l . I : P o l i t i c s and Trade (197 6 ) ; . D i e b o l d , The End of the ITO ( E s s a y s i n I n t e r n a t i o n a l F i n a n c e No. 16, P r i n c e t o n U n i v e r s i t y P r e s s , 1982) . Dam, supra n o t e 9, pp. 13-14; see "The ITO C h a r t e r , " Fortune, J u l y 1949, p. 61. (An e d i t o r i a l s u b t i t l e d "The ITO i s a l l e x c e p t i o n s . " ) 46 16 17 18 19 20 21 22 23 24 25 26 K o s t e c k i , East-West Trade and the GATT System (1979), pp.1-3. J a c k s o n , supra n o t e 4, p. 295; J a c k s o n , supra n o t e 9, s.2.4. J a c k s o n , supra n o t e 4, pp. 294-96. ( A l t h o u g h i t was not c o n t e m p l a t e d t h a t t h e GATT would be an o r g a n i z a t i o n ) . 1947-Geneva n e g o t i a t i o n o f t h e o r i g i n a l GATT, i n c l u d i n g t h e t a r i f f s c h e d u l e s ; 1949-And, F r a n c e ; 1950-Torquay, E n g l a n d ; 1955-Geneva ( t e n t h GATT s e s s i o n ) ; 1960-61-the D i l l o n Round; 1962-67-the Kennedy Round; 1973-79-the Tokyo Round, o r M u l t i l a t e r a l Trade N e g o t i a t i o n (MTN); 1 9 8 3 - p r e s e n t - t h e Uruguay Round. F o r d e t a i l e d d i s c u s s i o n o f t h e Tokyo Round, see J a c k s o n , supra n o t e 1. Encyclopedia Britannica, supra n o t e 3, pp. 845-49. R. B l a c k h u r s t , N. M a r i a n & J . T u m l i r , Trade L i b e r a l i z a t i o n , Protectionism and interdependence (GATT S t u d i e s i n I n t ' l Trade, No. 5, Geneva 1977). Frank Stone, Canada the GATT and the International Trade System: E s s a y s i n i n t e r n a t i o n a l economics (1984), p. 14. Fo r d i s c u s s i o n o f law o f c o m p a r a t i v e advantage, see C P . K i n d l e b e r g e r , International Economics, 17-21, 27,33 ( 5 t h ed. 1973). Encyclopedia Britannica, supra n o t e 3, a t 849. Adam Sm i t h , Enquiry Into the Nature and causes of the Wealth of Nations (1776), ( h e r e i n a f t e r Wealth of Nations). (The c e n t r a l c o n t e n t o f Adam Smith's argument was t h a t d i v i s i o n o f l a b o r l e a d s t o s p e c i a l i z a t i o n , e f f i c i e n c y and g r e a t e r p r o d u c t i o n . C o m p e t i t i o n , i n h i s eye, was o f paramount i m p o r t a n c e t o t h e growth o f n a t i o n a l economy and i n d i v i d u a l w e a l t h . Government t h u s s h o u l d as f a r as p o s s i b l e keep t h e i r hands o f f i n t e r v e n i n g i n t h e a f f a i r s o f p r i v a t e e n t e r p r i s e s . ) D a v i d R i c a r d o , P r i n c i p l e of P o l i t i c a l Economy and Taxation (1817). ( e x p l a i n i n g t h e advantages o f s p e c i a l i z a t i o n and contended t h a t t r a d e between c o u n t r i e s was n o t dominated by r e l a t i v e c o s t s o f p r o d u c t i o n , b u t r a t h e r by d i f f e r e n c e s i n i n t e r n a l p r i c e s t r u c t u r e s w h i c h r e f l e c t e d t h e c o m p a r a t i v e advantage o f t h e t r a d i n g c o u n t r i e s and made exchange d e s i r a b l e . ) 47 27 28 29 30 31 32 33 34 35 36 37 J.S. M i l l , Essays on Some unsettled Questions in P o l i t i c a l Economy (18) ( g i v i n g s o l u t i o n s t o t h e p roblems o f t h e d i s t r i b u t i o n o f t h e g a i n s o f i n t e r n a t i o n a l commerce, t h e i n f l u e n c e o f consumption on p r o d u c t i o n , t h e d e f i n i t i o n o f p r o d u c t i v e and u n p r o d u c t i v e l a b o u r and t h e p r e c i s e r e l a t i o n s between p r o f i t s and wages). P. Samuelson, Economics, p. 692 ( 9 t h ed. 1973) (There i s e s s e n t i a l l y o n l y one argument f o r f r e e t r a d e o r f r e e r t r a d e , b u t i t i s an e x c e e d i n g l y p o w e r f u l one, namely: f r e e t r a d e promotes a m u t u a l l y p r o f i t a b l e d i v i s i o n o f l a b o u r g r e a t l y enhances t h e p o t e n t i a l r e a l n a t i o n a l p r o d u c t o f a l l n a t i o n s and makes p o s s i b l e h i g h e r s t a n d a r d o f l i v i n g a l l o v e r t h e g l o b e ) . J.M. Keynes, General Theory of Employment, Interest, and Money (1936) ( u s i n g " f u l l employment" as a c r i t e r i o n of economic p o l i c y t o argue a g a i n s t f r e e t r a d e ) . S tone, supra n o t e 22, pp. 15-16. J a c k s o n and Davey, supra n o t e 4, pp. 28-3 0. Encyclopedia Britannica, supra n o t e 3, pp. 850-52. Id.; see a l s o , A k e h u r s t , A Modern Introduction to International Law (1987 6 t h e d . ) , pp. 87-103; D a v i d H O t t , Public International Law in the Modern World (1987, P i t m a n ) , pp. 176-89. GATT A r t i c l e 1: MFN c l a u s e c o u p l e d w i t h " N a t i o n a l t r e a t m e n t " ( A r t i c l e 3 ) . To q u ote preamble o f t h e GATT, i t i s r e c o g n i z e d t h a t "economic endeavors s h o u l d be c o n d u c t e d w i t h a v i e w t o r a i s i n g s t a n d a r d s o f l i v i n g , e n s u r i n g f u l l employment and a l a r g e and s t e a d i l y g r o w i n g volume o f r e a l income and e f f e c t i v e demand, d e v e l o p i n g t h e f u l l use o f t h e r e s o u r c e s o f t h e w o r l d and e x p a n d i n g t h e p r o d u c t i o n and exchange o f goods...Being d e s i r o u s o f c o n t r i b u t i n g t o t h e s e o b j e c t i v e s by e n t e r i n g i n t o r e c i p r o c a l and m u t u a l l y advantageous arrangements d i r e c t e d t o t h e s u b s t a n t i a l r e d u c t i o n o f t a r i f f s and o t h e r b a r r i e r s t o t r a d e and t o t h e e l i m i n a t i o n o f d i s c r i m i n a t o r y t r e a t m e n t i n i n t e r n a t i o n a l commerce. GATT, A r t i c l e 28 b i s . GATT A r t i c l e 28 p e r m i t s two k i n d s o f r e n e g o t i a t i o n : t h r e e -y e a r p e r i o d i c r e n e g o t i a t i o n and " s p e c i a l c i r c u m s t a n c e s " r e n e g o t i a t i o n ( A r t i c l e 28:4). The p r o c e d u r e as r e g a r d s c o n s u l t a t i o n w i t h b o t h cps c o n c e r n e d and CONTRACTING PARTIES and c o n c i l i a t i o n t h r o u g h t h e CONTRACTING PARTIES i s v a l i d t h r o u g h o u t t h e d i s p u t e r e s o l u t i o n . 48 GATT, A r t i c l e 2 8 : 4 ( b ) . GATT, A r t i c l e s 28, 28 b i s . GATT A r t i c l e 11 w h i c h p r o v i d e s t h a t , "No p r o h i b i t i o n o r r e s t r i c t i o n s o t h e r t h a n d u t i e s , t a x e s o r o t h e r c h a r g e s ) , whether made e f f e c t i v e t h r o u g h q u o t a s , i m p o r t e x p o r t l i c e n s e s o r o t h e r measures, s h a l l be i n s t i t u t e d o r m a i n t a i n e d by any c o n t r a c t i n g p a r t y on t h e i m p o r t a t i o n o f any p r o d u c t . " Here o t h e r measures, a c c o r d i n g t o an i n t e r p r e t i v e n o t e , i n c l u d e "exchange c o n t r o l " , " domestic p r i c e f o r m a t i o n " , " i m p o r t mark-up" and s t a t e t r a d i n g p r a c t i c e s . T h i s r e q u i r e m e n t i s t o d i s m a n t l e t h e v a r i o u s means o f government i n t e r v e n t i o n o r a d m i n i s t r a t i v e c o n t r o l o v e r i m p o r t s . Or o t h e r w i s e t a r i f f n e g o t i a t i o n w i l l be m e a n i n g l e s s i f t a r i f f i s n o t main element o f r e g u l a t i n g t r a d e . GATT A r t i c l e 6: s o - c a l l e d "Track I " . GATT A r t i c l e 17 s e t f o r t h c o m m e r c i a l c r i t e r i a on w h i c h s t a t e t r a d i n g e n t e r p r i s e s s h o u l d o b s e r v e . GATT A r t . 11 c a l l i n g f o r g e n e r a l e l i m i n a t i o n o f i m p o r t l i c e n s i n g and quo t a system w i t h s e v e r a l i m p o r t a n t e x c e p t i o n s . A l t h o u g h GATT t r i e s t o m i n i m i z e t h e use o f i n d i r e c t t r a d e c o n t r o l s such as " s t a t e t r a d i n g " , exchange c o n t r o l , v o l u n t a r y e x p o r t r e s t r a i n t s , and o t h e r NTBs, t h e i r p r o t e c t i v e uses a r e p r e v a l e n t . GATT A r t i c l e 19 p r o v i d e s t h a t , i n t h e ca s e t h a t , "any p r o d u c t i s b e i n g i m p o r t e d . . . i n such i n c r e a s e d q u a n t i t i e s and under such c o n d i t i o n s as t o cause o r t h r e a t e n s e r i o u s i n j u r y t o d o m e s t i c p r o d u c e r s . . . o f l i k e o r d i r e c t l y c o m p e t i t i v e p r o d u c t s " , i m p o r t i n g cp s h a l l be f r e e t o suspend t h e o b l i g a t i o n i n whole o r i n p a r t o r t o wi t h d r a w o r m o d i f y t h e c o n c e s s i o n w i t h r e s p e c t t o some i m p o r t e d goods. GATT A r t . 25:5- " i n e x c e p t i o n a l c i r c u m s t a n c e s " , t h e C o n t r a c t i n g P a r t i e s may waive an o b l i g a t i o n imposed on a CP by t h e GATT. T h i s w a i v e r i s l i m i t e d by 2/3 m a j o r i t y c o n s e n t i n g v o t e o f CPs. I n t e r p r e t a t i o n o f " e x c e p t i o n a l c i r c u m s t a n c e s " i s w i t h i n t h e r e a c h o f CPs. I n p r a c t i c e , t h i s i s c o n s t r u e d v e r y b r o a d l y . Stone, supra n o t e 22, p. 3. Id. Id. 49 Id. (On t h e one hand, t h e GATT r u l e s a r e d e s i g n e d t o e s t a b l i s h t h e r i g h t s o f p r o d u c e r s i n one c o u n t r y t o s e l l p r o d u c t s i n o t h e r member c o u n t r i e s . On t h e o t h e r hand, t h e r u l e s d e f i n e and l i m i t t h e freedom o f governments t o r e s t r i c t t h e i m p o r t a t i o n o f goods and o t h e r w i s e t o p r o t e c t t h e i r d o m e s t i c p r o d u c e r s a g a i n s t i n t e r n a t i o n a l c o m p e t i t i o n ) . Id., p. 28. Id. D e s p i t e t h e e x i s t e n c e o f c e r t a i n e l ements o f i n e q u a l i t y between w o r k e r s and owners o f t h e means o f p r o d u c t i o n , and d e s p i t e t h e m o r a l c r i t i c i s m , c a p i t a l i s m has l o n g been c o n s i d e r e d as a b e t t e r form o f systems t o i n c r e a s e s o c i a l w e a l t h . C a p i t a l i s m , a v i c t o r y o v e r f e u d a l i s m , r e a c h e d i t s peak i n w e s t e r n Europe w i t h i n t r o d u c t i o n o f Adam Smith's g r e a t economic t h e o r y and i n f l u e n c e o f F r e n c h " l a i s s e z f a i r e " i d e a . Y e t , c a p i t a l i s m met i t s v a l l e y when R u s s i a n R e v o l u t i o n u p r o o t e d o v e r a v a s t a r e a n o t o n l y t h e b a s i c i n s t i t u t i o n o f p r i v a t e p r o p e r t y i n t h e means o f p r o d u c t i o n , b u t t h e c l a s s s t r u c t u r e , t h e t r a d i t i o n a l forms o f government. ENCYCLOPEDIA BRITANNICA, V o l . 13, pp. 605-6. F o r d i s c u s s i o n o f t h e M a r x i s t - L e n i n i s t v i s i o n o f s o c i a l i s m , see Gregory and S t u a r t , Comparative Economic Systems (1980), pp. 110-11; Encyclopedia Britannica, supra n o t e 21, p. 851. Recent Economic Thought: Comparative Economic Systems: Present Views (1984, Andrew Z i m b a l i s t e d . ) , pp.23-28. K a r l Marx (1818-1883), Capital I, 1867, pp. 638-650. { I n Marx's o r i g i n a l p r e d i c t i o n Communism s h o u l d overcome a l l t h e weakness o f c a p i t a l i s m o r s h o u l d e v o l v e from a h i g h e s t s t a g e o f c a p i t a l i s m , w h i c h i n L e n i n ' s word i s " i m p e r i a l i s m " , see L e n i n , Imperialism, the Highest State of Capitalism (1916)}. Marx, i d . Adam S m i t h , Wealth of Nations, 1776, pp. 74, 76, l O O f f , 1 1 4 f f . Manuel G o t t l i e b , A Theory of Economic Systems (1984), pp. 209-215. Gregory and S t u a r t , supra n o t e 53, pp. 109-152, 284-318. See Comparative Economic System, supra n o t e 54, pp. 23-28. Id., 24-26. 50 62 63 64 65 66 67 68 69 70 71 72 73 74 75 78 79 80 81 82 Id., 26-28. Gr e g o r y and S t u a r t , supra n o t e 53, pp. 168-187, 235-274. ENCYCLOPEDIA BRITANNICA, supra n o t e 3, p. 852. Id. K o s t e c k i , supra n o t e 16, p. 35. J a c k s o n , supra n o t e 4, pp. 296-98 ( o u t l i n i n g t h e b a s i c s of t h e GATT). GATT A r t . l : MFN C l a u s e and A r t . 2 : b i n d i n g t a r i f f S c h e d u l e . Id. Adam S m i t h , Wealth of Nations, 1776, pp. l l l f f , H 4 f f ; M. G o t t l i e b , supra n o t e 59, pp. 83-89. G. Schwarzenberger, " E q u a l i t y and D i s c r i m i n a t i o n i n I n t e r n a t i o n a l Economic Law", 25 Yearbook of World A f f a i r s 163, 163-65 (1971) GATT A r t i c l e 1. GATT A r t i c l e 2. K o s t e c k i , supra note 17, pp. 58-59 Id. 7 6 GATT A r t i c l e 1: MFN Treatment. 77 GATT A r t i c l e 24: R e g i o n a l I n t e g r a t i o n . P a r a . 4 o f A r t i c l e 24 s t a t e s t h a t : " t h e purpose o f a customs u n i o n o r o f a f r e e - t r a d e a r e a s h o u l d be t o f a c i l i t a t e t r a d e between t h e c o n s t i t u e n t t e r r i t o r i e s and n o t t o r a i s e b a r r i e r s t o t h e t r a d e o f o t h e r c o n t r a c t i n g p a r t i e s w i t h i n such t e r r i t o r i e s . " K o s t e c k i , supra note 17, pp. 134-36. The purpose o f P a r t I I i s e n u n c i a t e d i n A r t i c l e 3 w h i c h aims a t removing o r r e d u c i n g i n t e r n a l t a x a t i o n s and r e g u l a t i o n s w h i c h a f f o r d p r o t e c t i o n t o d o m e s t i c p r o d u c t i o n , ( p a r a . l o f A r t i c l e 3 ) . GATT A r t . 3 : N a t i o n a l t r e a t m e n t . GATT A r t i c l e 22 c o n t a i n s s t a g e 1 — b i l a t e r a l " c o n s u l t a t i o n w i t h c p s a f f e c t e d and s t a g e 2 — C o n c i l i a t i o n by t h e p l e n a r y o r g a n - t h e C o n t r a c t i n g P a r t i e s . 51 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 A r t i c l e 33 makes a 2/3 m a j o r i t y s u f f i c i e n t f o r a c c e s s i o n o f a new n a t i o n t o GATT; a t t h e same t i m e , A r t i c l e 35, however, g i v e s each e x i s t i n g p a r t y t h e p r i v i l e g e t o r e f u s e t o a p p l y GATT t o t h e a c c e d i n g c o u n t r y . A r t i c l e 27, 28, 2 8 b i s . F o r d e t a i l e d a n a l y s i s see J a n K o l a s a , " Law-Making and Law E n f o r c i n g F o r I n t e r n a t i o n a l T rade: Some R e f l e c t i o n s on The GATT E x p e r i e n c e " i n World Order Studies Program Occasional Paper No.3 C e n t e r o f I n t e r n a t i o n a l S t u d i e s ( P r i n c e t o n U n i v e r s i t y , 1976), pp. 20-24. K o l a s a , supra n o t e 84, p. 35. Id. Id. Id. GATT A r t i c l e 27, 28. T h i e b a u t F l o r y , Le GATT D r i o t I n t e r n a t i o n a l e t Commerce M o n d i a l ( P a r i s 1969), p. 259. GATT A r t i c l e 36: P r i n c i p l e s and o b j e c t i v e s ( p a r a g r a p h s 1 t h r o u g h 8 ) . P a r a . 8 o f GATT A r t i c l e 36; see a l s o J a c k s o n , s u p r a n o t e 4, pp. 1138-61. F o r d i s c u s s i o n o f GSP see J a c k s o n , supra n o t e 4, pp. 1154-61. Id, pp. 1141-53. G e r a r d Curzon, M u l t i l a t e r a l Commercial Policy, supra 14, p. 59. GATT, A r t i c l e 2 ( 5 ) . K o l a s a , s u p r a n o t e 84, pp. 19-28. GATT A r t i c l e 2 ( 1 ) ( c ) . K o l a s a , supra n o t e 84, p. 31. 52 Dam, supra n o t e 9. Where he r e f e r s " l e g a l i s m " t o an a p proach t o t h e d r a f t i n g o f GATT under w h i c h d r a f t s m e n a t t e m p t t o f o r e s e e a l l o f t h e problems t h a t may a r i s e i n a p a r t i c u l a r a r e a and t o w r i t e down h i g h l y d e t a i l e d r u l e s i n o r d e r t o e l i m i n a t e t o t h e g r e a t e s t e x t e n t p o s s i b l e any d i s p u t e s , o r even any d o u b t s , about t h e r i g h t s and o b l i g a t i o n s o f each a g r e e i n g p a r t y under a l l f u t u r e c i r c u m s t a n c e s . Id., pp. 3-4. Dam, supra n o t e 9. ("Pragmatism" i s meant an approach t o t h e d r a f t i n g o f t h e GATT under w h i c h emphasis i s p l a c e d on m utual agreement on o b j e c t i v e s , r u l e s c o n c e r n i n g r i g h t s and o b l i g a t i o n s a r e c o n s i d e r e d f o r m a l i t i e s t o be a v o i d e d whenever p o s s i b l e . ) Id., p.4. J a c k s o n , supra n o t e 9, pp. 755-63. K o l a s a , supra n o t e 84, p. 31. c . f . J a c k s o n , supra note 9, p. 760. ( I n w h i c h he summarizes t h e GATT Law as f o l l o w s : (1) L e g a l norms, backed by a c o m p l a i n t o r a d i s p u t e - s e t t l i n g p r o c e d u r e , (2) e l a b o r a t e d i s c u s s i o n and c o n s u l t a t i o n w i t h a v iew t o a l t e r i n g o t h e r n a t i o n s t o f u t u r e n a t i o n a l p o l i c i e s , (3) t h e use o f w o r k i n g p a r t i e s , subcommittee and d i s c u s s i o n s i n p l e n a r y s e s s i o n s t o b r i n g m o r a l f o r c e upon c o u n t r i e s t o conform t h e i r i n d i v i d u a l n a t i o n a l p o l i c i e s and p r a c t i c e s t o e i t h e r t h e l e g a l norms o r t h e s t a t e d o b j e c t i v e s o f GATT, and (4) t h e use o f n e g o t i a t i o n o r b a r g a i n i n g as a means t o f o r m u l a t e new o b l i g a t i o n and a l t e r d i f f e r e n c e s about o l d o b l i g a t i o n s . GATT, A r t i c l e 28 b i s ( 2 ) ( a ) . GATT A r t i c l e 10 c o n c e r n i n g " p u b l i c a t i o n and a d m i n i s t r a t i o n o f n a t i o n a l t r a d e r e g u l a t i o n s " . U n l i k e r e c i p r o c a l c o n c e s s i o n s , b e n e f i t s o r p r i v i l e g e s g r a n t e d under GSP system can be w i t h d rawn u n i l a t e r a l l y w i t h o u t g i v e n p r i o r n o t i c e and c o n s u l t a t i o n , because t h e y a r e g i v e n i n one-way d i r e c t i o n and on a non-r e c i p r o c a l b a s i s . C a s t e l , International Business Transactions (1986), p. 41. S tone, supra n o t e 22 p. 13. As t o f u n c t i o n s o f GATT, see Stone, supra n o t e 22, pp. 43-45. GATT, A r t i c l e 34. 53 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 127 128 Dam, supra n o t e 9, p. 318; J a c k s o n , supra n o t e 9, p. 1179. K o s t e c k i , supra n o t e 16, pp. 43-51, 65-70, 72-73, 79-83. See E. P a t t e r s o n , " Improving GATT R u l e s f o r Nonmarket Economies" 20 J.W.T.L. 185. J a c k s o n and Davey, supra n o t e 4, p. 1179. Dam, supra n o t e 9, p. 318. G. & V. Curzon, "GATT: T r a d e r s ' C l u b " i n R o b e r t Cox e t a l ( e d s ) , The Anatomy of Influence ( Y a l e U n i v e r s i t y P r e s s , 1973). Most E a s t European c o u n t r i e s b e l i e v e d i n Marxism, w h i c h e s s e n c e i s t h a t c a p i t a l i s m i s doomed by i t s e x p l o i t i v e n a t u r e , and p r e d i c t e d t h a t t h e c a p i t a l i s t w o r l d would undergo a n o t h e r more d e v a s t a t i n g economic c r i s i s t h a n t h e pre-war G r e a t D e p r e s s i o n . F o r d e t a i l e d d i s c u s s i o n see K o s t e c k i , supra n o t e 16, pp. 3-6. Id, p. 1. Id. p. 3. Id. p. 4. Id. pp. 5-6. Id. p. 5. Id. Id. pp. 4-5. B o t h t h e S o v i e t and E a s t e r n Europe argued t h a t n o n - d i s c r i m i n a t i o n s h o u l d n o t r e s t r a i n any c o u n t r y from d e t e r m i n i n g t h e form o f i t s economic r e l a t i o n s i n i t s own b e s t i n t e r e s t , and b i l a t e r a l i s m d i d n o t c o n f l i c t w i t h t h e i r u n d e r s t a n d i n g o f n o n - d i s c r i m i n a t i o n , i n s t e a d , i t c o u l d t u r n o u t t o be an e f f e c t i v e weapon c o u n t r i e s were i m p o r t a n t e x p o r t e r s o f c e r t a i n raw m a t e r i a l s i n g r e a t demand i n w o r l d markets. J d . pp. 9-10. Id. p. 4. The d o c t r i n e w h i c h i s deemed as a major advance i n p o s t -war East-West r e l a t i o n s h i p has been w i d e l y a c c e p t e d by a l m o s t a l l s o c i a l i s t c o u n t r i e s as one o f t h e major p r i n c i p l e s o f i n t e r n a t i o n a l law i n t h e i r f o r e i g n r e l a t i o n s t o t h e West c o u n t e r p a r t s i n c e i t s i n c e p t i o n . 54 129 130 131 132 133 134 135 136 137 138 139 140 141 142 143 144 145 K o s t e c k i , supra note 16, pp. 10-14. GATT DOC. MGT/81/58, Aug. 1958 and ADD. 1, Oct. 1958. GATT Doc. L/3050, Aug. 1968, p . l . F o r d e t a i l e d d i s c u s s i o n , see K o s t e c k i , supra n o t e 16, pp. 27-30, 93-97. GATT Doc. Spec. (1971). M. K o s t e c k i , "Hungary and GATT", J.W.T.L. (1974) pp.401-19. K o s t e c k i , supra n o t e 16, pp.31-32. W i t h r e s p e c t t o H u n g a r i a n r e c i p r o c i t y f o r m u l a , see K o s t e c k i , i d , pp. 97-98. Id. pp. 25-27. G r e g o r y and S t u a r t , supra n o t e 53, pp. 286-296. Re: " Y u g o s l a v i a : M arket S o c i a l i s m " . See GATT BSID, 8 t h Supp., 1960, p. 18. E v o l u t i o n o f t h e Y u g o s l a v f o r e i g n t r a d e system i s d i s c u s s e d by H. M a t e j k a , " F o r e i g n Trade Systems", I n Hans-H. Hohman, M i c h a e l K a s e r , Kare T h a l h e i m ( e d s ) , The New Economic Systems o f E a s t e r n Europe (London: O x f o r d U n i v e r s i t y P r e s s , 1975), pp. 468-73. GATT BISD, 1 4 t h supp.,1966, pp. 49-59. Id. GATT BISD V o l . I I , p. 36. Id. The U.S. Congress a c c e p t e d t h e Trade Agreement E x t e n s i o n A c t r e q u i r i n g w i t h d r a w a l o f MFN t r e a t m e n t i n t r a d e w i t h t h e "communist-dominated c o u n t r i e s " . G r z y b o w s k i , " S o c i a l i s t C o u n t r i e s i n GATT" 28 J.W.T.L. 539, 543; E. P a t t e r s o n , " Improving GATT R u l e s f o r Nonmarket Economies" 20 J.W.T.L. 185, a t 204. 55 See GATT Doc. C/M/160, a t 2 (Sept. 24, 1982); GATT Doc.C/M/173, a t 2 (Nov. 16, 1983). As " o b s e r v e r s " , non-member n a t i o n s can a t t e n d t h e a n n u a l s e s s i o n s o f t h e CPs, b u t may n o t v o t e on any i s s u e s r a i s e d . See GATT R u l e o f P r o c e d u r e F o r S e s s i o n s o f t h e C o n t r a c t i n g P a r t i e s 8, r e p r i n t e d i n GATT BISD, 11 ( 1 2 t h Supp. 1964). C h i n a f o r m a l l y n o t i f i e d t h e D i r e c t o r G e n e r a l o f t h e GATT t h a t C h i n a w i s h e s t o r e j o i n t h e GATT on J u l y 10, 1986. see GATT Doc. L/6017 ( J u l y 14, 1986). See Trade in T e x t i l e s , BISD, id., pp. 293, 294-97. C h i n a f o r m a l l y became o b s e r v e r i n 1984. See GATT Doc. L/5712 (Oct. 26, 1984). K.C. Kennedy, "The A c c e s s i o n o f t h e S o v i e t U n i o n t o GATT" 21 J.W.T.L. 23, (1987); Note, " S o v i e t * P a r t i c i p a t i o n ' i n GATT: A Case f o r A c c e s s i o n " , 20 N.Y.U.J, of I n t ' l Law & P o l i t i c s 477 (W i n t e r 1988). Id. K o s t e c k i , supra n o t e 16, pp. 109-10. Id., pp. 100-104. Id., p. 134. R. H e r z s t e i n , " China and The GATT: L e g a l and P o l i c y I s s u e s r a i s e d By C h i n a ' s P a r t i c i p a t i o n I n t h e G e n e r a l Agreement On T a r i f f s and Trade" 18 Law & P o l i c y in I n t ' l Business 371, pp. 385-92. See R. Carbaugh, International Economics 180 (1985). Id., p. 183. See Carbon Steel Wire from Poland; F i n a l N e g a t i v e CVD D e t e r m i n a t i o n . 49 Fed. Reg. 19374, 19375 (Dep,t Comm. 1984) ( h e r e i n a f t e r Carbon Steel Wire from Poland). P l a n s i n NME a r e s e t by s t a t e p l a n n i n g commission and o t h e r l o c a l a u t h o r i t i e s . See Kennedy, supra n o t e 148, pp. 25-26. Conn, "A Comparison o f A l t e r n a t i v e I n c e n t i v e S t r u c t u r e s f o r C e n t r a l l y P l a n n e d Economic Systems" 3 J. Comp. Econ. 261, 262 (1972). Carbon Steel Wire from Poland, supra n o t e 155, 19370. 6 ITRD 1176, ITA ( F i n a l , 1984). Dam, supra note 9, p. 318. 56 160 161 162 163 164 NME c o u n t r i e s u s u a l l y mark up t h e p r i c e o f i m p o r t e d goods t o l i m i t o r c o n t r o l t h e volume o f i m p o r t s . See K o s t e c k i , supra n o t e 16, pp. 57-58, 79-81. Dam, s u p r a n o t e 3, p. 318. Id., pp. 318-19. Id., p. 319. S i n c e a l l o f t h e NMEs' c u r r e n c i e s a r e n o t f r e e l y c o n v e r t i b l e , t r a n s a c t i o n s have t o be s u b j e c t t o exchange c o n t r o l s . There e x i s t v i r t u a l l y no f a c i l i t i e s f o r mutual c l e a r i n g o f a c c o u n t s w i t h FMEs. Dam, id., p.319. J . Spero, The P o l i t i c s of International Economic Relations 360-61 (1985). 166 167 168 169 170 171 172 Dam, supra note 3, p. 319. Id. p. 320. I n c e n t i v e system i n f o r e i g n t r a d e i s s uch t h a t f o r e i g n t r a d e o r g a n i z a t i o n s o r c o r p o r a t i o n s can r e t a i n c e r t a i n sum o f f o r e i g n c u r r e n c y , t h e i r employees can e a r n bonus, i f t h e volume o f t r a d e w i t h FME c o u n t r i e s meets o r exceeds t h e s t a t e - d e t e r m i n e d t a r g e t o r p l a n , see K. Kennedy, supra note 1157, p. 26; a l s o R. L i p s e y & P. S t e i n e r , Economics 803 (1969). G r e g o r y and S t u a r t , supra note 53, pp. 284-318. ( d i s c u s s i n g v a r i a n t s o f s o c i a l i s m ) . K o s t e c k i , supra note 16, pp. 46-47. See B i a l e r & A f f e r i c a , "The G e n e s i s o f Gorbachev,s Wo r l d " , 64 Foreign A f f a i r s . 605. Where t h e a u t h o r s have i d e n t i f i e d seven r e f o r m measures u n d e r t a k e n o r c o n t e m p l a t e d by t h e Gorbachev's c a b i n e t : " w h o l e s a l e change i n m a n a g e r i a l and a d m i n i s t r a t i v e p e r s o n n e l and t h e i r r e d u c t i o n ; i n c r e a s e i n l a b o u r d i s c i p l i n e ; d i m i n u t i o n o f t h e number o f i n d i c a t o r s i n c e n t r a l p l a n n i n g and g r e a t e r s t r e s s on q u a l i t y and c o s t s ; t e c h n o l o g i c a l p r o g r e s s ; a g r i c u l t u r a l improvement; development o f i n f r a s t r u c t u r e ; e d u c a t i o n ; and e f f e c t i v e u t i l i z a t i o n o f t h e S o v i e t s t r o n g p o i n t , c e n t r a l i z e d m o b i l i z a t i o n o f r e s o u r c e s f o r e s s e n t i a l g o a l s . " Ibid. p. 615. K o s t e c k i , " S t a t e T r a d i n g By t h e Advanced and D e v e l o p i n g C o u n t r i e s : The Background", pp. 6-21. i n State Trading in International Markets ( K o s t e c k i ed. 1982) 57 See Comment, " A i r Bus and I t s I l k : T u r n i n g Nose a t GATT" 29 Harv. I n t ' l L.J. I l l ( W i n t e r , 1988), 115-19. Stone, s u p r a n o t e 22, pp. 173-74. See Y. N a r i t a , " A d m i n i s t r a t i v e G u idance" (1968) 2 Law in Japan: An Annual 586; K. Yamanouchi, " A d m i n i s t r a t i v e Guidance and t h e R u l e o f Law" (1979) 7 Law in Japan: An Annual 22. O y s t e i n Noreng, " S t a t e T r a d i n g and t h e P o l i t i c s o f O i l " pp. 103-116. i n State Trading In International Markets ( K o s t e c k i ed. 1982). 57 P A R T T H R E E  FUNDAMENTAL RULES OF GATT: COMPATIBLE WITH NME SYSTEM? Beyond c o n f l i c t i n g i d e o l o g i e s r e f l e c t e d i n market and non-market economies, a number o f fundamental r u l e s o f GATT seem t o be i n c o m p a t i b l e w i t h NMEs. T h i s c h a p t e r i s de v o t e d t o d i s c u s s i n g how GATT a n t i d u m p i n g r u l e s can be a p p l i e d t o e x p o r t s from a NME when t h e r e i s no f r e e l y d e t e r m i n e d p r i c e i n t h a t economy t o w h i c h t h e e x p o r t p r i c e can be compared. I t w i l l a l s o d i s c u s s t h e a p p l i c a t i o n o f r u l e s a g a i n s t s u b s i d i e s and use o f q u a n t i t a t i v e r e s t r i c t i o n s (QRs) t o a NME where a government agency d e t e r m i n e s i m p o r t and e x p o r t l e v e l s i n advance and where government c o n t r o l permeates t h e economy. A d d i t i o n a l l y , whether t a r i f f n e g o t i a t i o n s between f r e e - m a r k e t economies and NMEs can be m e a n i n g f u l i f i m p o r t l e v e l s a r e d e t e r m i n e d n o t by t a r i f f s b ut by economic p l a n s w i l l a l s o be c o n s i d e r e d . However, t h e f o c u s o f t h e d i s c u s s i o n i s on t h e c o m p a t i b i l i t y o f NME's s t a t e t r a d i n g system w i t h GATT major r u l e s . A l l t h e s e q u e s t i o n s a r e o f p r a c t i c a l i m p o r t a n c e when major t r a d i n g p a r t n e r s a p p l y GATT r u l e s t o a NME c o u n t r y . A l l t h e s e q u e s t i o n s a r e c r u c i a l when i n t e g r a t i n g t h e NME i n t o GATT framework and ought t o be examined i n a r e v e r s e d o r d e r s t a r t i n g w i t h a r u l e - b y - r u l e approach. C o n s i d e r i n g t h e scope o f t h e t h e s i s , t h e e x a m i n a t i o n i s l i m i t e d o n l y t o some major GATT r u l e s . 59 3.1. GATT RULES ON STATE TRADING AND NME 3.1(1) GATT RULES ON STATE TRADING GATT r u l e s on s t a t e t r a d i n g a r e e n u n c i a t e d i n i t s A r t . 17. The f o c u s o f A r t . 