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respectively with the territorial application of the Chapter and frontier traffic.

Article 41 requires each Member to give sympathetic considération to, and adequate opportunity for, consultation regarding problems raised with it by other Members with respect to matters arising under the Chapter.


Emergency Action - The "Escape Clause" (Article 40)

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This Article is the so-called "escape" clause which it has been the policy of the United States since 1942 to include in its reciprocal trade agreements, It provides that if as a result of unforeseen circumstances and of the effect of obligations incurred by a Member under the Chapter, including tariff concessions, a product is being imported into a Member's territory in such relatively increased quantities and under such conditions as to cause or threaten injury to domestic producers of like or directly competitive products, the Member shall be free to suspend the obligation in whole or in part or withdraw or modify the concession to the extent and for such time as may be necessary to prevent or remedy the injury.

Members contemplating such action are required if practicable to give advance notice to the Organization and to give the Organization and Members having a substantial interest in the trade in the product concerned an opportunity to consult with respect to the proposed action. However, in cases where delay would cause damage which would be difficult to repair, action may be taken without prior consultation on condition that consultation is effected immediately after the action is taken.

If agreement among the Members with respect to the action involved is not reached in such consultation, the Member proposing to take the action may nevertheless do so, but in such case other Members may suspend such substantially equivalent obligations or concessions vis-a-vis the Member taking the action as the Organization does not disapprove.


Customs Unions (Article 44)
Customs unions have been generally accepted as desirable


- 20.

in that they create larger trading areas. This Article recognizes the desirability of increasing freedom of trade by the development, through voluntary agreement, of closer integration between the economies of the countries which are parties to such agreements.

The Article requires that when two countries merge their tariffs in a customs union the level of the new tariff must not exceed approximately a weighted average of the two previous. tariffs and must not result in a general increase of tariff rates around the new area.

The Article also recognizes that the merger of customs tariffs is a difficult undertaking, particularly if there is a disparity in the size of the countries involved. Therefore, it authorizes what is called a free-trade area. This is a modified type of customs union which has one major characteristic of the usual customs union, namely, substantially free trade between the constituent countries for products originating in such countries, but allows each of them to retain the same tariff vis-a-vis the outside world that it had before.

The Article goes beyond the provisions with respect to customs unions in previous treaties and trade agreements by recognizing that a customs union is a complicated thing which takos a considerable time to develop, and that it may not be possible for two countries which wish to form a customs union, even with the best will in the world, to do it all at once. Therefore, the Article authorizes interim agreements leading to a customs union, and thus permits the formation of a customs union by stages. However, it requires that the plan for the customs union must contain a schedule for its formation within a reasonable length of time, and must be notified to the Organization. If the Organization finds that such an agreement is not likely to result in the formation of a customs union within the period contemplated, the Organization may suggest modifications. The parties may not proceed with the agreement unless they are ready to accept those recommendations.

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Article 45 contains certain general exceptions to Chapter IV. Most of these are standard exceptions which appear in normal commercial treaties and trade agreements, allowing measures necessary to protect public morals, plant life or health, etc. Others deal with short-run problems which have arisen out of the recent war. The main new exception is permission to adopt restrictive measures necessary to the acquisition or distribution of products in general or local short supply.

IV • 21


Article 46 - 54)

Chapter V deals with the restrictive practices of private or public commercial enterprise which, as previously stated may be utilized as effectively to dlvert or limit trade as measures adopted by governments.

The Chapter opens (Article 46) with an undertaking by each Member to take a ppropriate measures and to coope rato with the Organization to prevent practices of private or public commercial enterprises which would restrain competition, limit access to markets, or foster monopolistic control in international trade, whenever such practices have harmful effects on the expansion of production or trade and interfere with the achievement of any of the other objectives specified in Article 1 of the Charter.

The Article defines a number of restrictive practices which may be subject to investigation under the Charter, e.g. fixing prices, terms or conditions to be observed in the purchase, sale or lease of any product; excluding enterprises from, or allocating or dividing, markets or fields of business activity, or allocating customers, or fixing sales quotas or purchase quotas; preventing by agreement the development or application of technology; etc.

