TWN Info Service on WTO and Trade Issues (Feb19/15)
22 February 2019
Third World Network

S&DT sine qua non to promote development of South

Published in SUNS #8850 dated 20 February 2019

Geneva, 19 Feb (D. Ravi Kanth) – As the United States escalates its trade war against developing countries, China, India, South Africa, and Venezuela have called for ensuring special and differential treatment (S&DT) to promote development on an inclusive framework.

In a comprehensive joint paper (WT/GC/W/765) dated 18 February, the four countries underscored that S&DT is contractual and not charity of developed countries, and is the sine qua non to promote development of developing countries to enable them to overcome the “persistence of the enormous development divide between the developing and developed members of the WTO.” (See separate story for full text of paper.)

Quoting Thomas Jefferson, one of the main architects of the US constitution , that “there is nothing more unequal than the equal treatment of unequal people,” the four countries emphasized why the persistent “development divide” across all areas between the developed and developing members of the WTO need the continuance of S&DT for all developing countries without any “differentiation.”

The four countries pointed out how graphically the developed countries have reaped enormous benefits through the trade rules fashioned by them over the past 70 years, ensuring “reverse-S&DT” for themselves, in contrast to the continued “development divide” that is plaguing the developing countries.

Inveighing against the “recent attempts” by “some members”, particularly the US, to deny S&DT for developing countries, and demanding “absolute reciprocity” and “fairness”, China, India, South Africa, and Venezuela said the US arguments, using some controversial criteria, was “disingenuous”.

The US has issued a paper on 14 January, turning it into a draft General Council decision on 15 February, arguing for denial of S&DT to certain developing countries on a US formulated four-point arbitrary criteria such as being a member of the Group of 20 (G20) countries.

While acknowledging the rapid changes that have taken place since creation of the General Agreement on Tariffs and Trade (GATT) in 1948 and the World Trade Organization (WTO) in 1995, the four nations said: “But in overall terms the development divide remains firmly entrenched,” and “some Members [all developed countries and their developing country allies] want to deprive developing Members of their right to develop.”

The four countries stressed that despite the rapid changes, developing countries continued to suffer from “capacity constraint[s]”, and this “remain a serious problem for developing Members at the WTO.”

The developing countries “often lack the requisite human resources, negotiating capacity, well-functioning intra-governmental coordination mechanisms, and the effective participation of social partners in trade negotiating processes.”

Little wonder that “these deficiencies diminish not only the ability of developing Members to negotiate, but also the effectiveness of translating negotiated outcomes into measures for domestic economic growth.”

The S&DT in the GATT, first availed of by the European Union in 60s (according to the trade historian Quinn Slobdian’s “Globalists: The End of Empire and the Birth of Neoliberalism,”) has recognized the differences in levels of economic development and wisely ensured that Special and Differential Treatment (S&D T) would be one of its cornerstone principles.

“The S&DT principle was understood as a way to ensure that negotiated outcomes would accommodate differences in levels of economic development as well as the capacity constraint of developing Members,” the four countries maintained.

Further, the S&DT was designed in such a way that it “would allow developing Members the space to calibrate trade integration in ways that help them support sustainable growth, employment expansion and poverty reduction.”

Unsurprisingly, “the current S&DT provisions in the WTO agreements were established through negotiations and compromises and were not gifts granted by developed Members.”

It is a different story that most of the S&DT provisions remained only “best endeavour” clauses without any “precision, effectiveness, operationality and enforceability.”

Despite efforts by the developing countries to make the S&DT simple and enforceable in the Doha Development Agenda (DDA), the industrialized countries had ensured that there was no progress on this vital developmental agenda.

“In contrast, it is developed Members that have reaped substantial benefits by seeking and obtaining flexibilities in areas of interest to them; a form of “reversed S&DT”,” the four developing countries argued. Small wonder that “the WTO rules-based system has helped in the growth of trade but has not made it equitable.”

The developing countries who joined the WTO after 1995 undertook onerous commitments and made tremendous efforts by 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 “dichotomy of developed and developing Members is frequently used by almost all International Organizations (IOs) to describe the structure of today’s global economy,” and for this various indices and classification methodologies may have been adopted.

Nevertheless, there is an underlying rationale in the classification based on two factors: (1) that there are structural features behind the UN classification that distinguish countries in terms of their development challenges; (2) that these features form the basis on which countries classify themselves and are adapted to the various mandates, functions and statistical work of the IOs.

As for the WTO, the status of developed and developing Members are reflected in the bargaining process, and incorporated into the final rules themselves, the four countries argued.

The fundamental rule for availing the S&DT flexibilities is that “the self-declaration approach has proven to be the most appropriate to the WTO, which best serves the WTO objectives.”

The joint paper has further elaborated on what would constitute the “development divide” that has not enabled the developing countries to “catch-up” with their counterparts in the developed countries, and “was taken note of in mid-1960s in Part IV of the GATT”, which remains relevant today.

[The S&DT provisions, as a best endeavour effort, were incorporated in 1964 into GATT-1947 as Part IV, in the attempt of then GATT Executive Director (later the DG) Eric Wyndham White to undercut and head off efforts of the developing countries, who dissatisfied with the GATT, had convened the UN Conference on Trade and Development in 1963. Despite Wyndham White’s attempt, the UN Conference did convene in 1964, and at its conclusion was made into an organ of the UN General Assembly to deal with wide ranging problems of trade, money and finance, and development. SUNS]

The four countries provided a range of economic indicators, including per-capita income, people living under poverty, and under-nourished population among others that clearly underscore the need to continue with the S&DT.