17 i s n o n - d i s c r i m i n a t i o n and commercial c r i t e r i a i n i n t e r n a t i o n a l t r a d i n g . The A r t i c l e s t a t e s : " [ S ] u c h e n t e r p r i s e s h a l l i n i t s p u r c h a s e s o r s a l e s i n v o l v i n g e i t h e r i m p o r t s o r e x p o r t s , a c t i n a manner c o n s i s t e n t w i t h t h e g e n e r a l p r i n c i p l e s o f n o n - d i s c r i m i n a t o r y t r e a t m e n t p r e s c r i b e d i n t h i s Agreement f o r government measures a f f e c t i n g i m p o r t s o r e x p o r t s by p r i v a t e t r a d e r s . " 1 I t goes on t o r e q u i r e t h a t : " [ S ] u c h e n t e r p r i s e s s h a l l . . . m a k e any such p u r c h a s e s o r s a l e s s o l e l y i n ac c o r d a n c e w i t h c o m m e r c i a l c o n s i d e r a t i o n s , i n c l u d i n g p r i c e , q u a l i t y , a v a i l a b i l i t y , m a r k e t a b i l i t y , t r a n s p o r t a t i o n and o t h e r c o n d i t i o n s o f p u r c h a s e o r s a l e , and s h a l l a f f o r d t h e e n t e r p r i s e s o f t h e o t h e r c o n t r a c t i n g p a r t i e s adequate o p p o r t u n i t y . . . t o comjpete f o r p a r t i c i p a t i o n i n such p u r c h a s e s o r s a l e s . " C l e a r l y , t h e o r i g i n a l i n t e n t o f GATT i s t o m i n i m i z e t h e p o t e n t i a l s o f s t a t e t r a d i n g p r a c t i c e s . W h i l e r e c o g n i z i n g t h a t s t a t e t r a d i n g can be used as an i n s t r u m e n t o f t r a d e c o n t r o l p o l i c y , GATT a l s o r e c o g n i z e s t h a t s t a t e t r a d i n g o f t e n p r e s e n t s s e r i o u s o b s t a c l e s t o t r a d e e x p a n s i o n . The 1957 Amendments t o GATT r e i t e r a t e d t h i s p o s i t i o n and i d e n t i f i e d two main r e a s o n s t h a t might l e a d t o s e r i o u s o b s t a c l e s t o t h e e x p a n s i o n o f i n t e r n a t i o n a l t r a d e . They a r e : (1) s t a t e t r a d i n g might be s e r v e d as "a s u b s t i t u t e f o r QRs, 60 t a r i f f s and s u b s i d i e s ; and (2) s p e c i a l p r i v i l e g e s g r a n t e d t o a t r a d e r by t h e s t a t e m ight r e s u l t i n a monopoly s i t u a t i o n . 4 T h i s i s because f u n c t i o n a l e q u i v a l e n t o f t a x e s o r s u b s i d i e s may be implemented t h r o u g h t h e d e t e r m i n a t i o n o f t h e d i f f e r e n t i a l between e x t e r n a l p r i c e s and t h e d o m e s t i c r e s a l e p r i c e s f o r i m p o r t s o r d o m e s t i c p u r c h a s e p r i c e f o r e x p o r t s . The f u n c t i o n a l e q u i v a l e n t o f QRs may be implemented t h r o u g h t h e d e t e r m i n a t i o n o f q u a n t i t i e s i m p o r t e d o r e x p o r t e d . F u r t h e r m o r e , a p o l i c y o f d i s c r i m i n a t i o n may be implemented t h r o u g h t h e d e t e r m i n a t i o n o f t h e s o u r c e o f i m p o r t s o r t h e d e s t i n a t i o n o f e x p o r t s . Based on t h e s e grounds, A r t i c l e 17 t o g e t h e r w i t h t h e su p p l e m e n t a r y p r o v i s i o n s o f A r t . 2(4) endeavors t o m i n i m i z e t h e p o t e n t i a l s o f s t a t e t r a d i n g p r a c t i c e s . D e s p i t e b e i n g a t r a d e b a r r i e r , s t a t e t r a d i n g i s not p r o h i b i t e d by t h e p r o v i s i o n s o f GATT. I t i s a d m i s s i b l e as l o n g as i t i s o p e r a t e d " i n a manner c o n s i s t e n t w i t h t h e g e n e r a l p r i n c i p l e o f n o n - d i s c r i m i n a t o r y t r e a t m e n t " , 5 and a c c o r d i n g t o t h e c o m m e r c i a l c o n s i d e r a t i o n s r a t h e r t h a n p o l i t i c a l o r o t h e r non-commercial c r i t e r i a . 6 A r t . 3 ( 4 ) , A r t . 2(4) and an i n t e r p r e t i v e n o t e o f A r t . 2(4) seem t o be r e l e v a n t i n r e g u l a t i n g s t a t e t r a d i n g p r a c t i c e s . A r t . 3(4) i n d i c a t e s t h a t n o n - d i s c r i m i n a t i o n i s not o n l y a c h i e v e d by MFN t r e a t m e n t , b u t a l s o by n a t i o n a l t r e a t m e n t w h i c h s h a l l be a c c o r d e d t o f o r e i g n i m p o r t s a f t e r t h e y e n t e r a CP's d o m e s t i c m a r k e t s . A p r o p e r u n d e r s t a n d i n g of non-d i s c r i m i n a t o r y r e q u i r e m e n t s i n t h i s r e g a r d h e l p s t o c l a r i f y t h e i s s u e as t o whether t h e n o n d i s c r i m i n a t o r y t r e a t m e n t 61 r e q u i r e m e n t c o u p l e d w i t h t h e "commercial c o n s i d e r a t i o n s " s t a n d a r d , means n o n - d i s c r i m i n a t i o n among f o r e i g n s o u r c e s o f s u p p l y (MFN t r e a t m e n t ) o r n o n - d i s c r i m i n a t i o n a g a i n s t f o r e i g n s o u r c e s i n f a v o r o f d o m e s t i c s o u r c e s ( n a t i o n a l t r e a t m e n t ) . A l s o , A r t i c l e 2(4) p r o v i d e s t h a t any i m p o r t monopoly m a i n t a i n e d by a c o n t r a c t i n g p a r t y : " s h a l l n o t . . . o p e r a t e so as t o a f f o r d p r o t e c t i o n on t h e average i n e x c e s s o f t h e amount o f p r o t e c t i o n p r o v i d e d f o r i n t h a t S c h e d u l e . " 7 I n o t h e r words, a c o n t r a c t i n g p a r t y s h a l l n o t use s t a t e t r a d i n g monopoly t o a c c o r d , i n t h e c a s e o f bound i t e m s , p r o t e c t i o n t o d o m e s t i c p r o d u c t i o n beyond t h a t p r o v i d e d f o r i n i t s n e g o t i a t e d t a r i f f s c h e d u l e . 8 A l s o , t h e i n t e r p r e t i v e n o t e o f A r t . 2(4) g u i d e s c o n t r a c t i n g p a r t i e s i n a p p l y i n g A r t i c l e 2 ( 4 ) : " e x c e p t where o t h e r w i s e s p e c i f i c a l l y a g r e e d between t h e c o n t r a c t i n g p a r t i e s w h i c h i n i t i a l l y n e g o t i a t e d t h e c o n c e s s i o n . . . i n t h e l i g h t o f t h e p r o v i s i o n s o f A r t i c l e 31 o f t h e Havana C h a r t e r . " 9 A r t i c l e 31 o f t h e Havana C h a r t e r r e q u i r e s each member o f t h e ITO m a i n t a i n i n g an i m p o r t monopoly t o n e g o t i a t e upon r e q u e s t o f a n o t h e r member f o r t h e r e d u c t i o n o f t h e p r o t e c t i o n t o d o m e s t i c p r o d u c t i o n a f f o r d e d by t h a t monopoly. T h i s r e q u i r e m e n t was e v e n t u a l l y o m i t t e d form GATT A r t i c l e 1 7 . 1 0 Thus t h e i n t e r p r e t i v e n o t e does n o t impose on c o n t r a c t i n g p a r t i e s a d u t y t o n e g o t i a t e w i t h r e s p e c t t o p r o d u c t s s u b j e c t t o i m p o r t m o n o p o l i e s . The t h r u s t o f GATT A r t . 17 i s t o m i n i m i z e b u t not t o p r o h i b i t s t a t e t r a d i n g o p e r a t i o n s . N e v e r t h e l e s s , GATT f a i l s t o p r o v i d e a c l e a r l y a r t i c u l a t e d d e f i n i t i o n o f s t a t e t r a d i n g 62 e n t e r p r i s e s i n t h e f i r s t p l a c e . I t m e r e l y s t a t e s t h a t s t a t e t r a d i n g o c c u r s when a c o n t r a c t i n g p a r t y " e s t a b l i s h e s or m a i n t a i n s a S t a t e e n t e r p r i s e wherever l o c a t e d , o r g r a n t s t o any e n t e r p r i s e , f o r m a l l y o r i n e f f e c t , e x c l u s i v e o r s p e c i a l p r i v i l e g e s " . Assuming t h i s i s t h e d e f i n i t i o n o f STEs, one can f i n d no g u i d e l i n e s as t o what c o n s t i t u t e s " e x c l u s i v e or s p e c i a l p r i v i l e g e s " . T h i s a m b i g u i t y has r e s u l t e d i n h e a t e d d e b a t e s among e c o n o m i s t s , c e n t e r i n g around t h e f u n c t i o n a l c h a r a c t e r i s t i c s o f s t a t e t r a d i n g and o p t i m a l mode o f d e s i r a b l e i n t e r n a t i o n a l c o o r d i n a t i o n and r e g u l a t i o n . The p r o v i s i o n l e a v e s t h e door open f o r s i g n a t o r i e s t o i n t e r p r e t i t a c c o r d i n g t o t h e i r own c r i t e r i a and u n d e r s t a n d i n g . 1 3 D e s p i t e t h e c o n t r o v e r s i e s t h e c r i t e r i o n o f d i r e c t government c o n t r o l has most f r e q u e n t l y been used t o d e f i n e S T E s . 1 4 C o n s e q u e n t l y , STEs a r e c l a s s i f i e d i n t o t h r e e c a t e g o r i e s : (1) s t a t e owned e n t e r p r i s e s ; (2) s t a t e c o n t r o l l e d e n t e r p r i s e s ; (3) p r i v i l e g e d e n t e r p r i s e s . 1 5 I f Government g i v e s an e n t e r p r i s e o p e r a t i o n a l c r i t e r i a o r c e n t r a l d i r e c t i v e s or g r a n t s monopoly, such an e n t e r p r i s e may be d e f i n e d as a STE. A c c o r d i n g l y , t h e r e a r e t h r e e c a t e g o r i e s o f a g e n c i e s : (1) s t a t e t r a d i n g a g e n c i e s , (2) r e g u l a t e d a g e n c i e s , and (3) mixed a g e n c i e s . F u n c t i o n a l l y , s t a t e t r a d i n g i s more i n v i s i b l e , f l e x i b l e and t h u s o f t e n implemented as a s u b s t i t u t e f o r t a r i f f s , 1 7 . s u b s i d i e s and QRs. I t i s a s u b s t i t u t e f o r t a r i f f s when implemented t o p r o t e c t d o m e s t i c p r o d u c e r s and improve t h e terms o f t r a d e . Economic a n a l y s i s s u g g e s t s t h a t s t a t e t r a d i n g 63 i s o f t e n a t r a d e p o l i c y i n s t r u m e n t and implemented t o pursue o b j e c t i v e s o f government p o l i c y . ° A c o m p a r i s o n o f s t a t e t r a d i n g and p r i v a t e t r a d i n g shows t h a t under commonly used p r i c i n g r u l e s by a s t a t e t r a d e r t h e i n s t r u m e n t o f s t a t e monopoly t r a d i n g and ad valorem t a r i f f l e v i e d on c o m p e t i t i v e on . . p r i v a t e t r a d i n g a r e e q u i v a l e n t . D i s c r i m i n a t o r y s t a t e t r a d i n g and a s e t o f ad valorem t a x e s - s u b s i d i e s l e v i e d on • • • • • ? i c o m p e t i t i v e p r i v a t e t r a d i n g a r e a l s o e q u i v a l e n t . Economic a n a l y s i s a l s o shows t h a t any sequence o f market s o l u t i o n s o b t a i n e d by e x c l u s i v e s t a t e t r a d i n g under s p e c i f i e d p r i c i n g r u l e and sequence a c h i e v e d by c o m p e t i t i v e p r i v a t e t r a d i n g under s p e c i f i e d sequence o f s e t s o f ad valorem t a x e s - s u b s i d i e s c o u l d be " a m a z i n g l y i d e n t i c a l . " 2 2 F o r t h e s e r e a s o n s t h e i n s t r u m e n t s o f s t a t e t r a d i n g and t a r i f f s a r e i n f a c t i n t e r -r e p l a c e a b l e o r i n t e r - c h a n g e a b l e . 2 3 S t a t e t r a d i n g becomes a s u b s t i t u t e f o r s u b s i d i e s when government a g e n c i e s a f f o r d STEs s p e c i a l o r e x c l u s i v e p r i v i l e g e s o f t r a d i n g w i t h f o r e i g n p a r t n e r s t o promote e x p o r t e x p a n s i o n s . S i n c e t h e n a t u r e and f u n c t i o n o f s u b s i d i e s a r e t o g r a n t s p e c i a l o r e x c l u s i v e p r i v i l e g e s o r f a v o r s by a government, t h e y a r e m u t u a l l y comparable and r e p l a c e a b l e . S t a t e t r a d i n g i s a l s o c a t e g o r i z e d as QR when i t i n t r o d u c e s d i s c r i m i n a t i o n a g a i n s t s o u r c e s o f f o r e i g n i m p o r t s . Because o f t h i s s u b s t i t u t a b i l i t y , GATT g i n g e r l y s t a t e s t h a t t h e s o - p r e s c r i b e d QRs s h o u l d i n c l u d e t h o s e r e s t r i c t i o n s "made e f f e c t i v e t h r o u g h t h e o p e r a t i o n s o f s t a t e t r a d i n g , " 2 4 and t h u s 64 e x t e n d s i t s g e n e r a l p r i n c i p l e o f n o n - d i s c r i m i n a t i o n t o t h e s t a t e t r a d i n g o p e r a t i o n s . T a r i f f n e g o t i a t i o n s w i t h NMEs o f t e n u l t i m a t e l y t o u c h upon i n t e r n a l p r i c e l e v e l s and p r i c e s t r u c t u r e s . The d u a l p r i c i n g s ystem ( i . e . d i s c r i m i n a t o r y p r i c e s a p p l i e d t o d o m e s t i c m a n u f a c t u r e r s and f o r e i g n i m p o r t s o f l i k e goods) o f t e n p r e s e n t s a major b a r r i e r f o r NME c o u n t r i e s t o p a r t i c i p a t e a c t i v e l y i n t h e t a r i f f n e g o t i a t i o n s . 2 5 C o n s e q u e n t l y , t a r i f f n e g o t i a t i o n s would have t o be r e p l a c e d by n e g o t i a t i o n s on g l o b a l q u o t a u n d e r t a k i n g s . A t t h e same t i m e n e g o t i a t i o n on g l o b a l q u o t a u n d e r t a k i n g s a l s o c a l l e d i m p o r t commitments was c o n s i d e r e d as a more e f f e c t i v e approach t h a n t h a t on t a r i f f c o n c e s s i o n s i n d e a l i n g w i t h t h e a c c e s s i o n o f NME c o u n t r i e s t o GATT because mere t a r i f f r e d u c t i o n s i n NME c o u n t r i e s were of l i m i t e d meaning as most o f NMEs m a i n t a i n e d c e n t r a l p l a n n i n g . 2 6 3.1.(2) ARTICLE 17 AND NME A r t i c l e 17 was supposed t o be a p p l i e d t o S t a t e t r a d i n g e n t e r p r i s e s (STEs) b o t h i n FME c o u n t r i e s and NME c o u n t r i e s . I t had i t s o r i g i n s i n A r t . 27 o f t h e U.S. Suggested C h a r t e r , 2 7 w h i c h became A r t i c l e 31 o f t h e Havana C h a r t e r , e n t i t l e d " E x p a n s i o n o f Trade o f S t a t e M o n o p o l i e s o f I n d i v i d u a l P r o d u c t s " . 2 8 Due t o t h e USSR and o t h e r NME c o u n t r i e s ' non-p a r t i c i p a t i o n i n t h e P r e p a r a t o r y Work f o r t h e e s t a b l i s h m e n t of t h e ITO, A r t i c l e 31 was n o t w r i t t e n i n t o t h e t e x t o f GATT. A r t i c l e 17 t h e r e f o r e p r o v i d e s t h e o n l y b a s i s i n GATT t o d e a l 65 w i t h t h e pr o b l e m o f i n t e g r a t i n g NME system i n t o t h e GATT framework. 7 H i s t o r i c a l l y , t h e A r t i c l e was d r a f t e d o n l y t o d e a l w i t h " o c c a s i o n a l " s t a t e t r a d i n g i n market economies and t h u s has l i m i t e d a p p l i c a b i l i t y t o NME system. GATT assumed m i n i m a l government i n t e r v e n t i o n i n p r i v a t e e n t e r p r i s e s d e s p i t e t h e f a c t t h a t t h e government may a f f o r d c e r t a i n e n t e r p r i s e s s p e c i a l o r e x c l u s i v e p r i v i l e g e s i n c o n d u c t i n g i m p o r t and e x p o r t t r a d e , o r even engage i n t r a d e i t s e l f ( t y p i c a l s t a t e t r a d i n g ) . The overwhelming r e q u i r e m e n t o f A r t i c l e 17 was t h a t s t a t e t r a d i n g be o p e r a t e d a c c o r d i n g t o c o m m e r c i a l c r i t e r i a and n o n d i s c r i m i n a t i o n . I t was t h o u g h t t h a t s i n c e s t a t e t r a d i n g i s an a d m i s s i b l e and perhaps d e s i r a b l e form o f t r a d e c o n t r o l i n c e r t a i n c i r c u m s t a n c e s , t h e r e q u i r e m e n t o f n o n - d i s c r i m i n a t i o n c o u l d t h e n be a c h i e v e d by r e q u i r i n g t h a t STEs a c t as i f t h e y • . . . . T n were p r i v a t e e n t e r p r i s e s a i m i n g a t maximum p r o f i t s . T h i s a s s u m p t i o n , however, i s p o o r l y - f r a m e d and i l l -a d a p t e d t o t h e NME c o u n t r i e s . 3 1 C o n s i d e r e d i n t h e c o n t e x t o f t h e c e n t r a l l y p l a n n e d s t a t e t r a d i n g economies, government i n t e r v e n t i o n i s n o t r a r e but permeates t h e i r economic systems. The c e n t r a l i d e a and t h r u s t o f A r t i c l e 17 i s pronounced i n i t s p a r a . 1 t o t h e e f f e c t t h a t : "[A s t a t e t r a d i n g ] e n t e r p r i s e s h a l l , i n i t s p u r c h a s e s o r s a l e s i n v o l v i n g e i t h e r i m p o r t s o r e x p o r t s , a c t i n a manner c o n s i s t e n t w i t h t h e o e n e r a l p r i n c i p l e s o f n o n d i s c r i m i n a t o r y t r e a t m e n t . . . " Presumably such r e q u i r e m e n t s can h a r d l y be e n f o r c e a b l e i n NMEs s i n c e STEs i n NME c o u n t r i e s a r e c r e a t e d p r e c i s e l y t o a c h i e v e t h e g o a l s t h a t a r e n o t n o r m a l l y assumed by p r i v a t e 66 e n t e r p r i s e s . The f u n c t i o n o f STEs i n NME c o u n t r i e s i s b a s i c a l l y t h e same as t h a t o f government a g e n c i e s . Thus t h e GATT's a s s u m p t i o n t h a t STEs s h o u l d be o p e r a t e d as though t h e y were p r i v a t e e n t e r p r i s e s i s n o t amenable t o t h e c i r c u m s t a n c e s of s t a t e t r a d i n g problem i n NMEs. The domain o f i t s a p p l i c a t i o n i s o n l y l i m i t e d t o o c c a s i o n a l s t a t e t r a d i n g o c c u r r i n g i n FME c o u n t r i e s . G e n e r a l l y , s t a t e t r a d i n g has been c l a s s i f i e d i n t o t h e f o l l o w i n g t h r e e c a t e g o r i e s : (1) o c c a s i o n a l s t a t e t r a d i n g i n market economy; (2) l o o s e s t a t e t r a d i n g i n NMEs (here t h e term NME i s i m p r e c i s e l y used o n l y t o r e f l e c t t h e i r t r a d i t i o n a l s o c i a l i s t s y s t e m ) ; (3) command s t a t e t r a d i n g i n NMEs. The GATT r e q u i r e m e n t o f n o n d i s c r i m i n a t i o n and c o m m e r c i a l b e h a v i o r would be a p p l i c a b l e t o o c c a s i o n a l s t a t e t r a d i n g i n market economies. And once t h e government has g r a n t e d an e n t e r p r i s e " e x c l u s i v e • • T 3 o r s p e c i a l p r i v i l e g e s " J J , i t no l o n g e r c o n t r o l s t h e a c t i v i t i e s o f t h e e n t e r p r i s e . As n o t e d e a r l i e r , s t a t e t r a d i n g can be an i n s t r u m e n t of t r a d e c o n t r o l p o l i c y j u s t as t a r i f f s o r q u a n t i t a t i v e r e s t r i c t i o n s , i t can a l s o be a t r a d e p o l i c y o b j e c t . 3 4 I t f o l l o w s t h a t : (a) I f a STE i s o p e r a t e d as an o b j e c t o f t r a d e p o l i c y a c t i n g i n t h e same manner as i t s p r i v a t e c o u n t e r p a r t s , i t s h a l l n o t be s u b j e c t t o s p e c i f i c p r o v i s i o n s o t h e r t h a n t a r i f f s , QRs, and o t h e r g e n e r a l r u l e s s i n c e t h e r e g u l a t i o n has a l r e a d y been p r o v i d e d f o r somewhere i n t h e GATT; and (b) I f a STE implemented t o a c t as a t r a d e p o l i c y i n s t r u m e n t i t would need s p e c i f i c r e g u l a t i o n i n t h e same way as o t h e r t r a d e p o l i c y 67 i n s t r u m e n t s such as t a r i f f s , QRs, s u b s i d i e s . 3 6 I n o t h e r words, i f a STE i s c r e a t e d as an o b j e c t o f government t r a d e p o l i c y a c t i n g as i f i t was p r i v a t e t r a d i n g , t h e r e w i l l be no problem o f c o m p a t i b i l i t y a r i s i n g w i t h t h e GATT r e q u i r e m e n t of o b s e r v i n g c o m m e r c i a l b e h a v i o r . But i f a STE i s c r e a t e d as t r a d e p o l i c y i n s t r u m e n t l i k e t a r i f f s o r QRs, i t s h o u l d be s u b j e c t t o s p e c i f i c r e g u l a t i o n . The n a t u r e o f s t a t e t r a d i n g i n NME and FME i s d i f f e r e n t t o t h e e x t e n t t h a t NMEs' governments c o n t r o l STEs t h r o u g h c e n t r a l p l a n o r t a r g e t whereas FMEs' government does not c o n t r o l t h e i r STEs a f t e r g r a n t i n g them e x c l u s i v e o r s p e c i a l p r i v i l e g e s and a l l o w s t h e STEs t o r e t a i n c e r t a i n degree of l i b e r t y i n d e c i d i n g f o r o r a g a i n s t i m p o r t i n a c c o r d a n c e w i t h s u p p l y and demand i n b o t h d o m e s t i c and i n t e r n a t i o n a l m arkets. The GATT r u l e c o u l d a l s o be w e l l a p p l i e d t o " l o o s e " s t a t e t r a d i n g system where a STE m a i n t a i n s a d i r e c t l i n k between f o r e i g n and d o m e s t i c p r i c e s i n p u r c h a s e s o r s a l e s . The government o n l y uses t a r i f f p r o t e c t i o n under normal c o n d i t i o n s and t h e s t a t e e i t h e r owns t h e e n t e r p r i s e o r g r a n t s i t e x c l u s i v e p r i v i l e g e s t o s u p p o r t a m o n o p o l i s t i c o r semi-m o n o p o l i s t i c p o s i t i o n . 3 7 Once t h e p r i v i l e g e s have been g r a n t e d and m o n o p o l i e s e s t a b l i s h e d , government i n t e r f e r e n c e i s l i m i t e d o n l y t o t r a d i t i o n a l t r a d e c o n t r o l measures. T h i s method of r e s t r i c t i n g o r e x p a n d i n g t r a d e t h r o u g h i n s t r u m e n t s such as t a r i f f s , p r o d u c t i o n s u b s i d i e s and q u o t a s under c i r c u m s t a n c e s i s a c c e p t a b l e t o GATT. 3 9 68 I n E a s t e r n Europe, f o r e i g n t r a d e r e g i m e s a r e v e r y d i v e r s i f i e d . H u n g a r i a n and Y u g o s l a v regimes f o r t r a d e w i t h t h e West may be t r e a t e d as examples o f l o o s e s t a t e t r a d i n g . The f o r e i g n t r a d e system implemented i n P o l a n d , Romania, B u l g a r i a , C z e c h o s l o v a k i a seems t o f a l l i n t h e model o f command s t a t e t r a d i n g system. C h i n a i s moving towards l o o s e s t a t e t r a d i n g system as i t s economy has been d e c e n t r a l i z e d s i n c e t h e i n c e p t i o n o f economic and f o r e i g n t r a d e r e f o r m s i n 1 9 7 9 . 4 0 The r e c e n t r e f o r m has d e c e n t r a l i z e d t h e m a n a g e r i a l a u t h o r i t y o f f o r e i g n t r a d e so as t o empower t h e e n t e r p r i s e s t o d e c i d e a p p r o p r i a t e forms of c o n d u c t i n g f o r e i g n t r a d e and make t h e i r own d e c i s i o n s . 4 1 The f u r t h e r r e f o r m w i l l a b o l i s h mandatory p l a n n i n g o r r e p l a c e i t w i t h g u i d a n c e p l a n n i n g and market r e g u l a t i o n . 4 2 C u r r e n t l y , t h e S t a t e a d m i n i s t e r s f o r e i g n t r a d e m a i n l y t h r o u g h l e g a l and economic r e g u l a t o r y a u t h o r i t i e s w i t h o u t d i r e c t i n t e r v e n t i o n i n t h e e n t e r p r i s e s . 4 3 The t r a d e monopoly o f STEs m a i n l y r e f e r s t o f o r e i g n t r a d e c o r p o r a t i o n s (FTCs) and i s l i m i t e d t o some key commodities such as s t e e l , f e r t i l i z e r , c e r e a l s , t i m b e r , c h e m i c a l f i b e r s , a u t o s , d i s u s e d s h i p s , t o b a c c o and r u b b e r . 4 4 A government agency c a l l e d MOFERT s u p e r v i s e s FTCs t o implement f o r e i g n t r a d e p o l i c i e s , r e g u l a t i o n s and mandatory p l a n s (not i n c l u d i n g s uch d i r e c t i v e s as t h e s o u r c e o f s u p p l y o r d e s t i n a t i o n , p r i c e p a i d o r asked and degree o f t r a n s f o r m a t i o n ) . 4 5 I t g e n e r a l l y does not i n t e r f e r e i n t h e b u s i n e s s a c t i v i t i e s o f an F T C . 4 6 A l s o i t does no t s e t g u i d e l i n e s and d e t a i l r u l e s r e g a r d i n g t h e c h o i c e o f 69 o r i g i n o f i m p o r t s . The o r i g i n s o f i m p o r t s a r e d e c i d e d by FTCs t h e m s e l v e s upon r e q u e s t o f end-u s e r s and c o n d i t i o n s of i n t e r n a t i o n a l m a r k e t — t h o u g h t h e a d m i n i s t r a t i v e s u p e r v i s i o n cannot a t p r e s e n t be a b o l i s h e d . 4 7 The above e x a m i n a t i o n shows t h a t STEs i n C h i n a a r e a b l e t o c a r r y o u t A r t . 17 o f t h e GATT, and f u l f i l l " commercial c o n s i d e r a t i o n s " s t a n d a r d . No c o u n t r y - s p e c i f i c r e s t r i c t i o n s a r e t o be imposed on t h e i m p o r t s and t h u s no d i s c r i m i n a t i o n a r i s e s a g a i n s t f o r e i g n s o u r c e s o f i m p o r t s . A l s o , t h e volume o r l e v e l o f FTCs' i m p o r t s i s r e g u l a t e d a c c o r d i n g t o market f o r c e s of s u p p l y and demand b o t h i n t h e d o m e s t i c and i n t e r n a t i o n a l m a r k e t . 4 8 By c o n t r a s t , f o r e i g n t r a d e i n t h e USSR i s a somewhat complete " s t a t e m o n o p o l y " . 4 9 Under t h e S o v i e t f o r e i g n t r a d e r e g i m e , f o r e i g n t r a d e i s co n d u c t e d by t h e F o r e i g n Trade O r g a n i z a t i o n s ( F T O s ) . 5 0 S o v i e t p r o d u c e r s and m a n u f a c t u r e r s cannot c o n c l u d e c o n t r a c t s w i t h f o r e i g n f i r m s w i t h o u t g o i n g t h r o u g h t h e a p p r o p r i a t e FTO. FTOs a r e s u b j e c t t o t h e S t a t e P l a n n i n g Commission and M i n i s t r y o f F o r e i g n Trade, and t h e r e f o r e a r e u n a b l e t o t r a d e w i t h w e s t e r n p a r t n e r s a c c o r d i n g t o " c o m m e r c i a l c o n s i d e r a t i o n s o n l y " s t a n d a r d . 5 1 A l t h o u g h Mr. Gorbachev has been making e f f o r t s t o u n d e r t a k e p o l i t i c a l and economic r e f o r m s , t h e o v e r r i d i n g f e a t u r e o f t h e S o v i e t t r a d i n g system r e m a i n s p o l i t i c a l r a t h e r t h a n e c o n o m i c a l . 5 2 W h i l e t h e l o o s e s t a t e t r a d i n g system i s a c c e p t a b l e t o GATT, t h e c o m p a t i b i l i t y o f t h e command s t a t e t r a d i n g system w i t h t h e GATT as s u m p t i o n i s v e r y d o u b t f u l and ought t o be 70 d e t e r m i n e d on i n d i v i d u a l m e r i t s . O b v i o u s l y t h e a p p l i c a t i o n of t h e GATT n o n - d i s c r i m i n a t i o n t o command s t a t e t r a d i n g system r e q u i r e s t h a t no c o u n t r y - s p e c i f i c t a r g e t c o n t r o l s be i n t r o d u c e d . 5 3 T a r g e t s i n P o l a n d and Romania were n o t c o u n t r y -s p e c i f i c and c o n s e q u e n t l y , t h e y c o u l d n o t implement d i s c r i m i n a t o r y p o l i c i e s towards p a r t i c u l a r c o u n t r i e s , though t h e y d i d t r e a t d i f f e r e n t l y c o n v e r t i b l e and n o n - c o n v e r t i b l e 54 c u r r e n c y a r e a s . I f c o u n t r y - s p e c i f i c t a r g e t c o n t r o l s e x i s t i n command s t a t e t r a d i n g economies, t a r i f f n e g o t i a t i o n s w i l l be o f l i m i t e d use. A c c o r d i n g l y , n e g o t i a t i o n s on t a r i f f c o n c e s s i o n s would have t o be accompanied by n e g o t i a t i o n s on im p o r t i n c r e a s e commitment. 5 5 And t h e w e i g h t o f n e g o t i a t i o n s on t a r g e t s would have t o be a t t a c h e d t o t h e n o n d i s c r i m i n a t o r y c h a r a c t e r o f t r a d e c o n t r o l measures and i m p o r t t a r g e t s . 5 6 3.1(3) CONCLUSION AND SUGGESTIONS I n sum, t h e GATT r u l e on s t a t e t r a d i n g was o r i g i n a l l y o n l y c o n c e r n e d w i t h o c c a s i o n a l s t a t e t r a d i n g i n market economy. I t c o u l d be w e l l a p p l i c a b l e t o " o c c a s i o n a l " s t a t e t r a d i n g i n FME as w e l l as " l o o s e " s t a t e t r a d i n g i n some s e l e c t e d NME c o u n t r i e s . But i t would have c o n s i d e r a b l e d i f f i c u l t y i n a p p l y i n g t h i s r u l e t o t h o s e STEs e s t a b l i s h e d under t h e g u i d a n c e o f c e n t r a l p l a n where t h e r e i s no d i r e c t l i n k between d o m e s t i c and f o r e i g n p r i c e s and where t a r g e t i n s t e a d o f t a r i f f s i s implemented as t h e main element o f 71 p r o t e c t i o n . The d i f f i c u l t y l i e s i n t h e i n h e r e n t l y p r o b l e m a t i c a s s u m p t i o n o f GATT i t s e l f . Q u i t e c o n t r a r y t o t h e assu m p t i o n t h a t STEs s h o u l d be e s t a b l i s h e d o r m a i n t a i n e d c o n s i s t e n t w i t h t h e p r i n c i p l e o f n o n d i s c r i m i n a t i o n and a c t i n g as i f t h e y were p r i v a t e t r a d i n g e n t e r p r i s e s , STEs i n t h e NMEs w i t h "command" s t a t e t r a d i n g systems have been c r e a t e d j u s t t o f u n c t i o n i n a s i m i l a r way t o w h i c h government a g e n c i e s f u n c t i o n . The government n o t o n l y g r a n t s t h e e n t e r p r i s e s " e x c l u s i v e o r s p e c i a l p r i v i l e g e s " , b u t a l s o c o n t r o l s o r d i r e c t s t h e i r a c t i v i t i e s from t i m e t o t i m e t h r o u g h c e n t r a l p l a n n i n g o r t a r g e t measures. I n such case i t i s p e r p l e x i n g whether t h e GATT r e q u i r e m e n t s can be f u l f i l l e d when STEs a r e e s t a b l i s h e d p r e c i s e l y t o a c h i e v e g o a l s n o t n o r m a l l y assumed by p r i v a t e e n t e r p r i s e s . 5 7 I n e f f e c t , A r t i c l e 17 i s b o t h u n r e a l i s t i c and i l l a d a p t e d t o NMEs w i t h command s t a t e t r a d i n g s y s t e m . 5 8 T h i s s h o r t c o m i n g o f A r t . 17 shows t h a t GATT r u l e s on s t a t e t r a d i n g has l i m i t e d a p p l i c a t i o n t o NMEs e s p e c i a l l y t h e economies o f command s t a t e t r a d i n g s y s t e m s . 5 9 Moreover, GATT n o r m a t i v e approach t o s t a t e t r a d i n g i s d e f e c t e d . Under n o r m a t i v e approach, GATT d e a l s w i t h s t a t e t r a d i n g as f o l l o w s : " ( i ) by i d e n t i f y i n g what c o n s t i t u t e s a STE; ( i i ) by e x t e n d i n g n o n d i s c r i m i n a t o r y MFN t r e a t m e n t t o such STEs; ( i i i ) by i m p o s i n g them a d u t y t o a c t a c c o r d i n g t o com m e r c i a l c o n s i d e r a t i o n s o n l y , b a r r i n g t h e use o f q u a n t i t a t i v e r e s t r i c t i o n s ; ( i v ) by e x c l u d i n g n u l l i f i c a t i o n o f t a r i f f c o n c e s s i o n s t h r o u g h i m p o r t mark-ups i n t h e c a s e o f i m p o r t m o n o p o l i e s . " 6 0 72 The g e n e r a l r u l e s a r t i c u l a t e d i n A r t . 17 a r e non-d i s c r i m i n a t i o n and c o m m e r c i a l c r i t e r i a . Such g e n e r a l r u l e s can h a r d l y be an e f f i c i e n t t o o l t o p r e v e n t s p e c i f i c government measures o f a d i s c r i m i n a t o r y o r p r o t e c t i v e n a t u r e made e f f e c t i v e t h r o u g h s t a t e t r a d i n g o p e r a t i o n s . 6 1 T h i s i s because s t a t e t r a d i n g o p e r a t i o n s a r e v e r y f l e x i b l e , i n v i s i b l e o r non-t r a n s p a r e n t . 