Reclaiming development in the WTO

A recent panel discussion underlined the imperative of prioritizing the development objective in the WTO’s work – and of safeguarding the flexibilities accorded to developing countries in the WTO rulebook. Kanaga Raja reports.

GENEVA: Development must be at the centre of the WTO work programme and special and differential treatment (S&DT) must be preserved in order to allow developing countries the space to formulate their domestic trade policies in a way that would allow them to reduce poverty, industrialize and integrate meaningfully into the global trading system.

The reform of the WTO will be doomed to failure if it fails to put development at the centre and continues to ignore the needs of developing countries on S&DT.

These were among the main conclusions highlighted by panellists at an event co-organized by South Africa and India on 2 July at the WTO. The theme of the high-level panel discussion was “Reclaiming Development in the WTO.”

The panellists included Ambassador Francois Xavier Ngarambe of Rwanda, who is also Chair of the WTO Committee on Trade and Development in Special Session; Ambassador Zhang Xiangchen of China; Ambassador Diego Aulestia Valencia of Ecuador; Ambassador J.S. Deepak of India; and Richard Kozul-Wright, Director of the Division on Globalization and Development Strategies at the United Nations Conference on Trade and Development (UNCTAD).

The panel discussion was moderated by Ambassador Xolelwa Mlumbi-Peter of South Africa.

Coordinating positions

In her opening remarks, Mlumbi-Peter noted that this panel discussion was a continuation of a process launched at a meeting of developing-country trade ministers in New Delhi in May which agreed that developing countries needed to coordinate positions in the WTO to ensure that the discussions around WTO reform would enable them to promote inclusive growth and sustainable development.

She said that the multilateral trading system from the early days of the General Agreement on Tariffs and Trade (GATT) had recognized the differences in the level of development between developing and developed countries. It ensured that S&DT was one of the cornerstone principles of the multilateral trading system, and it was still an important principle that needed to be preserved for both current and future negotiations.

She said that the aim of the principle was to ensure that negotiated outcomes at the WTO take into account the differences in capacities of developing countries and also give policy space to developing countries to integrate and calibrate trade integration in a way that supports development, employment creation as well as poverty reduction.

“It is why in 1979 the Enabling Clause was negotiated so that we can take into account those differences in levels of development,” she said.

The South African trade envoy emphasized that the enormous development divide between developing and developed countries when the Enabling Clause was integrated into the GATT was still as relevant today as it was back then.

Highlighting the old divides that were still there and the new divides that were emerging in the context of the digital economy, she underlined that any attempts at ignoring the importance of development and the developmental agenda, and the importance of flexibilities needed by developing countries in international trade, were “ill advised”.

It would also make the negotiation of future agreements in the WTO very difficult because developing countries were able to undertake their commitments under trade agreements due to the necessary safeguards in the form of the flexibilities available to them, she said. “If those [flexibilities] are taken away, it will be difficult to then conclude new agreements. It will actually undermine the negotiating function of the WTO.”

No progress

Ambassador Francois Xavier Ngarambe then reported on the negotiations in the WTO Committee on Trade and Development in Special Session which he chairs. (The Committee on Trade and Development in Special Session is mandated to review S&DT provisions with a view to strengthening them and making them more precise, effective and operational.) On the status of the negotiations, he simply said, “No progress. [There is] nothing happening, [and] nothing to report.”

He added that this had been the reality even before he assumed chairmanship of the committee.

It was high time that members sit and conduct deep analysis on how one of the most important founding principles, very clearly written in the Marrakesh Agreement, was simply ignored, he said. “It is not forgotten by accident. There is a determination by some to kill that objective. That is how things are serious. It is not an oversight. It’s a political will by some to not progress on the development front.”

Ngarambe noted that since the early GATT years and throughout various rounds of trade negotiations, it had been recognized that a certain degree of discrimination was necessary to create a level playing field for the weaker members of the organization – the very definition of S&DT which had been a defining feature of the multilateral trading system.

He said that following his election as Chair of the Committee on Trade and Development in Special Session, he had initiated a process of bilateral one-on-one consultations with key players representing all geographical regions in his quest for seeking clarity on the way forward. Reporting to the WTO Trade Negotiations Committee in May, he had said that he had not sensed any shift in members’ positions. He had also reported that there was no declared or open disagreement among members on the centrality of development in the WTO and the role that WTO rules could play in enhancing it.

However, conceptual differences continued on how to achieve this objective, he said, pointing to two extreme views. For some, S&DT was now out of the question and a topic of the past. There was to be no more S&DT in current or future agreements, according to this view, under which S&DT and development were two different things.

The other position, said Ngarambe, held that S&DT was part of the founding agreement, and that S&DT was an entitlement for all developing countries, among which there should be no discrimination irrespective of their level of development.

