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The CHAIRMAN. For example, if there is a termination clause in the bilateral agreement of the type mentioned, the member nation would be obligated to invoke the termination clause?

Mr. Bronz. I should think so. As a matter of fact, as Mr. Wilcox pointed out, these bilateral agreements are typically of short duration, for 1 year or less, and there is ample time before the charter is likely to become effective for countries which are contemplating membership in the International Trade Organization to protect their rights to get out from under bilateral trade agreements.

The CHAIRMAN. Are you prepared to say that there are no bilateral agreements to which a member might be party that do not have a life longer than 1 year!

Mr. BRONZ. No; I am not certain of that.
Mr. Wilcox. No, sir; some of them run beyond 1 year.
The CHAIRMAN. That is what I thought.

Mr. Wilcox. Also, some of these agreements contain the provision that they will be modified or altered if necessary at any time to make them consistent with any multilateral agreement hereinafter entered into between the parties concerned.

The CHAIRMAN. Yes; but that does not reach the point of a member nation having a bilateral agreement with a nonmember nation. I am basing myself on the fundamental proposition that if you and I have a contract, you cannot enter into another contract with Mr. Bronz whereby you have the right to cancel your contract with me. That depends entirely, I submit, on the contract itself.

Have we gone far enough with this to summarize it this way:

You figure that this will bring bilateral agreements to an end as between member nations because this is an overriding obligation; is that the first thing?

Mr. Bronz. Weil, I would imagine, as a matter of legal construction, that if two countries enter into a bilateral contract and later both enter into a multilateral agreement which was inconsistent, the latter would supersede the former.

The CHAIRMAN. Well, I gave you what might be an answer to that, but I am not pressing it. I am simply trying to get your theory.

Your theory is that this obligation would override obligations of the bilateral agreement and bring it to an end; is that right?

Mr. BRONZ. I should think when both countries sign the charter, that is true.

The CHAIRMAN. That is our starting point.

Now, as to bilateral agreements involving a member and a nonmember, how will those be disposed of?

Mr. Bronz. It would be the responsibility of a country joining the ITO to review its own contractual obligations and see that it has brought them into consistency with whatever new obligations it proposes to undertake in the ITO.

The CHAIRMAN. But if the contract were such that it had no escape clause, the contract would continue to exist ?

Mr. BRONZ. I presume so, as a matter of contractual law between the two countries that entered into the contract.

The CHAIRMAN. Now, will this paragraph strike at the preference contracts?

Mr. Wilcox. No; this is administration of import-quota systems. The preferential system is differential tariff rates.

The CHAIRMAN. This does not point at what we call preference agreements! Mr. Wilcox. Of course; that is discrimination also. The CHAIRMAN. Yes.

Mr. Wilcox. But there you are talking about tariff discrimination, and here we are talking about import-quota discrimination.

The CHAIRMAN. Yes. I suggest that there may be some gaps here in your enforcement procedure. You have a stated prohibition, but I think it is far from clear as far as we have gone.

Mr. Wilcox. With reference to existing contracts!
The CHAIRMAN. Yes.

Mr. Wilcox, Well, you have taken the case of a contract between a member and a nonmember which endures in time and I know of no really long-term contracts of this character. The longest term I can think of is one that runs for 5 years, and that contains a provision under which both of the parties agree to modify it to conform to any multilateral arrangement they enter. You have taken the case of a contract between a member and a nonmember. It runs for a long term of years, and it contains no provision for modification.

If there is such a case, it may not be handled, but I doubt very much if it would be possible to find one.

The CHAIRMAN. It might be well to review the bilateral agreement situation with that in mind.

Mr. Wilcox. Yes, sir. The CHAIRMAN. Paragraph 2, subclause (a) [reading]: The administration of the restrictions should be carried out in such a way as to result in a distribution of trade which approaches as closely as possible to the shares which the various member countries might be expected to obtain as the result of international competition in the absence of such restrictions. How would you determine that share!

Mr. Wilcox. Well, that is really a preamble, I should say, to the specific provisions that follow, and is designed to explain their purpose.