6 2 By u s i n g t h i s a p proach, t r a d e l i b e r a l i z a t i o n can r a r e l y be a c h i e v e d because i t o n l y a d d r e s s e s a p r o c e s s t h a t escapes d e t a i l e d r e g u l a t i o n and c l o s e s u r v e i l l a n c e . 6 3 D e v i a t i o n from t h e c o m m e r c i a l c o n s i d e r a t i o n s t a n d a r d can h a r d l y be d e t e c t e d . A l s o , t h e i n f o r m a t i o n n e c e s s a r y t o s u r v e y t h e a p p l i c a t i o n o f t h e s t a n d a r d i s r a r e l y d i s c l o s e d . 6 4 What GATT r u l e s can do i s t o s t a t e b a s i c s t a n d a r d s such as t h e non-d i s c r i m i n a t i o n and c o m m e r c i a l c r i t e r i a t o be o b s e r v e d . 6 5 I n a d d i t i o n , t h e r e s u l t - o r i e n t e d a pproach a l s o known as i m p o r t commitment approach i s f l a w e d . A l t h o u g h t h e approach i s d e s i g n e d t o overcome t h e d i f f i c u l t i e s t o w h i c h t h e n o r m a t i v e approach g i v e s r i s e ( i . e . t o make t h e o b l i g a t i o n s c l e a r and c o m p l i a n c e e a s i l y d e t e c t a b l e ) , i t i s g r a v e l y u n s a t i s f a c t o r y f o r t h e r e a s o n s t h a t : (1) commitments u n d e r t a k e r s have no q u a n t i t y a s s u r a n c e t h a t t h e y a r e n o t b e i n g d i s c r i m i n a t e d a g a i n s t ; and (2) i m p o r t r e q u i r e m e n t s can h a r d l y be p r e c i s e l y d e t e r m i n e d i n advance. C o n s e q u e n t l y , a minimum im p o r t commitment can e a s i l y become e i t h e r s u p e r f l u o u s or d i s t o r t i n g . F u r t h e r m o r e , t h e " f a i r s h a r e " approach w h i c h was employed t o d e a l w i t h E a s t e r n b l o c ' s i n t e g r a t i o n problem i s fi7 "more p o l i t i c a l t h a n e c o n o m i c a l i n n a t u r e . " 73 A c c o r d i n g l y , a r e v i s i o n o f t h e GATT r u l e s and approaches i s r e q u i r e d . The r e v i s i o n can be u n d e r t a k e n a l o n g t h e l i n e o f m a t e r i a l i n j u r y approach w h i c h d e a l s w i t h s u b s i d i e s . I t i s o b s e r v e d t h a t : " [ I ] f s t a t e t r a d i n g i s a c c e p t e d as an a l t e r n a t i v e method o f i n t e r v e n t i o n o f s t a t e s i n economic m a t t e r s , i t s t r e a t m e n t s h o u l d r e m a i n b a s i c a l l y c o n s i s t e n t w i t h t h a t g r a n t e d by t h e GATT t o o t h e r methods o f i n t e r v e n t i o n , as used i n t h e case o f s u b s i d i e s . " 6 8 " S u b s i d y " and s t a t e t r a d i n g a r e an a l o g o u s as r e g a r d s b e i n g used as i n s t r u m e n t s o f t r a d e c o n t r o l s . GATT r e c o g n i z e s t h a t t h e y b o t h w i l l be o b s t a c l e s t o t h e e x p a n s i o n of i n t e r n a t i o n a l t r a d e owing t o t h e i r " i n j u r i o u s e f f e c t s " w hich a r e s i m i l a r i n n a t u r e . ^ T h e r e f o r e , a s o l u t i o n a l o n g t h e l i n e s o f t h e " m a t e r i a l i n j u r y " p h i l o s o p h y adopted i n t h e S u b s i d i e s code and a n t i d u m p i n g code would appear " l o g i c a l " . 7 0 GATT i s n e u t r a l as t o t h e ownership o f e n t e r p r i s e s . 7 1 What m a t t e r s a r e t h e modes o f government c o n t r o l o v er e n t e r p r i s e s . GATT r u l e s on s t a t e t r a d i n g a r e d i r e c t e d towards s t a t e - c o n t r o l l e d e n t e r p r i s e s . 7 2 GATT assumes t h a t governments c o n t r o l t h e o p e r a t i o n s o f STEs m a i n l y t h r o u g h " g e n e r a l r u l e s " s u ch as r u l e s on i m p o r t t a r i f f s , QRs and s u b s i d i e s , and t h u s r e g u l a t e p r i m a r i l y t h e use o f such p o l i c y 7 T i n s t r u m e n t s . ^However, GATT r e c o g n i z e s t h a t governments c o n t r o l t r a d e a l s o t h r o u g h " s p e c i f i c measures" made e f f e c t i v e t h r o u g h t h e o p e r a t i o n s o f s t a t e - t r a d i n g e n t e r p r i s e s . 7 4 Thus i t s u b j e c t s t h o s e e n t e r p r i s e s t o s p e c i a l r e q u i r e m e n t s d e s i g n e d t o en s u r e t h a t t h e y a r e n o t used t o c i r c u m v e n t t h e r u l e s on g e n e r a l p o l i c y i n s t r u m e n t s , and t o m i n i m i z e t h e p o t e n t i a l o f 74 such o p e r a t i o n s w h i c h w i l l c r e a t e s e r i o u s o b s t a c l e t o t h e e x p a n s i o n o f i n t e r n a t i o n a l t r a d e . 7 5 3.2 NON-DISCRIMINATORY ADMINISTRATION OF QRS AND NMES 3.2(1) GATT RULES ON QRS Q u a n t i t a t i v e r e s t r i c t i o n s (QRs) n o r m a l l y r e f e r t o r e s t r i c t i n g o r exp a n d i n g f o r e i g n t r a d e by q u a n t i t a t i v e s p e c i f i c a t i o n s . 7 6 They a r e a p p l i e d most f r e q u e n t l y by means o f qu o t a s and l i c e n s e s . 7 7 GATT r e c o g n i z e s t h a t QRs o f t e n c o n s t i t u t e o b s t a c l e s o r b a r r i e r s t o i n t e r n a t i o n a l t r a d e and t h u s e x p l i c i t l y f o r b i d s t h e use o f such t r a d e c o n t r o l s u n l e s s i n s p e c i a l o r e x c e p t i o n a l c i r c u m s t a n c e s as p e r m i t t e d by i t . 7 8 W h i l e q u o t a u n d e r t a k i n g i s an a d m i s s i b l e term o f t r a d e i n s p e c i a l c i r c u m s t a n c e s , i t s h o u l d g e n e r a l l y be non-d i s c r i m i n a t o r y i n n a t u r e towards f o r e i g n s e l l e r s o r e x p o r t e r s . 7 9 P a r a . 2 o f A r t i c l e 13 a p p l i c a b l e t o NMEs r e q u i r e s t h a t : "quotas r e p r e s e n t i n g t h e t o t a l amount o f p e r m i t t e d i m p o r t s (whether a l l o c a t e d among s u p p l y i n g c o u n t r i e s o r not) s h a l l be f i x e d . . . " 8 0 And c o n t r a c t i n g p a r t i e s s h a l l n o t r e q u i r e t h a t : " i m p o r t l i c e n s e s o r p e r m i t s be u t i l i z e d f o r t h e i m p o r t a t i o n o f t h e p r o d u c t c o n c e r n e d from a p a r t i c u l a r c o u n t r y o r s o u r c e . 1 , 8 1 These r e q u i r e m e n t s aim a t d i s m a n t l i n g i m p o r t q uotas o r l i c e n s e s w i t h i n d i v i d u a l o r c o u n t r y - s p e c i f i c n a t u r e . QRs s h o u l d be a d m i n i s t e r e d on n o n d i s c r i m i n a t o r y b a s i s and be a p p l i e d t o a l l GATT members. T h i s o b l i g a t i o n i s a l s o e x t e n d e d t o t h o s e r e s t r i c t i o n s "made e f f e c t i v e t h r o u g h s t a t e t r a d i n g operations."° J Quotas s h o u l d be a l l o c a t e d g l o b a l l y r a t h e r t h a n t o s p e c i f i c c o u n t r i e s o r s e l l e r s . The r e a s o n f o r t h i s r e q u i r e m e n t i s t h a t i n a g e n e r a l way, t h e more s p e c i f i c t h e d i r e c t a l l o c a t i o n ( i . e . t h e more r i g i d l y f i x e d t h e d i r e c t i o n of e x p o r t and s o u r c e o f i m p o r t ) , t h e g r e a t e r t h e danger o f c o u n t r y d i s c r i m i n a t i o n . However, i f s p e c i f i c a l l o c a t i o n of i m p o r t a t i o n o f a p a r t i c u l a r p r o d u c t i s d e s i r e d , t h e c o u n t r i e s e x p o r t i n g t h e p r o d u c t s h o u l d seek an agreement on t h e a l l o c a t i o n o f s h a r e s i n t h e q u o t a . 8 5 Such agreement must t a k e i n t o a c c o u n t c o m m e r c i a l c o n s i d e r a t i o n s s uch as "changes i n t h e terms o f t r a d e , QRs, e x c e s s i v e t a r i f f s and s u b s i d i e s " . 8 6 L i k e w i s e , GATT i n t e n d s c o n t r a c t i n g p a r t i e s n o t t o s p e c i f y c o u n t r i e s o r s o u r c e o f i m p o r t i n t h e i r l i c e n c e s but t o a p p l y g l o b a l l i c e n c e s r a t h e r t h a n i n d i v i d u a l l i c e n c e s . 8 7 I n d i v i d u a l l i c e n c e s a r e p e r m i t t e d o n l y f o r t h e purpose o f h a n d l i n g s p e c i f i c q u o t a s . 8 8 I t i s t h e d u t y o f t h e GATT members m a i n t a i n i n g q u o t a s and l i c e n c e s t o p r o v i d e i n f o r m a t i o n and a l l o w c o n s u l t a t i o n w i t h r e g a r d t o t h i s form o f t r a d e c o n t r o l . ^ Such i n f o r m a t i o n s h o u l d i n d i c a t e t h e a d m i n i s t r a t i o n o f t h e l i c e n s i n g system, p a s t l i c e n c e s i s s u e d and t h e a l l o c a t i o n o f l i c e n c e s . 9 0 I n a d d i t i o n , as c l e a r l y s t a t e d i n an i n t e r p r e t i v e n o t e , r e s t r i c t i o n s "made e f f e c t i v e t h r o u g h s t a t e t r a d i n g o p e r a t i o n " s h o u l d a l s o be g e n e r a l l y e l i m i n a t e d . However, no e x p l i c i t 76 c r i t e r i a o f n o n - d i s c r i m i n a t i o n have been f o r m u l a t e d f o r t h i s qp . , t y p e o f QRs. Moreover, t h e i n f o r m a t i o n r e q u i r e m e n t imposed on u s i n g q u o t a s and l i c e n c e s i s n o t imposed on QRs made e f f e c t i v e t h r o u g h s t a t e t r a d i n g o p e r a t i o n . 9 3 N o n e t h e l e s s , i t i s c l e a r t h a t t h e o r i g i n a l p urpose o f t h e GATT r u l e s i s t o submit t h e QRs implemented t h r o u g h s t a t e t r a d i n g l i n k s t o t h e same g e n e r a l p r i n c i p l e o f n o n - d i s c r i m i n a t i o n a f f e c t i n g o t h e r Q R s . 9 4 3.2(2) ARE NMES COMPATIBLE WITH NON-DISCRIMINATORY USE OF  QRS? I n E a s t e r n b l o c c o u n t r i e s f o r e i g n t r a d e i s s u b j e c t e i t h e r . . . o r t o g l o b a l o r i n d i v i d u a l l i c e n c e s . I n Hungary, t h e m a j o r i t y o f i m p o r t s , b o t h from NMEs and FMEs a r e t r a n s a c t e d under g l o b a l l i c e n c e s w h i c h a r e more c o m m o d i t y - s p e c i f i c r a t h e r t h a n c o u n t r y - s p e c i f i c . 9 6 C o n v e r s e l y , i n P o l a n d and Romania t h e l i c e n s i n g systems a r e based, t o a l a r g e e x t e n t , on i n d i v i d u a l l i c e n c e s w h i c h a r e more c o u n t r y - s p e c i f i c f o r t r a d e w i t h NMEs t h a n f o r t r a d e w i t h FMEs. A l t h o u g h t h e H u n g a r i a n l i c e n s i n g system i s b a s i c a l l y c o m p a t i b l e w i t h t h e GATT r e q u i r e m e n t , Hungary's a c c e s s i o n t o t h e GATT d i d n o t s o l v e t h e d i s c r i m i n a t i o n problem between q u o t a s i s s u e d f o r CMEA c o u n t r i e s and f o r FME c o u n t r i e s . 9 8 A d d i t i o n a l l y , H u n g a r i a n q u o t a s c o n t a i n e d p r o t e c t i v e elements t h a t would draw s p e c i a l a t t e n t i o n t o i t s GATT t r a d i n g p a r t n e r s . I n C h i n a t h e i m p o r t l i c e n s i n g system i s a d m i n i s t e r e d by MOFERT on a g l o b a l b a s i s w i t h o u t q u o t a . 1 0 0 I t i s n o t c o u n t r y -s p e c i f i c b u t c o m m o d i t y - s p e c i f i c . u x A l t h o u g h t h e i m p o r t of some commodities under mandatory p l a n n i n g i s s u b j e c t t o r e s t r i c t i o n s i n t o t a l volume, i t i s n o t a l l o c a t e d among s u p p l y i n g c o u n t r i e s . The government does n o t g r a n t s p e c i a l o r e x c l u s i v e p r i v i l e g e s t o f o r e i g n t r a d e c o r p o r a t i o n s ( s o -c a l l e d STEs) as r e g a r d s t h e i r a p p l i c a t i o n s f o r i m p o r t l i c e n c e s . The government does n o t deny any o t h e r e n t e r p r i s e s t h e r i g h t t o i m p o r t a c e r t a i n p r o d u c t by n o t g r a n t i n g a p p r o v a l t o i m p o r t t h a t p r o d u c t o r t o a c q u i r e t h e n e c e s s a r y l i c e n c e u n l e s s t h e i m p o r t s o f t h e commodities a r e p r o h i b i t e d by S t a t e R e g u l a t i o n s . 1 0 3 The c r i t e r i a f o r i m p o r t r e s t r i c t i o n s i n China a r e based on s u p p l y and demand c o n d i t i o n s , d o m e s t i c p r o d u c t i o n and f o r e i g n exchange e a r n i n g s . 1 0 4 As e x p r e s s e d i n t h e Chi n e s e government " Q u e s t i o n s & R e p l i e s " , " t h e purpose o f t h e im p o r t l i c e n s i n g system i s s i m p l y t o r e g u l a t e , n o t t o p r o h i b i t t h e i n s • • i m p o r t s . " T h e r e f o r e , t h e Ch i n e s e l i c e n s i n g system may w e l l be c o m p a t i b l e w i t h t h e GATT r e q u i r e m e n t s . I n summary, GATT r u l e s on n o n - d i s c r i m i n a t o r y a d m i n i s t r a t i o n o f QRs may w e l l be a p p l i e d t o t h e s t a t e t r a d i n g system f u n c t i o n i n g o n l y t h r o u g h s t a t e t r a d i n g l i n k s such as Hungary, Romania and C h i n a . However, i f t h e GATT i s t o r e g u l a t e t h e command s t a t e t r a d i n g system such as P o l a n d , Romania and t h e S o v i e t U n i o n , d e t a i l e d e x p l i c i t c r i t e r i a o f n o n - d i s c r i m i n a t i o n must be enumerated and i n f o r m a t i o n r e q u i r e m e n t s be a t t a c h e d t o t h o s e c r i t e r i a . 78 3.3. TARIFF PROTECTION V. TARGET PROTECTION The GATT-based m u l t i l a t e r a l t r a d e o r d e r assumes a d i r e c t l i n k between f o r e i g n and d o m e s t i c p r i c e s . Once f o r e i g n goods e n t e r a CP's t e r r i t o r y , t h e CP s h a l l n o t mark up t h e o r i g i n a l p r i c e o f i m p o r t s u n l e s s f o r customs o r e x c i s e t a x r e a s o n s . T h i s promotes f a i r and f r e e c o m p e t i t i o n i n i n t e r n a t i o n a l t r a d e . GATT e x p e c t s i t s members t o c o n t r o l t r a d e i n d i r e c t l y t h r o u g h p r i c e s and t a r i f f s r a t h e r t h a n t h r o u g h d i r e c t t r a d e c o n t r o l i n s t r u m e n t s ( l i c e n s i n g quotas) as d i s c u s s e d e a r l i e r . T a r i f f s i n t h e GATT a r e presumed t o be t h e main economic l e v e r r e g u l a t i n g i m p o r t and e x p o r t and t h e key p r o t e c t i v e element. T h i s i s because by u s i n g t a r i f f s as p r o t e c t i o n p r o t e c t i o n i s t elements a r e e a s i l y i d e n t i f i e d and become more v i s i b l e and l e s s d i s c r i m i n a t o r y i n n a t u r e . 1 0 7 Based on t h i s a s s u m p t i o n , GATT i n i t s A r t i c l e 11(1) r e q u i r e s t h a t p r o t e c t i o n be a f f o r d e d t o d o m e s t i c p r o d u c e r s e x c l u s i v e l y t h r o u g h t h e customs t a r i f f s . u o T h e r e f o r e t h e use o f t a r i f f i n s t r u m e n t i s an i m p o r t a n t a s p e c t o f p a r t i c i p a t i o n i n t h e GATT. And t h e r e c o n c i l i a t i o n and i n t e g r a t i o n o f NMEs i n t o t h e GATT s h o u l d a l s o be f o c u s e d on t a r i f f s . T h i s r e q u i r e m e n t can e a s i l y be f u l f i l l e d under t h e l o o s e s t a t e t r a d i n g system. A t a r i f f - p r o t e c t e d s t a t e t r a d i n g system ( o c c a s i o n a l s t a t e t r a d i n g ) can conform t o GATT s t a n d a r d s and u n d e r t a k e m e a n i n g f u l o b l i g a t i o n s r e g a r d i n g t h e c e i l i n g o f n o m i n a l t a r i f f p r o t e c t i o n and non-d i s c r i m i n a t i o n . N e g o t i a t i o n s on r e c i p r o c a l r e d u c t i o n of p r o t e c t i o n can use t h e "symmetric r e c i p r o c i t y f o r m u l a . " 1 1 0 The f o r m u l a p r o v i d e s e q u i v a l e n t c o n c e s s i o n s made by each p a r t i c i p a n t whose economy i s b a s i c a l l y t a r i f f p r o t e c t e d . However, as f o r p a r t i c i p a t i o n o f command s t a t e t r a d i n g system i n t h e GATT, t h i s f o r m u l a would be l e s s e f f e c t i v e . K o s t e c k i p o i n t e d o u t t h a t : " t h e c e n t r a l r o l e o f t h e customs t a r i f f as an i n s t r u m e n t o f a c o u n t r y ' s p a r t i c i p a t i o n i n t h e GATT may r a i s e some d i f f i c u l t i e s i n a p p l y i n g t h e GATT p r o v i s i o n s t o t h e s t a t e - t r a d i n g s y s t e m s . . . w h i c h r e l i e s on p l a n t a r g e t s " . 1 1 1 T a r i f f s i n such t r a d i n g system may o n l y be used as a supp l e m e n t a r y i n s t r u m e n t o f p r o t e c t i o n t o s u b s i d i e s , QRs and government c o n t r o l o v e r t r a d e , e t c . That i m p l i e s t h a t n e g o t i a t i o n s on. r e c i p r o c a l r e d u c t i o n o f p r o t e c t i o n between t a r i f f - p r o t e c t e d economies and s t a t e t r a d i n g economies m a i n t a i n i n g m u l t i - c o m m o d i t y o r s i n g l e - c o m m o d i t y i m p o r t t a r g e t s would r e q u i r e an "asymmetric r e c i p r o c i t y f o r m u l a " . 1 1 3 S i n c e t h e key i n g r e d i e n t o f t h e GATT r e q u i r e m e n t i s t h a t t a r i f f s be used as t h e o n l y p r o t e c t i v e element i n r e g u l a t i n g i m p o r t and e x p o r t t r a d e , our f o c u s o f e x a m i n a t i o n i s on e v a l u a t i n g what k i n d o f r o l e s t a r i f f s p l a y under above c l a s s i f i e d two t y p e s o f s t a t e t r a d i n g s y s t e m s . 1 1 4 The r o l e t h a t t a r i f f s p l a y d e t e r m i n e s whether t h e r e i s a d i r e c t l i n k between d o m e s t i c p r i c e s and f o r e i g n p r i c e s o f i m p o r t e d goods, and whether t h e r e i s a mark up o f i m p o r t p r i c e s . The element o f whether t h e r e i s a d i r e c t l i n k between d o m e s t i c p r i c e s and f o r e i g n p r i c e s i n t u r n d e t e r m i n e s t h e c o m p a t i b i l i t y o f s t a t e 80 t r a d i n g systems w i t h t h e GATT t a r i f f p r o t e c t e d r e q u i r e m e n t . I f a s t a t e t r a d i n g system i s e s t a b l i s h e d t o e l i m i n a t e o r l i m i t t h e d i r e c t l i n k a g e between d o m e s t i c p r i c e s and f o r e i g n p r i c e s , i t i s i n c o m p a t i b l e w i t h t h e GATT r e q u i r e m e n t . I f , however, a s t a t e t r a d i n g system i s t o m a i n t a i n such l i n k a g e and use t a r i f f s as a main economic l e v e r i n f l u e n c i n g i m p o r t and e x p o r t t r a d e , i t c o m p l i e s w i t h t h e GATT p r o v i s i o n s . 1 1 5 When P o l a n d and Romania acceded t o t h e GATT t h e y were u n a b l e t o e s t a b l i s h such a l i n k . T a r i f f s were n o t a c h i e f i n s t r u m e n t i n f l u e n c i n g l e v e l o f t r a d e . I n s t e a d , v a r i e t y o f p r o t e c t i v e and d i s c r i m i n a t o r y measures were employed t o r e s t r i c t f o r e i g n i m p o r t s . - 1 - 0 Hungary, on t h e o t h e r hand, due t o i t s economic and t r a d e r e f o r m , made e f f o r t s t o remove u n n e c e s s a r y b a r r i e r s t o t r a d e , a i m i n g a t u s i n g t a r i f f s as a main f o r c e t o b a l a n c e i m p o r t s and e x p o r t s . I t s t a r i f f system was g e n e r a l l y conformed w i t h t h e n o n - d i s c r i m i n a t o r y r e q u i r e m e n t s o f t h e GATT though such e x c e p t i o n a l p r a c t i c e s as u s i n g custom q u o t a s , p e r m i t - s l i p p r o c e d u r e and t h e s u s p e n s i o n of t a r i f f r a t e s remained u n s a t i s f a c t o r y t o t h e GATT 117 c o u n t r i e s . X J -I n C h i n a t h e g e n e r a l p o l i c y o f t h e Customs t a r i f f i s t o c a r r y o u t t h e "open door" p o l i c y , t o encourage t h e e x p o r t s , t o promote t h e i m p o r t s o f n e c e s s i t i e s and t o p r o t e c t and improve l i s t h e development o f t h e n a t i o n a l economy. x o I n f l u e n c i n g t h e l e v e l o f t r a d e i s a p r i m a r y p o l i c y o b j e c t i v e w h i l e revenue i s 1 I Q o n l y a s e c o n d a r y c o n s i d e r a t i o n . C u r r e n t l y , t h e r e i s no s e p a r a t e l e g i s l a t i o n i n C h i n a p r o v i d i n g r e l i e f t o d o m e s t i c 81 p r o d u c e r s from i n j u r i o u s i m p o r t s . ^" T h i s s u g g e s t s t h a t C h i n a w i l l g e t i n v o l v e d i n t h e f u t u r e n e g o t i a t i o n s on t a r i f f r e d u c t i o n and c o n c e s s i o n s . C h i n a has e x p r e s s e d i t s v i e w o f t a k i n g i n t o f u l l c o n s i d e r a t i o n t h e a p p r o p r i a t e t a r i f f c o n c e s s i o n as an o b l i g a t i o n f o r re s u m i n g i t s s t a t u s as a c o n t r a c t i n g p a r t y t o GATT on t h e one hand and t h e p r o t e c t i o n • • i p i o f d o m e s t i c i n d u s t r y on t h e o t h e r . F o r t h e pur p o s e s o f customs v a l u a t i o n , t h e c r i t e r i o n adopted i n t h e C h i n e s e r u l e s o f o r i g i n i s " s u b s t a n t i a l t r a n s f o r m a t i o n " . 1 2 2 C h i n e s e Customs a l s o l e v y an " i m p o r t r e g u l a t o r y t a x " on c e r t a i n goods f o r t h e purpose o f p r o t e c t i n g d o m e s t i c 1 ?3 i n d u s t r y . A l t h o u g h i t i s a p p l i e d t o a l l f o r e i g n i m p o r t s , i t a f f o r d s a r e l a t i v e p r e f e r e n c e t o d o m e s t i c goods and t h u s i s i n c o m p a t i b l e w i t h " n a t i o n a l t r e a t m e n t " o f GATT A r t i c l e 3 . 1 2 4 3.4 DOMESTIC PRICE FORMATION: DUMPING OR SUBSIDIES? GATT r e q u i r e s i t s members t o e s t a b l i s h a d i r e c t l i n k between d o m e s t i c and f o r e i g n p r i c e s and n o t t o dump goods by s a l e a t l e s s t h a n f a i r v a l u e (normal v a l u e ) . Domestic p r i c e f o r m a t i o n i s c l o s e l y r e l a t e d t o d u m p i n g . 1 2 5 GATT p r o v i s i o n s may be f u l l y a p p l i c a b l e t o l o o s e s t a t e t r a d i n g economies whose p r i c e f o r m a t i o n conforms w i t h GATT s t a n d a r d s . B u t , GATT r u l e s on dumping may make l i t t l e o r no sense when a p p l i e d t o NMEs m a i n t a i n i n g command s t a t e t r a d i n g . 1 2 6 The GATT does n ot p r o h i b i t d o m e s t i c maximum p r i c e c o n t r o l . The c o r e o f i t s p r o v i s i o n i s t o c a l l f o r t h o s e who a p p l y i n t e r n a l p r i c e c o n t r o l s t o t a k e i n t o a c c o u n t t h e i n t e r e s t s o f e x p o r t i n g 82 c o n t r a c t i n g p a r t i e s w i t h a v i e w t o a v o i d i n g t o t h e f u l l e s t p r a c t i c a b l e e x t e n t any p r e j u d i c i a l e f f e c t s . 1 2 7 I n e s s e n c e , f o r e i g n e x p o r t s s h o u l d be a c c o r d e d " n a t i o n a l t r e a t m e n t " . 1 2 8 A n d d o m e s t i c p r i c e c o n t r o l s h o u l d n o t r e s u l t i n an i n c r e a s e i n p r o t e c t i o n above t h e l e v e l a g r e e d upon by t h e GATT c o u n t r i e s i n t a r i f f s c h e d u l e s . " T h i s s o - c a l l e d " c o n s o l i d a t i o n " p r o v i s i o n a l s o a p p l i e s i n t h e case o f i m p o r t m o n o p o l y . 1 3 0 One c o u l d i m a g i n e t h a t t h e GATT r u l e s on d o m e s t i c p r i c e f o r m a t i o n make sense o n l y i n market economies o r economies m a i n t a i n i n g l o o s e s t a t e t r a d i n g systems i n w h i c h t h e r e i s a d i r e c t l i n k between d o m e s t i c and f o r e i g n p r i c e s . 1 3 1 They have l i t t l e meaning as a p p l i e d t o nonmarket economies m a i n t a i n i n g command s t a t e t r a d i n g where t h e r e i s l i t t l e o r no l i n k between d o m e s t i c and f o r e i g n p r i c e s . I n P o l a n d and Romania, d o m e s t i c p r i c e s were c e n t r a l l y f i x e d by c e n t r a l o r l o c a l a u t h o r i t i e s . The p r i c e s were g e n e r a l l y based on average c o s t s e x c l u d i n g i n t e r e s t . 1 3 3 C o n s i d e r i n g r e s o u r c e a l l o c a t i o n and t h e r e q u i r e m e n t s o f i n t e n s i v e economic growth, t h e s e p r i c e s were n o t r a t i o n a l i n terms o f s u p p l y and d e m a n d . 1 3 4 The a l l o c a t i v e f u n c t i o n o f p r i c e f o r m a t i o n w i t h i n t h e l i m i t s o f t h e o b l i g a t o r y t a r g e t s i n t h e f o r e i g n t r a d e s e c t o r was o f l i t t l e p r a c t i c a l s i g n i f i c a n c e t o GATT due t o t h e m a i n t a i n i n g o f t a r g e t s , i n d i v i d u a l l i c e n s i n g and t h e e x i s t e n c e o f t h e e q u a l i z a t i o n m e c h a n i s m . 1 3 5 There e x i s t e d d u a l i t y o f t h e p r i c e system: on average, consumer p r i c e s were h i g h e r t h a n p r o d u c e r p r i c e s even f o r t h e same o r s i m i l a r p r o d u c t s . 1 3 6 The p r i c e s o f e s s e n t i a l p r o d u c t s 83 were much l o w e r t h a n t h a t o f l i g h t i n d u s t r i a l and l u x u r y i t e m s . P r i c e s o f i m p o r t e d goods were f i x e d t o o h i g h t o be p u r c h a s a b l e by t h e d o m e s t i c c o n s u m e r s . 1 3 7 U n l i k e Romania and P o l a n d , Hungary commenced i t s r e f o r m i n economic and f o r e i g n t r a d e s t r u c t u r e i n 1969 and t h e r e f o r m paved t h e way f o r market r e l a t i o n s h i p s among d o m e s t i c e n t e r p r i s e s and p r i c e s assumed an a l l o c a t i v e f u n c t i o n . 1 3 8 I n Hungary, p r i c e s have been c a t e g o r i z e d i n t o t h r e e : f i x e d p r i c e s ; p r i c e s a d j u s t e d i n c o n f o r m i t y w i t h o f f i c i a l r e g u l a t i o n s ; and f r e e market p r i c e s . 1 3 9 The H u n g a r i a n p r i c e system a s s u r e d a c l o s e t i e between d o m e s t i c and f o r e i g n p r i c e s . 1 4 0 However, t h e a u t o m a t i c l i n k o f d o m e s t i c and w e s t e r n p r i c e s r e m a i n somewhat r e s t r i c t e d by t h e use o f q u o t a s , l i c e n s i n g and t a r g e t s . A d d i t i o n a l l y , c e r t a i n l e v e l o f d i s c r i m i n a t i o n between t h e two p r i c e s s t i l l e x i s t e d . 1 4 1 L i k e i n Hungary, t h r e e d i f f e r e n t p r i c e s p r e s e n t l y c o -e x i s t i n C h i n a as a r e s u l t o f t h e r e f o r m i n p r i c i n g system: s t a t e f i x e d p r i c e , s t a t e g u i d a n c e p r i c e and m a r k e t - r e g u l a t e d •I A p . . . p r i c e . ^ The r e f o r m has shaken t h e p r e v i o u s r i g i d method o f s t a t e f i x i n g i m p o r t and e x p o r t p r i c e . E n t e r p r i s e s per se a r e a l l o w e d t o d e t e r m i n e p r i c e s o f i m p o r t s a c c o r d i n g t o c o n d i t i o n s i n m a r k e t p l a c e . 1 4 3 I n d e t e r m i n i n g t h e d o m e s t i c p r i c e o f an i m p o r t commodity t h e e n t e r p r i s e t a k e s i n t o a c c o u n t t h e c . i . f . v a l u e , i m p o r t d u t y , i n t e r n a l t a x e s , b a n k i n g c h a r g e s , commissions, and t h e e n t e r p r i s e assumes d i r e c t r e s p o n s i b i l i t y f o r a l l t h e p r o f i t s and l o s s e s . 1 4 4 But f o r some key i m p o r t p r o d u c t s such as s t e e l , f e r t i l i z e r s and g r a i n s w h i c h have an 84 i m p o r t a n t b e a r i n g on t h e n a t i o n a l economy, t h e i r d o m e s t i c p r i c e s a r e s e t by t h e S t a t e and t h e S t a t e assumes r e s p o n s i b i l i t y f o r a l l t h e p r o f i t s and l o s s e s t h e r e f r o m . 1 4 5 On t h e o t h e r hand, t h e p r i c e o f an e x p o r t p r o d u c t e x p o r t e d by f o r e i g n t r a d e c o r p o r a t i o n s on a commission b a s i s i s b a s i c a l l y d e t e r m i n e d on t h e b a s i s o f d o m e s t i c c o s t s and i n t e r n a t i o n a l market c o n d i t i o n s . 1 4 6 The p r i c e s o f e x p o r t p r o d u c t s by f o r e i g n t r a d e c o r p o r a t i o n s on t h e i r own o r j o i n t l y w i t h p r o d u c e r s , a r e c a l c u l a t e d by i n c l u d i n g p u r c h a s e d v a l u e o r p r o d u c t i o n c o s t s , t r a n s p o r t a t i o n expenses, s t o r a g e expenses, b a n k i n g c h a r g e s , e x p o r t d u t y (when l e v i e d ) and r e a s o n a b l e p r o f i t m a r g i n e t c . 1 4 7 G e n e r a l l y , C h i n a has made e f f o r t s t o remove u n n e c e s s a r y p r i c e d i s c r i m i n a t i o n between d o m e s t i c and f o r e i g n goods. P r i c e s i n C h i n a a r e r e f l e c t i n g s u p p l y and demand. A l i m i t e d l i n k between d o m e s t i c and f o r e i g n p r i c e s seems t o be e s t a b l i s h e d . To some e x t e n t C h i n a i s a b l e t o f u l f i l l t h e GATT r e q u i r e m e n t s . I n t h e USSR, however, t h e r e i s no d i r e c t l i n k between d o m e s t i c p r i c e s and p r i c e s o f i m p o r t e d g o o d s . 1 4 8 P r i c e s o f i m p o r t s a r e , f o r t h e most p a r t , f i x e d by t h e s t a t e . 1 4 9 The STEs - i n USSR known as " F o r e i g n Trade O r g a n i z a t i o n s " have a v e r y l i m i t e d r o l e i n d e t e r m i n i n g t h e p r i c e s o f t h e i r i m p o r t e d o r e x p o r t e d g o o d s . 1 5 0 T h e i r c h o i c e i n s e l e c t i n g s o u r c e s o f i m p o r t s a r e g u i d e d by p l a n n e d t a r g e t s r e l y i n g h e a v i l y on p o l i t i c a l c o n s i d e r a t i o n s r a t h e r t h a n on p u r e economic d e m a n d . 1 5 1 85 3.4(1) GATT ANTIDUMPING AND COUNTERVAILING DUTY LAW AND  NME As n o t e d e a r l i e r , t h e a s s u m p t i o n o f GATT c o n c e r n i n g p r i c e c o m p e t i t i o n r e q u i r e s t h a t i t s member c o u n t r i e s e s t a b l i s h a d i r e c t l i n k between d o m e s t i c p r i c e s and p r i c e s o f f o r e i g n i m p o r t s , and n o t t o dump goods f o r e x p o r t a t i o n by s a l e a t l e s s t h a n "normal" o r f a i r v a l u e . As a m a t t e r o f f a c t , d o m e s t i c p r i c e f o r m a t i o n o f e x p o r t i n g and i m p o r t i n g p r o d u c t s i s c l o s e l y r e l a t e d t o dumping and s u b s i d y . S a l e s o f e x p o r t e d p r o d u c t s t o a n o t h e r c o u n t r y a t l e s s t h a n "normal v a l u e " c o n s t i t u t e dumping w i t h i n t h e meaning o f GATT A r t i c l e 6 1 5 2 and may cause or t h r e a t e n t o cause m a t e r i a l i n j u r y t o d o m e s t i c i n d u s t r i e s o f t h e i m p o r t i n g c o u n t r i e s . 