A contested process

UNCTAD’s Richard Kozul-Wright presented the main findings from a new UNCTAD research paper titled “From Development to Differentiation: Just how much has the world changed?” (see box next page).

He explained that development was a complex multi-dimensional process, which made it difficult to measure as a consequence. Development, he said, was a question of structural change. Structure was where the obstacles to development lay, the constraints on development, the gaps in the development process, and the thresholds that had to be crossed to move from being developing to developed.

He also said that in an interdependent world, development was never simply a local process. “You can never understand development simply by looking at what’s going on within the country itself.” In that context, “catching up” was a major challenge of the development process. Closing the gap on those countries that were clearly developed was integral to the discussion of what was development.

Development was also about the means and ends, particularly how means were connected to ends, he added. This raised issues of policy and of attitudes of institutions as being central to the question of what was development.

As to where trade fit into the story of what was development, Kozul-Wright said that trade was clearly a means to development and not an end. He said that trade policy – the connection between means and ends – was highly contested terrain and had been across the entire postwar period. Moving from the Havana Charter to the General Agreement on Tariffs and Trade (GATT) was a highly contested process.

Kozul-Wright noted that a report commissioned by the GATT in the late 1950s as a first attempt to put development into the GATT was highly contested and led to some extent to the establishment of UNCTAD as an alternative way of thinking about the relationship between trade and development.

The shift from the New International Economic Order to the Uruguay Round was also a highly contested process, he said, as was the move from the “Singapore issues” to the Doha Development Agenda. “And where we go next is also a highly contested process,” said Kozul-Wright.

He said: “What particularly concerns us is that trade policy in the last 30 years has been linked with efforts to reduce or indeed remove development from the multilateral discourse.”

Pointing to the inherent hypocrisy in the “do as I say, not as I did” approach, he said it was clear from the work of Ha-Joon Chang and other economic historians that countries, including the middle-income countries, had successfully used inflation, the role of the state and import substitution as part of their development strategies. The largest user of tariffs in the history of modern capitalism was the United States. When it was a middle-income country at the end of the 19th century and in the early 20th century, it had historically high levels of tariffs as a way of building up its own productive capacity to meet the challenges of the more developed countries in Western Europe at the time.

“Ultimately our understanding of the challenges around trade policy and managing trade is that we live in a second-best world at best,” said Kozul-Wright. “And in a second-best world at best, policy space matters a lot to countries having the tools and the means to meet the kinds of challenges that we see in the international trading system.”

Policy space and the fight for more policy space was being linked to other means of levelling the playing field including S&DT, as a way of trying to handle these potential challenges in a way that moves developing countries forward, said Kozul-Wright.

Chinese Ambassador Zhang Xiangchen agreed that the panel discussion was a continuation of the dialogue from the New Delhi ministerial meeting in May. He also noted that China had held in June a retreat among developing countries in Geneva on the issue of WTO reform.

He pointed to a recent paper put forward by China, India, South Africa and other developing countries which argued that development was a centrepiece of the WTO and that S&DT was legitimate for all developing members.

Zhang said that WTO reform should put development at the centre. In 2001, for the first time, the WTO put development at the centre of the multilateral trade negotiations, with the launch of the Doha Development Agenda. “Unfortunately, we failed to achieve the objective of the Doha Development Agenda” and the central element of S&DT when enacted in many aspects of the negotiations, he said.

He pointed out that S&DT was not a form of charity granted to developing countries but was “an outcome of our long-term struggle, and it is not something like a magic bullet.”

“It is not a big benefit that we get from the multilateral trading system. Actually it’s just a minimum condition that we need to participate in the multilateral trading negotiations. So, we need to preserve our legitimate right,” he said.

“Of course, we recognize the different levels of development among developing countries. But it is up to us to make a decision when, what and how to get this special treatment and to what extent we can make a contribution in the future of the negotiations.”

Referring to proposals by some WTO members to discuss new rules on industrial subsidies, Zhang said China could not go along with the view held by some that the current trade tensions were due to the so-called non-market economy regime of China and support to its own industries.

He explained that developing countries including China were at the low end of the global value chain. “Of course, it is our legitimate right to support our industry, to have them … better integrated into the global value chain, but our capacity to support our industry is limited, and the impact of this kind of support is also limited. So, that is the reason why we cannot go along with this logic, this narrative, [that] the current trade war is because of China.”

Instead, according to Zhang, the trade tensions had their roots in the failure of some developed countries to address their domestic problems. These countries failed to help the sections of their population who were in a difficult position and now wanted to shift the focus to international trade and find a scapegoat, with China serving as this scapegoat.

While it was mainly China that was being targeted at the moment, said Zhang, this would have systemic implications on other developing countries. The latter’s strategies to achieve their objective of industrialization would be restricted if the rules on industrial subsidies were tightened.