The CHAIRMAN. Taking it by itself, would it not have the effect of establishing a frozen status quo?

Mr. Wilcox. No.

The CHAIRMAN. I mean, how could you determine it other than by looking at the past?

Mr. Wilcox. The share which might be expected to obtain as the result of international competition, I should think, would not be frozen but would be changing. I think the question to ask about that is, "Well, the principle is all right; how do you implement it?” And the answer to that is found in the succeeding paragraphs and the least desirable method of administering such a system-such an importquota system-is found to be reference to the shares in a previous representative period.

The CHAIRMAN. Yes; and that is precisely what I am talking about.
Mr. Wilcox. That is right.

The CHAIRMAN. In making your prediction as to what may happen to competition in the future, your most stable element would be what has happened in the past, and after you have considered that, what would be the position of a nation coming in as a new competitor in a field ?

Mr. Wilcox. Well, your point explains the reason why the past period is looked on as the least desirable method of administering an import quota system.

The CHAIRMAN. So that it will develop as we go along that there is flexibility enough in the plan to allow a new competitor to get an equitable cut of the business?

Mr. Wilcox. Well, there would be, in the preferred methods of administration.

The CHAIRMAN. Yes. All right; subclause (b) of paragraph 2 [reading]:

Wherever practicable, quotas representing the total amount of permitted imports (whether allocated among supplying countries or not) shall be fixed, and notice given of their amount in accordance with paragraph 3 (b) of this Article.

What does that mean?

Mr. Wilcox. Well, this is a total quota for each class of goods which shall be publicly announced so that the country that is administering such a system does not maintain secrecy and give quotas to some people and not admit imports from other people.

The CHAIRMAN. And the method is provided later on for an equitable allocation of the commodity among supplying nations?

Mr. BRONZ. Not necessarily, sir. You might have a general quota saying so many units of a product may be admitted and still not allocate the quota among sources of supply.

The CHAIRMAN. In other words, the private trader could make his own deal wherever he saw fit?

Mr. BRONZ. Yes, sir.

The CHAIRMAN. And the quota would operate when the total imports traded for by all of the importers reached a certain figure!

Mr. BRONZ. Yes, sir.

The CHAIRMAN. Yes. That points the difference between what you might say is an unregulated approach within the ceiling and an apportioned approach through some governmental agency of the importing nation?

Mr. BRONZ. Yes, sir.
The CHAIRMAN (reading):

(c) In cases in which quotas are not practicable, the restrictions may be applied by means of import licenses or permits without a quota.

That seems reasonably clear to me. Is there any explanation that you think should be given? Mr. Wilcox. Not beyond this; it is self-explanatory, I think. The CHAIRMAN (reading):

(d) Import licenses or permits, whether or not issued in connection with quotas shall not (save for purposes of operating quotas allocated in accordance with subparagraph (e) of this paragraph) require or provide that the license or permit be utilized for the importation of the product concerned from a particular country or source.

Mr. Wilcox. That is, you give a private trader, in the country that is operating such a system, a license to buy the product, but he can buy it anywhere he wants to. It does not say he has to buy from any particular country.

The CHAIRMAN. That is a privilege. A Nation could set up its own quota machinery, could make its own allocation to its own importers of the product affected, could it not?

Mr. Wilcox. Yes, as among its importers, it could allocate import licenses. It is not required to do so. The CHAIRMAN. But I mean it could be done that way. Mr. Wucox. Yes.

The CHAIRMAN (reading): (e) In cases in which a quota is allocated among applying countries, the shares of the rarious supplying Member countries should in principle be determined in accordance with commercial considérations such as price, quality, and customary sources of supply

I think it was that phrase "customary sources of supply” that got me thinking about what would happen to new sources of supply:

Mr. Wilcox. That is right. This is what you do if it is impracticable, administratively, to use one of the previous methods that does not involve allocation as among other countries.

The CHAIRMAX. Who would determine the considerations of price, quality, and customary sources of supply? Is that for the individual nation, or would the Organization have any voice in the matter?