In line with the general principle which runs throughout the Charter that solution of problems should be sought in the first instance by direct consultation between Members affected, any Member which considers that in a particular instance practices are being indulged in which have the so harmful effocts may consult with other members or with the Organization with a view to finding a mutually satisfactory solution. (Article 47)

A Member may also present a written complaint to the Organization in any instance when it believes that a practice has or is about to have the harmful effect referred to above. If the Organization decides that an investigation is justified, it must notify all Members and arrange for a hearing on the complaint. It must then review the information , available and decide whether the complaint is justified. If it decides that the complaint is well-founded, it must request the Members concerned to take every possible remedial action and it may also make recommendations to the Members concerned with respect to the nature of such action. It may also request Members to report on the remedial action which

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they have taken in any particular case. A public report of the proceedings and of recommendations made is required. (Article 48)

Each Member is obligated to take all possible measures, in accordance with its own constitution or system of laws, to insure within its jurisdiction that public and private commercial enterprises do not engage in the harmful practices specified. (Article 50)

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Each Member must, moreover, take full account of each request, decision, and recommendation of the Organization in the case of any specific complaint, and, in accordance with its constitution or system of laws, take action considered appropriate having regard for its obligations under this Chapter. Each Member is also obligated to furnish the Organization, as promptly and fully as possible, information requested by the Organization for its consideration and investigation of complaints. Safeguards are provided with respect to the disclosure of information which would damage legitimate business interests. (Article 50)

The Organization is authorized to conduct studies relating to the general effect of restrictive business practices affecting international trade, (Article 49)

It is made clear that no act or failure to act on the part of the Organization shall preclude any Member from enforcing its own statutes or regulations directed toward preventing monopoly or restraint of trade. (Article 52)

Similar complaint procedures are established with respect to restrictive business practices in the field of services, such as transportation, but if any such complaint is made and if another intergovernmental organization exists which is qualified to deal with the problem, the complaint must be referred to that organization. (Article 53)

Article 54 is a technical article, dealing with interpretation and definition.

It is noteworthy that this Chapter represents the first international agreement ever reached for the establishment of a mechanism and procedure for dealing with restrictive business practices in the field of international trade.





(Article 55 - 20)



The Chapter opens with the recognition that special difficulties of production adjustment and extreme fluctuations in prices, which would jeopardize the Charter objectives of economic expansion, have at times characterized primary commodities produced and marketed under certain economic circumstances. These conditions occur (a) where small producers account for a substantial part of total output and neither consumption nor production responds readily to price changos, or (b) where consumption does not respond readily to prico changes and important producing areas afford no alternative employment opportunities for displaced labor. Under such circumstances, there may appear burdensome surpluses of a commodity or widespread unemployment, which cannot be corrected by normal market forces in time to prevent serious adverse effects on international trade as a whole.

Consequently, the Charter recognizes that intergovernmental commodity agreements are appropriate in order to prevent or alleviate the economic difficulties which will arise when normal market forces alone cannot effect the necessary adjustments between production and consumption as rapidly as may be needed, and to provide a sort of breathing spell during which measures would be developed looking toward promotion of the expansion of consumption or a shift of resources out of overexpanded industries into new and productive occupation, to prevent or moderate pronounced price fluctuations, or for other purposes. (Article 57)

All such agreements must be open initially to all Members on equal terms; they must provide for adequate participation by countries which have an interest in the importation or consumption of the commodity; they must accord fair treatment to Members which do not participate; and full publicity must be given to their administration and negotiation. Non-Members may be invited to participate. (Article 60) A commodity agreement cannot normally be entered into unless there has been a commodity conference which finds that conditions are such as to require an agreement and at which the agreement has been negotiated. (Article 59)

Such conferences will usually be preceded by the formation of a study group which is charged with developing the facts and making recommendations as to how to deal with them. (Article 58)

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