The sponsors showed even in agriculture, which is the main source of livelihood and sustenance for people in developing countries, there are gross disparities in the value-added per worker between developed and developing countries.

The value-added per worker for New Zealand, Australia, the United States, the European Union and Japan, in the period of 1995-1997 and 2015-2017, was $77,600, $37,649, $31,003, $13,137, $20,763, respectively; and $105,115, $85,858, $80,040, $25,952, $24,009, respectively.

In contrast, the figures for China, Indonesia, India and Sub-Saharan Africa were $1,073, $1,975, $863, $791, respectively; and $5,323, $3,485, $1,604, $1,311, respectively.

During 1995-1997, the value-added per worker in the United States was 36 times that in India, 28 times that in China and 16 times that in Indonesia. During 2015-2017, the gap widened further for India (50 times) and Indonesia (23 times). Worse still, the developed countries provided huge subsidies “per farmer in the United States which was $60,586; the corresponding figures for some other WTO Members were the following: Japan ($10,149), Canada ($16,562), the European Union ($6,762), China ($863), Brazil ($345) and India ($227).”

“Thus, the per farmer subsidy in the United States was 70 times that in China, 176 times that in Brazil and 267 times that in India. Per farmer subsidy in Japan was 12 times that in China, 29 times that in Brazil and 45 times that in India. Per farmer subsidy in Canada was 19 times that in China, 48 times that in Brazil and 73 times that in India.”

“In the European Union, per farmer subsidy was 8 times that in China, 20 times that in Brazil and 30 times that in India,” the four countries argued.

The paper also showed other disparities such as in the use of energy, and the widening divide in trade in services, the intellectual property rights, global value chains, and trade in value-added items. Even in areas of finance, research and development capacity, and more importantly the “digital divide”, the developing countries lag far, far behind the developed countries.

Even the benefits of globalization largely accrued to the developed countries while five developing countries – “India, Argentina, Brazil, China and Mexico” – secured minimum benefits, according to the paper. [See details in separate story on text of joint paper of the four nations.]

At the WTO, according to the four sponsors of the paper, the developing countries suffer from the following capacity constraints:

(a) The lack of negotiating capacity at human resources level: From the GATT to the WTO, developed Members 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”. However, developing Members, due to lack of resources are usually short of negotiators (especially experienced ones) and thus they are unable to achieve their objectives in the negotiations, as well as manage negotiation outcomes. Furthermore, due to budget constraints, it is often the case that negotiation officials are not able to participate in negotiations in a systematic way.

(b) Multilateral trade negotiations involve governmental agencies of foreign affairs, economy, industry, trade and other agencies of a member, which require overall coordination, speedy response and flexible adaptation. However, developing Members usually lack a unified policy across different departments and have difficulties in fully assessing and accurately analyzing the impac ts of multilateral trade negotiations on the economic system, industrial development, among others; and formulating the national trade negotiation strategies and tactics accordingly. Such incapability leads to deficiencies in the leadership, stability and continuity of trade negotiations.

(c) Think tanks and experts in developing countries have insufficient foresighted visions and suggestions on trade negotiations, and thus failing to provide sufficient academic support to the government’s engagement in the global governance. The business community in these countries has not fully recognized the benefits of the trade negotiations and lacks an awareness of cooperation with negotiation officials. The popularization and advocacy of knowledge of multilateral trade negotiations are also insufficient.

(d) As the former Chair for Group of 77, Ambassador Luis Fernando Jaramillo from Colombia, has stated “…in many instances translating these multilateral trade rights into concrete trade advantages requires action by governments with active support of the business community. Many developing Members have found themselves poorly equipped in terms of institutions, human and financial resources dedicated to this objective.”

Consequently, “developed Members are usually well and proactively prepared [in multilateral trade negotiations], while developing Members often rush to respond in a reactive manner.”

The paper also provided a detailed account of evolution of S&DT at the GATT since 1948, and pointed to gradual evolution during the 1960s of the concepts of “less than full reciprocity” and “non-reciprocity” that resulted in Part IV of the GATT.

The issue of development was explicitly addressed for the first time in the decision on “differential and more favorable treatment, reciprocity and fuller participation of developing countries” as part of the Enabling clause in 1979, providing a permanent legal basis for S&DT Clause.

The paper highlighted the subsequent developments on the S&DT in the Uruguay Round and the unfinished Doha Round, and how the developed countries continued to avail the “reversed S&DT” in various areas. It argued that the “self-declaration” is built into the WTO Agreement, including the Marrakesh Agreement that established the WTO.

“It should also be well noted that, though the self-declared developing Members have the right to utilize S&DT, they always make their contribution as much as they can,” the four developing countries maintained.

In conclusion, the sponsors made it clear that “the real threats to the relevance, legitimacy and efficacy of the WTO are the proliferation of WTO-inconsistent 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 four countries emphasized that “S&DT is an integral part of the multilateral trading system, and self-declaration of developing Member status, a fundamntal rule in the WTO, has proven to be the most appropriate classification approach to the WTO.”

The lines are thus drawn on the S&DT battle and it remains to be seen how many developing countries will join forces with China, India, South Africa, and Venezuela in ensuring that the S&DT is continued without any interruption or differentiation.