Mr. Wilcox. (reading): the Member applying the restrictions may seek agreement with respect to the allocation of shares in the quota with all other Members having a substantial interest in supplying the product concerned. But in cases where it is not practicable for them to do so, the member itself shall allot quotas.

The CHAIRMAN. Does the member determine the practicability?

Mr. Wilcox. Yes. And :0 you come to the least desirable method of administering an import quota system which is the allocation of quotas by a country to imports from specific other countries for particular goods.

Mr. Bronz. Well, Mr. Senator, the provision in the previous article-article 26, paragraph 3 (d)-permits any member country to make a complaint under this article 27 as well as under the previous article, that an import restriction is being administered in a fashion which unnecessarily damages its commercial interests.

So, while the initial determination made by the country applying the restriction, a complaint can be made if some other country feels it is being hurt.

The (CHAIRMAX. The previous article carries over to this one for that purpose!

Mr. Brosz. Yes; by its explicit terms, it is applicable to articles 97 and 28, as well as to article 26.

Mr. Wilcox. The whole point there of article 3 is publicity.

The CHAIRMAN. Just a moment. I want to look at this preceding article just a moment.

3 tai In cases where import licenses are issued in connection with import restrictions, the Member applying the restriction shall provide, upon the request of ans Member having an interest in the trade in the product concerned, all relevant information concerning the administration of the restriction, the import licenses granted over a past recent period, and the distribution of such licenses among supplying countries: Providers

, however, that there shall be no obligation to supply information as to the names of importing or supplying enterprises.

The last proviso. I take it applies to private traders?
Mr. Wilcox. Yes.

The CHAIRMAX. It seems to me that that paragraph does emphasize again for better or for worse the theory of the Charter that each

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nation has an enforceable interest in the importations and exportations of every other nation. · Mr. Wilcox. Well, all this says is that a nation has a right to know whether it is being discriminated against.

The CHAIRMAN. Yes; for the purpose of informing that nation as to whether an interest which it has under the Charter is being violated.

Mr. Wilcox. I think that is implicit.

The CHAIRMAN. And if that interest is being violated, it has certain complaint machinery which it may invoke?

Mr. Wilcox. That is right.

The CHAIRMAN. And the Organization, as such, has certain sanction powers which we have already developed.

We will recess at this time until 2: 30.

(Thereupon, at 12:36 p. m., a recess was taken until 2:30 p. m. of the same day.)

AFTERNOON. SESSION (The commitee reconvened at- 2:30 p. m., on the expiration of the recess.)

The CHAIRMAN. The committee will come to order.

STATEMENTS OF HARRY HAWKINS AND GEORGE BRONZ (Resumed),

AND JOHN M. LEDDY, ADVISER, DIVISION OF COMMERCIAL POLICY, STATE DEPARTMENT, WASHINGTON, D. C.

The CHAIRMAN. Mr. Hawkins, let me invite your attention to paragraph 3 (b) of article 27. Toward the end of the paragraph there is a proviso which reads: Provided further, that if any Member customarily exempts from such restrictions products entered for consumption or withdrawn from warehouse for consumption during a period of thirty days after the day of such public notice, such practice shall be considered full compliance with this subparagraph.

I assume that there is quite a body of international practice that runs along that line?

Mr. Hawkins. It is the customary United States practice, Senator, to allow 30 days before the application of administrative rulings of this kind. This is as much as to say that that would supersede shipments en route if you did that.

The CHAIRMAN. Paragraph 4 reads:

With regard to restrictions applied in accordance with paragraph 2 (e) of this Article or under paragraph 2 (e) of Article 25, the selection of a representative period for any product and the appraisal of any special factors affecting the trade in the product shall be made initially by the Member applying the restriction, provided that such Member shall, upon the request of any other Member having a substantial interest in supplying that product or upon the request of the Organization, consult promptly with the other Member of the Organization regarding the need for an adjustment of the base period selected or for the reappraisal of the special factors involved.

Does this duty of consultation exhaust the duty of the member in the cases contemplated in that paragraph?

Mr. HAWKINS. Yes, sir.

The CHAIRMAN. Are there any sanctions so far as that paragraph is concerned ?

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