China, India respond robustly to US paper on 'differentiation'

China and India have offered a robust response to the United States over its attempts to 'differentiate' among developing countries on which of them could avail of special and differential treatment (S&DT) at the World Trade Organisation (WTO).

D Ravi Kanth

IN a joint draft paper, China and India have outlined why no one among the developing countries must be left behind in continuing to avail of S&DT, particularly given the 'development divide' between the developing countries of the South and the developed countries of the North.

Over the last two years, the US has stepped up its multi-pronged assault on central pillars of the WTO multilateral trading system: on the 'most-favoured nation' (MFN) clause, by imposing unilateral and selective import duties; on the Appellate Body in the WTO's dispute settlement system, by blocking the filling of vacancies on the body; and on the multilateral negotiating function based on the principle of consensus, by selectively pushing plurilateral agreements in the areas of services trade and now electronic commerce.

Now the US has, in a paper circulated at the WTO on 16 January, launched its latest attack on the core WTO pillar of S&DT, so as to ensure that the likes of China, India, Brazil, South Africa and Indonesia are removed from the S&DT bracket.

In its 45-page paper, the US has called for 'differentiation' among developing countries because of the 'economic tides' and 'great strides' made in the years since 1995 when the WTO was established. The US has claimed that the WTO remains stuck in an outdated construct of 'North-South division, developed and developing countries', that fails to reflect the realities of 2019.

In response to this, China and India have, in their 38-page draft paper, argued that 'there is a huge development divide between the developing and developed Members of the WTO, not only in aspects of economic development level, industrial structure and competitiveness, regional balance, but also in education, social security and the ability to effectively participate in international governance'.

Notwithstanding the significant progress achieved by developing-country members since the creation of the WTO in 1995, China and India said 'the old divides have not been fully bridged or even have been widened, while new divides, such as those in the digital and technological areas, continue to emerge'.

Without naming the US, China and India have argued in their draft paper that 'it is inappropriate, if not inhumane, to measure a member's development level with select gross economic and trade statistics, so as to deny the divide between developing and developed Members, and to request the former to abide by absolute "reciprocity" or superficial "fairness", essentially depriving the developing Members of their right to develop'.

Contrary to the repeated US claims that China's accession to the WTO has made it a powerhouse with huge trade surpluses, 'the WTO rules-based system has helped the growth of trade but has not made it equitable', China and India maintained.

At the WTO and in the global trading system, including at forums such as the G20, the developing countries are confronted by 'capacity constraints' since they lack 'human resources with capable negotiation skills, a well-functioning intra-governmental coordination mechanism, and sufficient social participation in and support to trade negotiations', the joint paper suggested.

Consequently, the developing countries are unable to overcome these deficiencies that 'diminish not only the ability of developing Members to negotiate, but also the efficiency and effectiveness of translating negotiation outcomes into their domestic economic growth'.

It is against this backdrop, China and India argued, that S&DT was made one of the 'cornerstone' principles of the General Agreement on Tariffs and Trade (GATT). It was meant to be 'the main instrument for addressing the development divide and capacity constraint of developing Members, to help them achieve growth, expand employment and reduce poverty through trade'.

Moreover, 'the current S&DT provisions in the WTO agreements are rules formulated through negotiations and compromises, not charities granted by developed Members', China and India maintained.

Besides, the S&DT provisions remain only best-endeavour clauses. The developing countries, led by India and South Africa among others, have called for making these provisions effective and binding as part of the implementation issues in the Doha Development Agenda.

However, after agreeing to the implementation issues, the developed countries led by the US and the European Union vehemently opposed discussing any improvements for making S&DT provisions effective.

'In contrast, it is developed Members that have reaped substantial benefits by taking advantage of the "reverse S&DT",' China and India maintained.

Worse still, the developing countries which acceded to the WTO since 1995, including China, had made 'tremendous efforts, significantly contributed to upholding the core values of the WTO including free trade, openness and non-discrimination; supporting the rules-based multilateral trading system; and maintaining a transparent, stable and predictable global trade environment', the joint paper pointed out.

China and India reminded the US that 'the dichotomy of developed and developing Members is frequently used by almost all International Organisations to describe the structure of today's global economy'. The underlying rationale behind the classification methodologies is to demonstrate 'the constraints and thresholds that divide developed and developing Members'. Further, the rationale adopted by the United Nations and various intergovernmental organisations clearly suggests that 'there are structural features behind the UN classification that distinguish countries in terms of their development challenges' and 'these features form the basis on which countries classify themselves and are adapted to the various mandates, functions and statistical work of the International Organisations'.

In sharp contrast, 'for the WTO, the status of developed and developing Members are reflected in the bargaining process, and incorporated into the final rules themselves'.

Therefore, 'the self-declaration approach has proved to be the most appropriate for the WTO, which best serves the WTO objectives', China and India maintained.

The joint paper said that 'the gap between the developed and developing Members appears to have actually widened over time, instead of getting reduced'.

Arguably, 'the development divide, which was taken note of in mid-1960s in Part IV of the GATT, continues to remain relevant today - perhaps even more relevant'.

'Attempts at ignoring the need for S&DT provisions, or diluting it, [are] fraught with the risk of making future negotiations in the WTO even more difficult than today,' China and India warned.

According to their joint paper, the gap between the developed and developing countries is manifested in two ways. 'First, with reference to an indicator, the difference in value between the developed and developing Members widens over time; and second, even if the difference in value does not widen over time, the gap between the developed and developing Members during a time period is substantial.'