1 5 3 On t h e o t h e r hand, low p r i c i n g of e x p o r t p r o d u c t s may g i v e s p e c i a l p r e f e r e n c e s t o d o m e s t i c p r o d u c e r s and t h u s c o n s t i t u t e s u b s i d i e s . GATT A r t i c l e 6 (known as "T r a c k I") condemns dumping and a u t h o r i z e s t h e CPs t o impose a n t i d u m p i n g and c o u n t e r v a i l i n g d u t y t o e q u a l i z e c o m p e t i t i v e c o n d i t i o n s t h a t have been d i s t o r t e d by dumped o r s u b s i d i z e d i m p o r t s . 1 5 4 The a u t h o r i z a t i o n i s , however, g i v e n o n l y t o t h o s e CPs whose d o m e s t i c i n d u s t r i e s p r o d u c i n g l i k e goods have s u f f e r e d m a t e r i a l i n j u r y . 1 5 5 Mere i n j u r y i s i n s u f f i c i e n t t o impose a n t i d u m p i n g o r c o u n t e r v a i l i n g d u t y b u t t h e d i s t i n c t i o n between mere i n j u r y and m a t e r i a l i n j u r y has been al w a y s d i f f i c u l t t o d r a w . 1 5 6 S i n c e t h e p r i m a r y o b j e c t i v e o f T r a c k I i s t o s e t o f f t h e i n j u r i o u s e f f e c t s c a u sed by subsidized/dumped i m p o r t s , t h e amount o f a n t i d u m p i n g d u t y o r c o u n t e r v a i l i n g d u t y s h a l l not 86 exceed t h e "dumping m a r g i n " 1 5 7 o r t h e e s t i m a t e d bounty o r s u b s i d y g r a n t e d . 1 5 8 The a l l e g e d dumped o r s u b s i d i z e d i m p o r t s can o n l y be l e v i e d e i t h e r a n t i d u m p i n g d u t y o r c o u n t e r v a i l i n g d u t y . 1 5 9 I n a d d i t i o n t o T r a c k I , GATT A r t i c l e 16 ( r e f e r r e d t o as "Trac k I I " ) p r o h i b i t s e x p o r t s u b s i d y on non-primary p r o d u c t s , 1 6 0 w i t h l e n i e n c y f o r s u b s i d i e s on t h e e x p o r t o f p r i m a r y p r o d u c t s . 1 6 1 A l t h o u g h n o n - e x p o r t s u b s i d i e s a r e exempted from t h i s g e n e r a l p r o h i b i t i o n , t h e s u b s i d i z i n g c o u n t r y s h a l l n o t i f y t h e C o n t r a c t i n g P a r t i e s o f t h e e x t e n t and t h e n a t u r e o f s u b s i d i z a t i o n , o f t h e e s t i m a t e d e f f e c t o f t h e s u b s i d i z a t i o n on t h e q u a n t i t y o f t h e a f f e c t e d p r o d u c t o r p r o d u c t s i m p o r t e d i n t o o r e x p o r t e d from i t s t e r r i t o r y and o f t h e c i r c u m s t a n c e s making t h e s u b s i d i z a t i o n n e c e s s a r y . 1 6 2 W i t h r e s p e c t t o s u b s i d i e s , GATT i s g e n e r a l l y a g a i n s t b o t h p r o d u c t i o n s u b s i d i e s and e x p o r t s u b s i d i e s . A l t h o u g h i t does n o t f o r b i d s u b s i d i e s as such, i t s u b j e c t s t h e i r use t o c e r t a i n l i m i t s and r e q u i r e m e n t s . GATT A r t . 16 imposes on s u b s i d i z i n g CPs t h r e e t y p e s o f o b l i g a t i o n s as f o l l o w s : (1) Any s u b s i d i z i n g CP i s r e q u i r e d t o g i v e CONTRACTING PARTIES n o t i f i c a t i o n on any s u b s i d y w h i c h i n f l u e n c e s t h e l e v e l o f t r a d e ; 1 6 3 (2) A l t h o u g h d e v e l o p i n g c o u n t r i e s may use s u b s i d i e s on t h e e x p o r t o f p r i m a r y p r o d u c t s , t h e y s h a l l n o t a p p l y such s u b s i d i e s i n a manner w h i c h r e s u l t s i n t h a t c o n t r a c t i n g p a r t y h a v i n g more t h a n an e q u i t a b l e s h a r e o f w o r l d e x p o r t t r a d e i n t h a t p r o d u c t ; 1 6 4 87 (3) A t h i r d o b l i g a t i o n — t o c ease e x p o r t s u b s i d i e s on any non - p r i m a r y p r o d u c t s — a p p l i e s t o a s m a l l group o f d e v e l o p e d CPs. No newly a c c e d i n g CPs (under A r t . 33) a r e bound by i t u n l e s s t h e y s i g n t h e r e l e v a n t d e c l a r a t i o n . 1 6 5 3.4(2) PROBLEM OF DUMPING AND SUBSIDIES WITH NMES A l t h o u g h GATT does n o t p r o h i b i t s u b s i d i e s , members a r e p e r m i t t e d t o use c o u n t e r v a i l i n g d u t y a g a i n s t s u b s i d i z e d p r o d u c t s i f t h e y cause m a t e r i a l i n j u r y t o a member's d o m e s t i c i n d u s t r y . As f a r as t h e s t a t e t r a d i n g systems a r e co n c e r n e d , s u b s i d y i s c o n s i d e r e d by GATT c o u n t r i e s t o be an e f f e c t i v e i n s t r u m e n t o f t r a d e c o n t r o l , a means o f i n c r e a s i n g e x p o r t s . 1 6 7 Under t a r g e t - p r o t e c t e d economies, s u b s i d y i s n e a r l y i n d i s t i n g u i s h a b l e from e q u a l i z a t i o n payment (which i s an i m p o r t s u b s i d y under a p l a n t a r g e t b u t n o t i n t h e GATT 1 /TO s e n s e ) . Under one-commodity t a r g e t , t h e l e v e l o f e x p o r t s i s d e t e r m i n e d d i r e c t l y and t h e e v e n t u a l n e g a t i v e t a x p a i d t o t h e f o r e i g n t r a d e u n i t i s t h e r e s u l t o f a g i v e n e x p o r t p e r f o r m a n c e . But under m u l t i - c o m m o d i t y t a r g e t , s u b s i d i e s c o u l d be u sed t o i n f l u e n c e t h e l e v e l o f t r a d e w i t h i n t h e t a r g e t framework and t h e o p e r a t i o n o f p l a n t a r g e t s may r e q u i r e an •I CQ e q u a l i z a t i o n system. ^ I t would be c r u c i a l t o have an i n f o r m a t i o n network t o d e t e r m i n e whether o r n o t t h e r e i s a s u b s i d y . 1 7 0 88 The GATT r u l e s a g a i n s t dumping and s u b s i d i e s have been implemented by an A n t i d u m p i n g Code and S u b s i d i e s Code which a r e s i g n e d by most o f t h e p a r t i c i p a t i n g c o u n t r i e s a t t h e Tokyo Round n e g o t i a t i o n s on t a r i f f s and t r a d e ( r e f e r r e d t o as MTN Codes). I n t h e two Codes g u i d e l i n e s have been g i v e n as t o how t o i n t e r p r e t t h e c o n f u s i n g c o n c e p t o f dumping, s u b s i d i z a t i o n , " d o m e s t i c i n d u s t r y " , and g e n e r a l c r i t e r i a t o de t e r m i n e " m a t e r i a l i n j u r y " . R e g r e t t a b l y , t h e two Codes o n l y a c c o r d s i g n a t o r i e s a g e n e r a l framework. Much o f t h e i n t e r p r e t i v e work rem a i n s a t each s i g n a t o r y ' s d i s c r e t i o n . . The p h i l o s o p h y u n d e r l y i n g t h e GATT r u l e s a g a i n s t dumping and s u b s i d i e s i s f r e e market p r i n c i p l e s w h i c h promote maximum market e f f i c i e n c y a c h i e v e d when f r e e t r a d e a l l o w s each c o u n t r y t o s p e c i a l i z e by e x p o r t i n g t h o s e goods i t can produce most e f f i c i e n t l y and i m p o r t i n g t h o s e goods t h a t i t can produce o n l y a t a h i g h e r c o s t . 1 7 1 The f o r e m o s t o b j e c t i v e o f GATT a n t i d u m p i n g and c o u n t e r v a i l i n g d u t y r u l e s i s t o i n c r e a s e c o m p e t i t i o n by remedying i n j u r i o u s e f f e c t s r e s u l t i n g from t w i s t e d u n f a i r p r i c i n g o r t r a d e p r a c t i c e s . 1 7 2 The o v e r r i d i n g approach o f GATT i s t o d e f i n e whether o r n o t t h e a l l e g e d i m p o r t s a r e c a u s i n g o r have caused m a t e r i a l i n j u r y t o t h e d o m e s t i c p r o d u c e r s o f l i k e p r o d u c t s . 1 7 3 I n d o i n g so a c a u s a l l i n k between m a t e r i a l i n j u r y and du m p e d / s u b s i d i z e d i m p o r t s must be f i r m l y e s t a b l i s h e d . And c u m u l a t i o n o f i m p o r t s as a cause o f i n j u r y e s p e c i a l l y i n i n v o k i n g - "escape c l a u s e " under A r t i c l e 19 i n t h e c i r c u m s t a n c e s o f i n c r e a s e d i m p o r t s may be a p p r o p r i a t e l y a s s e s s e d . 1 7 4 89 The GATT r u l e s a g a i n s t dumping / s u b s i d i e s i n c o r p o r a t e d i n t o t h e two Codes a r e f u r t h e r implemented by t h e Codes' s i g n a t o r i e s as f o r e m o s t components o f t h e i r d o m e s t i c u n f a i r t r a d e r e l i e f laws and measures a t t e m p t i n g t o e q u a l i z e c o m p e t i t i v e c o n d i t i o n s b e f o r e d i s t o r t e d by dumped o r s u b s i d i z e d i m p o r t s . 1 7 5 The above d e s c r i b e d GATT r u l e s a g a i n s t dumping/export s u b s i d i e s may be w e l l a p p l i e d t o l o o s e s t a t e t r a d i n g economies whose p r i c e f o r m a t i o n conforms w i t h t h e GATT s t a n d a r d s . 1 7 6 But s t i l l t h e GATT r u l e s when a p p l i e d t o NMEs m a i n t a i n i n g command s t a t e t r a d i n g may make l i t t l e o r no s e n s e . 1 7 7 The r e a s o n i s t h a t t h e s e r u l e s a r e f o r m u l a t e d a l o n g t h e l i n e o f f r e e m a r k e t p r i n c i p l e s . The major d i f f i c u l t y f o r GATT t r a d i n g c o u n t r i e s i n a p p l y i n g t h e GATT r u l e s t o NMEs c e n t e r s on whether t h e f r e e market p r i n c i p l e s can be t r a n s l a t e d and a p p l i e d t o NMEs. I n any e v e n t , t h e GATT r u l e s per se does n o t exempt t h e a p p l i c a t i o n t o NMEs as l o n g as NME c o u n t r i e s r e m a i n w i t h t h e GATT o r g a n i z a t i o n . The p r i n c i p a l d i f f i c u l t y l i e s i n d e t e r m i n i n g t h e "normal v a l u e " o f NME i m p o r t s , and a c c u r a t e l y i d e n t i f y i n g and q u a n t i f y i n g s u b s i d i e s i n t h e absence of market-based p r i c e s , c o s t s , and exchange r a t e s . 1 7 8 I n a FME p r i c e s and r e s o u r c e - a l l o c a t i o n a r e d e t e r m i n e d by t h e n a t u r a l f o r c e s o f s u p p l y and demand and s c a r c i t y o f commodit i e s . 1 7 9 i n t h e absence o f government i n t e r v e n t i o n , t h e s e f o r c e s i n t e r a c t t o a l l o c a t e r e s o u r c e s e f f i c i e n t l y t o t h e i r most v a l u a b l e u s e s . 0 0 But i n a NME p r o f i t s , p r i c e s and r e s o u r c e - a l l o c a t i o n a r e c o n t r o l l e d by t h e s t a t e and do n o t r e f l e c t t h e f o r c e s o f 90 • • 1 R1 • s u p p l y and demand o r a l l o c a t i v e e f f i c i e n c y . o x The p r i c e o f a commodity i s b u t one o f t h e p o l i c y t o o l s used by t h e government t o promote i t s s o c i a l , p o l i t i c a l and economic o b j e c t i v e s . P r i c e s used t o d e t e r m i n e p r o f i t s need not r e f l e c t t h e a c t u a l c o s t s o f p r o d u c t i o n because t h e g o a l o f m i c r o - e c o n o m ic e f f i c i e n c y g e n e r a l l y does n o t e x i s t i n a NME. F u r t h e r m o r e , i n most NME c o u n t r i e s t h e r e i s no r e l i a b l e exchange r a t e by w h i c h t o c o n v e r t t h e NME c u r r e n c y i n t o d o l l a r s . 1 8 4 Accommodations have been made as t o how t o d e t e r m i n e t h e normal v a l u e o f NME i m p o r t s so as t o c a l c u l a t e t h e dumping mar g i n . T h i s has been done t h r o u g h t h e use o f c o n s t r u c t e d v a l u e o f a t h i r d market c o u n t r y approach o r s o - c a l l e d " s u r r o g a t e c o u n t r y " a p p r o a c h . 1 8 5 I n t h e U.S. Congress made e f f o r t s t o b r i d g e t h e gap between FME and NMEs t h r o u g h s o -c a l l e d " s u r r o g a t e c o u n t r y " approach t o d e t e r m i n e t h e normal v a l u e o f NME i m p o r t s and r e n d e r e d t h e a n t i d u m p i n g laws a p p l i c a b l e t o N M E s . 1 8 6 However, t h e p r oblem o f i d e n t i f y i n g and q u a n t i f y i n g t h e s u b s i d i e s a l l e g e d a g a i n s t NME has been u n r e s o l v e d . 1 8 7 T h i s dilemma has been e n c o u n t e r e d by t h e U.S. Department of 1 Rfl Commerce. 0 0 S i n c e U.S. i s one o f t h e most i m p o r t a n t s i g n a t o r i e s t o t h e Codes, i t i s h e l p f u l t o use U.S. t r a d e laws and approaches i n t h i s a r e a as an example o f how t h e GATT r u l e s have been i n t e r p r e t e d . I n t h e U.S. t h e t r a d i t i o n a l v i e w o f Commerce c o n c e r n i n g t h e a p p l i c a t i o n o f U.S. c o u n t e r v a i l i n g d u t y laws (CVD laws) t o 91 NMEs i s n e g a t i v e . The Commerce's v i e w was f i r s t a d d r e s s e d i n t h e c a s e f i l e d by a group o f U.S. t e x t i l e m a n u f a c t u r e r s and u n i o n s a g a i n s t i m p o r t s from NME C h i n a a l l e g i n g t h a t C h i n a ' s p o l i c y o f g r a n t i n g a p r e f e r r e d monetary exchange and o t h e r b e n e f i t s t o t h e p r o d u c e r s o f e x p o r t e d goods c o n s t i t u t e d a c o u n t e r v a i l a b l e s u b s i d y . The p o s i t i o n i s more c l e a r l y d i s c l o s e d i n a c a s e c o n c e r n i n g Carbon S t e e l Wire Rod from P o l a n d and C z e c h o s l o v a k i a 1 9 0 i n w h i c h Commerce Department contended t h a t a NME " [ b y ] market s t a n d a r d s . . . i s r i d d l e d w i t h d i s t o r t i o n s " , ^ where t h e s t a t e and t h e p r o d u c e r s a r e v i r t u a l l y t h e same and an a l l e g e d a c t o f s u b s i d i z a t i o n i s c o n c e p t u a l l y i n s e p a r a b l e from t h e s t a t e ' s normal r o l e o f • 1 Q 9 . a l l o c a t i n g r e s o u r c e s . These d i s t o r t i o n s make t h e t a s k of i d e n t i f y i n g and q u a n t i f y i n g s u b s i d i e s i n NMEs h o p e l e s s . The c o n t e n t i o n r e c e i v e d s u p p o r t from t h e C o u r t o f A p p e a l s f o r t h e F e d e r a l C i r c u i t i n a landmark case - o f Georgetown S t e e l Corp.  v. U n i t e d S t a t e s . 1 9 3 The c o u r t h e l d t h a t a c o u n t e r v a i l a b l e s u b s i d y c a nnot be found i n a N M E 1 9 4 a n d t h a t s u b s i d i z a t i o n i s m e r e l y a market phenomenon t h a t by i t s v e r y d e f i n i t i o n cannot e x i s t i n a non-market e c o n o m y . 1 9 5 However, i n 1987, s e v e r a l b i l l s were i n t r o d u c e d i n t h e House and Senate t o i n v a l i d a t e t h e v e r d i c t o f Georgetown S t e e l and a p p l y t h e CVD laws a g a i n s t NME c o u n t r i e s . 1 9 6 Of t h e s e b i l l s one o f t h e most s u c c e s s f u l i s S e c t i o n 157 o f 1987 Trade B i l l , w h i c h s u g g e s t s t h e use o f " s u r r o g a t e " approach t o c i r c u m v e n t t h e i m p l e m e n t a t i o n p r oblem o f i d e n t i f y i n g and 92 q u a n t i f y i n g s u b s i d i e s i n t h e absence o f market-based p r i c e s , c o s t s , and exchange r a t e s . 1 9 7 However, as economic a n a l y s i s shows t h a t dumping and s u b s i d i e s i n NMEs a r e v i r t u a l l y i n d i s t i n g u i s h a b l e , a p p l y i n g b o t h laws t o NMEs would appear m e a n i n g l e s s . 1 9 9 Now t h a t antidumpinmg d u t y laws have a l r e a d y been a p p l i e d t o t h e NMEs, CVD laws a r e u n n e c e s s a r y t o be a p p l i e d i n t h i s c o n t e x t . E f f o r t s t o a p p l y CVD laws t o NMEs a r e m i s g u i d e d and s h o u l d be a b a n d o n e d . 2 0 0 I t i s o f t e n c l a i m e d i n Western c o u n t r i e s t h a t NMEs t e n d t o dump t h e i r goods on Western m a r k e t s . T h i s i s because t h e i r STEs a r e based on d i s c r i m i n a t o r y monopoly power w i t h o u t c o m p e t i t o r s . The p r i c e s t h e y d e t e r m i n e do n o t r e f l e c t t h e market f o r c e s o f s u p p l y and demand. R a t h e r t h e y a r e implemented i n s t r u m e n t s o f government p o l i c y r e s u l t i n g i n l o n g t e r m d u m p i n g . 2 0 1 Moreover, NMEs' f o r e i g n t r a d e o f t e n l a c k s f l e x i b i l i t y i n t h e c o n t e x t o f c h a n g i n g p r i c e s and d o m e s t i c p r o d u c t i o n c o s t w h i c h i n t u r n i n c r e a s e s t h e r i s k o f s h o r t - t e r m dumping on Western m a r k e t s . 2 0 2 I n P o l a n d and Romania, b u d g e t a r y payments f o r f o r e i g n t r a d e e n t e r p r i s e s were o f d u a l n a t u r e : t h e y r e s u l t e d from a d i r e c t a l l o c a t i o n o f t r a d e t h r o u g h p l a n t a r g e t s under g i v e n p r i c e s . They a l s o i n f l u e n c e d t h e l e v e l o f e x p o r t s on c e r t a i n p r o d u c t s w i t h i n t h e framework o f m u l t i - c o m m o d i t y t a r g e t s -somewhat r e s e m b l i n g a s u b s i d y i n t h e GATT sense. u I f s u b s i d i e s were a p p l i e d i n t h e H u n g a r i a n system o f t r a d e c o n t r o l f o r e x p o r t s t o t h e market e c o n o m i e s . 2 0 4 However, a t 93 t h e t i m e o f Hungary's a c c e s s i o n t o t h e GATT, t h e y were b e i n g p a i d on a s e c t o r b a s i s r a t h e r t h a n on a p r o d u c t b a s i s and were made p u b l i c by t h e H u n g a r i a n a u t h o r i t i e s . 2 0 5 T h i s e l i m i n a t e d somewhat p r o b l e m a t i c i s s u e o f c o u n t e r v a i l a b l e s u b s i d i e s . I n Hungary, s u b s i d i e s were c o n s i d e r e d as t e m p o r a r y measures adopted t o s a f e g u a r d t h e b a l a n c e o f payments a f t e r t h e i n t r o d u c t i o n o f "new economic mechanism" and t o p e r m i t some e n t e r p r i s e s t o s h i f t p r o g r e s s i v e l y from t h e i r u n p r o f i t a b l e p r o d u c t - m i x t o more p r o f i t a b l e p r o d u c t i o n . 2 0 6 The purpose of s u b s i d i z a t i o n was t o e l i m i n a t e t h e d i f f e r e n c e between t h e d o m e s t i c and f o r e i g n p r i c e s when compared a t t h e commercial p r»7 exchange r a t e . As f a r as C h i n a ' s p r o d u c t i o n and e x p o r t system i s c o n c e r n e d , s u b s i d i e s a r e an e s s e n t i a l i n s t r u m e n t o r means t o d e v e l o p i t s economy and expand i t s e x p o r t s i n t h e w o r l d market owing t o i t s low-income e c o n o m y . 2 0 8 P r o d u c t i o n s u b s i d i e s a r e g r a n t e d t o " i n f a n t i n d u s t r y " o r e x p o r t i n d u s t r i e s . 2 0 9 E x p o r t s u b s i d i e s a r e t o i n c r e a s e t h e c a p a c i t y o f e x p o r t i n g p i o • p r o d u c t s . T h i s i s backed by a c u r r e n t p o l i c y t o promote e x p o r t and e a r n f o r e i g n h a r d c u r r e n c y . 2 1 1 S i n c e GATT has s p e c i a l arrangements f o r d e v e l o p i n g c o u n t r i e s ' e x p o r t s u b s i d i e s on p r i m a r y p r o d u c t s , and C h i n a i s c o n s i d e r e d a low-income d e v e l o p i n g c o u n t r y and i t s e x p o r t s u b s i d i z a t i o n i s m a i n l y l i m i t e d t o p r i m a r y p r o d u c t s , t h u s C h i n a w i l l be a b l e t o c a r r y out t h e r e l e v a n t GATT p r o v i s i o n s . 94 3.5 CONCLUSIONS F u n d a m e n t a l l y , t h e GATT i s based on market-economy view o f w o r l d t r a d e where s t a t e a u t h o r i t i e s w h i c h c o l l e c t d u t i e s , f i x s t a n d a r d s and so on, a r e c l e a r l y d i s t i n c t from t h e t r a d e r s t h e m s e l v e s . The GATT i n i t s A r t i c l e 17 r e c o g n i z e s s t a t e t r a d i n g as a p e r m i s s i b l e form o f t r a d i n g a l t h o u g h i t was o r i g i n a l l y c o n c e r n e d o n l y w i t h o c c a s i o n a l s t a t e t r a d i n g as p r a c t i s e d i n t h e e s s e n t i a l l y p r i v a t e - e n t e r p r i s e system. The GATT approach t o s t a t e t r a d i n g i s c e r t a i n l y a c c e p t a b l e f o r t h e l o o s e s t a t e t r a d i n g system where t h e c h a r a c t e r o f t h e s t a t e t r a d i n g l i n k i s l i m i t e d e i t h e r t o s t a t e o w n e r s h i p o f a t r a d i n g e n t e r p r i s e o r t h e g r a n t i n g o f p r i v i l e g e s w h i c h may g i v e t h e t r a d e r a m o n o p o l i s t i c p o s i t i o n on t h e d o m e s t i c market. Among s t a t e - t r a d i n g systems i n Hungary, P o l a n d , Romania, C h i n a and t h e S o v i e t U n i o n , t h e H u n g a r i a n and C h i n e s e systems c o u l d be c l a s s i f i e d as l o o s e s t a t e t r a d i n g systems w h i l e t h e P o l i s h , Romanian and t h e S o v i e t s t a t e t r a d i n g r e g i m e s have t h e c h a r a c t e r i s t i c s o f t h e command systems. D i f f i c u l t i e s i n t h e a p p l i c a t i o n o f t h e GATT r u l e s c o u l d a r i s e i n t h e c a s e o f command s t a t e t r a d i n g s ystems, where i t i s p o s s i b l e t o implement p r o t e c t i o n i s t and d i s c r i m i n a t o r y p o l i c i e s t h r o u g h t h e s t a t e t r a d i n g l i n k ( b a s i c a l l y p l a n t a r g e t s ) w i t h o u t r e c o u r s e t o t h e t r a d e c o n t r o l i n s t r u m e n t s w h i c h a r e s u b j e c t t o GATT r e g u l a t i o n s . T h i s l e a d s one t o c o n c l u d e t h a t i f t h e command s t a t e t r a d i n g systems a r e t o be a d m i t t e d t o t h e GATT, new r u l e s would have t o be added t o t h e 95 GATT code o f co n d u c t . O t h e r w i s e command s t a t e t r a d i n g economies have t o be d e c e n t r a l i z e d t o t h e e x t e n t t o be c o m p a t i b l e w i t h t h e GATT r e q u i r e m e n t s . 1 2 3 5 6 7 8 9 10 11 FOOTNOTES GATT, A r t i c l e 1 7 : 1 ( a ) . GATT A r t i c l e 1 7 : 1 ( b ) . GATT Basic Instruments and supplementary Documents ( h e r e i n a f t e r "BISD"), 9 t h Supp. 1961, p. 183. T h i s i d e a u n d e r l i e s p r o v i s i o n s o f A r t i c l e 1 7 ( 4 ) ( b ) o f GATT. Fo r a d e t a i l e d d i s c u s s i o n see K o s t e c k i , East-West Trade and the GATT System (1979), p. 45. GATT A r t . 17 ( 1 ) ( a ) . B e r n i e r , " S t a t e T r a d i n g and t h e GATT" i n STATE TRADING IN INTERNATIONAL MARKETS ( K o s t e c k i ed. 1982), a t 2 48; see also GATT A r t i c l e 17 ( 3 ) . GATT, A r t . 2 ( 4 ) . Kenneth W. Dam, The GATT: Law and International Economic Organization ( C h i c a g o , London: The U n i v e r s i t y o f Chicago P r e s s , 1970), p. 323 GATT, I n t e r p r e t i v e n o t e , Ad A r t i c l e 2, p a r a . 4 . Note t h a t A r t i c l e 17, p a r a . 3 o n l y s t a t e s t h a t n e g o t i a t i o n s d e s i g n e d t o l i m i t o r reduce o b s t a c l e s t o t r a d e c r e a t e d by t h e o p e r a t i o n o f STEs " a r e o f i m p o r t a n c e t o t h e e x p a n s i o n o f i n t e r n a t i o n a l t r a d e " . Ibid., A r t . 17:3. Dam, supra n o t e 8, a t 324. 1 2 GATT A r t i c l e 17: ( 1 ) . 1 3 F o r a more d e t a i l e d d i s c u s s i o n o f t h e c o n c e p t o f STEs, see J a c k s o n , World Trade and the Law of the GATT (N.Y.: B o b b s - M e r i l l , 1969), pp. 339-45. 96 14 15 16 17 18 19 20 21 22 23 24 25 26 B e r n i e r , supra n o t e 6, pp. 245-260; K o s t e c k i , supra note 4, p. 44; L l o y d , " S t a t e T r a d i n g and I n t e r n a t i o n a l Trade Theory", i n State Trading in International Markets ( K o s t e c k i , ed. 1982), pp. 120-29; H a r r i e t M a t e j k a , "Trade P o l i c y I n s t r u m e n t s , S t a t e T r a d i n g and F i r s t - B e s t I n t e r v e n t i o n " , pp. 142-160, i n State Trading in International Markets ( K o s t e c k i ed. 1982). See GATT A r t i c l e 17:(1) w h i c h r e f e r s STEs t o t h r e e t y p e s o f e n t e r p r i s e s : (1) s t a t e e n t e r p r i s e s ; (2) e n t e r p r i s e s t h a t have been g r a n t e d a " s p e c i a l p r i v i l e g e " ; and (3) e n t e r p r i s e s t h a t have been g r a n t e d an e x c l u s i v e p r i v i l e g e " . See a l s o F r i e d e r R o e s s l e r , " S t a t e T r a d i n g and Trade L i b e r a l i z a t i o n " i n State Trading in International Markets ( K o s t e c k i ed. 1982), pp. 262-67. K o s t e c k i , supra n o t e 4, p. 9. W i t h r e s p e c t t o t h e m a l i c i o u s c h a r a c t e r s o f s t a t e t r a d i n g , see K o s t e c k i , i b i d . , pp. 43-46, 65-70. See L l o y d , supra n o t e 14, pp. 118-20. Those r u l e s a r e : (a) maximize a g g r e g a t e p r o f i t s ; (b) f i x a p r o f i t m a r g i n p e r u n i t o f s a l e s ; (c) z e r o p r o f i t s ; (d) a f i x e d p r i c e ; (e) maximize g a i n s from t r a d e , (see L l o y d , i b i d , p. 121). Ibid, pp. 121-31. Ibid, 131. t h e second p r o p o s i t i o n o f L l o y d i s : " f o r a g i v e n market s e g m e n t a t i o n , t h e i n s t r u m e n t o f a d i s c r i m i n a t i n g s t a t e t r a d e r and a s e t o f ad v a l o r e m t a x e s - s u b s i d i e s l e v i e d on c o m p e t i t i v e p r i v a t e t r a d i n g a r e e q u i v a l e n t . " Ibid, pp 132-34. Ibid., p. 134. N o n e t h e l e s s , t h e y may r e m a i n " q u a s i -e q u i v a l e n t " . S t a t e s s t i l l have a c h o i c e between t h o s e i n s t r u m e n t s t o a c h i e v e a s i n g l e o b j e c t i v e , though t h e c h o i c e i s n o t a c o m b i n a t i o n o f t h e two b u t e i t h e r s t a t e t r a d i n g o r t a r i f f s o r o t h e r measures. GATT, I n t e r p r e t i v e n o t e t o A r t i c l e s 11, 12, 13, 14 and 18. I n NMEs, t h e volume o f t h e i m p o r t s i s u s u a l l y d e t e r m i n e d n o t by t h e mar g i n between i m p o r t p r i c e s and i n t e r n a l p r i c e s , b u t r a t h e r t h a n by t h e p l a n . Dam, supra note 8, p. 326. Dam, supra n o t e 8, a t pp. 326-27. 97 27 28 29 30 31 32 33 34 35 36 37 38 Suggested C h a r t e r f o r t h e ITO o f t h e U n i t e d N a t i o n s , Dept. o f S t a t e Pub. 2598, i n Commercial S e r i e s 93 (1946). See Dam, supra n o t e 8, p. 316. Ibid. p. 317. B e r n i e r , supra n o t e 6, a t 250. Dam, supra n o t e 8, pp. 317-8. The n o n d i s c r i m i n a t i o n i n A r t . 17 s h o u l d be u n d e r s t o o d a l o n g w i t h t h e "commercial c r i t e r i a " e s s e n t i a l i n p u r c h a s e s o r s a l e s a p p l i c a b l e t o NME system. As p a r a . 1(b) r e q u i r e s , " p u r c h a s e s and s a l e s i n v o l v i n g e i t h e r i m p o r t s o r e x p o r t s " a r e t o be made " s o l e l y i n accordance w i t h c o m m e r c i a l c o n s i d e r a t i o n s , i n c l u d i n g p r i c e , q u a l i t y , a v a i l a b i l i t y , m a r k e t a b i l i t y , t r a n s p o r t a t i o n and o t h e r c o n d i t i o n s o f p u r c h a s e o r s a l e and s h a l l a f f o r d o t h e r c o n t r a c t i n g p a r t i e s adequate o p p o r t u n i t y i n acco r d a n c e w i t h customary b u s i n e s s p r a c t i c e , t o compete f o r p a r t i c i p a t i o n i n such p u r c h a s e s o r s a l e s . " See GATT, A r t i c l e 1 7 ( 1 ) ( b ) . GATT Annex I , Ad A r t i c l e 17 uses n e g a t i v e method t o d e f i n e " e x c l u s i v e o r s p e c i a l p r i v i l e g e s " . "Governmental measures imposed t o ens u r e s t a n d a r d s o f q u a l i t y and e f f i c i e n c y i n t h e o p e r a t i o n o f e x t e r n a l t r a d e , o r p r i v i l e g e s g r a n t e d f o r t h e e x p l o i t a t i o n o f n a t i o n a l n a t u r a l r e s o u r c e s but wh i c h do n o t empower t h e government t o e x e r c i s e c o n t r o l o v e r t h e t r a d i n g a c t i v i t i e s o f t h e e n t e r p r i s e i n q u e s t i o n , do n o t c o n s t i t u t e x e x c l u s i v e o r s p e c i a l p r i v i l e g e s " . ( P a r a . 1(a) o f Ad A r t i c l e 1 7 ) . L l o y d , supra n o t e 14, p. 129. Id. p. 129. Id. K o s t e c k i , supra n o t e 4, pp. 4 6-47. Id. 39 Id. 98 40 41 42 43 44 45 46 47 48 49 50 51 See v a r i e t y o f a r t i c l e s and comments on t h e r e f o r m i n PRC, namely, F a l k e n h e i m , "China Trade Reforms: Domestic D e t e r m i n a n t s and I n t e r n a t i o n a l I m p l i c a t i o n s " , i n EMERGING PACIFIC COMMUNITY 131, 136 (R. Dowwnen and B. D i c k s o n eds. 1984); Friedman, " E n t e r p r i s e Reform: The Three L i ' s " , CHINA BUSINESS REV., Mar. - A p r i . 1985, a t 24, 26; P r y b y l a , "The C h i n e s e Economy", 25 Asian Surv. 538, 558 (1985) ; Xu Y i , "The P l a n n e d Economy and t h e Economic System", CAIZHENG YAN JIU, J a n . 31, 1984 a t 21. t r a n s l a t e d i n JPRS-CEA Doc. No. 84,038, MAy, 1984, a t 50. (However t h e r e f o r m o n - g o i n g , C h i n a must r e s t r i c t economic s p o n t a n e i t y and m a i n t a i n a p l a n n e d economy t o e n s u r e t h a t i t s economic a c t i v i t i e s conforms t o t h e " o b j e c t i v e law o f s o c i a l i s t economy", 25 ASIAN SURV., 998 (1985) . See GATT Doc. L/6270 (Nov. 27, 1987) t h e Working P a r t y on C h i n a ' s S t a t u s as a C o n t r a c t i n g P a r t y - Q u e s t i o n s and R e p l i e s C o n c e r n i n g t h e Memorandum on C h i n a ' s F o r e i g n Trade Regime ( h e r e i n a f t e r "QUESTIONS & REPLIES"), p. 84. QUESTIONS & REPLIES, id. "A mandatory p l a n i s an o r d e r w i t h a l e g a l compulsory n a t u r e imposed by t h e S t a t e and must be f u l f i l l e d , " and an amendment o r a d j u s t m e n t must be s u b j e c t t o t h e a p p r o v a l by t h e competent departments w h i c h made such p l a n s ; whereas "a g u i d a n c e p l a n has no b i n d i n g f o r c e , and i t s f u n c t i o n l a r g e l y depends on economic l e v e r s , " and t h e g u i d i n g p r i n c i p l e f o r p l a n n i n g c o o r d i n a t i o n i s : a p p r o p r i a t e a d m i n i s t r a t i o n a t macro l e v e l , i n c r e a s i n g v i t a l i t y a t m i c r o l e v e l and f u l l use o f t h e market mechanisms o f s u p p l y and demand. Id. Id. Id. R e g a r d i n g t h e main r e s p o n s i b i l i t i e s o f MOFERT, see QUESTIONS & REPLIES, id. p. 81. Id. p. 81. GATT, Doc. m a t e r i a l s s u b m i t t e d t o t h e GATT w o r k i n g p a r t y ( u n p u b l i s h e d ) . K. Kennedy, "The A c c e s s i o n o f t h e S o v i e t U n i o n t o GATT" (1987) 21 J.W.T.L. 23, a t 33-35; Note, " S o v i e t * P a r t i c i p a t i o n ' i n GATT: A Case f o r A c c e s s i o n " , 2 0 N.Y.U.J. I n t ' l L. & Pol. 477, ( W i n t e r 1987), a t 479. Kennedy, i b i d . , pp.34-35. Id. 99 52 Ibid., p. 35. B i a l e r & A f f e r i c a , "The G e n e s i s o f Gorbachev's W o r l d " , 64 FOREIGN AFFAIRS 604 (1986). 