“That is the reason why we ask the developing countries to look at this kind of proposal carefully from the development perspective, and to reject those proposals which will have negative impact on our policy space,” he said.

On the issue of transparency, Zhang said this was an obligation for all members, both developed and developing. For the smaller developing members, what was needed was to help and encourage them to improve their notifications, but not to punish them. “We cannot go along with this so-called financial punitive approach,” he said.

On the “new issues” such as the Joint Statement Initiative on e-commerce, Zhang said the developing countries also had defensive interests and concerns such as the digital divide. He said that China chose to join the e-commerce initiative in order to participate in the discussions with the demandeurs.

“We think that maybe we can achieve a balance between technology and digital development and the legitimate public [policy] objective of the developing countries,” he said, adding that China had the same or similar concerns as India.

“It is our legitimate right to protect our valuable data. But how to achieve this objective, we have a different approach,” he said. “I said on [another] occasion that maybe I’m naive but I am not stupid. I’m naive because I want to try to see if we can achieve this balance or not. I’m not stupid because I know where I need to stop. If I recognize I couldn’t achieve my legitimate objective, I will walk away from the table.”

He concluded by saying that “if we fail to put development at the centre, if we continue to ignore the need of developing members on S&DT, the reform of the WTO is doomed to failure.”

Search for development

Ambassador Diego Aulestia Valencia of Ecuador said that WTO reforms had to be sought in terms of increasing the importance of development. He said that S&DT was central to the multilateral trading system and was needed to decrease the gap between developed and developing countries.

“We need to reclaim development in the discussions. The intended reform [of the WTO] needs to be guided by a true search of development,” he stressed.

Ambassador J.S. Deepak of India said the developing members were more than willing to engage constructively in the discussions on WTO reform. However, the reform agenda being propagated by some developed members sought to push a one-sided narrative with disregard for issues of importance and concern to developing countries, and would erode the core principles of consensus-based decision-making, non-discrimination and S&DT.

“We need to have on the table proposals that reflect the views of developing countries including LDCs,” said Deepak. “Without balance, the idea of WTO reform will be dead as a dodo.”

He said the US had employed selective economic indicators to argue that there had been significant re-ordering among countries. “However, while developing countries have achieved progress on some economic indicators since the inception of the WTO, the old gaps in the levels of development are far from being bridged and, in some areas, have even widened. Further, new divides especially in the digital and technological spheres which are the new engines of growth … are becoming more pronounced.”

Deepak said the claim that many developing countries no longer needed S&DT rested to a considerable extent on the poverty statistics. This methodology, as pointed out by the UNCTAD paper, had major flaws.

He said studies on the correlation between poverty reduction and rural development gains showed that reduction in poverty trends did not provide any basis for pronouncing an end to the development challenge and reclassifying countries on such a basis.

If economic indicators were to be used to gauge the development level of a country, these must be per capita indicators because the essence of development was the human being, he said. On a per capita basis, developing countries differed greatly from developed countries.

Highlighting some startling figures, Deepak pointed out that India was home to 35.6% of the world’s poor, compared with 38% in all LDCs put together. During the period 2010-17, India’s per capita GDP on average was 2.9% that of the US. Approximately 61.5% of India’s population were dependent on agriculture for their livelihood, and yet data from 2016 showed that domestic support per farmer in the US was 267 times that of India.

In view of this stark development divide, it would be grossly unfair and iniquitous if a country like India were required to undertake the same obligations as developed countries, he said, adding that other developing members faced similar challenges.

He added that access to broadband, which was the basis for a number of 21st-century growth engines like e-commerce, was the broadest indicator for measuring digital development. From 2007 to 2016, mobile broadband penetration increased from 19 percentage points to 90 percentage points in developed countries, as compared with an increase from one percentage point to 41 percentage points in developing countries.

Given the clear empirical data on the challenges faced by developing countries in various stages of development, there were no grounds for diluting S&DT, the Indian envoy underlined. Indeed, if anything, in light of the imprecise, unenforceable and best-endeavour nature of existing S&DT obligations in the WTO agreements, the call should be for more, not less, S&DT.

Deepak said S&DT was indispensable for allowing all developing members the space to formulate their domestic trade policy in a way that helps them to reduce poverty, industrialize, generate employment and integrate meaningfully into the global trading system.

He also pointed out that the self-declaration of development status was a longstanding practice going back to the early days of the GATT, and therefore became part of the customary practices to be followed by the WTO within the meaning of Article XVI of its foundational Marrakesh Agreement.

Depriving developing members of the policy space that was a right and that was enjoyed by each developed member in the latter’s process of structural transformation and economic growth – something so well illustrated by the statistics and data presented in the UNCTAD paper – would be a gross violation of the basic tenets of equity and justice and would strike at the very legitimacy of the rules-based system, said Deepak.