China and India pointed to a number of indicators which suggest that 'the gap between the developed and developing Members has remained substantially high' while 'in many cases the gap has considerably widened'.

'Besides, the essence of development is the human being,' China and India maintained. 'Hence, per capita indicators must be given the top priority when assessing the development level of a country.'

'In WTO agreements, all the indicators used to assess development are based on per capita calculation. For example, in Article 8.2(b)(iii) of the Agreement on Subsidies and Countervailing Measures, "income per capita", "household income per capita" and "GDP per capita" are mentioned for the purpose of measuring the economic development of a member.'

The joint paper offered figures of various indicators for the developed and developing countries, particularly China, India, South Africa, Indonesia and Brazil, to bolster its argument that the development divide had widened since 1995.

The joint paper also cited cases of 'reverse S&DT' in the agriculture sector, particularly with regard to subsidy payments in the developed countries. It gave the figures for domestic support per farmer in the US ($60,586), Canada ($16,562), Japan ($10,149), the EU ($6,762), China ($863), Brazil ($345) and India ($227). The per-farmer subsidy in the US was 70 times that in China, 176 times that in Brazil and 267 times that in India.

In a similar vein, China and India revealed that there is a substantial divide between developed and developing countries in the areas of trade in services, intellectual property rights, global value chains and value-added. The developing countries also lag far behind in relation to per capita use of energy, the role of banks in the financial system, research and development capacity, digital divide, company efficiency and benefits from globalisation.

In addition, China and India showed how the developing countries continue to suffer from capacity constraints due to the lack of negotiating capacity at human resource level. From the GATT to the WTO, developed countries have been in a dominant position in the initiation of negotiations, the design of rules, the assertion of rights and even the 'flexible use of rules'. The developing countries, due to lack of resources, are usually short of negotiators (especially experienced ones) and thus unable to achieve their objectives in the negotiations as well as manage negotiation outcomes.

The problem is further compounded because of limited budgetary resources in developing countries. Consequently, it is often the case that negotiating officials are not able to participate in a systematic way, said China and India.

Also, due to the lack of coordinating capacity at institutional level nationally, developing countries usually lack a unified policy across different government departments and have difficulties in fully assessing and accurately analysing the impacts of multilateral trade negotiations on the economic system, and in formulating the national trade negotiation strategies and tactics accordingly.

'In a word, the fact is that, for the multilateral trade negotiations, developed Members are usually "well and proactively prepared", while developing Members often "rush to respond in a reactive manner",' China and India argued. Hence, 'there is a big asymmetry between the two in formulating multilateral trade rules due to the capacity constraint.'

'The formal "de jure" equality cannot mask the "de facto" inequality in reality,' said China and India.

The two countries said that S&DT is an integral part of the WTO agreement.

They pointed out that in 1947, 11 developing members acceded to the GATT based on the same conditions and obligations as developed members. 'To help developing Members better benefit from the multilateral trading system, the concepts of "less than full reciprocity" and "non-reciprocity" gradually emerged during the 1960s, which gave birth to Part IV of the GATT.' In short, 'the issue of development was explicitly addressed in that part for the first time in history'.

Subsequently, the Decision on Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries (also known as the Enabling Clause) adopted in 1979 'provided a permanent legal basis for S&DT Clause 12', according to the joint paper.

In 1986, the Uruguay Round of multilateral trade negotiations was launched and the S&DT-related content was stated in the Ministerial Declaration. 'However, the negotiation outcomes were far less than expected,' China and India said, citing a prominent expert who observed that 'most of the concessions and commitments have come from developing countries and very few from industrialised countries'.

In 1994, all developing members of the GATT joined the WTO, adopting the results of the Uruguay Round as a single undertaking. But in Article XXXVI:1(c) of the GATT 1994, the Contracting Parties noted that 'there is a wide gap between standards of living in less-developed countries and in other countries'.

Paragraph 3 of the article specified: 'There is need for positive efforts designed to ensure that less-developed contracting parties secure a share in the growth in international trade commensurate with the needs of their economic development.'

What could constitute 'positive efforts' was specified in paragraph 8 of the article, which stated: 'The developed contracting parties do not expect reciprocity for commitments made by them in trade negotiations to reduce or remove tariffs and other barriers to the trade of less-developed contracting parties.'

The China-India joint paper also refuted the US argument that 'all rules apply to a few (developed countries)', saying it 'totally ignores the 70 plus year history of GATT/WTO'. The paper offered concrete examples of how reverse S&DT works for the developed countries.

In conclusion, China and India maintained that 'the real threats to the relevance, legitimacy and efficacy of the WTO are raging protectionism and unilateralism, the blockage of Appellate Body member selection process and the impasse of the Doha Development Round, not the self-declared development status of developing Members'.

The two developing countries asserted that 'S&DT is an integral part of the multilateral trading system, and self-declaration appears to be the fairest classification approach in the WTO'.

The battle lines have thus been drawn on the issue of continuation of S&DT for all developing countries. The paper by China and India has revealed the divide between the countries of the North on the one side, and the developing countries in the South on the other. It remains to be seen how the developing countries close ranks to launch a united fight to retain S&DT.                                      

D Ravi Kanth writes for the South-North Development Monitor (SUNS) published by the Third World Network. This article first appeared in SUNS (No. 8846, 14 February 2019).

*Third World Resurgence No. 335/336, 2018, pp 10-12