53 Ibid. p. 49. 54 Ibid. p. 50. 55 Ibid. p. 51. 56 Id. 57 B e r n i e r , supra n o t e 6, p. 245. 58 Dam, supra n o t e 8, p. 321. 59 Ibid., a t 245, 257. 60 B e r n i e r , supra n o t e 6, p. 246; 61 62 63 64 65 66 67 68 69 70 71 w i t h A r t . 2(4) and an i n t e r p r e t i v e n o t e t o A r t i c l e s 11-14, 18. B e r n i e r , supra note 6, p. 275. See L l o y d , supra n o t e 14, pp. 134-37. ( " I n v i s i b i l i t y " and " f l e x i b i l i t y " a r e n o t advantages from an economic p e r s p e c t i v e ; t h e y i n s t e a d i n c r e a s e t h e p o s s i b i l i t i e s o f h a r m f u l i n t e r v e n t i o n s as w e l l as t h o s e o f b e n e f i c i a l i n t e r v e n t i o n s . The outcome o f t h e c h o i c e s o f i n v i s i b l e f l e x i b l e s t a t e c o n t r o l w i l l depend on t h e wisdom o f t h e s e c h o i c e s . I t s h o u l d be born i n mind t h a t t h e aim o f GATT r u l e s i s p r o v i d e common v i s i b l e b e h a v i o r so as t o i n c r e a s e t h e s t a b i l i t y and t r a s p r e n c y o f t h e w o r l d t r a d i n g s y s t e m ) . Id. Id. Id. R o e s s l e r , supra n o t e 15, p. 276. K o s t e c k i , supra n o t e 4, p. 13 6. Id. p.257. Id. Id. R o e s s l e r , supra n o t e 15, p. 274. A c c o r d i n g t o GATT p r o v i s i o n s , he c l a s s i f i e s STEs i n t o t h r e e t y p e s : ( i ) state-owned e n t e r p r i s e s ; ( i i ) p r i v i l e g e d e n t e r p r i s e s ; ( i i i ) government m o n o p o l i e s . Ibid. 100 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 Id. p. 274. Id. GATT, I n t e r p r e t i v e n o t e t o A r t i c l e s 11-14, and 18; R o e s s l e r , supra n o t e 15, where he made a d i s t i n c t i o n between RULES, w h i c h a r e a b s t r a c t and o f g e n e r a l a p p l i c a b i l i t y , and MEASURES, w h i c h a r e a p p l i e d i n c o n c r e t e c i r c u m s t a n c e s t o a c h i e v e p r e d e t e r m i n e d r e s u l t s . Ibid., a t 261, 263, 275. I b i d , a t 275. c.f. K o s t e c k i , supra n o t e 4, p. 51. GATT, A r t . 1 3 : 2 ( b ) . GATT, i d . There a r e f i v e e x c e p t i o n s enumerated i n t h e GATT w h i c h i n c l u d e : (a) q u a n t i t a t i v e r e s t r i c t i o n s a r e p e r m i t t e d t o r e s t o r e o r m a i n t a i n b a l a n c e - o f - p a y m e n t s e q u i l i b r i u m as p r o v i d e d by A r t i c l e X I I and i n t h e ca s e o f t h e low-income economies by A r t i c l e X V I I I : B ; (b) t h e low-income economies a r e a l s o a l l o w e d t o use q u o t a s t o a s s i s t t h e e s t a b l i s h m e n t o f p a r t i c u l a r i n d u s t r i e s ( A r t i c l e X V I I : C ) ; (c) q u a n t i t a t i v e r e s t r i c t i o n s have c o n t i n u a l l y used by t h e d e v e l o p e d n a t i o n s t o p r o t e c t a g r i c u l t u r e ; (d) qu o t a s a r e a l s o p e r m i t t e d t o p r e v e n t market d i s r u p t i o n ( A r t i c l e X X I ; and (e) moreover, i t i s p o s s i b l e t o use q u a n t i t a t i v e r e s t r i c t i o n a g a i n s t ' s c a r c i t y c u r r e n c y ' c o u n t r i e s ( A r t i c l e X I V ) . (See K o s t e c k i , s u p r a n o t e 4, p. " 5 2 ) . GATT, A r t . 13. (QRs s h o u l d be a d m i n i s t e r e d "on a n o n d i s c r i m i n a t o r y b a s i s . " ) GATT A r t 1 3 : 2 ( a ) . GATT A r t . 1 3 : 2 ( c ) . GATT, A r t . 13:1. GATT, i n t e r p r e t i v e n o t e , Ad A r t i c l e s 11-14, and 18. K o s t e c k i , supra n o t e 4, a t 53. GATT, A r t . 1 2 : 4 ( d ) . GATT, i n t e r p r e t i v e n o t e , Ad A r t . 12 4 ( e ) . 101 87 88 89 90 91 92 93 GATT A r t i c l e 1 3 : 2 ( c ) ; K o s t e c k i , supra n o t e 4, a t 54. ( G l o b a l l i c e n c e p e r m i t s c o n c l u s i o n o f t h e t r a n s a c t i o n s p e c i f i e d i n t h e l i c e n c e w i t h any c o u n t r y , meaning i t i s not c o u n t r y - s p e c i f i c . The i n d i v i d u a l l i c e n c e r e f e r s t o a c o n c r e t e t r a n s a c t i o n d e f i n i n g t h e i m p o r t and e x p o r t v a l u e o f a g i v e n p r o d u c t w i t h a g i v e n c o u n t r y and under e s t a b l i s h e d c o n d i t i o n s ) . GATT, A r t . 1 3 : 2 ( c ) . GATT, A r t . 1 3 : 2 ( c ) . GATT, A r t . 1 3 : 3 ( a ) , 3 ( c ) . GATT, i n t e r p r e t i v e n o t e t o A r t i c l e s 11-14 and 18. Note t h a t n o n d i s c r i m i n a t o r y o p e r a t i o n o f s t a t e t r a d i n g e n t e r p r i s e s has been i n c o r p o r a t e d i n t o A r t . 17 o f GATT. However, p a r a . 4(c) o f GATT A r t . 17, does r e q u i r e CPs m a i n t a i n i n g STEs, upon r e q u e s t o f b e i n g a d v e r s e l y a f f e c t e d p a r t y , t o s u p p l y i n f o r m a t i o n about t h e i r o p e r a t i o n s o f s t a t e t r a d i n g . See GATT, A r t . 1 7 : 4 ( c ) . 94 K o s t e c k i , supra n o t e 4, P . 54. 95 c.f. supra n o t e 87. 96 GATT Doc L/3301, J a n . 1970, pp. 19-21 and 29. 97 K o s t e c k i , supra n o t e 4, P . 73. 98 Id. 99 Id. 100 QUESTIONS & REPLIES, supra n o t e 41, p. 118. 101 QUESTIONS & REPLIES, id. 102 QUESTIONS & REPLIES, id. 103 QUESTIONS & REPLIES, id, pp. 120-21. 104 QUESTIONS & REPLIES, id. p. 121. 105 QUESTIONS & REPLIES, id. p. 125. 106 GATT, A r t . 11. 107 C a s t e l , International Business Transactions 1988), a t 41. 108 P a r a > x 0 f GATT A r t i c l e 11 s t a t e s t h a t , 102 109 110 111 112 113 114 115 116 119 120 121 122 "No p r o h i b i t i o n o r r e s t r i c t i o n s o t h e r t h a n d u t i e s , t a x e s o r o t h e r c h a r g e s , whether made e f f e c t i v e t h r o u g h q u o t a s , i m p o r t o r e x p o r t l i c e n c e s o r o t h e r measures, s h a l l be i n s t i t u t e d o r m a i n t a i n e d by any c o n t r a c t i n g p a r t y on t h e i m p o r t a t i o n o f any p r o d u c t o f t h e t e r r i t o r y o f any o t h e r c o n t r a c t i n g p a r t y o r on t h e e x p o r t a t i o n o r s a l e f o r e x p o r t o f any p r o d u c t d e s t i n e d f o r t h e t e r r i t o r y o f any o t h e r c o n t r a c t i n g p a r t y . " I b i d . , GATT A r t . 11:1. K o s t e c k i , supra n o t e 4, a t 55. A f o r m u l a f o r exchange o f c o n c e s s i o n s o f same n a t u r e . For i n s t a n c e , t a r i f f r e d u c t i o n i s exchanged f o r t a r i f f r e d u c t i o n . See K o s t e c k i , supra n o t e 4, a t 40. K o s t e c k i , supra note 4, p. 41. Id. Id. (A f o r m u l a p r o v i d i n g exchange o f c o n c e s s i o n s o f d i f f e r e n t n a t u r e such as exchange t a r i f f r e d u c t i o n s w i t h i m p o r t i n c r e a s e u n d e r t a k i n g s ) . Id., a t 41, 55. Id. p. 58. Id. a t 73, 74. Note t h a t t h e s i t u a t i o n has changed l a t e l y . 1 1 7 Id. a t 74 118 123 GATT Doc. L/6125, (18 Feb. 1987) , " C h i n a ' s S t a t u s As a C o n t r a c t i n g P a r t y : Memorandum on C h i n a ' s F o r e i g n Trade Regime," ( h e r e i n a f t e r MEMO), a t 13. See R e g u l a t i o n s on Import and E x p o r t D u t i e s o f PRC o f 1984. QUESTIONS & REPLIES, supra n o t e 41, pp. 87-88. QUESTIONS & REPLIES, supra note 41, a t 89. Ibid, p. 101. " S u b s t a n t i a l t r a n s f o r m a t i o n " means t h a t t h e m a n u f a c t u r i n g o r p r o c e s s i n g o p e r a t i o n s o f t h e p r o d u c t s e n t a i l a change i n t h e 4 - d i g i t t a r i f f h e a d i n g o f t h e Customs Import and E x p o r t T a r i f f , o r t h e p e r c e n t a g e of t h e v a l u e added i s ov e r 3 0% o f t h e whole v a l u e o f new p r o d u c t . (See R e g u l a t i o n s on Import and E x p o r t D u t i e s o f PRC 1984.) QUESTIONS & REPLIES, supra note 41, p. 103. 103 124 125 126 127 128 129 130 131 132 133 134 135 136 137 138 139 140 QUESTIONS & REPLIES, supra n o t e 41, a t 102, 103. GATT A r t . 6 and t h e A n t i d u m p i n g Code (1979) GATT Doc. MTN/NTM/W 236. F o r a n a l y s i s see J a c k s o n , s u p r a n o t e 3, pp. 411-24. "Dumping" i s a form o f i n t e r n a t i o n a l p r i c e d i s c r i m i n a t i o n whereby a p r o d u c e r c h a r g e s a l o w e r p r i c e f o r i t s p r o d u c t i n a f o r e i g n market t h a n i t c h a r g e s f o r t h e p r o d u c t i n i t s d o m e s t i c market. Dumping o c c u r s when t h e p r o d u c t i s s o l d i n a f o r e i g n market a t a p r i c e t h a t i s l e s s t h a n t h e p r o d u c t ' s f a i r v a l u e . See J . V i n e r , Dumping: A Problem in International Trade (1923 & r e p r i n t 1966) . K o s t e c k i , supra n o t e 4, p. 58. GATT, A r t . 3:9. GATT, A r t . 3:4. GATT, A r t . 2 : 1 ( c ) . GATT, A r t . 2 ( 4 ) . J.H. J a c k s o n , Legal Problems of International Economic Relations (1986 2d ed) , p. 1179; K o s t e c k i , supra n o t e 4, p. 57; Dam, supra n o t e 8, p. 318. J a c k s o n , id., p. 1179; K o s t e c k i , supra n o t e 4, p. 58. K o s t e c k i , supra n o t e 4, pp. 79-80. Id. p. 79. A system o f p r i c e e q u a l i z a t i o n ( e q u a l i z a t i o n system) was m a i n t a i n e d i n P o l a n d and Romania t o t u r n t h e i m p o r t e r ' s p r o f i t o v e r t o t h e s t a t e and t o o f f s e t t h e e x p o r t e r ' s l o s s o u t o f t h e s t a t e budget. The r e a s o n f o r a d o p t i n g t h i s system was because i t can compensate d i f f e r e n c e s between t h e e x p o r t revenues and i m p o r t expenses c o n v e r t e r a t t h e o f f i c i a l exchange r a t e w h i c h was n o t an e q u i l i b r i u m exchange r a t e . Id., p.79. Id. pp. 79-80. Id. p. 80. K o s t e c k i , "Hungary and GATT" 8 J.W.T.L. 401, a t 406. K o s t e c k i , supra n o t e 4, a t 79. K o s t e c k i , supra n o t e 4, p. 81; also supra n o t e 138, pp. 411-12. 141 K o s t e c k i , supra n o t e 138, pp. 407-8. 104 1 4 2 MEMO, supra n o t e 11<8, a t 6. 1 4 3 QUESTIONS & REPLIES, supra n o t e 41, pp. 135-3 6. 1 4 4 MEMO, supra n o t e 118, a t 19. 1 4 5 MEMO, id. 1 4 6 MEMO, id. 1 4 7 MEMO, id. 1 4 8 K. Kennedy, supra n o t e 49, p. 27. Id. Id. 149 150 1 5 1 See Berman, B a n s t i n , "The S o v i e t System o f F o r e i g n T r a d e " , i n BUSINESS TRANSACTIONS WITH USSR, (R. S t a r r , ed. 1973). 1 5 2 See GATT Doc. MTN/NTM/W 236, s u p r a n o t e 125. 1 5 3 I n d e t e r m i n i n g whether o r n o t t h e r e a r e m a t e r i a l i n j u r i e s , an a p p r o p r i a t e u n d e r s t a n d i n g o f t h e c o n c e p t s o f "d o m e s t i c i n d u s t r y " and " l i k e p r o d u c t " i s most c r u c i a l . See L a n ger, "The Concepts o f L i k e P r o d u c t and Domestic I n d u s t r y Under t h e U n i t e d S t a t e s Trade Agreements A c t o f 1979", (1983) 17 Geo. Wash. J. I n t ' l L. & Econ. 495; P a l m e t e r , " I n j u r y D e t e r m i n a t i o n s i n A n t i d u m p i n g and C o u n t e r v a i l i n g Duty C a s e s — A Commentary on U.S. P r a c t i c e " , (1987) 21 J.W.T.L. 7. 1 5 4 GATT A r t i c l e 6:2, 3. 1 5 5 GATT A r t i c l e 6:6. M a t e r i a l i n j u r y t e s t i s t h e t h r u s t o f GATT a n t i d u m p i n g and S u b s i d i e s Codes. See, P a l m e t e r , supra n o t e 153. 1 5 6 P a l m e t e r , id. a t 19. 1 5 7 GATT A r t i c l e 6. 158 GATT A r t i c l e 6:2, 4. 1 5 9 R . P a t e r s o n , Canadian Regulation of International Trade and Investment ( C a r s w e l l 1988), a t 140. ( d i s c u s s i n g f u n c t i o n s o f T r a c k I - A r t i c l e s 7-13 o f S u b s i d i e s Code and Tr a c k I I - A r t i c l e s 1-6 o f t h e Code). 160 GATT A r t i c l e 16:4. 1 6 1 GATT A r t i c l e 16:3. 105 162 GATT A r t i c l e 16:1. 163 GATT A r t i c l e 16:1. 1 6 4 GATT A r t i c l e 16:3. 165 GATT A r t i c l e : 4 . GATT A r t i c l e 6. GATT, BISD, 9 t h Supp. 1961, a t 191.213 166 167 168 169 170 171 F o r e x p l a n a t i o n , see K o s t e c k i , supra n o t e 4, a t 55, 77-78. ("the e q u a l i z a t i o n system as p r a c t i s e d i n P o l a n d and Romania c o u l d n o t be c o n s i d e r e d s u b s i d i z i n g i n t h e GATT sense.") Id., a t 78. Id. p. 57. F o r d e f i n i t i o n o f e q u a l i z a t i o n system, see n o t e supra 135. However, i t i s up t o each member o f GATT t o d e t e r m i n e whether c o u n t e r v a i l a b l e . GATT BISD, supp. 1961, p. 191. See generally Samuelson, Economics 620-30. ( 1 1 t h ed. 1980) ( e x p l a i n i n g t h e t h e o r y o f c o m p a r a t i v e a d v a n t a g e ) . Comments, " I m p l e m e n t a t i o n and P o l i c y : Problems i n t h e A p p l i c a t i o n o f C o u n t e r v a i l i n g Duty Laws t o Nonmarket Economy C o u n t r i e s " 136 University of Pennsylvania Law Review 1647, (1988). T.R. H o w e l l & A l a n Wm Wolf, "The R o l e o f Trade Law i n t h e Making o f Trade P o l i c y " i n International Trade Policy: The Lawyers' Perspective (J.H. J a c k s o n , R.O. Cunningham and Claude G.B. Fonthem ed. 1985), a t 3-11, 3-15-19. ( d i s c u s s i n g p r i m a c y o f t h e r u l e o f law on c o m p e t i t i o n and c u r r e n t U.S. t r a d e remedies f o r d o m e s t i c i n d u s t r i e s s u f f e r i n g m a t e r i a l i n j u r y r e s u l t i n g from u n f a i r t r a d e p r a c t i c e s ) . 1 7 3 H.M. Applebaum, P.G. Gaston, "What i s a ^Domestic I n d u s t r y ' f o r Purposes o f A p p l i c a t i o n o f t h e U.S. Trade Laws" i n International Trade Policy: The Lawyers' Perspective (J.H. J a c k s o n , R.O. Cunningham and Claude G.B. Fonthem ed. 1985), a t 13-11-17. 1 7 4 S.M. Rosen & C.H. Bay a r , "Comparing Causes o f I n j u r y Under t h e Escape C l a u s e " i n International Trade Policy: The Lawyers' Perspective (J.H. J a c k s o n , R.O. Cunningham and Claude G.B. Fonthem ed. 1985), a t 5-1-23. 172 106 175 176 177 178 179 180 181 182 183 184 185 J a c k s o n , Implementing the Tokyo Round (1984) ( g i v e s a c o m p a r a t i v e s t u d y o f t h r e e t r a d e p a r t n e r s ' t r a d e law a f t e r t h e Tokyo Round m u l t i n a t i o n a l t r a d e n e g o t i a t i o n s ) . I n Canada, r u l e s a g a i n s t dumping/subsidy a r e i n c o r p o r a t e d i n t o S p e c i a l Import Measures A c t o f 1984 (SIMA) ; i n t h e U n i t e d S t a t e s Trade Agreements A c t o f 1979; i n Japan and EC, t h e r e have been i n c o r p o r a t e d i n t o s p e c i a l law and p r o c e d u r e s g o v e r n i n g t h e i m p o s i t i o n o f a n t i d u m p i n g and CVD d u t y . But Japan, due t o i t s a g g r e s s i v e e x p o r t p o l i c y , t h e a n t i d u m p i n g law i s b a s i c a l l y d i s m a n t l e d . I n t h e a l t e r n a t i v e , i t i s c o m p e l l e d t o e n t e r i n t o v a r i o u s s o -c a l l e d v o l u n t a r y e x p o r t r e s t r a i n t s (VERs) w i t h i t s l e a d i n g t r a d e p a r t n e r s . K o s t e c k i , supra n o t e 4, p. 58. Id. S o l t y s i n s k i , " P r i c e C o m p e t i t i o n Between F r e e - M a r k e t and S t a t e - C o n t r o l l e d Economy E n t e r p r i s e s : The Legacy o f t h e OMC v. P e z e t e l L i t i g a t i o n s " , 24 Swiss Rev. I n t ' l Competition L. 6. ("[T]he f r e q u e n c y and scope o f s t a t e i n t e r v e n t i o n i n t h e market i s i n c o m p a r a b l y w i d e r i n t h e c e n t r a l l y p l a n n e d economy c o u n t r i e s [ t h a n i n market economies] . 1 1) . P. Samuelson, supra n o t e 171, a t 39-41. Id. Id, a t 821-23. Id., p. 823. Id. Downey & Graham, "The R e g u l a t i o n o f Dumping from S t a t e C o n t r o l l e d Economies: Where N e x t ? " i n INTERFACE TWO: CONFERENCE PROCEEDINGS ON THE LEGAL FRAMEWORK OF EAST-WEST TRADE 435, a t 438-439. (D. W a l l a c e & D. F l o r e s eds. 1982) . A s u r r o g a t e approach i s used t o d e t e r m i n e t h e normal v a l u e o f NMEs' i m p o r t s by h a v i n g r e f e r e n c e t o t h e p r i c e o f t h e l i k e p r o d u c t t o be s o l d i n a t h i r d market economy c o u n t r y . F o r a d e t a i l e d e x p l a n a t i o n , see J a c k s o n , supra n o t e 131, pp. 697-99. A r t i c l e 15(2) o f S u b s i d i e s Code p r o v i d e s t h a t : 107 186 187 188 I t i s u n d e r s t o o d t h a t i n [ t h e ca s e o f nonmarket economy] c o u n t r i e s t h e c a l c u l a t i o n o f t h e m a r g i n o f dumping o r o f t h e amount o f t h e e s t i m a t e d s u b s i d y can be made by comparison o f t h e e x p o r t p r i c e w i t h : (a) t h e p r i c e a t w h i c h a l i k e p r o d u c t o f a c o u n t r y o t h e r t h a n t h e i m p o r t i n g s i g n a t o r y . . . i s s o l d , o r (b) t h e c o n s t r u c t e d v a l u e o f a l i k e p r o d u c t i n a c o u n t r y o t h e r t h a n t h e i m p o r t i n g s i g n a t o r y . . . " . The Agreement on I n t e r p r e t a t i o n and A p p l i c a t i o n o f A r t i c l e s 6, 16 and 23 o f t h e GATT ( S u b s i d i e s Code), A p r i l 12, 1979, 31 U.S.T. 513. T.I.A.S. No. 9619; GATT BISD, 2 6 t h Supp. 56 (1980), a t 74. Comment, supra n o t e 171, a t 1669-70. Id. p. 1667. Id. p. 1669. i o n , See T e x t i l e s , A p p a r e l , and R e l a t e d P r o d u c t s from PRC, Dept. o f Comm. Docket No. C570-005; 48 Fed. Reg. 46,400 (Dep't Comm. 1983) ( i n i t i a t i o n ) ( h e r e i n a f t e r CVD P e t i t i o n ) . See Recent Development, " C o u n t e r v a i l i n g D u t i e s and Non-market Economies: The Case o f t h e P e o p l e ' s R e p u b l i c o f C h i n a , " 10 Syracuse J. I n t ' l L. & Competition 405, pp. 418-20 (1983) ( r e j e c t i n g t h e a p p l i c a t i o n o f CVD laws a g a i n s t NME as an e t h n o c e n t r i c v a l u e judgment). 190 191 192 193 194 195 196 197 Carbon Steel from Poland, 49 Fed. Reg. 19,3 74 (Dep't Comm. 1984) ( f i n a l d e t . ) ; Carbon Steel from Czechoslovakia, 49 Fed. Reg. 19,370 (Dep't Comm., f i n a l d e t . 1984). Carbon Steel form Czech, id, a t 19,371. Recent Development, " I n t e r n a t i o n a l Trade: I m p o s i t i o n o f C o u n t e r v a i l i n g Duty Laws on P r o d u c t s From Nonmarket C o u n t r i e s — C o n t i n e n t a l S t e e l Corp. v. U n i t e d S t a t e s " , 27 Harv. I n t ' l L. J. 745, 749 (1986). 801 F. 2d 1308, (Fed C i r . 1986). Id, 1315-16. Id. Comment, supra n o t e 171, a t 1665. Id. , pp. 1665-67; see Trade and I n t ' l economic P o l i c y  Reform A c t o f 1987. H.R. 3, s. 157, 100th Cong. 1 s t Sess. (1987) ( a p p l y i n g t h e CVD laws t o NMEs t o t h e e x t e n t t h a t a s u b s i d y can be i d e n t i f i e d and q u a n t i f i e d by t h e a d m i n i s t e r i n g a u t h o r i t y ( h e r e i n a f t e r 1987 Trade B i l l ) . 108 198 199 200 201 202 203 204 205 206 207 208 Comment, supra n o t e 171, a t 1652, 1671; See also Denton, The Nonmarket Economy: R u l e s o f t h e European Economic Community's A n t i d u m p i n g and C o u n t e r v a i l i n g D u t i e s L e g i s l a t i o n , 1 1 36 I n t ' l & Comp. L.Q. 198, 236 (1987) ( " [ I ] n [nonmarket economies] i t can be argued t h a t dumping and s u b s i d i e s a r e b u t two s i d e s o f t h e same c o i n " ) . See, e.g., Rawson, "An O u t l i n e o f U n i t e d S t a t e s R e g u l a t i o n o f Trade w i t h Non-market Economy C o u n t r i e s , " i n INTERRACE TWO, supra n o t e 184, a t 538. ( n o t i n g t h a t use of s u r r o g a t e c o u n t r y p r o c e d u r e s i n an a n t i d u m p i n g case would, i n e f f e c t , " t r a n s f e r r i n g a c o u n t e r v a i l i n g d u t y c a s e i n t o an a n t i d u m p i n g c a s e " ) ; Comment, "Georgetown S t e e l c o r p . v. U n i t e d S t a t e s : A p p l y i n g t h e C o u n t e r v a i l i n g Duty Law t o Imports from Nonmarket Economy C o u n t r i e s , " 18 Law & Pol'y I n t ' l Bus. 313, a t 332 ("adoption o f t h e s u r r o g a t e method would mean t h a t a n t i d u m p i n g d u t y and CVD p e t i t i o n s i n v o l v i n g i m p o r t s form NMEs would be a l m o s t i d e n t i c a l . " ) ; Note, "An Argument f o r F r e e r Trade: The Nonmarket Economy Problem under t h e U.S. C o u n t e r v a i l i n g Duty Laws," 17 N.Y.U.J. I n t ' l L. & Pol. 407, 425 (1985). ( " s u b s i d i z a t i o n and dumping a r e s i m i l a r c o n c e p t i o n i n t h e nonmarket s e t t i n g because t h e r e i s no p r i v a t e s e c t o r of t h e economy.") D e s p i t e t h e above comments, one s h o u l d n o t e t h e l a t e s t d r a m a t i c changes i n E a s t B l o c . Comment, supra n o t e 171, pp. 1671-74. K o s t e c k i , supra n o t e 4, pp. 78-79. Id. pp. 78-79. Id. p. 79. K o s t e c k i , supra n o t e 138, a t 409. Id., pp. 409-10. (However, t h e H u n g a r i a n e x p o r t s u b s i d i e s c o u l d be c o n s i d e r e d as c o m p a t i b l e w i t h t h e GATT as l o n g as Hungary f u l f i l l e d t h e o b l i g a t i o n s o f GATT imposed on a l l t h e c o n t r a c t i n g p a r t i e s m a i n t a i n i n g s u b s i d i e s ) . Note t h a t t h e r e a r e two o b l i g a t i o n s imposed on CPs: (a) not t o g r a n t e x p o r t s u b s i d i e s on p r i m a r y p r o d u c t s t h a t would r e s u l t i n "more t h a n an e q u i t a b l e s h a r e o f w o r l d e x p o r t t r a d e . " ( A r t . 1 6 : 3 ) ; (b) t o n o t i f y GATT about any e x p o r t s u b s i d y i f used. ( A r t . 16:1). K o s t e c k i , supra note 4, p. 78. Id. p. 78; see also Economic Survey o f Europe (N.Y. : U n i t e d N a t i o n s , 1969), p. 102. MEMO, supra n o t e 118, pp. 10-11. 209 MEMO, id., P- 1 0 • 210 MEMO, id. 211 MEMO, id. 110 P A R T F O U R RECONCILIATION OF NME WITH GATT FRAMEWORK A l t h o u g h GATT r e l u c t a n t l y a d m i t t e d some non-market economies i n t o i t s framework, i t d i d n o t s o l v e t h e problem of n o n - d i s c r i m i n a t i o n and r e c i p r o c i t y problem. The dominant GATT approach t o NME's a c c e s s i o n was b a s i c a l l y m o d e l l e d on a c o u n t r y - t o - c o u n t r y b a s i s w i t h p r a g m a t i c a l l y import-commitment-o r i e n t e d c h a r a c t e r . T h i s approach has been u n s u c c e s s f u l c o n t r i b u t i n g t o t h e growth o f East-West t r a d e r e l a t i o n s h i p . A r e - e v a l u a t i o n o f t h e s t r e n g t h s and weakness o f t h e approach i s n e c e s s a r y . E f f o r t s would be made t o s u g g e s t w o r k a b l e o p t i o n s f o r improvement. The o p t i o n s w i l l be d i s c u s s e d i n t h e c o n t e x t o f C h i n a ' s a c c e s s i o n t o GATT, and d i r e c t e d t o t h e problem o f r e c o n c i l i a t i o n and r e i n t e g r a t i o n o f w o r l d t r a d e systems. The f o c u s o f t h e f o l l o w i n g d i s c u s s i o n w i l l be on a n a l y z i n g v a r i o u s p o s s i b i l i t i e s t o a s c e r t a i n w h i c h o p t i o n would be b e s t f o r r e c o n c i l i n g t h e NME w i t h t h e GATT t r a d e r u l e s . 4.1 WEAKNESS OF GATT APPROACHES TO STATE TRADING SYSTEM I n d e f i n i n g s t a t e t r a d i n g e n t e r p r i s e s A r t . 17 e q u i v o c a t e s an i m p o r t a n t d i s t i n c t i o n between p r i v a t e e n t e r p r i s e s t h a t b e n e f i t from s u b s i d i e s g r a n t e d o p e n l y i n market economies as p a r t o f t h e p o l i t i c a l p r o c e s s ( s o - c a l l e d " p r i v i l e g e d I l l e n t e r p r i s e s " ) and p u b l i c l y - o w n e d e n t e r p r i s e s t h a t a r e a s s i s t e d as p a r t o f t h e o p e r a t i o n o f t h e e n t e r p r i s e ( s t a t e - c o n t r o l l e d e n t e r p r i s e s " ) . 1 I t i s i m p o r t a n t t o c l a r i f y t h e i r d i s t i n c t i o n because as a normal p r a c t i c e , when a government g i v e s a s u b s i d y t o a p r i v a t e f i r m , i t s a c t i o n s a r e t r a n s p a r e n t and t h e problems o f d e t e c t i o n and q u a n t i f i c a t i o n o f t h e s u b s i d y a r e n o t as c o m p l i c a t e d as when t h e s u b s i d i e s a r e p r o v i d e d c o m p l e t e l y i n t e r n a l l y . 2 I t i s s u b m i t t e d t h a t an a p p r o p r i a t e d e f i n i t i o n o f STEs s h o u l d c o v e r o n l y t h o s e e n t e r p r i s e s t h a t a r e s u b s t a n t i a l l y government-owned o r c o n t r o l l e d . A c c o r d i n g l y , t h e p r i v i l e g e d e n t e r p r i s e s s h o u l d be e x c l u d e d from t h e c a t e g o r y o f STEs. T h i s would r e n d e r t h e d e f i n i t i o n p o l i t i c a l l y n e u t r a l and would base i t on an o b j e c t i v e d e t e r m i n a t i o n r a t h e r t h a n on t h e m o t i v a t i o n f o r o r t h e e f f e c t s o f t h e e n t e r p r i s e ' s a c t i v i t y . 3 I t i s a l s o s u b m i t t e d t h a t t h e GATT d e f i n i t i o n o f STEs s h o u l d encompass n o t o n l y state-owned o r c o n t r o l l e d e n t e r p r i s e s b u t a l s o s t a t e a g e n c i e s g r a n t i n g s p e c i a l o r e x c l u s i v e p r i v i l e g e s . 4 As n o t e d e a r l i e r , i t would appear i l l o g i c a l o r i l l u s i o n a r y t o r e q u e s t STEs e s p e c i a l l y t h o s e e s t a b l i s h e d i n NME c o u n t r i e s t o be o p e r a t e d " s o l e l y " a c c o r d i n g t o t h e com m e r c i a l s t a n d a r d . I t i s b e t t e r t o d e l e t e t h e o r i g i n a l w o r d i n g " s o l e l y " i n p a r a . 1(b) s i n c e c o n s i d e r a t i o n s cannot be, i n r e a l i t y , " s o l e l y " c o m m e r c i a l b u t r a t h e r a m i x t u r e of s o c i a l , p o l i t i c a l and commercial f a c t o r s . 5 P a r a . 1(b) s h o u l d t h e r e f o r e be m o d i f i e d t o p r o v i d e a more r e a l i s t i c s t a n d a r d f o r t h e o p e r a t i o n s o f STEs. 6 112 I n a d d i t i o n , i t i s i m p o r t a n t t o n o t e t h a t t h e GATT's emphasis on r e g u l a t i n g STEs' b e h a v i o r on e n t e r p r i s e s i s m i s p l a c e d because i t i s government n o t e n t e r p r i s e s who i s i n a . . . . . 7 p o s i t i o n t o g r a n t s p e c i a l o r e x c l u s i v e p r i v i l e g e s . T h i s i s p a r t i c u l a r l y t r u e i n some NMEs where e n t e r p r i s e s a r e m e r e l y t o a c c e p t governments' p l a n and d i r e c t i o n s . S e c o n d l y , i n t o d a y ' s mixed economies, t h e d i s t i n c t i o n between p r i v a t e and s t a t e -c o n t r o l l e d e n t e r p r i s e s has been b l u r r e d s i m p l y because governments i n t h e d e v e l o p e d w o r l d have a c q u i r e d tremendous • • ft d i s c r e t i o n t o s u b j e c t a l l e n t e r p r i s e s t o s p e c i f i c measures. T h e r e f o r e , t h e f o c u s o f t h e GATT on t r a d e l i b e r a l i z a t i o n s h o u l d be on i n d i v i d u a l c o u n t r i e s ' c o m m e r c i a l p o l i c i e s and l e g i s l a t i o n s . 9 A p p l y i n g s uch a c o n c e p t o f s t a t e t r a d i n g would i m p l y t h a t n o t o n l y i m p o r t monopolies b u t a l s o t h e o p e r a t i o n s o f a government agency would be s u b j e c t t o t h e same r u l e s and r e q u i r e m e n t s a r t i c u l a t e d i n t h e GATT p r o v i s i o n s . 1 0 As a r e s u l t , t h e r e p o r t i n g r e q u i r e m e n t e n u n c i a t e d i n A r t . 17 would be a p p l i e d n o t j u s t t o t h e above n o t e d p r i v i l e g e d e n t e r p r i s e s b u t a l s o t o government a g e n c i e s g r a n t i n g s p e c i a l p r i v i l e g e s o r g i v i n g o p e r a t i v e d i r e c t i o n s . 1 1 I n t h i s r e s p e c t , i t would be more m e a n i n g f u l f o r t h e GATT t o make d i s t i n c t i o n s between "forms" o f government i n t e r v e n t i o n ( r u l e s / m e a s u r e s ) r a t h e r t h a n d i s t i n c t i o n s between " o b j e c t s " o f governments i n t e r v e n t i o n ( p r i v a t e / S t a t e - c o n t r o l l e d e n t e r p r i s e s ) . 113 4.2 A PRELIMINARY EVALUATION OF THE IMPORT COMMITMENT  APPROACH As i n d i c a t e d e a r l i e r , GATT was d r a f t e d m a i n l y f o r market economies c o n t r o l l i n g t h e i r t r a d e e s s e n t i a l l y by means o f p r i c i n g mechanisms and r e s o r t i n g t o s t a t e t r a d i n g o n l y on an o c c a s i o n a l b a s i s . D i f f i c u l t y c o u l d t h e r e f o r e be w e l l e x p e c t e d i n a p p l y i n g i t s p r o v i s i o n s t o s t a t e t r a d i n g economies whose t r a d e i s c o n t r o l l e d by means o f t a r g e t s , e s p e c i a l l y w i t h r e g a r d t o t h e GATT p r i n c i p l e s o f n o n - d i s c r i m i n a t i o n and r e c i p r o c i t y and t o t h e GATT r u l e s on i n t e g r a t i o n . 