Only developing economies themselves had adequate knowledge of the local conditions to decide whether they should be categorized as developing members to avail of S&DT or not, he said.

“There is no ‘one size fits all’ definition of development, and therefore attempts at differentiating between developing members based on arbitrary and selective criteria would be a certain recipe for intractable deadlock in the negotiations,” Deepak cautioned.

“We need to be clear that all developing countries including LDCs will benefit from the provisions of S&DT, which is a fundamental pillar of the Marrakesh Agreement. We cannot give up on this.”

Emphasizing the need for unity among developing countries in taking the agenda forward, Deepak said “we need to be clear that unless we hang together, we are likely to hang separately.” (SUNS8940)       

NCTAD study makes case for continued S&DT The UNCTAD research paper “From Development to Differentiation: Just how much has the world changed?” traces the history and reasons for the emergence of special and differential treatment provisions in the trade negotiations, and examines various development indicators in order to assess whether the developing world has evolved to the extent that a change in this basic principle of the multilateral trading system is required. The paper (UNCTAD Research Paper No. 33, June 2019) argues that the economic and social gaps between developed and developing countries remain significant despite the gains in some countries over the last quarter-century. Moreover, the policy challenges of the 21st century facing all parts of the developing world, including those triggered by the growing digital divide and environmental degradation, are mounting just as the commitment of advanced economies to international development cooperation is waning. The paper concludes that development goes much beyond trade and includes multiple economic, social and environmental challenges and their interaction, the consequences of which can only be fully assessed by countries themselves which should, consequently, be allowed to self-declare their development status. Persistent gaps Examining the economic gaps that continue to divide developed from developing countries, the paper argues that these remain significant despite the gains in some countries over the past 25 years. The fact that some gaps have closed (and some widened) more than others does not provide the basis for removing the designation “developing” as a useful way of examining the persistent gaps, biases and asymmetries in the global economy and the daunting policy challenges those countries are facing in the 21st century. Aggregating these trends into a single composite measure of development is impossible since development is a multi-dimensional challenge, including economic, social and environmental areas, as also noted in the 2030 Agenda for Sustainable Development, said the paper. The paper said that based on the higher World Bank poverty benchmark of $5.50 per day, it can be seen that the number of people below the poverty line has not declined in the world (excluding China) and that China itself still has a long way to go to eliminate poverty. Also, excluding China, the decline in the number of people below the poverty line in the world is much smaller using the $1.90 and $3.20 benchmarks. Moreover, many scholars have argued that even the higher World Bank benchmark is an underestimation of the global poverty challenge. According to Jason Hickel, if global poverty is measured at $7.40 per day, the number of people living under this line is estimated to have increased dramatically since measurements began in 1981, reaching some 4.2 billion people in 2018. The Harvard economist Lance Pritchett suggests that a more realistic figure should be between $10 and $15 per day, adding to the poverty challenge everywhere in the developing world. According to the UNCTAD paper, trends in the UN Development Programme (UNDP)’s Human Development Index (HDI) also confirm the wide gap between developing countries and developed countries. Even the large developing countries like China and India rank 86 and 130 among 189 countries in the HDI. The absolute income gap between China and the US continues to remain wide and, on some measures, is widening; and catching up with developed countries, i.e., moving from lower to middle and from middle to higher income groups, has become even more difficult in the recent period of globalization. Given these various trends and future challenges, and given the commitment of the entire international community, including its most advanced members, to achieving a more inclusive world by 2030, there are no grounds for changing the terms on which special and differential treatment has been agreed for developing countries, said the paper. Indeed, if anything, in light of the ambition of the 2030 Agenda, the call should be for more not less, it argues. Developing countries may be at different stages of development, but they continue to face the same biases and asymmetries in the global economy and similar development challenges. The question of whether countries should be allowed to self-declare their development status or not brings focus on a more fundamental issue: Does the WTO, which is essentially a trade-rulemaking organization with trade delegates, have the capacity to define and measure development? Unlike the UN, the WTO is not a development agency. The presence of this flexibility has allowed the WTO negotiations to move forward and built confidence of developing countries that they will be able to adapt the negotiated rules to their local specificities. And only developing economies themselves have adequate knowledge of their local conditions to decide whether they should be categorized as developing members to avail of S&DT or not. The paper suggested that differentiating between developing countries on a subset of criteria would therefore be a skewed exercise which may cause further problems in concluding the Doha Development Round in the WTO, which needs to be prioritized if trust in the multilateral trading system is to be restored and a path to move forward found to meet the many other challenges facing the international community in the 21st century. (Kanaga Raja/SUNS8940)

 

 

Third World Economics, Issue No. 684/685, 1-31 March 2019, p8-12