TWN Info Service on WTO and Trade Issues (Feb19/13)
21 February 2019
Third World Network

US unveils draft GC decision on providing S&DT only to LDCs

Published in SUNS #8849 dated 19 February 2019

Geneva, 18 Feb (D. Ravi Kanth) – In a controversial draft General Council (GC) decision, the United States has proposed that the WTO’s Special and Differential Treatment (S&DT) provisions be available only to the least-developed countries (LDCs) while denying it to other developing countries.

The US draft, due to come up for discussion at the meeting of the General Council on 28 February, appears to be an ugly form of (the old imperial) divide-and-rule strategy, trade envoys told SUNS.

The US proposal is aiming to exclude China, India, Brazil, South Africa, Indonesia, Argentina, Mexico, and Turkey among others from any future S&DT flexibilities, through a four-point criteria, including among others on the basis of membership of the Group of 20 (G20).

Although it is an informal arrangement without any inter-governmental legitimacy, the US has now given the G20 an official status. The G20 was created by the US in the wake of the world’s worst financial crisis that the US had triggered in September 2008 following the collapse of the Lehman Brothers, an investment bank.

Under the pretext of helping and assisting the least-developed countries integrate into the global trading system, the US says that S&DT flexibilities must be available only to “those WTO Members with the greatest difficulty integrating into the trading system” so that LDCs can “take further measures to improve their trading opportunities.”

Under the dubious argument of strengthening “the negotiating function of the WTO [World Trade Organization] to produce high-standard, reciprocal and mutually advantageous arrangements directed to the substantial reduction of tariffs and other barriers to trade and to the elimination of discriminatory treatment in international trade relation,” the US says that S&DT benefits must accrue “to those members with the greatest difficulty integrating into the multilateral trading system.”

The US has unilaterally declared that “the following categories of Members will not avail themselves of special and differential treatment [which is open to all developing countries] in the current and future negotiations.”

The categories listed out by the US include:

i. A WTO Member that is a Member of the Organization for Economic Cooperation and Development (OECD), or a WTO Member that has begun the accession process to the OECD;

ii. A WTO Member that is a member of the Group of 20 (G20);

iii. A WTO Member that is classified as a “high income” country by the World Bank; or

iv. A WTO Member that accounts for no less than 0.5 per cent of global merchandise trade (imports and exports).

Further, it says that “nothing in this Decision precludes reaching agreement that in sector-specific negotiations other Members are also ineligible for special and differential treatment.”

Significantly, the US draft decision, which is being backed by all developed countries and several developing countries, appears to have come in response to a joint draft paper prepared by China and India that called for not excluding any one among developing countries for availing S&DT at a time of a worsening “development divide” in all areas between the developing countries of the South and the developed countries of the North.

[The US and its allied major industrial nations have been voicing the view for some time on the need for differentiation among developing countries in relation to S&DT, but have not put forward any rational, detailed criteria. The current US draft, though an attempt at responding to the China-India draft, has to be seen in the more general context of the US, even at the time of the Tokyo Round if not before, and certainly at the time of the Marrakech Treaty for the WTO and thereafter, has been raising from time to time. SUNS]

In their 38-page paper, China and India had stated unambiguously 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 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.”

“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,” China and India pointed out in their paper.

The two developing countries stated that the fruits of the WTO system reached only a few countries on an inequitable framework.

Besides, the developing countries are constantly confronted with capacity constraints as 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.”

Little wonder that the developing countries, according to China and India, are unable to overcome their persistent 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.”

Therefore, the S&DT which was made one of the “cornerstone” principles of the GATT (General Agreement on Tariffs and Trade), was supposed to be the principal “instrument for addressing the development divide and capacity constraint of developing Members, to help them achieve growth, expand employment and reduce poverty through trade.”

More important, “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 argued.

The US draft decision, according to several trade envoys from developed countries, has been in the works since the infamous Buenos Aires ministerial meeting of the WTO in December 2017.

It has been crystallized in several rounds of the so-called trilateral meetings between the US, the European Union, and Japan.

Further, the US draft decision on S&DT was backed largely at the informal ministerial summit of 13 countries in Ottawa last year.

Against this backdrop, the US draft decision could create an ugly divide among developing and least-developed countries, who are also now being promised that they will get billions of dollars of market access under the GSP (Generalized System of Preferences) following moves to terminate the GSP market access for India, Indonesia, and South Africa among others.

Coincidentally, the US draft decision came a day after the informal open-ended General Council meeting on the Appellate Body on Thursday (14 February).

It is almost clear that the US will ensure that the AB is terminated in December 2019, but many developed countries fear to say this in public, said several trade envoys, who asked not to be quoted.

The S&DT draft decision circulated by the US also sends a signal loud and clear that the WTO must work as a negotiating forum only for major trading nations.

The US reckons that it can “throw off any restraint on its ability to retaliate against economies that it considers to be discriminating against it,” says the economic historian Adam Tooze in his book “Crashed – How a Decade of Financial Crises Changed the World.”

More disturbingly, some major developing countries such as Brazil are now adopting a stand that it is better not to push the US too hard, otherwise consequences are going to be severe, said a trade envoy who asked not to be quoted.

The US unveiled its proposal on S&DT after securing the Trade Facilitation Agreement in 2013, decimating the Doha Development Agenda (DDA) negotiations in 2015, and now on the verge of terminating the Appellate Body in December 2019.

In short, the developing countries, particularly China, India, South Africa , and Indonesia among others face a grave crisis at the WTO where the US and its allies are working hard to wean away the LDCs from adopting/ taking developmental positions in global trade negotiations.

Clearly, the US and it allies are succeeding in misleading the LDCs to walk away from their developing country partners.

[The US and other major industrial nations had usurped and concentrated consultations and decisions on “global governance issues” in the so-called G7, which for a while became the G8 with Russia being brought in (but now again excluded). The G7 that was brought into being by France, in the wake of the 1973 oil price shock and the US threat to occupy the oil-producing Middle East countries, had largely proved ineffective, with none of its members able to implement any of the summit decisions! Much later when some of the major developing countries were brought in to endorse the G7/8 decisions, some like India just declined, ultimately forcing the G7 to widen the group to the G20. SUNS]