1 3 The b a s i c problem t o be s o l v e d a t t h e t i m e o f E a s t e r n b l o c ' s a c c e s s i o n t o t h e GATT was t h e p r o blem of market a c c e s s . T h i s was s o l v e d by way o f f i n d i n g r e c i p r o c i t y f o r m u l a v a r y i n g from c o u n t r y t o c o u n t r y . And t h e p r o blem o f f i n d i n g a r e c i p r o c i t y f o r m u l a f o r t r a d e w i t h t h e t a r g e t - p r o t e c t e d economies a r e u s u a l l y approached by a commitment e i t h e r t o i n c r e a s e i m p o r t o r t o r e duce l e v e l o f p r o t e c t i o n . 1 4 A r t i c l e 17 o f GATT d i r e c t s STEs t o be o p e r a t e d i n a f a s h i o n i n c o m p l i a n c e w i t h n o n - d i s c r i m i n a t i o n and c ommercial c o n s i d e r a t i o n s . But when d e a l i n g w i t h NMEs' a c c e s s i o n t o GATT, GATT c o u n t r i e s employed t h e s t a n d a r d o f " f a i r i m p o r t e x p a n s i o n " r a t h e r t h a n n o n - d i s c r i m i n a t i o n . 1 5 A f t e r t h e f a i r i m p o r t e x p a n s i o n method had been used, t h e GATT c o u n t r i e s e x p r e s s e d s a t i s f a c t i o n w i t h t h e g e o g r a p h i c a l development of H u n g a r i a n , P o l i s h and Romanian i m p o r t s . 1 6 T h i s i s because such approach i s more r e a l i s t i c and p r a g m a t i c . One would wonder what b e t t e r approach would have been u n d e r t a k e n i n t h e absence 114 o f t h i s approach. However, some b e t t e r approaches do e x i s t namely t h e r e v i s i o n o f GATT A r t i c l e 17, i n c o r p o r a t i o n o f new p r o v i s i o n s i n t o t h e GATT and r e q u i r i n g f u l l d e c e n t r a l i z a t i o n of NME s t a t e t r a d i n g systems so as t o be c o m p a t i b l e w i t h t h e GATT framework. But t h e s e approaches a r e t o o u n r e a l i s t i c and time-consuming t o w o r t h p u r s u i n g . I t i s u n r e a l i s t i c because some o f NMEs a r e n o t p r e p a r e d t o u t t e r l y a c c e p t t h e market p r i n c i p l e s f o r t h e t i m e b e i n g . And t h e market economies o f GATT members a r e n o t w i l l i n g t o change t h e i r w e l l - e s t a b l i s h e d market n o t i o n . F u r t h e r m o r e , i t i s not l i k e l y t h a t t h e GATT r u l e s w i l l be f u n d a m e n t a l l y changed. I t i s time-consuming because even i f NME n a t i o n s such as C h i n a and t h e USSR were t o change t h e i r systems i n t o market t y p e , i t would t a k e a c o n s i d e r a b l e amount o f t i m e t o co m p l e t e . T h e i r f u l l d e c e n t r a l i z a t i o n cannot be e x p e c t e d t o be a c c o m p l i s h e d w i t h i n f i v e o r even t e n y e a r s . Moreover, i t i s r e a s o n a b l e t o assume t h a t even i f some o f t h e b e t t e r approaches were b e i n g t a k e n , t h e E a s t e r n b l o c would n o t have a c q u i r e d GATT membership. T h i s i s c e r t a i n l y n o t t o d i s c o u r a g e t h e c o n t i n u i n g p u r s u i t o f b e t t e r approaches. I t i s perhaps t h e r i g h t t i m e , a t l e a s t i n t e l l e c t u a l l y , t o r e c o n s i d e r t h e fun d a m e n t a l i d e o l o g i e s o f t h e GATT economic and l e g a l system e s p e c i a l l y as more and more weaknesses o f GATT have been exposed. Some o f GATT's weaknesses o r i g i n a t e d from i t s i n c e p t i o n . Some o f i t s as s u m p t i o n s may be out o f d a t e as t i m e e l a p s e s . As f a r as t h e f a i r i m p o r t e x p a n s i o n approach i s co n c e r n e d , i t i s q u e s t i o n a b l e as t o whether t h e a c c e s s i o n o f Hungary, P o l a n d 115 and Romania t o t h e GATT has br o u g h t a more m u l t i l a t e r a l • • 17 c h a r a c t e r t o t h e s e c o u n t r i e s ' t r a d e w i t h GATT members. As t o r e c i p r o c i t y between E a s t and West, t h e above-mentioned arrangements have p r o v e d d i s a d v a n t a g e o u s t o t h e t h r e e E a s t European c o u n t r i e s a t l e a s t from t h e p e r s p e c t i v e o f b a l a n c e - o f - t r a d e between E a s t and W e s t . 1 8 T a k i n g t h e P o l i s h a c c e s s i o n t o GATT f o r an example, a p a r t from l i t t l e c o n c e r n w i t h t h e b a l a n c e - o f - t r a d e c r i t e r i o n o f r e c i p r o c i t y , t h e i m p o r t commitment approach t o P o l a n d ' s a c c e s s i o n d i s c o u r a g e s P o l a n d t o i n c r e a s e i m p o r t beyond t h e t a r g e t amount. Such f o r m u l a i s c o n t r a r y t o GATT p h i l o s o p h y and t h e i n t e r e s t s o f most CPs because i t s u p p o r t s t h e a d m i n i s t r a t i v e measures and s t a t e c o n t r o l t h a t a r e p o s s i b l e t o gu a r a n t e e f i x e d i m p o r t l e v e l s w h i l e d i s c o u r a g i n g d e c e n t r a l i z a t i o n and o t h e r economic r e f o r m s t h a t i n c r e a s e t h e r o l e o f market f o r c e s . 2 0 The o b l i g a t i o n s imposed on such f o r m u l a can be d i s c h a r g e d by v a r i o u s means a v a i l a b l e t o NME P I . , government. x S i n c e t h e volume o f i m p o r t s i n t o NMEs i s t o be e v a l u a t e d on t h e b a s i s o f c u r r e n t d o l l a r p r i c e s , i t s v a l u e and burden can be eroded by i n f l a t i o n and i n c r e a s e d by d e f l a t i o n . 2 2 More t h a n t h a t , because t h e commitment i s denominated i n a p a r t i c u l a r c u r r e n c y i t s v a l u e can be a f f e c t e d by m a n i p u l a t i o n o f t h e exchange r a t e by t h e s t a t e . 2 3 F u r t h e r m o r e , t h e i m p o r t commitment f o r m u l a seems i n d i f f e r e n t t o s p e c i a l arrangements between CMEA c o u n t r i e s , i t l e a v e s open t h e door o f d i s c r i m i n a t i o n between i m p o r t s from t h e West CPs and t h o s e from CMEA c o u n t r i e s . F i n a l l y , i t does n o t seem t o be 116 an a p p r o p r i a t e framework i n d e t e r m i n i n g Western market o p e n i n g s f o r P o l i s h e x p o r t s . 2 4 The Romanian i m p o r t commitment n e g o t i a t e d s e v e r a l y e a r s l a t e r overcame some o f P o l a n d ' s weaknesses as i t u n d e r t o o k t o d e v e l o p and d i v e r s i f y i t s t r a d e w i t h t h e CPs as a whole. I t s t a t e d i t s " f i r m i n t e n t i o n " t o i n c r e a s e i m p o r t s from t h e cps as a whole a t a r a t e n o t s m a l l e r t h a n t h e growth o f t o t a l Romanian i m p o r t s p r o v i d e d f o r i n i t s f i v e - y e a r p l a n s . 2 5 Some might have i n t e r p r e t e d t h i s f o r m u l a as n o n - d i s c r i m i n a t o r y . U n f o r t u n a t e l y t h e f u l f i l l m e n t o f t h e commitment does not g u a r a n t e e n o n - d i s c r i m i n a t i o n . 2 6 I t i s p o s s i b l e t h a t o v e r t i m e i m p o r t s from CPs would i n c r e a s e a t a f a s t e r r a t e t h a n t h o s e from t h e E a s t e r n b l o c . 2 7 Worse t h a n t h a t , t h e f o r m u l a i s h a r d l y e n f o r c e a b l e due t o t h e a m b i g u i t y o f " d e v e l o p and d i v e r s i f y " and " f i r m l y i n t e n d . " 2 8 The commitment i s based on p r o v i s i o n s i n t h e p l a n r a t h e r t h a n a c t u a l i m p o r t l e v e l s . I t i s t h e r e f o r e s u b j e c t t o m a n i p u l a t i o n . 2 9 However, t h i s " u n e n f o r c e a b i l i t y " s h o u l d not be o v e r s t a t e d s i n c e any i n t e r n a t i o n a l agreement more o r l e s s has c e r t a i n l e v e l o f " f l e x i b i l i t y " and " a m b i g u i t y " a v a i l a b l e f o r g o v e r n m e n t a l m a n i p u l a t i o n and a b u s e . 3 0 GATT i s n o t o r i o u s i n t h i s r e g a r d . I r o n i c a l l y , i t i s perhaps t h i s f l e x i b i l i t y and vagueness t h a t makes t h e i m p o r t e x p a n s i o n f o r m u l a e a s i l y a c c e p t a b l e and more w o r k a b l e t h a n t h e r i g i d o b l i g a t i o n imposed on P o l a n d ' s a c c e s s i o n t o GATT. 3 1 S t r e s s i n g t h e d emonstrated s h o r t c o m i n g s o f i m p o r t commitment approach and i n c r e a s i n g r o l e o f market f o r c e s i n 117 i t s economy, Hungary acceded t o t h e GATT on t h e b a s i s o f t a r i f f c o n c e s s i o n s w i t h o u t any i m p o r t commitment. 3 2 However, d u r i n g t h e w o r k i n g p a r t y s e s s i o n on i t s p r o t o c o l , Hungary d i d u n d e r t a k e t o i n c r e a s e i t s i m p o r t s from t h e cps-t h o u g h n o t as f i r m l y as P o l a n d and Romania d i d . 3 3 Here a g a i n , market a c c e s s i s s u e remained u n s o l v e d . The problems w i t h use o f t h e i m p o r t commitment would be more e v i d e n t i n t h e c o n t e x t o f C h i n a ' s a c c e s s i o n . Here t h e weakness o f t h e p r e c e d e n t i s more r e v e a l i n g t h a n e v e r . Not s u r p r i s i n g l y , t h e GATT members w i l l be t i r e d o f any Chi n e s e i m p o r t commitments when u n s t a b l e and n o n - t r a n s p a r e n t t r a d e p o l i c i e s a r e s t i l l i n s i g h t . 3 4 Even i f t h a t i s not t h e c a s e , i t r e m a i n s u n r e a l i s t i c t o e x p e c t a s p e c i f i c i m p o r t commitment when t h e on - g o i n g economic and f o r e i g n t r a d e r e f o r m s a r e a c c o r d i n g e n t i t i e s and e n t e r p r i s e s much more power i n t r a d i n g w i t h f o r e i g n p a r t n e r s . 3 5 T h i s i s p a r t i c u l a r l y t r u e when t r a d e volumes a r e n o t e n t i r e l y d e t e r m i n e d o r c o n t r o l l e d by t h e g o v e r n m e n t . 3 6 As C h i n a ' s t r a d e p o l i c i e s become more f l e x i b l e , an i m p o r t commitment w i t h a r i g i d n a t u r e w i l l o b v i o u s l y l i m i t C h i n a ' s d i s c r e t i o n i n d e a l i n g w i t h w o r l d t r a d e . 3 7 A l t h o u g h a " m o d i f i e d i m p o r t commitment s c h e m e " 3 8 c o n t a i n i n g a s e t o f d e t a i l e d s p e c i f i c p r o v i s i o n s might be a b l e t o i n t r o d u c e a sense o f f l e x i b i l i t y , t h e fundamental problems w i t h i m p o r t commitments a r e "the weak p r e c e d e n t f o r use, t h e i r i n c o m p a t i b i l i t y w i t h t h e r e f o r m s now under way, t h e r i g i d i t i e s and market f o r e c l o s u r e t h e y l e a v e i n p l a c e " . 3 9 T h i s would p r o b a b l y r e m a i n u n s o l v e d . 118 A d m i t t e d l y , t h e GATT f a i r s h a r e o f i m p o r t e x p a n s i o n approach f a i l e d t o p r o v i d e an e f f e c t i v e framework f o r non-d i s c r i m i n a t i o n i n East-West t r a d e . I t d i d n o t reduce t h e Western c o u n t e r p a r t ' s d i s c r i m i n a t o r y q u a n t i t a t i v e r e s t r i c t i o n s on E a s t e r n European e x p o r t s . I t d i d n o t s u c c e s s f u l l y s o l v e t h e pro b l e m o f n o n - d i s c r i m i n a t o r y o p e r a t i o n s o f f o r e i g n p l a n t a r g e t s i n P o l a n d and Romania. I n s t e a d o f s e t t l i n g t h e m a t t e r on t h e b a s i s o f n o n d i s c r i m i n a t i o n , t h e GATT p r e f e r r e d a p r a g m a t i c and r a t h e r i m p l i c i t s o l u t i o n based on a r e q u i r e m e n t o f x f a i r ' i m p o r t e x p a n s i o n . T h i s f a i r s h a r e i s s c r u t i n i z e d a c c o r d i n g t o t h e g e o g r a p h i c a l development o f t h e i r i m p o r t s d u r i n g p e r i o d i c c o n s u l t a t i o n s . U n f o r t u n a t e l y i t d i d n o t t o u c h t h e b a s i s o f n o n - d i s c r i m i n a t i o n f o r t h e r e a s o n s t h a t P o l a n d , Romania and Czech b e i n g GATT members were u n a b l e t o e f f e c t i v e l y use t h e i n s t r u m e n t f o r c o n c e s s i o n - m a k i n g and i m p o r t i n c r e a s e s (market openings) as a b a r g a i n i n g element t o a t t a i n r e c i p r o c a l market openings i n t h e West. S e c o n d l y , t h e s o - c a l l e d "import-commitment approach" i s t o o p o l i t i c a l l y -minded t o have n e c e s s a r y economic m e a n i n g . 4 0 E q u a l l y u n f o r t u n a t e , t h e approach s p e l l s a l m o s t n o t h i n g about p r o t e c t i o n and n o n - d i s c r i m i n a t i o n 4 1 b o t h o f w h i c h a r e t h e t w i n themes o f t h e GATT. 4 2 The above weaknesses o f t h e approach would be s u f f i c i e n t t o f o r c e one t o r e t h i n k t h e v a l i d i t y and e f f e c t s o f t h e approach w i t h a v i e w t o i m p r o v i n g i t by e x p l o r i n g b e t t e r a l t e r n a t i v e s t o r e p l a c e t h e e x i s t i n g arrangement. The t a s k o f r e f o r m i n g t h e GATT system towards i n t e g r a t i n g NME c o u n t r i e s 119 would be a t t a i n a b l e i n t h e c o n t e x t o f t h e f o l l o w i n g two o p t i o n s : (1) I m p r o v i n g t h e e x i s t i n g t e c h n i c a l arrangements w h i l e m a i n t a i n i n g i t s p r e s e n t s t a n d on t h e c o u n t r y - b y - c o u n t r y a p p r o a c h ; 4 3 o r (2) D i s c o v e r i n g new approaches t o adapt t h e GATT t o t h e changed economic and p o l i t i c a l r e a l i t i e s o f East-West c o o p e r a t i o n . 4 4 4.3 IMPROVING THE EXISTING ARRANGEMENTS As t h e theme o f n e g o t i a t i o n s on t h e terms o f NMEs' a c c e s s i o n c e n t e r s around " r e c i p r o c i t y " (market openings) and " e n t r a n c e f e e s " , improvements c o u l d be g u i d e d by such t h e as s u m p t i o n t h a t : " I f NMEs a r e t o be i n t e g r a t e d i n t o t h e main s t r e a m o f t h e GATT an e n t r a n c e f e e must be d e v i s e d w h i c h i s b o t h w o r k a b l e and c o n s i d e r e d by b o t h s i d e s t o r e p r e s e n t e q u i t a b l e compensation f o r t h e b e n e f i t s r e c e i v e d by t h e a c c e d i n g NME." 5 Based on t h i s a s s u m p t i o n t h e e n t r a n c e f e e o r terms o f a c c e s s i o n s h o u l d be t h e one w i t h w h i c h NME's c o m p l i a n c e can be e a s i l y m o n i t o r e d . 4 6 T h i s would r e q u i r e s u f f i c i e n t t r a n s p a r e n c y i n r e s p e c t o f t h e f u n c t i o n i n g o f NME's p o l i t i c a l - e c o n o m i c systems f o r t h e purpose o f d e t e r m i n i n g market o p e n i n g s f o r GATT c p s . T h i s c o u l d be a c h i e v e d by a m o d i f i e d and r e f i n e d i m p o r t commitment wh i c h r e q u i r e s t h a t a f i r m o b l i g a t i o n and n o t a mere p r o m i s e be u n d e r t a k e n . I t a l s o r e q u i r e s a d i r e c t l i n k between i m p o r t and e x p o r t l e v e l s , t h e a s s u r a n c e o f 120 n a t i o n a l t r e a t m e n t ( n o n - d i s c r i m i n a t i o n between i m p o r t s and d o m e s t i c p r o d u c t i o n ) , and t h e e v a l u a t i o n o f r e c i p r o c i t y on t h e b a s i s o f b a l a n c e - o f - t r a d e c r i t e r i a . F i n a l l y , i t r e q u i r e s t h e r e a d j u s t m e n t o f i m p o r t t a r g e t t o r e f l e c t changes i n p r i c e l e v e l s . 4 7 I t i s n o t e w o r t h y t h a t even though t h e s e p r o p o s a l s were a b l e t o improve t h e e x i s t i n g arrangements made f o r P o l a n d and Romania, t h e y would be u n a b l e t o f u n c t i o n i n t h e case o f n e g o t i a t i o n s w i t h C h i n a ' s a c c e s s i o n as mentioned e a r l i e r . Any improvement o f t h e e x i s t i n g arrangements p r o v i d e d f o r E a s t European a c c e s s i o n s h o u l d be aimed a t two d i f f e r e n t a s p e c t s . Weight and a t t e n t i o n s h o u l d be g i v e n t o i m p r o v i n g t h e n e g o t i a t i o n s o f c o n c e s s i o n s on t h e b a s i s o f t a r g e t s . 4 8 The new approach s h o u l d c o n s i d e r t h e l i k e l i h o o d o f w i d e r p a r t i c i p a t i o n o f o t h e r NMEs such as C h i n a and S o v i e t Union i n th e GATT forum on t h e b a s i s o f t a r i f f p r o t e c t i o n . 4 9 A l l approaches toward s t a t e t r a d i n g may be c l a s s i f i e d i n t o two b r o a d c a t e g o r i e s : t h o s e w h i c h d e a l w i t h c o m m e r c i a l p o l i c y measures and t h o s e w h i c h d e a l w i t h t r a d e e f f e c t s . 5 0 The a c c e p t a b i l i t y o f t h e former c a t e g o r y r e s t s on t h e assu m p t i o n t h a t s t a t e t r a d i n g i m p l i e s no f u r t h e r r e s t r a i n t on t r a d e t h a n t h e n o m i n a l c o m m e r c i a l p o l i c y measures imposed on t h e p r o d u c t s i t c o v e r s . 5 1 V e r i f i c a t i o n o f t h i s a s s u m p t i o n would r e q u i r e p r o d u c t - b y - p r o d u c t i n v e s t i g a t i o n s . T h i s i s i m p r a c t i c a b l e s i n c e s t a t e t r a d i n g has wide c o v e r a g e . 5 2 The " t r a d e e f f e c t s " a p p r o a c h , on t h e o t h e r hand, o f f e r s a means by which c o n c e s s i o n s may be d e f i n e d s i m p l y and s u r v e i l l a n c e conducted 121 e a s i l y . J However, one would have t o n o t e t h a t n e g o t i a t i o n s on t r a d e t a r g e t s a r e n o t n e c e s s a r i l y e a s i e r t h a n t h o s e on co m m e r c i a l p o l i c y m e a s u r e s . 5 4 Focus s h o u l d be p l a c e d on e n s u r i n g t h a t s t a t e t r a d i n g p r a c t i c e s a r e n e i t h e r r e s t r i c t i v e n o r d i s c r i m i n a t o r y . 5 5 4.4 DISCOVERING NEW APPROACHES TO RECONCILIATION I t s h o u l d be borne i n mind t h a t t h e b a s i c o b j e c t i v e o f th e new approaches i s t o widen t h e p o s s i b i l i t y o f e v e n t u a l more e x t e n s i v e p a r t i c i p a t i o n o f t h e s o c i a l i s t c o u n t r i e s i n t h e GATT. Such new approaches s h o u l d n o t l i m i t t h e GATT's r o l e i n th e e v e r more i m p o r t a n t sphere o f East-West t r a d e . W i t h t h i s aim i n mind, t h e p o s s i b i l i t y o f r e c o n c i l i a t i o n can be c o n s i d e r e d . O b v i o u s l y t o make a r e c o n c i l i a t i o n o f NME and t h e GATT i s t o make a r e c o n c i l i a t i o n o f NME and market economies. To t h i s end, market economies, on t h e one hand, s h o u l d c o n s i d e r NMEs' p r a c t i c a l d i f f i c u l t i e s i n c o m p l e t i n g t h e i r economic r e f o r m s o r r e a d j u s t m e n t s t o j o i n t h e GATT and t h e i r p o s i t i v e e f f o r t s i n p a r t i c i p a t i n g i n t o d a y ' s w o r l d t r a d e system. GATT s h o u l d be more t o l e r a n t and c o o p e r a t i v e towards NME p a r t i c i p a t i o n . I t i s w e l l p r o v e d t h a t t h e s u c c e s s o f GATT m u l t i l a t e r a l i s m i s due t o i t s f l e x i b i l i t y t o t o l e r a t e and compromise c o n f l i c t i n g i d e a s and d i f f e r e n t n a t i o n a l i n t e r e s t s . W i t h o u t such compromise, some consensus c o u l d have never been r e a c h e d . W i t h o u t such 122 f l e x i b i l i t y , GATT cannot p l a y any d e c i s i v e r o l e i n w o r l d t r a d e . C e r t a i n l y , non-market economies s h o u l d e x p e c t l e s s change i n GATT r u l e s o r market economies' s t r u c t u r e and r e a d j u s t and r e f o r m t h e i r economic systems so as t o be c o m p a t i b l e w i t h t h e e s t a b l i s h e d GATT l e g a l system. W i t h r e g a r d t o t h i s , t h e U.S. as a su p e r power w i l l p r o b a b l y t a k e advantage o f NME a c c e s s i o n t o use t h e GATT framework as a b a l l t o r e q u i r e NME's f u l l d e c e n t r a l i z a t i o n . However, U.S. w i l l have t o y i e l d t o t h e i n t e r e s t s o f EC and o t h e r m i d d l e - s i z e d t r a d i n g powers. EEC c o u n t r i e s and most m i d d l e - s i z e d t r a d e r s have p o s i t i v e a t t i t u d e t o wards NMEs' p a r t i c i p a t i o n i n GATT. What has been s a i d i s t o s t r e s s t h a t t h e t a s k o f r e c o n c i l i n g NMEs w i t h GATT t r a d e r u l e s would o c c u r i n b o t h d i r e c t i o n s as e a r l i e r d i s c u s s e d . One-sided c o n c e s s i o n i s n e i t h e r r e a l i s t i c n o r f a i r . I t i s u n r e a l i s t i c because any o f two s i d e s who i s o n l y i n s i s t i n g i n c o n c e s s i o n s o f a n o t h e r p a r t y and who never makes h i s own c o n c e s s i o n s would s i m p l y s p o i l t h e p o s s i b l e r e c o n c i l i a t i o n . T h i s i s p a r t i c u l a r l y t r u e when b o t h a r e demanding c o n c e s s i o n s and c o n c e s s i o n s o f one s i d e a r e c o n d i t i o n e d by t h a t o f t h e o t h e r . I t i s u n f a i r because i n t o d a y ' s w o r l d o f mixed economy, v i r t u a l l y e v e r y c o u n t r y has a c e r t a i n degree o f mo n o p o l i e s . S t a t e c o n t r o l o ver t r a d e becomes e p i d e m i c i n b o t h c a p i t a l i s t and s o c i a l i s t c o u n t r i e s . What makes t h e d i f f e r e n c e i s m e r e l y a m a t t e r o f degree o f c o n t r o l . 5 6 123 W i t h a v i e w t o w i d e n i n g t h e p o s s i b i l i t y o f r e c o n c i l i a t i o n , GATT c o n t r a c t i n g p a r t i e s e s p e c i a l l y t h o s e major market economies s h o u l d f i r s t o f a l l overcome t h e i d e o l o g i c a l d i f f i c u l t y i n u n d e r s t a n d i n g t h e r e a l i s t i c p o s s i b i l i t y o f p o l i t i c a l and economic p e a c e f u l c o - e x i s t e n c e between E a s t and West. Once t h i s i s done comprehensive s o l u t i o n s s o l u t i o n s can t h e n be c o n s i d e r e d and f u r t h e r be worked o u t t o r e s o l v e t h e t a s k o f i n t e g r a t i o n . The GATT can m a i n t a i n t h e p r e v i o u s l y adopted " g r a d u a l and p r a g m a t i c " approach t o a c c e p t c o u n t r i e s l i k e PRC i n t o i t s membership d e s p i t e t h e f a c t t h a t t h e i r r e f o r m s a r e n o t y e t f i n i s h e d and t h e i r economies a r e s t i l l i n a t r a n s i t i o n a l p e r i o d o f p l a n and market. Upon t h e i r a c c e s s i o n t o t h e GATT, t h e GATT C o n t r a c t i n g P a r t i e s m ight t a k e measures t o r e q u e s t t h o s e members who, a f t e r a c c e s s i o n , a r e s t i l l n o t i n f u l l c o n f o r m i t y w i t h GATT r u l e s t o make f u r t h e r a d j u s t m e n t s and r e f o r m s . T h i s i s c r u c i a l i n exp a n d i n g t h e i n f l u e n c e o f t h e GATT as a b r o a d e r w o r l d t r a d e o r g a n i z a t i o n . I n t h e ca s e o f n e c e s s i t y , t h e GATT ought t o seek o t h e r remedies o u t s i d e i t s o r i g i n a l framework. And t h i s was what t h e GATT a c t u a l l y u n d e r t o o k t o s o l v e t h e problem o f market a c c e s s t o E a s t European c o u n t r i e s . I n a d d i t i o n , t h e GATT s h o u l d c o n t i n u e t o approach t h e s u b j e c t m a t t e r g r a d u a l l y and r e a l i s t i c a l l y . 5 7 124 4.4(1) GRADUAL AND REALISTIC APPROACH T h i s approach was f i r s t used by t h e GATT t o d e a l w i t h E a s t European NME c o u n t r i e s ' a c c e s s i o n t o t h e GATT. I t was j u s t i f i e d by t h e f a c t t h a t a l m o s t a l l NMEs, r e g a r d l e s s o f t h e i r w i l l i n g n e s s t o a c c e p t t h e market p r i n c i p l e s i l l u s t r a t e d by t h e GATT, cannot complete t h e i r economic and f o r e i g n t r a d e r e g i m e s w i t h i n a s h o r t p e r i o d o f t i m e . When NMEs r e v e a l e d t h e i r i n t e r e s t i n p a r t i c i p a t i n g i n t h e GATT t r a d i n g system, t h e o p t i o n l e f t f o r t h e GATT c o n t r a c t i n g p a r t i e s were e i t h e r t o r e f u s e t h e i r a p p l i c a t i o n s o r a c c e p t them f i r s t and t h e n n e g o t i a t e w i t h them u n t i l t h e y a r e a b l e t o c a r r y o u t t h e GATT r e q u i r e m e n t s . R e a l i z i n g t h a t r e j e c t i o n i s m e a n i n g l e s s and f r u i t l e s s , t h e GATT adopted t h e g r a d u a l and r e a l i s t i c a t t i t u d e t o wards E a s t e r n b l o c ' s i n t e g r a t i o n . T h i s approach remains v a l i d f o r d e a l i n g w i t h C h i n a o r t h e S o v i e t U nion's a c c e s s i o n t o t h e GATT. "G r a d u a l and r e a l i s t i c " p r i m a r i l y means t h a t t h e GATT can a c c e p t t h e NME i n t o i t s membership on a s t e p - b y - s t e p b a s i s . F o r i n s t a n c e , i n t h e case o f C h i n a ' s a c c e s s i o n t o GATT, t h e GATT w o r k i n g p a r t y and Ch i n a c o u l d e s t a b l i s h c r i t e r i a t o s e r v e as " m i l e s t o n e s " o r " g r a d u a t i o n " method i n d e t e r m i n i n g whether C h i n a c o u l d accede f u l l y t o t h e GATT. 5 8 As i n d i c a t e d e a r l i e r , t h e r e i s no a b s o l u t e d e f i n i t i o n o f "market and "non-market". The d i s t i n c t i o n between market and non-market i s o n l y r e l a t i v e l y d e t e r m i n e d . D u r i n g t h e s t a g e o f " m i l e s t o n e " , C h i n a and GATT member n a t i o n s s h o u l d f o c u s on t h e e s s e n t i a l l y 125 p r a c t i c a l g o a l s t h a t u n d e r l i e t h e GATT. These a r e m a x i m i z i n g t h e o p p o r t u n i t y f o r economic exchange among t h e c o u n t r i e s t h a t want t o t r a d e w i t h each o t h e r and m a i n t a i n i n g a sense of f a i r n e s s so t h a t t h e system w i l l e n j o y c o n t i n u i n g s u p p o r t i n each c o u n t r y . 5 9 The m i l e s t o n e s s h o u l d be s u f f i c i e n t t o j u s t i f y t h a t t h e r e i s a l a r g e and f r e e market i n C h i n a o p e n i n g t o t h e GATT c o u n t r i e s . The f r e e market i s a c h i e v e d by freedom o f p r i c i n g and t r a n s a c t i o n s . 6 0 The u l t i m a t e c o m p a t i b i l i t y o f C h i n a ' s t r a d e and t a r i f f system w i t h t h e GATT depends on whether o r n o t C h i n a i s a b l e t o a c h i e v e t h e f o l l o w i n g m i l e s t o n e s : (1) r e l a x a t i o n o f p r i c e c o n t r o l s on major c a t e g o r i e s o f p r o d u c t s , w i t h p r i c e s r e s p o n d i n g t o s u p p l y and demand, (2) r e d u c t i o n o f p r i c e c o n t r o l s on t h e i n p u t s used i n making such p r o d u c t s , (3) g r a d u a l e l i m i n a t i o n o f c e n t r a l p l a n n i n g measures so t h a t p u r c h a s i n g d e c i s i o n s a r e made on t h e b a s i s o f p r i c e , q u a l i t y and o t h e r c o m m e r c i a l f a c t o r s , r a t h e r t h a n upon a d m i n i s t r a t i v e q u o t a s o r g o a l s , (4) d e c e n t r a l i z a t i o n o f economic d e c i s i o n making so t h e r e would be a p l u r a l i t y o f C h i n e s e e n t e r p r i s e s competing w i t h each o t h e r t o pu r c h a s e f o r e i g n p r o d u c t s , (5) s u b s t a n t i a l e l i m i n a t i o n o f e x p o r t s u b s i d i e s and t r a d e - d i s t o r t i n g i n t e r n a l s u b s i d i e s , (6) a v a i l a b i l i t y o f i n f o r m a t i o n c o n c e r n i n g p o t e n t i a l C h i n e s e p u r c h a s e r s , t h e i r needs, and p r o c e d u r e s f o r d o i n g b u s i n e s s w i t h them, 126 (7) an adequate l e g a l framework t o e n s u r e t h a t f o r e i g n s u p p l i e r s and p u r c h a s e r s can e n t e r i n t o v a l i d c o n t r a c t s w i t h f u l l p r o t e c t i o n s f o r p r o p r i e t a r y i n f o r m a t i o n , p a t e n t s , t e c h n o l o g y t r a n s f e r and t h e l i k e , and (8) t h e p r e s e n c e o f a c o d i f i e d and u n i f o r m t a r i f f s y s t e m . 6 1 Among t h e s e m i l e s t o n e s , C h i n a has met i n p a r t , (1) , (2) , (3) , (4) and (6) . As f o r t h e f i f t h r e q u i r e m e n t s C h i n a can use some o f t h e exemptions p r o v i d e d by t h e GATT f o r d e v e l o p i n g c o u n t r i e s . ^ As f a r as t h e s e v e n t h r e q u i r e m e n t i s concerned, t h e y w i l l be g r a d u a l l y f u l f i l l e d . W i t h r e s p e c t t o t h e t a r i f f s ystem, i t i s a l r e a d y c o d i f i e d and a c c e s s i b l e . 6 3 However, C h i n a employs d i f f e r e n t t a r i f f s f o r open c i t i e s and S p e c i a l Economic Zones (SEZs). I f t a r i f f s system a p p l i c a b l e t o t h e SEZs and t h o s e open c i t i e s l i s t e d c o u l d be implemented i n t h e e n t i r e t r a d i n g system, i t would c e r t a i n l y be e a s i e r f o r Ch i n a t o accede t o GATT on a t a r i f f r e d u c t i o n b a s i s . 6 4 W h i l e u s i n g m i l e s t o n e method t o t e s t NMEs' c o m p a t i b i l i t y w i t h GATT, some s p e c i f i c p r o v i s i o n s f o r " g r a d u a t i o n " from o b s e r v e r s t a t u s t o f u l l membership s h o u l d be i n c l u d e d i n e v e r y a r e a i n w h i c h NMEs a r e i n i t i a l l y s u b j e c t t o s p e c i a l t r e a t m e n t . 6 5 P o l i s h and Romanian i m p o r t commitments s h o u l d be r e n e g o t i a t e d as t h e y now adopt a custom t a r i f f t o be an e f f e c t i v e i n s t r u m e n t o f t r a d e r e g u l a t i o n . 6 6 I n a d d i t i o n , t h e d i s c r i m i n a t o r y QRs on NME p r o d u c t s s h o u l d be e l i m i n a t e d i f t h e NMEs had adopted a t r a n s p a r e n t economic system t o whi c h t h e r e g u l a r GATT p r o v i s i o n s on market d i s r u p t i o n can be a p p l i e d 127 e f f e c t i v e l y . 6 7 As t o whether s p e c i a l r u l e s a p p l i e d t o low-p r i c e d i m p o r t s from NME s h o u l d be m a i n t a i n e d o r n o t , i t s h o u l d r e l y on whether market f o r c e s a r e o p e r a t i v e i n t h e d o m e s t i c market o f t h e NME c o u n t r i e s . To a v o i d u n n e c e s s a r y arguments and m i n i m i z e d i s p u t e s i n d e t e r m i n i n g t h e s t a t u s o f t h e NME's economy, a p a n e l and w o r k i n g p a r t y s h o u l d be e s t a b l i s h e d t o use a s e t o f commonly a c c e p t e d c r i t e r i a and g u i d e l i n e s f o r i n v e s t i g a t i o n s and an n u a l r e v i e w . 6 8 A s t e p - b y - s t e p and m i l e s t o n e s e x a m i n a t i o n can b e g i n w i t h t h e m a r g i n a l s t a t u s o f o b s e r v e r i n v a r i o u s GATT committees o f s p e c i a l i n t e r e s t such as a g r i c u l t u r e , t e x t i l e s and/or i n p a r t i c u l a r MTN c o d e s . 6 9 And t h i s c o u l d be f o l l o w e d by t h e o b s e r v e r s h i p i n t h e GATT, p r o v i s i o n a l a c c e s s i o n based on t a r i f f n e g o t i a t i o n s ( t y p e o f quasi-membership o r " e x p e r i m e n t a l a s s o c i a t i o n " 7 0 and f i n a l l y f u l l membership. D u r i n g e x p e r i m e n t a l a s s o c i a t i o n w i t h t h e GATT, NMEs s h o u l d conduct t h e i r c o m m e r c i a l r e l a t i o n s w i t h o t h e r cps i n ac c o r d a n c e w i t h 7 1 t h e GATT " t o t h e e x t e n t p o s s i b l e " under i t s economic system. T h i s i s t h e s o - c a l l e d "second c l a s s membership" w h i c h some NMEs such as C h i n a and t h e S o v i e t Union would be unhappy w i t h . However, i t can be used as a t r a n s i t i o n a l phase and once t h e NME has pa s s e d t h i s s t a g e , i t can a c q u i r e f u l l membership. The p e r i o d i c c o n s u l t a t i o n s c o u p l e d w i t h t h e " m i l e s t o n e s " e x a m i n a t i o n s would c e r t a i n l y h e l p t h e w o r k i n g p a r t y t o e v a l u a t e t h e NME's economic development and i t s c o m p a t i b i l i t y w i t h t h e GATT m u l t i l a t e r a l framework. I f c o m p a t i b l e enough, 128 t h e s p e c i a l s a f e g u a r d c l a u s e s imposed p r o v i s i o n a l l y by cps c o u l d be removed and r e p l a c e d w i t h t h e normal s a f e g u a r d s a v a i l a b l e i n A r t i c l e 1 9 . 7 2 The l e n g t h o f t i m e o f o b s e r v e r s h i p and a s s o c i a t e membership o f NMEs needed f o r a c q u i r i n g f u l l membership would depend on t h e economy o f i n d i v i d u a l NMEs and t h e i r w i l l i n g n e s s t o a c c e p t " s p e c i a l t e r m s " o f a c c e s s i o n . 7 3 N o r m a l l y , as soon as t h e m i l e s t o n e s have been a c h i e v e d and r e c i p r o c i t y f o r m u l a f o r s o l v i n g market a c c e s s p r o blem agreed upon, f u l l GATT membership would be g r a n t e d w i t h no more c o m p l i c a t i o n s . 7 4 The advantage o f u s i n g t h i s approach i s t h a t b o t h GATT cps and NMEs a p p l i c a n t s have t h e o p p o r t u n i t y t o be c o n v e r s a n t w i t h each o t h e r d u r i n g t h e t r a n s i t i o n a l p e r i o d s . 7 5 The NMEs may t a k e advantage o f t h e s t e p s t o be f a m i l i a r w i t h t h e GATT as a c o n t r a c t as w e l l as an i n s t i t u t i o n w h i c h has pr o v e d b e n e f i c i a l i n n e g o t i a t i n g t h e i r terms o f membership as w e l l as l i v i n g under t h e m . 7 6 On t h e o t h e r hand, GATT c o u n t r i e s can be w e l l i n f o r m e d o f e v e r y development and p r o g r e s s made i n t h e NMEs. 7 7 I n any e v e n t , what remains t o be d e t e r m i n e d i s whether t h e t r a d i t i o n a l p r a c t i c e o f d e a l i n g w i t h each NME on an i n d i v i d u a l b a s i s s h o u l d be c o n t i n u e d o r whether i t i s p r e f e r a b l e , now t h a t a s i g n i f i c a n t amount o f w o r l d t r a d e i n v o l v e s NMEs, t o amend t h e GATT by a d d i n g g e n e r a l p r o v i s i o n s a d d r e s s e d t o t h e common problems i n v o l v e d i n NME p a r t i c i p a t i o n . 7 8 Some o f t h e a d v o c a t e s s u g g e s t t h a t f u r t h e r p r o v i s i o n s s h o u l d be added t o t h e GATT as " P a r t V", t h e s o -129 c a l l e d " P a r t V a p p r o a c h " . 7 9 R e g a r d l e s s o f t h e p o s s i b l e m e r i t s o f t h i s a p proach, Each NME has i t s own non-common c h a r a c t e r i s t i c s . Some a r e command s t a t e t r a d i n g systems. O t h e r s f o l l o w l o o s e s t a t e t r a d i n g system. S t i l l o t h e r s a r e r e l a t i v e l y d e v e l o p e d such as Y u g o s l a v i a and Hungary. There a r e a l s o t h o s e t h a t a r e low-income economies such as Romania and C h i n a . The q u e s t i o n as t o whether a NME i s a b l e t o f u l f i l l i t s o b l i g a t i o n s (pacta sunt servenda) i s n o t d e t e r m i n e d by a s i m p l e l a b e l o f NME a t t a c h e d t o a l l NMEs i n d i f f e r e n t s t a g e s o f development f o l l o w i n g a b i t d i f f e r e n t t r a d i n g s y s t e m s . 8 0 The m e r i t o f a d o p t i n g i n d i v i d u a l p r o t o c o l s i s t h a t i t d e a l s w i t h d i f f e r e n t NME on c o u n t r y - b y - c o u n t r y b a s i s . On t h e o t h e r hand, t h e m e r i t o f p r o t o c o l s i s undermined by i t s d i s a d v a n t a g e s w h i c h can be overcome by an o v e r a l l approach. Thus a c o m b i n a t i o n o f i n d i v i d u a l a p p r o a c h and o v e r a l l a p proach would be most p r e f e r a b l e . The GATT CPs can, on t h e one hand, i n c o r p o r a t e new p r o v i s i o n s accommodating t h e NME a l o n g t h e l i n e s as s u g g e s t e d i n t h e u n f u l f i l l e d "Havana C h a r t e r " . T h i s can be done by p r o v i d i n g g e n e r a l r u l e s a p p l i c a b l e t o a l l NMEs w i t h common c h a r a c t e r i s t i c s . As t o whether t h e y s h o u l d be added t o GATT as P a r t V d e l e t i n g A r t i c l e 17 o r can be combined w i t h a r e v i s e d A r t i c l e 17, i t s h o u l d depends on c o n v e n i e n c e . The GATT can have v a r i a t i o n due t o t h e f a c t t h a t each i n d i v i d u a l NME has i t s own unique s i t u a t i o n . F o r i n s t a n c e , C h i n a as an o r i g i n a l c o n t r a c t i n g p a r t y would p r e f e r t o resume h e r membership i n s t e a d o f a c c e d i n g t o t h e GATT. 8 1 130 O b v i o u s l y t h i s v a r i a t i o n cannot be a d d r e s s e d by t h e g e n e r a l r u l e s and i t has t o be s e t f o r t h i n i n d i v i d u a l p r o t o c o l s , w i t h w h i c h each NME can con d u c t t r a d e w i t h o t h e r c p s i n a c c o r d a n c e w i t h GATT r u l e s " t o t h e e x t e n t p o s s i b l e " under i t s economic s y s t e m . 8 2 W i t h t h i s t h e p o s s i b l e " n e g a t i v e e f f e c t s o f f r e e z i n g NMEs i n t o a s p e c i a l , l e s s f a v o r a b l e s t a t u s " by i n s e r t i n g " f i x e d r u l e s o f g e n e r a l a p p l i c a b i l i t y " would be r e c t i f i e d . Thus g r e a t e r d e c e n t r a l i z a t i o n and r e l i a n c e on t h e market would be encouraged and rewarded i n d i v i d u a l l y . 8 3 4.4(2) MODIFICATION OF GATT RULES Any approach o u t s i d e t h e ambit o f t h e GATT framework can not h e a l t h e i n h e r e n t o r i n t e r n a l d i s e a s e s o f GATT and cannot u l t i m a t e l y s o l v e t h e problem o f w o r l d t r a d e i n t e g r a t i o n . A b e t t e r a pproach would be t o f i n d c auses and l o c a t i o n o f weaknesses. One f a t a l s h o r t c o m i n g o f GATT accommodations f o r i n t e g r a t i n g East-West t r a d i n g systems i s t h a t t h e y do not r e f e r e x p l i c i t l y enough t o t h e p l a n n i n g t e c h n i q u e s i n E a s t e r n E u r o p e . 8 4 As a remedying approach, t h e f i r s t e f f o r t s h o u l d perhaps be made t o i n t r o d u c e i n t o t h e GATT p r o v i s i o n s e x p l i c i t l y r e f e r r i n g t o t h e t a r g e t - p r o t e c t e d and s t a t e t r a d i n g economies and r e c o g n i z i n g t h o s e systems as a l t e r n a t i v e methods^ o f o r g a n i z i n g a c o u n t r y ' s f o r e i g n t r a d e . 8 5 Indeed, i t i s b o t h p o s s i b l e and d e s i r a b l e f o r GATT t o d e v e l o p A r t . 17 on t h e b a s i s o f u n f u l f i l l e d p r o v i s i o n s a l o n g 131 t h e l i n e s as s u g g e s t e d i n t h e "Havana C h a r t e r " and r e l a x some o f i t s r e q u i r e m e n t s w i t h w h i c h NME o b v i o u s l y c annot c o m p l y . 8 6 Indeed, t h e arrangements f o r East-West t r a d e i n t h i s r e s p e c t a r e even l e s s s a t i s f a c t o r y t h a n t h o s e o f f e r e d by t h e American "Suggested C h a r t e r " and t o some e x t e n t t h e Havana C h a r t e r o f f o r t y y e a r s ago. To be s p e c i f i c , t h e GATT s h o u l d i n c o r p o r a t e new p r o v i s i o n s on n o n - d i s c r i m i n a t i o n on p l a n t a r g e t s . I t s h o u l d a l s o p r o v i d e f o r a r e c i p r o c i t y arrangement a l o n g t h e l i n e s o f t h e U.S. "Suggested C h a r t e r " and s h o u l d c o n t a i n a c l e a r s e t code o f con d u c t on dumping, market d i s r u p t i o n and s a f e g u a r d c l a u s e s adapted t o t h e s t a t e t r a d i n g systems o f t h e c e n t r a l l y -p l a n n e d economies. R e s p e c t i v e p r o v i s i o n s s h o u l d r e f e r t o p l a n n i n g t e c h n i q u e s r a t h e r t h a n r e l y on g e n e r a l s t a t e m e n t s and a s s u r a n c e s . 8 9 T h i s c o u l d be a c c o m p l i s h e d e i t h e r by expanding and r e v i s i n g A r t i c l e 17 o f t h e GATT o r by i n s e r t i n g a d d i t i o n a l p a r t ( f o r i n s t a n c e , P a r t V) d e a l i n g e x c l u s i v e l y w i t h NME membership a t b o t h p r o c e d u r a l and s u b s t a n t i v e l e v e l s . One a l t e r n a t i v e approach t o i m p o r t commitment c o u l d be based on t h e a s s e r t i o n t h a t t h e i m p o r t mark-up r a t e s on t r a d e between two o r more s t a t e t r a d i n g systems s h o u l d be p r o g r e s s i v e l y r e d u c e d t h r o u g h t a r g e t l i b e r a l i z a t i o n and d o m e s t i c p r i c e a d j u s t m e n t s . 9 0 M o d i f i c a t i o n s a l o n g t h e s e l i n e s c o u l d be i n t r o d u c e d e i t h e r by i n c o r p o r a t i n g some new p r o v i s i o n s i n t o A r t i c l e 24 o r by i n s e r t i n g a w a i v e r under t h e re d u c e d i m p o r t mark-up r a t e c l a u s e . 9 1 However, t h i s a l t e r n a t i v e approach i t s e l f has some c o n s t r a i n t s . I t can be 132 weakened by v a r i e t y o f c e n t r a l p l a n n i n g measures. F o r example, s a l e s o f i m p o r t s can be l i m i t e d by i s s u i n g a d m i s s i o n t i c k e t and e r e c t i n g r e s t r i c t i o n s on e n t r a n c e . 9 3 I n t h e case o f C h i n a , t h i s would r u n c o u n t e r t o t h e s p i r i t o f t h e c u r r e n t C h i n e s e r e f o r m s because t h e r e f o r m w i l l l e a d t o e l i m i n a t i o n o f government f i x e d t a r g e t s f o r i n d i v i d u a l c o r p o r a t i o n s . The Government has no r e a s o n t o make such commitments t o a c h i e v e volume o f i m p o r t s a t a p a r t i c u l a r l e v e l . A f u r t h e r approach would be t o r e q u i r e NME members o r a p p l i c a n t s t o i n c r e a s e t r a n s p a r e n c y o f t h e i r p u r c h a s i n g c r i t e r i a and c o m p e t i t i v e b i d d i n g i n d o m e s t i c m a r k e t s . S i n c e t h e absence o f adequate i n f o r m a t i o n on t h e f u n c t i o n i n g o f a NME's economic system has been a major b a r r i e r t o i t s f u l l a c c e p t a n c e i n t o t h e GATT, t h e a t t e n t i o n o f t h e GATT s h o u l d be s h i f t e d t o i n c l u d e s p e c i f i c and d e t a i l e d p r o v i s i o n s aimed a t i n c r e a s i n g t h e t r a n s p a r e n c y o f t h e NMEs'economic and t r a d e s y s t e m s . 9 5 Under t h o s e improved t r a n s p a r e n c y p r o v i s i o n s a l l a c c e d i n g NMEs and p r e s e n t NME CPs would have t o p r o v i d e d a t a on, and/or submit t o a w o r k i n g p a r t y e x a m i n a t i o n o f t h o s e s p e c i f i c a r e a s p a r t i c u l a r l y s u s c e p t i b l e t o m a n i p u l a t i o n f o r t h e purpose o f i n f l u e n c i n g t r a d e . 9 6 The i n f o r m a t i o n s u b m i t t e d i s s u b j e c t t o supplement upon f u r t h e r r e q u e s t by GATT cps and S e c r e t a r i a t . Requirements r e g a r d i n g t r a n s p a r e n c y o f p u r c h a s i n g c r i t e r i a and c o m p e t i t i v e b i d d i n g can be s p e c i f i e d e i t h e r i n t h e GATT Government Procurement Code o r i n an annex t o t h e C o d e . 9 7 133 I n a d d i t i o n t o t h i s approach, i n d e a l i n g w i t h NME's s t a t e t r a d i n g problems GATT may use t h e same " i n j u r y " approach as used i n d e a l i n g w i t h s u b s i d y i s s u e t o overcome t h e dilemma w i t h s t a t e - t r a d i n g p r o b l e m s . 9 8 I n i t s r e f i n e d p r o v i s i o n s , t h e GATT may f i r s t acknowledge s t a t e - t r a d i n g system and r e g a r d i t as a n e c e s s a r y i n s t r u m e n t o f t r a d e c o n t r o l . 9 9 I t would t h e n r e n e g o t i a t e more d e t a i l e d mechanisms f o r d i s c o u r a g i n g t h e i r use and m i n i m i z i n g " s e r i o u s o b s t a c l e s " t o t r a d e due t o t h e o p e r a t i o n s o f s t a t e t r a d i n g and p r o v i d e p o s s i b l e remedies f o r compensating " i n j u r i o u s e f f e c t s " r e s u l t i n g from STEs. I n c o n c l u s i o n , a l l approaches a r e v u l n e r a b l e . As c i r c u m s t a n c e s change, t h e approach s h o u l d a l s o be changed. Any approach t o NMEs' i n t e g r a t i o n s h o u l d be based on c e r t a i n g o a l . The r e a l i z a t i o n o f t h e g o a l s h o u l d be t h e t o u c h s t o n e o f t h e v i a b i l i t y o f t h e a p p r o a c h . 1 0 0 I n any e v e n t , one s h o u l d n ote t h a t t h e pr o p o s e d new approaches might be used t o g e t h e r w i t h p e r i o d i c c o n s u l t a t i o n s and p r o v i s i o n a l s p e c i a l s a f e g u a r d s as l o n g as t h e y a r e a p p r o p r i a t e t o r e c o n c i l i n g d i v e r s i f y i n g t r a d e systems and a r e a b l e t o i n c r e a s e t h e o p p o r t u n i t y o f s o l v i n g t h e p r o blem o f g l o b a l i n t e g r a t i o n . There w i l l be no s i n g l e s o l u t i o n t o t h e t h e s i s problem. But d e c e n t r a l i z a t i o n c o u p l e d w i t h t r a n s f o r m a t i o n o f command s t a t e t r a d i n g system i n t o l o o s e s t a t e t r a d i n g system might be t h e f i r s t b e s t s o l u t i o n t o r e s o l v i n g t h e problem o f i n c o m p a t i b i l i t y between t h e GATT r e q u i r e m e n t s on w o r l d t r a d e and NME s t a t e t r a d i n g systems. 134 4.4(3) "DECENTRALIZATION"-THE FIRST-BEST SOLUTION TO THE  INCOMPATIBILITY? Economic and t r a d e r e f o r m s aim b o t h a t i n t r o d u c i n g market f o r c e s i n t o t h e NMEs' d o m e s t i c economy and d e c e n t r a l i z i n g t h e i r f o r e i g n t r a d e a c t i v i t i e s . T h i s i s t h e f i r s t - b e s t s o l u t i o n t o s o l v i n g t h e problem o f market a c c e s s and i n c o m p a t i b i l i t y between NME and t h e GATT l e g a l system. I t i s s u b m i t t e d t h a t GATT r u l e s a r e f o r m u l a t e d e x c l u s i v e l y a l o n g t h e l i n e o f t h e market economy i d e o l o g y . The r u l e s and p r i n c i p l e s a r e founded on sound a s s u m p t i o n s . To change t h e o r i g i n a l a s s u m p t i o n s would d i s m a n t l e t h e GATT r u l e s . I f NMEs can r e f o r m t h e i r economic system t o be c o m p a t i b l e w i t h market p r i n c i p l e s , l o o s e n command s t a t e t r a d i n g l i n k s and a l l o w f r e e c o m p e t i t i o n i n p u r c h a s e s o r s a l e s and d e c e n t r a l i z e t r a d i n g system, i t i s s u r e t h a t t h e t a s k o f r e c o n c i l i a t i o n and i n t e g r a t i o n w i l l be w e l l c o m p l e t e d . The f o c u s o f t h e r e f o r m s s h o u l d be on such a r e a s o f t h e i n c o m p a t i b i l i t y as t h e i r p r i c i n g system, s t a t e t r a d i n g system i n f o r e i g n t r a d e , i m p o r t and e x p o r t c o n t r o l ( l i c e n s i n g ) system and t a r i f f system. D e c e n t r a l i z a t i o n o f t h e p l a n n e d economy w i t h t a r g e t - p r o t e c t e d s t a t e t r a d i n g system t o be market economy w i t h t a r i f f - p r o t e c t e d economy s h o u l d be t h e g e n e r a l g u i d e l i n e and o b j e c t i v e . I n d e a l i n g w i t h t h i s t h e key i s s u e i s t o d e t e r m i n e what market c o n d i t i o n s a r e needed i n o r d e r t o have NMEs conform w i t h t h e GATT r e q u i r e m e n t s , when i t can be c o n s i d e r e d t h a t t h e r e e x i s t s a market t h a t can i n t e r a c t w i t h t h o s e o f FMEs' GATT CPs and f u r t h e r m o r e what c r i t e r i a s h o u l d 135 be used t o d e t e r m i n e such a m a r k e t . 1 0 1 I t i s i m p o r t a n t t h a t NMEs a c c e p t t h e e s t a b l i s h e d fundamental b e l i e f i n t h e GATT t h a t f o r t h e most p a r t , t h e f l o w o f goods among members i s d e t e r m i n e d by p r i n c i p l e s o f c o m p a r a t i v e advantage and c o m m e r c i a l c o n s i d e r a t i o n s . 1 0 2 Supposing NMEs can do so, t h e d i f f e r e n c e s between NME and FME i n t h e i r economic systems w i l l be o n l y minor f a c t o r s t h a t s h o u l d n o t d i s c o u r a g e NMEs from p a r t i c i p a t i n g i n t h e G A T T. 1 0 3 However, t h e r e a r e two o b v i o u s problems w h i c h may b o t h e r NME c o u n t r i e s i n j o i n i n g t h e GATT. One problem l i e s i n t h e l a c k o f consensus among GATT members on t h e k i n d s o f m a r k e t p l a c e i n t e r v e n t i o n s by n a t i o n a l governments t h a t a r e deemed i n c o n s i s t e n t w i t h t h e development o f a g l o b a l market and t h e l a c k o f a s e t o f commonly agreed-upon r u l e s . 1 0 4 A n o t h e r more t y p i c a l , perhaps common problem found i n t h e NME i s t h a t NME c o u n t r i e s l a c k i n s t i t u t i o n s , h a b i t s , code of c o n d u c t and c u l t u r e o f a market system w h i c h may n o t be a c h i e v e d w i t h i n a few y e a r s . A comparison o f E a s t e r n European c o u n t r i e s and C h i n a would show t h a t i t would be e a s i e r f o r E a s t European c o u n t r i e s t o form market n o t i o n s i n c e t h e y used t o have w e s t e r n t r a d i t i o n . But f o r C h i n a , i t w i l l t a k e a c o n s i d e r a b l e amount o f t i m e t o e s t a b l i s h such i n s t i t u t i o n s , h a b i t s and c u l t u r e t h a t would make i t a "market economy" s i n c e C h i n a e v o l v e d from i n c r e d i b l y l o n g p e r i o d o f f e u d a l i s m . " J I t i s r e c o g n i z e d t h a t t h e most i m p o r t a n t component o f t h e r e f o r m s i s t o change t h e o r i g i n a l p r i c i n g system. The f o c u s o f t h e H u n g a r i a n "New Economic Mechanism" was t h e freedom o f 136 p r i c i n g i n a d d i t i o n t o t h e r e a d j u s t m e n t o f i t s t a r i f f s y s t e m . 1 0 6 C h i n a i s now a i m i n g a t r e p l a c i n g t h e l o n g - a d o p t e d mandatory p r i c i n g w i t h more o f g u i d a n c e p r i c i n g . I t a l s o wants t o i n t r o d u c e market p r i c e s t o r e g u l a t e a h i g h p e r c e n t a g e o f com m e r c i a l t r a n s a c t i o n s . 1 0 7 The purpose o f m a s s i v e on-going r e f o r m s i s t o d e c e n t r a l i z e once h i g h l y c e n t r a l i z e d f o r e i g n t r a d e system. u o I t i s a l s o t o i n t r o d u c e market f o r c e s i n t o p a r t o f C h i n a ' s i n t e r n a l economy as r e g u l a t o r y f o r c e s . 1 0 9 As p a r t o f t h e f o r e i g n t r a d e r e f o r m , t a r i f f system i s b e i n g c o d i f i e d and u n i f i e d . Import l i c e n s i n g system o f C h i n a w i l l as a r e s u l t o f t h e r e f o r m s have a g l o b a l and n o n - d i s c r i m i n a t o r y n a t u r e towards each i n d i v i d u a l c o u n t r y . 1 1 0 However, an e s s e n t i a l and perhaps major p a r t o f t h e economy rem a i n s e i t h e r c e n t r a l l y o r l o c a l l y c o n t r o l l e d . 1 1 1 Moreover, t h e i n s t i t u t i o n s and b u r e a u c r a t i c h a b i t s b r o u g h t about p a r t l y by t h e s o c i a l i s t system and p a r t l y by t r a d i t i o n a l c u l t u r e would make i t h a r d enough t o c a r r y o u t t h e market p r i n c i p l e s e n u n c i a t e d i n t h e G A T T . 1 1 2 A l s o , many e n t e r p r i s e s a r e s t i l l f a c i n g t h e c r u c i a l r e a l i t y t h a t freedom o f p r i c i n g does n o t g i v e them a d i r e c t a c c e s s t o t h e market due t o t h e p o l i c y and l e g a l l i m i t a t i o n s on t h e use o f l a n d , r e c r u i t m e n t o f employees, s u p p l i e s o f raw m a t e r i a l s and f i n a n c i n g f a c i l i t i e s . 1 1 3 T h i s i m p l i e s t h a t t h e r e f o r m s i n C h i n a must be c o n t i n u e d i n a more p r o f o u n d and b r o a d e r f a s h i o n . I t i s c o n t r a d i c t o r y and h a r d l y u n d e r s t a n d a b l e f o r C h i n a t o i n t r o d u c e market p r i n c i p l e s i n t o i t s economy and p r e p a r e s t o j o i n t h e GATT but 137 keeps i t s e l f "a s o c i a l i s t dominant c o u n t r y . " 1 1 4 One cannot h e l p w o n d e r i n g how much emphasis w i l l be p l a c e d i n t h e f u t u r e on p l a n i n g and how much on market p r i n c i p l e s . 1 1 5 T h i s i d e o l o g i c a l c o n t r a d i c t i o n must be removed as soon as p o s s i b l e o t h e r w i s e t h e r e f o r m s w i l l be h i n d e r e d . Moreover, as t o t h e v i a b i l i t y o f "one s t a t e , two system" b l u e p r i n t d e s i g n e d t o be implemented a f t e r 1997 t a k e - o v e r o f Hong Kong, t i m e w i l l t e l l . I f t h i s i s manageable, i t i s l i k e l y t h a t t h e same scheme w i l l f u r t h e r be a p p l i e d t o Taiwan and u l t i m a t e l y e x t e n d e d t o t h e m a i n l a n d C h i n a . Above a l l , t h e problem i s t h a t even C h i n a i t s e l f has p e r h a p s , no i d e a about t h e d i r e c t i o n i n w h i c h i t s h o u l d go: e i t h e r t o go l a i s s e z f a i r e o r t o m a i n t a i n i n g i t s " c e n t r a l i s m " ; s t a t e - o w n e r s h i p o r p r i v a t e o w n e r s h i p ; "market" o r non-market". The answer i s y e t t o be f o u n d . 1 1 6 I n s h o r t , i t would n o t be t o o much t o say t h a t assuming t h e fundamental t e n e t o f c o m p a r a t i v e advantage and c o m m e r c i a l b e h a v i o r b e h i n d t h e GATT r u l e s and p r i n c i p l e s i s t o be unchanged, t h e d e c e n t r a l i z a t i o n i s by f a r t h e o n l y and most e f f e c t i v e o p t i o n f o r r e c o n c i l i a t i o n . Only t h r o u g h s u b s t a n t i a l d e c e n t r a l i z a t i o n can t h e p r o b l e m o f i n c o m p a t i b i l i t y and r e c i p r o c i t y be b e s t s o l v e d . 4.5 OPTIONS FOR REGAINING CHINA'S GATT MEMBERSHIP C h i n a has been i n t e r e s t e d i n j o i n i n g t h e GATT f o r y e a r s . But a t l e a s t a t t h e p r e s e n t s t a g e C h i n a cannot make r a d i c a l economic and p o l i t i c a l r e f o r m s t o commit h e r s e l f t o a c c e p t 138 GATT r u l e s t o a f u l l e x t e n t . N o n e t h e l e s s , t h e r e s t i l l e x i s t s e v e r a l o p t i o n s f o r r e c o n c i l i a t i o n . As r e g a r d s C h i n a ' s p a r t i c i p a t i o n i n GATT, t h e f o l l o w i n g o p t i o n s a r e wo r t h c o n s i d e r i n g : (1) E i t h e r C h i n a r e f o r m s i t s economy and f o r e i g n t r a d e system t o such a degree t h a t h e r economic system can be q u i t e c o m p a t i b l e w i t h GATT as i f i t were a market economy; o r (2) R e g a r d l e s s o f i t s d e e p - r o o t e d MFN n o t i o n and l i b e r a l i s m , t h e GATT i n s e r t s s p e c i a l p r o v i s i o n s s u g g e s t e d by "t h e A m e r i c a n C h a r t e r " o r "Havana C h a r t e r " t o t o l e r a t e and compromise w i t h s t a t e t r a d i n g c o u n t r i e s ; o r (3) C h i n a accedes t o GATT on t h e b a s i s o f s p e c i a l arrangement; o r (4) C h i n a g i v e s up any attempt t o j o i n t h e GATT because o f i t s i n a b i l i t y o r u n w i l l i n g n e s s t o f u l l y a c c e p t t h e market-based GATT regime and seek o t h e r v i a b l e avenues such as b i l a t e r a l o r r e g i o n a l t r a d e arrangements; o r (5) Changes i n b o t h GATT's and C h i n a ' s t r a d i n g systems o r economic p o l i c i e s . Among t h e s e o p t i o n s t h e f i r s t seems t o be u n r e a l i s t i c a t l e a s t i n t h e nea r f u t u r e . Even i f C h i n a were w i l l i n g t o a c c e p t market i d e o l o g y w i t h o u t r e s e r v a t i o n , i t would t a k e a c o n s i d e r a b l y l o n g p e r i o d o f t i m e t o co m p l e t e . I t i s q u i t e c e r t a i n from i t s r e c e n t economic and p o l i t i c a l r e f o r m p l a n t h a t C h i n a w i l l o n l y r e f o r m i t s economy t o a model o f s o -termed " p l a n n e d commodity economy" w h i c h r e p r e s e n t s c o -139 e x i s t e n c e o f p l a n and market w h i c h i s e s s e n t i a l l y a mixed system o f s t a t e o w n e r ship and market r e g u l a t i o n . I n c o n s i d e r i n g t h e second o p t i o n one may wonder how f a r o r t o what e x t e n t t h e GATT r u l e s can be changed t o r e c o n c i l e w i t h NMEs. As a l r e a d y s t a t e d , t h e major GATT r u l e s and p r i n c i p l e s a r e r o o t e d i n market economies and a r e based on a c c e p t e d a s s u m p t i o n s o f c o m p a r a t i v e advantage t h e o r y and f a i r c o m p e t i t i o n d o c t r i n e among major t r a d i n g p a r t n e r s namely, t h e U.S, Japan, t h e EEC, and some o t h e r m i d d l e - s i z e d c o u n t r i e s l i k e A u s t r a l i a , Canada and New Ze a l a n d . To change GATT r u l e s means t o change t h e i r w e l l founded a s s u m p t i o n s . Indeed, GATT has changed some o f i t s assumptions when i m p o s i n g exchange o b l i g a t i o n s and " r e c i p r o c i t y " on LDCs. However, t h i s change i s o n l y c o n s i d e r e d as an e x c e p t i o n t o MFN p r i n c i p l e and i s based on a new as s u m p t i o n t h a t as l o n g as t h e r e i s a f a c t u a l gap between LDCs and d e v e l o p e d w o r l d , a p p l y i n g GATT r u l e s would i n c r e a s e t h i s gap and h i n d e r t h e i r a b i l i t y t o expand e x p o r t s . The b e n e f i t o f t h i s change i s y e t t o be extended t o NMEs. As f a r as t h e t h i r d o p t i o n i s c o n c e r n e d , C h i n a as a major p o l i t i c a l and m i l i t a r y power would t h i n k t h a t p a r t i c i p a t i o n on s p e c i a l terms would amount t o a c c e p t i n g s e c o n d - c l a s s membership. The f o u r t h o p t i o n i s a c t u a l l y no o p t i o n . I t i m p l i e s t h a t i f n e i t h e r C h i n a n or GATT changes, r e c o n c i l i a t i o n i s s i m p l y i m p o s s i b l e . But i t s t i l l g i v e s C h i n a some a l t e r n a t i v e s i n c l u d i n g r e g i o n a l o r b i l a t e r a l arrangements t h r o u g h w h i c h i t 140 can g r a d u a l l y succeed i n p a r t i c i p a t i n g i n GATT-based w o r l d t r a d e system. The above a n a l y s i s e n a b l e s us t o come t o t h e c o n c l u s i o n t h a t p r a c t i c a l l y s p e a k i n g , o f t h e f i v e o p t i o n s t h e r e a r e o n l y two l e f t f o r accommodation o f NMEs' membership. One i s t h e change o f e i t h e r GATT o r t h e NME system. The o t h e r i s bo t h s i d e s making moves t o change. New a d a p t a b l e r u l e s t o t h e NME i s t o be i n c o r p o r a t e d i n t o t h e GATT l e g a l framework as su g g e s t e d e a r l i e r . The NME, on t h e o t h e r hand, i s t o be d e c e n t r a l i z e d t o t h e most c o m p a t i b l e e x t e n t w i t h t h e GATT r u l e s and r e q u i r e m e n t s . Once b o t h s i d e s make moves t o change, as t h e c a s e may be, t h e i r i n g r a i n e d m a r k e t - o r i e n t e d o r non-market s t a t e t r a d i n g - o r i e n t e d systems, a r e c o n c i l i a t i o n may be a c h i e v e d . I t i s e x p e c t e d t h a t t h e GATT fun d a m e n t a l b e l i e f upon w h i c h i t s r u l e s a r e f o r m u l a t e d w i l l n o t be m o d i f i e d t o a l a r g e d e g ree. Thus i t would be r e a s o n a b l e t o assume t h a t t h e o p t i o n o f d e c e n t r a l i z i n g NME system i s by f a r t h e f i r s t - b e s t approach f o r t h e NME c o u n t r i e s t o r e c o n c i l e w i t h t h e GATT l e g a l regime. FOOTNOTES 1 Comment: " A i r b u s and I t s I l k : T u r n i n g Nose a t GATT" 20 Harv. I n t ' l L.J. I l l , (1988), pp. 120-21. 2 Id. Id. p. 121. ("Such a n e u t r a l s t a n d a r d would s u i t t h e p o l i t i c a l r e a l i t i e s o f t o d a y ' s w o r l d , where i n t e r n a t i o n a l t e n s i o n s can be u n n e c e s s a r i l y e x a c e r b a t e d by m i s u n d e r s t a n d i n g s o f t h e pur p o s e s b e h i n d c o u n t r i e s ' encouragement o f d o m e s t i c i n d u s t r i e s " ) . 4 Id. 5 Id. ; see a l s o B e r n i e r , " S t a t e T r a d i n g and t h e GATT" i n STATE TRADING IN INTERNATIONAL MARKETS ( K o s t e c k i ed 1982), p. 252. 141 F o r a m o d i f i e d d e f i n i t i o n , see Comment, supra n o t e 1, p. 122. 7 R o e s s l e r , " S t a t e T r a d i n g and Trade L i b e r a l i z a t i o n " , i n STATE TRADING IN INTERNATIONAL MARKETS ( K o s t e c k i , ed. 1982) pp.280-81. 8 Id. a t 281. 9 J d . 1 0 Id. 1 1 Id. a t 280. Id. 12 K o s t e c k i , East West Trade and the GATT System (1978) ( f o r t h e Trade P o l i c y R e s e a r c h C e n t e r p u b l i s h e d by M a c m i l l a n ) , a t 91. 14 15 16 17 18 19 20 21 22 23 24 J d . p. 91. Id., p. 127. Id. p. 125. ("In t h a t r e s p e c t t h e t h r e e E a s t European c o u n t r i e s met t h e e x p e c t a t i o n s o f t h e i r GATT p a r t n e r s . " ) i b i d . Id. p. 125. Id. p. 128. J d . p. 95, 109. ( d i s c u s s i n g weakness o f t h e P o l i s h r e c i p r o c i t y f o r m u l a ) ; see E. P a t t e r s o n , " I m p r o v i n g GATT r u l e s f o r Nonmarket Economies" 20:2 J.W.T.L.185, pp. 188-89. (enumerating s h o r t c o m i n g s o f t h e P o l i s h , Romanian and H u n g a r i a n i m p o r t commitment). i b i d . P a t t e r s o n , i b i d . , a t 188. K o s t e c k i , supra note 13, p. 95. J d . pp. 95, 114-16. (" Even P o l a n d ' s g l o b a l i m p o r t commitment, c a l c u l a t e d i n c u r r e n t d o l l a r p r i c e s , has been d e p r i v e d o f any r e a l s i g n i f i c a n c e - f o r two main r e a s o n s : (a) i n f l a t i o n , w h i c h i n c r e a s e d s u b s t a n t i a l l y a f t e r P o l a n d ' s a c c e s s i o n ; and, (b) r e d u c t i o n o f v a l u e o f t h e d o l l a r i n terms o f o t h e r Western c u r r e n c i e s . " ) i b i d . , p. 114. See a l s o P a t t e r s o n , i b i d . , a t 188. P a t t e r s o n , i b i d . K o s t e c k i , supra note 13, p. 95, 109. 142 GATT D o c , BISD, 1 8 t h Supp. 1972, p. 10. The d e a d l i n e f o r a t r a n s i t i o n a l p e r i o d i s as o f J a n . 1, 1973 o r any date a t w h i c h Romania i n t r o d u c e d a customs t a r i f f . GATT DOC. BISD, i b i d . E. P a t t e r s o n , supra n o t e 19, a t 189. Id. Id. Id. Id. K o s t e c k i , supra n o t e 13, p. 31. c . f . Y u g o s l a v i a ' s p a t h t o th e GATT, i b i d . , pp. 25-27. Ibid., pp.97-98. ("[D]ue t o t h e p o l i t i c a l sympathy o f t h e Western governments towards H u n g a r i a n e f f o r t s a t economic d e c e n t r a l i z a t i o n " , " t h e GATT c o u n t r i e s a c c e p t e d t h e t a r i f f a pproach as v a l i d f o r Hungary and c o n c u r r e d t h a t r e c i p r o c i t y c o u l d be r e a c h e d on t h e b a s i s o f a symmetric r e c i p r o c i t y f o r m u l a as t r a d i t i o n a l l y adopted i n t h e n e g o t i a t i o n s o f t a r i f f - p r o t e c t e d members o f t h e GATT".) i b i d . , a t 31, 98. See a l s o GATT Doc, BISD, 2 0 t h Supp. pp. 37-41. R o b e r t E. H e r z s t e i n , " China and t h e GATT: l e g a l and P o l i c y I s s u e s R a i s e d by C h i n a ' s P a r t i c i p a t i o n i n t h e G e n e r a l Agreement on T a r i f f s and Trade" 18 Law & P o l i c y in I n t ' l Business, a t 388-89. GATT Doc. L/6270 (Nov. 27, 1987), QUESTIONS AND REPLIES CONCERNING THE MEMORANDUM ON CHINA'S FOREIGN TRADE REGIME, ( h e r e i n a f t e r QUESTIONS &REPLIES), pp. 9-3 6. GATT Doc. L/6125, (18 Feb. 1987), "China's S t a t u s As a C o n t r a c t i n g P a r t y : Memorandum on C h i n a ' s F o r e i g n Trade Regime," ( h e r e i n a f t e r MEMO), p.12. H e r z s t e i n , supra n o t e 34, a t 388. Id. pp. 388-89. ("modified i m p o r t commitment schemes"). Id. K o s t e c k i , supra note 13, pp. 110, 136-37, 144-45. Id. a t 109-10. Id. p. 109. 143 4 3 I d . p. 110. 4 4 I d . 4 5 E. P a t t e r s o n , supra n o t e 19, a t 189. 4 6 I d . a t 190. 4 7 I d . pp. 190-91. 4 8 K o s t e c k i , supra n o t e 13, a t 103, 135, and 139. 4 9 I d . p. 139. 5 0 K. G r z y b o w s k i , " S o c i a l i s t C o u n t r i e s i n GATT", (1980) 28 J.W.T.L. 539, pp. 551-2. 5 1 I d . 5 2 I d . 5 3 I d . 5 4 I d . 5 5 I d . p. 552. 5 6 Chen, T u n g p i : "Are t h e An t i d u m p i n g Laws o f Canada and Other Western C o u n t r i e s K e e p i n g Pace w i t h C h i n a ' s Economic S t r u c t u r a l Reform?, (1987) 19 Law & P o l i c y in I n t ' l Bus. I l l , a t 725. 5 7 K o s t e c k i , supra n o t e 13, pp. 144-45; P a t t e r s o n , s u p r a note 24, pp. 190-91. 5 8 R.E. H e r z s t e i n , supra note 34, a t 410. 5 9 I d . p. 411. 6 0 I d . 6 1 I d . 6 2 GATT A r t . 28 i d . 6 3 QUESTIONS & REPLIES, supra n o t e 35, a t 6 4 E. P a t t e r s o n , supra note 19, a t 203. 6 5 I d . 6 6 I d . , p. 203. 6 7 I d . , pp. 199-20. 144 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 J d . , a t 203. J d . p. 204. B u l g a r i a d i d a c q u i r e o b s e r v e r s t a t u s i n 1967, bu t i t has been u n s u c c e s s f u l t o d a t e i n e f f o r t s t o j o i n t h e S t a n d a r d s Code. I t has n o t sought a c c e s s i o n t o t h e GATT i t s e l f . Note, however, t h a t C h i n a has a c q u i r e d o b s e r v e r s t a t u s i n s e v e r a l p a s t GATT n e g o t i a t i o n s and i s now a n x i o u s t o r e g a i n t h e GATT membership i n t h e c u r r e n t round. H e r z s t e i n , supra n o t e 34, a t 412. J d . J d . pp. 412-13; GATT, A r t i c l e 19. E. P a t t e r s o n , supra n o t e 19, a t 204. H e r z s t e i n , supra note 34, a t 413. J d . a t 413. E. P a t t e r s o n , supra note 19, p. 204. J d . a t 204. J d . T h i s i d e a was proposed by F r a n c e , A u s t r i a , B r a z i l , and Sweden i n 1950s. The i d e a t o accommodate NMEs by i m p r o v i n g t h e GATT major t r a d e r u l e s was advanced t o d a t e known as " t h e P a r t V appr o a c h " , under w h i c h r u l e s r e g u l a t i n g NMEs' s t a t e t r a d i n g systems would be s e t o u t . Opponents t o t h i s n o v e l approach argues vehemently t h a t " t h e NME-versus-market economy i s n o t a u s e f u l d i s t i n c t i o n a c e n t r a l l y - p l a n n e d nonmarket economy i s n o t t h e r e l e v a n t c h a r a c t e r i s t i c as f a r as a c o u n t r y ' s s t a t u s i n t h e GATT i s c o n c e r n e d . " (see P a t t e r s o n , i d . p.204) J d . 204-05. See generally L i Chungzhou, "Resumption o f C h i n a ' s GATT Membership" 21 J.W.T.L 25, 25-48 (1987) E. P a t t e r s o n , supra n o t e 19, p. 2 05. J d . K o s t e c k i , supra n o t e 13, p. 135. A l s o , "one o f t h e i m p o r t a n t o m i s s i o n s o f t h e P o l i s h and Romanian p r o t o c o l s f o r a c c e s s i o n seems t o be t h e l a c k o f s p e c i f i c r u l e s on t h e n o n - d i s c r i m i n a t o r y o p e r a t i o n s o f p l a n t a r g e t s . " i d . p. 103. 145 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 K o s t e c k i , i d . p. 144. J d . J d . J d . R o e s s l e r , supra n o t e 11, a t 279-81. K o s t e c k i , supra n o t e 13, p. 144; see also H e r z s t e i n , supra n o t e 39, a t 390, c o n c e r n i n g " R e s t r i c t Mark-up on Import". K o s t e c k i , i d . , p. 144. H e r z s t e i n , supra n o t e 34, a t 390. J d . J d . P a t t e r s o n , supra n o t e 19, pp. 199-201; a l s o , H e r z s t e i n , supra n o t e 34, p. 391. F o r d e t a i l e d d i s c u s s i o n see P a t t e r s o n , i d . p. 200. (Areas i n w h i c h i n f o r m a t i o n might n o r m a l l y be r e q u e s t e d i n c l u d e : d o m e s t i c p r i c e f o r m a t i o n and i t s methodology, p l a n f o r m u l a t i o n and i t s c o n t e n t , t r a d e s t a t i s t i c s and o t h e r r e l e v a n t d a t a ) . H e r z s t e i n , supra n o t e 34, pp. 391-92. B e r n i e r , supra n o t e 5, p. 252. Comment, supra n o t e 1, pp. 127-29. K o s t e c k i , supra n o t e 13, pp. 144-45. H e r z s t e i n , supra n o t e 34, a t 394. J d . J d . , pp. 395-96. W i l l i a m P. A l f o r d , "When C h i n a i s Paraguay? - An E x a m i n a t i o n o f The A p p l i c a t i o n o f t h e A n t i d u m p i n g and C o u n t e r v a i l i n g Duty Laws o f t h e U n i t e d S t a t e s t o China and Other xNonmarket Economy' N a t i o n s " , 61:79 Southern C a l i f o r n i a L. Rev.(1987), 79, a t 130. H e r z s t e i n , supra n o t e 34, a t 396. 1 0 6 K o s t e c k i , "Hungary and GATT" 8 J.W.T.L (1974) 401, a t 406. 146 1 0 7 GATT Doc. L/6125, (18 Feb. 1987) ( C h i n a ' s S t a t u s As a C o n t r a c t i n g P a r t y : Memorandum on C h i n a ' s F o r e i g n Trade Regime), a t 6-7. 108 Zheng T u o b i n , " P l a n n i n g F u r t h e r F o r e i g n Trade Reforms" INTERTRADE, (Oct. 1984), a t 24. 109 110 111 112 113 114 115 116 Id. Id. H e r z s t e i n , supra n o t e 34, pp. 395-97; see also QUESTIONS & REPLIES, supra n o t e 35, pp. 22-24. H e r z s t e i n , id., p. 396. Id. Id. Id. See generally H a l p e r n , C h i n a ' s I n d u s t r i a l Economic Reforms, 25 ASIAN SURV. 998 (1985) (Reforms have come and gone as t h e C h i n e s e government has s e a r c h e d f o r t h e p r o p e r b a l a n c e between s t a t e p l a n n i n g and economic i n c e n t i v e s . ) Id., p. 998. 147 PART FIVE: CLOSING REMARKS AND PERSPECTIVES To i n t e g r a t e NME s t a t e t r a d i n g systems i n t o t h e o l d -f a s h i o n e d GATT l e g a l framework i s by no means an easy t a s k . Because o f t h e i n h e r e n t i n c o m p a t i b i l i t y between s t a t e t r a d i n g systems o f t h e NMEs and p r i v a t e t r a d i n g system under t h e GATT, b o t h w i l l be s i m p l y i r r e c o n c i l a b l e i f n e i t h e r NME system nor t h e o r i g i n a l GATT regime i s t o be changed. As t h e r e v i e w o f t h e GATT e x p e r i e n c e w i t h t h e E a s t e r n Europe's a c c e s s i o n t o t h e GATT has shown, t h e r e has been c o n s i d e r a b l e d i f f i c u l t i e s i n u s i n g t h e o r i g i n a l framework of t h e GATT t o i n t e g r a t e s t a t e - t r a d i n g systems i n NMEs e s p e c i a l l y command s t a t e t r a d i n g system i n t o t h e GATT t r a d i n g r u l e s and systems. The fundamental d i f f i c u l t y l i e s i n t h e f a c t t h a t NMEs' governments c o u l d n o t p o s s i b l y g i v e up c o n t r o l on f o r e i g n t r a d e . T h e i r i m p o r t and e x p o r t a r e n o t s i m p l y g u i d e d by " commercial c o n s i d e r a t i o n s " nor d e t e r m i n e d by t h e r e l a t i o n o f d o m e s t i c p r i c e s t o f o r e i g n p r i c e s b u t by government d i r e c t i o n and q u a n t i t a t i v e r e s t r i c t i o n s . Thus, t a r i f f s c o u l d n o t p o s s i b l y be o p e r a t e d as t h e o n l y economic l e v e r t o i n f l u e n c e t h e c h o i c e between i m p o r t i n g and n o t i m p o r t i n g even i f t a r i f f s a r e t o be a p p l i e d on MFN o r n o n - d i s c r i m i n a t o r y b a s i s . I n t h e l i g h t o f such i n c o m p a t i b i l i t y , i t i s c e r t a i n l y f r u s t r a t i n g t o c o n s i d e r t h e p o s s i b i l i t i e s o f r e c o n c i l i a t i o n . However, t h e p o s s i b i l i t i e s o f r e c o n c i l i a t i o n l i e i n a v e r y 148 f u n d a m e n t a l a s s u m p t i o n . They w i l l be r e c o n c i l a b l e i f e i t h e r NMEs' s t a t e t r a d i n g systems o r t h e o r i g i n a l GATT assumptions f r a m i n g i t s major r u l e s a r e t o be changed. A c c o r d i n g l y , t h e main t a s k o f r e s o l u t i o n i s t o i l l u s t r a t e how and t o what degree t h e y have t o be m o d i f i e d . The e a s i e s t way towards r e c o n c i l i a t i o n and i n t e g r a t i o n i s a f u l l d e c e n t r a l i z a t i o n i n t h e s t a t e t r a d i n g systems. T h i s i s p o s s i b l e b u t t a k e s t i m e . The p o s s i b i l i t y i s l i m i t e d by t h e p o l i t i c a l w i l l o f NME governments. The p o s s i b i l i t y w i l l f l u c t u a t e as t h e i r p o l i t i c a l w i l l changes from t i m e t o t i m e . A l s o , t h e p o l i c y o f d e c e n t r a l i z a t i o n i n NME may be i n c o n s i s t e n t . And i n c o n s i s t e n c y w i l l c e r t a i n l y undermine t h e e x p e c t a t i o n s o f t h e GATT c o u n t r i e s . The dilemma i s t h a t i f t h e s t a g e o f d e c e n t r a l i z a t i o n has not been c o m p l e t e d , t h e r e w i l l be no f u l l i n t e g r a t i o n . T h i s was shown i n t h e U.S. t r a d e p o l i c y f o r t h e a c c e s s i o n o f Hungary, P o l a n d and Romania t o t h e GATT. The U.S. d i d n o t e x t e n d o r a p p l y i t s MFN t r e a t m e n t t o t h e s e c o u n t r i e s u n t i l l a t e i n 1970s. Moreover, QRs were s t i l l m a i n t a i n e d by most o f Western European c o u n t r i e s a f t e r t h e E a s t e r n b l o c ' s a c c e s s i o n . The GATT has n o t s o l v e d t h e i n t e g r a t i o n l e g a l l y w i t h i n i t s o r i g i n a l framework. R a t h e r , i t was s o l v e d temporary on a c o u n t r y - b y - c o u n t r y and p r a g m a t i c b a s i s . I t i s c e r t a i n l y w o r t h w h i l e t o seek t h e o t h e r avenues towards r e c o n c i l i a t i o n o u t s i d e t h e GATT framework. T h i s , however, w i l l n o t l e a d t o a genuine and complete i n t e g r a t i o n . A t b e s t , i t i s o n l y a means o f r e c o n c i l i a t i o n and not i n t e g r a t i o n . R e c o n c i l i a t i o n o f d i f f e r e n t systems may be t h e 149 f i r s t s t e p t o a c h i e v e a t l e a s t p a r t i a l i n t e g r a t i o n . F u l l i n t e g r a t i o n means g l o b a l i n t e g r a t i o n . W i t h i n such i n t e g r a t i o n one f i n d s a s i n g l e t r a d i n g system under w h i c h a l l p a r t i c i p a t i n g c o u n t r i e s i n t h e GATT con d u c t t h e i r t r a d e w i t h one a n o t h e r . W i t h r e g a r d t o a c o - e x i s t e n c e o f d i v e r g i n g t r a d i n g systems, t h i s i d e a l w i l l n o t be a c c o m p l i s h e d i n a s h o r t - r u n . I n any event t h e a c c e s s i o n o f s o c i a l i s t c o u n t r i e s t o GATT i s a r e a l i s t i c s t e p w h i c h may e v e n t u a l l y b r i n g about t h e i r i n t e g r a t i o n i n t o a w o r l d t r a d e s y s t e m . 1 But t h i s i s o n l y t h e f i r s t s t e p . Each case o f a c c e s s i o n was an independent e x p e r i m e n t and o n l y t h e f u t u r e w i l l show w h i c h method w i l l p r o v e b e s t a t l i b e r a l i z i n g t r a d e between f r e e - m a r k e t economy and s o c i a l i s t economy. 2 The i n t e g r a t i o n i s not o n l y time-consuming b u t a l s o s u b t l e due t o t h e f a c t t h a t NMEs' a c c e p t i n g t h e GATT system would be l i m i t e d by t h e a b i l i t y t o a f f o r d economic c o o p e r a t i o n w i t h f r e e market e c o n o m i e s . 3 T h e i r b a s i c common aim i s t o d e v e l o p t h e i r economies by b o r r o w i n g f o r e i g n c a p i t a l and advanced t e c h n o l o g y t o i n c r e a s e e x p o r t s and have more h a r d c u r r e n c y r e s e r v e . S t r e s s i n g i n d u s t r i a l and h i g h t e c h n o l o g y p r o d u c t i o n would f r u s t r a t e t h o s e g o a l s . 4 R e c o g n i z i n g t h e v a r y i n g p o l i t i c a l and economic systems and u n d e r s t a n d i n g t h e NMEs 7 problem w i t h f r e e c o m p e t i t i o n w i t h m i n i m a l government i n t e r v e n t i o n , t h e framework o f t h e GATT a l l o w s v a r i o u s l e v e l s o f p a r t i c i p a t i o n i n t h e program o f f r e e t r a d e . 5 T h i s i s out o f p o l i t i c a l c o n s i d e r a t i o n s r a t h e r t h a n o f 150 p u r e c o m m e r c i a l c o n c e r n . The GATT's a d m i t t a n c e o f f o u r s o c i a l i s t c o u n t r i e s (Romania, P o l a n d , Y u g o s l a v i a , Hungary i n a d d i t i o n t o t h e o r i g i n a l two) i n t o i t s framework was more out o f p o l i t i c a l e x p e c t a t i o n s r a t h e r t h a n o f pure t r a d e p o l i c i e s . 6 O b v i o u s l y , such p o l i t i c a l e x p e c t a t i o n s widened NMEs' p a r t i c i p a t i o n i n t h e GATT. And t h e NMEs' b r o a d e r p a r t i c i p a t i o n w ould i n t u r n i n c r e a s e w o r l d p r o s p e r i t y and economic w e l l -b e i n g . W o r l d p r o s p e r i t y and economic w e l l - b e i n g a r e e v e n t u a l l y ( t h e b e s t g u a r a n t e e o f w o r l d peace and s e c u r i t y . 7 G r z y b o w s k i w r o t e : "Economic development and w o r l d p r o s p e r i t y a r e t h e b e s t g u a r a n t e e o f peace; t r a d e , one o f t h e most i m p o r t a n t f a c t o r s i n r a i s i n g t h e s t a n d a r d o f l i v i n g , r e s p o n d s t o a p o l i t i c a l c l i m a t e w h i c h promotes t h e sense o f s e c u r i t y . " 8 Indeed, as many GATT members a r e aware, NME's a c c e s s i o n t o GATT have bro u g h t and w i l l c o n t i n u e t o b r i n g b e n e f i t s t o t h e r e s t o f t h e W o r l d . 9 I n t h e words o f P r o f . John J a c k s o n , " t h e r e i s more t o be g a i n e d by f u l l and u n i v e r s a l p a r t i c i p a t i o n i n t h e i n t e r n a t i o n a l d i s c u s s i o n s o f economic a f f a i r s t h a n t h e r e i s by t h e e x c l u s i o n o f c e r t a i n s t a t e s " . 1 0 A d m i t t e d l y , NME membership and t h e i r c o n t i n u o u s p a r t i c i p a t i o n i n GATT-sponsored m u l t i n a t i o n a l n e g o t i a t i o n s w i l l d e f i n i t e l y h e l p t o a c h i e v e t h e g o a l o f a s i n g l e w o r l d t r a d e system and w i l l i n c r e a s e w o r l d peace and p r o s p e r i t y . Economic u n i t y w i l l be t h e f i r s t and i n d i s p e n s a b l e s t e p t o f u l f i l l p o l i t i c a l o r i d e o l o g i c a l u n i t y w h i c h was once t h e dream and a s p i r a t i o n o f t h e U n i t e d N a t i o n s and ITO-based m u l t i l a t e r a l i s m . 151 U n f o r t u n a t e l y , t h e l e a d e r s o f t h e West namely, t h e U n i t e d S t a t e s , Japan and t h e European Economic Community (EEC) a r e s t i l l d i s t r u s t f u l o f t h e s o c i a l i s t s t a t e t r a d i n g e c o n o m i e s . 1 1 They s i m p l y l a c k p o l i t i c a l w i l l and c o n f i d e n c e i n f u l l y i n t e g r a t i n g NMEs i n t o t h e GATT. T h i s l a c k o f p o l i t i c a l w i l l and c o n f i d e n c e i s c o n f i r m e d by many Western w r i t e r s who r e g a r d t h e i s s u e o f i n t e g r a t i o n s i m p l y i m p o s s i b l e as l o n g as t h e s t a t e t r a d i n g system r e m a i n p r e v a l e n t i n t h e s o c i a l i s t e c o n o m i e s . 1 2 I f we a p p r e c i a t e t h e e x t e n t t o w h i c h t h e GATT has d e p a r t e d from market p r i n c i p l e i d e a l s t o r e a c h a framework t h a t f a c i l i t a t e s t r a d e , t h e t a s k o f c r e a t i n g new r u l e s f o r i n t e r n a t i o n a l t r a d e t h a t accommodate a l l n a t i o n s w i l l become more r e a l i s t i c . 1 3 FOOTNOTES 1 G r z y b o w s k i , " S o c i a l i s t C o u n t r i e s i n GATT" 28 J.W.T.L 539 (1980), a t pp. 551-52. 2 I d . p. 552. 3 J d . 4 J d . 152 Id. Indeed, GATT seems t o p r o v i d e a framework f o r t r a d e c o o p e r a t i o n o f a l e a s t t h r e e groups o f c o u n t r i e s : ( i ) h i g h l y i n d u s t r i a l i z e d economies, w h i c h can meet t h e c h a l l e n g e o f f r e e t r a d e and t h e i n t e r n a t i o n a l d i v i s i o n o f l a b o r w i t h no p r e j u d i c e t o t h e i r l i v i n g s t a n d a r d ; ( i i ) t h e d e v e l o p i n g economies, w h i c h need a s s i s t a n c e , and a r e u n a b l e t o r e c i p r o c a t e f u l l y t h e advantages o f a d m i s s i o n t o GATT on terms o f e q u a l i t y (see A r t i c l e s 18 and 36-38); ( i i i ) f i n a l l y , s t a t e t r a d i n g economies w h i c h a r e n o t , due t o t h e i r s o c i a l , p o l i t i c a l and economic o r d e r , f u l l y c o m p a t i b l e w i t h t h e m a r k e t - t y p e GATT system and t h u s u n a b l e t o be f u l l y i n t e g r a t e d i n t o t h e w o r l d t r a d e mechanism. 6 id. 7 Id. p. 553. 8 Id. 9 Frank Stone, Canada the GATT and the International Trade System (1984), p. 167. 1 0 J . J a c k s o n , World Trade and the Law of GATT 329-32 (1969), a t 777. 1 1 G r z y b o w s k i , supra n o t e 1, p. 554. Y e t , i t must be r e c o g n i z e d t h a t t r u s t i s a c o n d i t i o n r e l a t e d p r i m a r i l y t o t h e c o n d u c t o f governments i n i n t e r n a t i o n a l r e l a t i o n s . Ibid. 1 2 J a c k s o n , supra note 10, p. 1179. ("many o f t h e GATT r u l e s make sense o n l y i n t h e c o n t e x t o f such a market system, s i n c e t h e y r e s t r i c t t h e t y p e s o f r e g u l a t i o n s which governments can impose on i n t e r n a t i o n a l t r a d e r s , but do no t p u r p o r t t o r e g u l a t e t h e t r a d e r s t h e m s e l v e s . " ) ; K.W. Dam, The GATT Law and International Economic Organization (1972) ("[The GATT t a r i f f ] system p r e s u p p o s e s t h a t i m p o r t a t i o n and e x p o r t a t i o n a r e h a n d l e d by p r i v a t e f i r m s w h i c h , s t i m u l a t e d by p r i v a t e m o t i v e s , a r e g u i d e d by co m m e r c i a l c o n s i d e r a t i o n s . . . w h e n one c o n s i d e r s s t a t e t r a d i n g , t h e u n d e r l y i n g a s s u m p t i o n o f t h e GATT system i s i t s e l f no l o n g e r a p p l i c a b l e " ) , i d . , p.318; K. Kennedy, "The A c c e s s i o n o f t h e S o v i e t U n i o n t o t h e GATT" (1987), 21 J.W.T.L. 23 ( w i t h r e s p e c t t o t h e S o v i e t a c c e s s i o n t o GATT, " u n l e s s t h e S o v i e t s a r e p r e p a r e d t o make g r a d u a l b u t n e v e r t h e l e s s d r a m a t i c r e f o r m s i n t h e i r economic system, t h e answer i s c e r t a i n l y ' n o ' " ) , a t 33. 1 3 W i l l i a m P. 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P u l l e r , L e g a l F i c t i o n 9-10 (1970). Joseph Gold, The Fund and Non-Member S t a t e s . Some L e g a l  E f f e c t s (Washington: IMF, 1966). John H. Jackson, World Trade and t h e Law o f GATT (1969) Jackson, Cunningham and Fontheim, I n t e r n a t i o n a l Trade  P o l i c y : The L a w y e r s 7 P e r s p e c t i v e (1985) Jackson, e t a l , Implementing t h e Tokyo Round (1984) Jackson and Davey, I n t e r n a t i o n a l Economic R e l a t i o n s (1986 2nd Ed.) (A b a s i c book f o r u n d e r s t a n d i n g GATT l e g a l system and U.S. f o r e i g n t r a d e s t r a t e g i e s . ) M. Kostecki, S t a t e T r a d i n g i n I n t e r n a t i o n a l M a r k e t s (1982) ( I t i s perhaps t h e o n l y volume, w r i t t e n by 13 d i f f e r e n t a u t h o r s , w h i c h p r o v i d e s an e x t e n s i v e u n d e r s t a n d i n g i n de p t h o f t h e c h a r a c t e r i s t i c s and consequences o f t h e o p e r a t i o n s o f s t a t e - t r a d i n g f i r m s and exposes much o f t h e weaknesses o f A r t i c l e 17 o f GATT.) M. Kostecki, East-West Trade and t h e GATT L e g a l System (1978) K. Kravis, Domestic I n t e r e s t s and I n t e r n a t i o n a l O b l i g a t i o n s :  S a f e g u a r d s i n I n t e r n a t i o n a l Trade O r g a n i z a t i o n s (1963, U n i v e r s i t y o f P e n n s y l v a n i a P r e s s ) . Karl Marx, Das C a p i t a l (1906, E n g l i s h New York: The Modern L i b r a r y o f t h e World B e s t B o o k s ) . 154 McGovern, I n t e r n a t i o n a l Trade R e g u l a t i o n (1986 2nd Ed.) 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" i n INTERFACE TWO: CONFERENCE PROCEEDINGS ON THE LEGAL FRAMEWORK OF EAST-WEST TRADE 435. Friedmann, W., "Changing S o c i a l Arrangements i n S t a t e -T r a d i n g S t a t e s and T h e i r E f f e c t on I n t e r n a t i o n a l Law," Law and Contemporary Problems (Summer, 1959), pp.369-397. Herztein, " C h i n a and t h e GATT: L e g a l and P o l i c y i s s u e s R a i s e d by C h i n a ' s P a r t i c i p a t i o n i n t h e GATT" 18 Law &  P o l i c y i n I n t ' l Bus. 371 (1986) ( d i s c u s s i n g t h e i m p l i c a t i o n o f C h i n a ' s a d m i t t a n c e t o t h e GATT) Kevin C. Kennedy, "The A c c e s s i o n o f t h e S o v i e t U n i o n t o GATT", 21 J.W.T.L. 23-39 (1987) M. Kostecki, "Hungary and GATT" 8 J . W.T.L.401 (1974) ( d e t a i l e d d i s c u s s i o n o f Hungary's a c c e s s i o n t o GATT: r e c o n c i l i a t i o n and i n t e g r a t i o n ) L i , Chungchou, "Resumption o f C h i n a ' s GATT Membership" 21 J.W.T.L. pp 25-48 (1987) Lloyd, " S t a t e T r a d i n g and I n t e r n a t i o n a l Trade Theory" i n STATE TRADING IN INTERNATIONAL MARKETS (1982, K o s t e c k i ed.) Matejka, H., " S t a t e T r a d i n g : I n s t r u m e n t o f Trade C o n t r o l o r B a r r i e r t o Trade," 8 J.W.T.L.. No.2 (1974), pp.209-14. Note, "East-West Trade: t h e A c c e s s o f P o l a n d t o t h e GATT" (1971), 24 S t a n . L. Rev. 748 E. Patterson, " I m p r o v i n g GATT R u l e s f o r NMEs", 20 J . W.T.L. 185 (1986) ( o p i n i o n s and s u g g e s t i o n s as t o what r u l e s o f GATT s h o u l d be improved i n s o l v i n g " i n t e r f a c e " p roblems and i n a p p l y i n g r u l e s t o NMEs) Recent Developments, " C o u n t e r v a i l i n g Duty Laws and Nonmarket economies: The Case o f t h e P e o p l e ' s R e p u b l i c o f C h i n a " , 10 S y r . J . I n t ' l L. & Com. 372 156 Recent Developments, "Georgetown S t e e l Corp. v. U.S.: A p p l y i n g t h e C o u n t e r v a i l i n g Duty Law t o I m p o r t s From Nonmarket Economy C o u n t r i e s " (1986) 19 L. & P o l . I n t ' l  Bus. 313. Recent Developments, " I n t e r n a t i o n a l Trade: I m p o s i t i o n o f C o u n t e r v a i l i n g Duty Laws on P r o d u c t s From Nonmarket Economy C o u n t r i e s - C o n t i n e n t a l S t e e l Corp. v. U n i t e d S t a t e s " , 27 Harv. I n t ' l L. J . 748. Reuland, "GATT and S t a t e - T r a d i n g C o u n t r i e s " 9 J . W.T.L. 318 (1975) ( e x a m i n i n g problems o f GATT A r t . 17 when a p p l y i n g t o S t a t e T r a d i n g C o u n t r i e s , esp. NMEs). Roessler, " S t a t e T r a d i n g and Trade L i b e r a l i z a t i o n " i n STATE TRADING IN INTERNATIONAL MARKETS, (1982, K o s t e c k i e d . ) . S o l t y s i n s k i , " P r i c e C o m p e t i t i o n Between F r e e Market and S t a t e C o n t r o l l e d Economies E n t e r p r i s e s : The Legacy o f t h e OMC v. P e z e e t e l L i t i g a t i o n s " , 24 S w i s s Rev. I n t ' l  Comp. L. 6. Zheng, Tuobin, " P l a n n i n g F u r t h e r F o r e i g n Trade Reforms", i n INTERTRADE (Oct. 1984). GATT DOCUMENTS & OFFICIAL PUBLICATIONS L Series L/870, Oct. 1958 L/1037, Add. 1, Sept. 1959. L/2409, March 1965. L/3050, August, 1968. L/3211, May 1969. L/3301, J a n . 1970. L/4326, Sept. 1970. L/3653, Add. 10, 11, June, 1972. L/3875, J u l y 1973. L/4096, Oct. 1074. L/4228, Oct. 1975. L/4230, Oct. 1975. L/6125, Feb. 1987. L/6270, Nov. 1987. Other Series MGT/81/58, Aug. 1958. TN 64/NTB/l, Oct. 1963. TN 64/NTB/9, Nov. 1964. E/PC/T 160 ECOSOC, UNCTAE (Havana: Aug. 1947). E/AC.62/9., U n i t e d N A t i o n s , A new U n i t e d N a t i o n s S t r u c t u r e f o r G l o b a l Economic C o - o p e r a t i o n (New York: May 1975). TD/B/535, UNCTAD, Q u e s t i o n s o f t h e E s t a b l i s h m e n t o f a Comprehensive Trade O r g a n i z a t i o n (Geneva: December 1974). 157 Other O f f i c i a l Publications B a s i c I n s t r u m e n t s and S e l e c t e d Documents (BISD) (Geneva: GATT S e c r e t a r i a t , 1952), V o l . I I . 3 r d Supp. Geneva, 1955. 8 t h Supp. Geneva, 1960. 9 t h Supp. Geneva, 1961. 11th Supp. Geneva, 1963. 13t h Supp. Geneva, 1965. 14th Supp. Geneva, 1966. 15th Supp. Geneva, 1968. 17th Supp. Geneva, 1970. 18t h Supp. Geneva, 1972. 19th Supp. Geneva, 1973. 2 0 t h Supp. Geneva, 1974. I n t e r n a t i o n a l Trade 1974-75, Geneva, J u l y 1975. China: GATT Doc. L/6125,(18 Feb. 1987) ( C h i n a ' s S t a t u s As a C o n t r a c t i n g P a r t y : Memorandum on C h i n a ' s F o r e i g n Trade Regime); GATT Doc. L/6270 (27 Nov. 1987) (Working P a r t y on C h i n a ' s S t a t u s As a C o n t r a c t i n g P a r t y : Q u e s t i o n s and R e p l i e s C o n c e r n i n g t h e Memorandum on C h i n a ' s F o r e i g n Trade Regime.) China: D e c i s i o n o f t h e C e n t r a l Committee o f t h e Communist P a r t y o f C h i n a on Reform o f t h e Economic S t r u c t u r e , r e p r i n t e d i n R e p o r t on C h i n a ' s Economic Development and U.S. Trade I n t e r e s t s , a t 8 5 - 8 6 . ( S t a f f o f t h e S p e c i a l Subcomm. on US Trade w i t h C h i n a o f t h e House Comm. on Energy and Commerce, 9 9 t h Cong., 1 s t S e s s . , P r i n t 1985). 

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